Breaking the "slice and dice" habit

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Breaking the "slice and dice" habit

Postby yorkpond » Thu Feb 07, 2013 2:46 pm

First post for me. I'm very excited. Been with Fidelity forever and found no value added with my dedicated rep. He was very limited in his ability to recommend much at all. Did it all myself for years. So, please help with the following: Moved our taxable acct, 2 Roth IRA's, and 2 Rollover IRA's (my wife and myself) to Vanguard in kind right now. Filled out the 'ask a CFP" questionaire and got a plan back yesterday. We're at a 60/40 equity-bond portfolio. The planner recommended the 4 fund portfolio; but, all the bonds are in the Rollover's. None in the Roth's or taxable account. It was explained to me that the Roth should have all equity because I'll likely never touch it. I'm so used to a William Bernstein-like portfolio. I'm having a hard time with this consolidated approach.
I thought I'd get each portfolio with the same funds: small value, large value, total market, emerging market, etc. Did not get what I thought. Having our video call this Monday. The CFP called me today to address my concerns. I've never thought of having our Roth's with no bonds. My wife's entire Rollover has 100% TBM!
Question: If the overall portfolio for both of us is 60/40 does it really matter where the bonds, equities are placed? Should each portfolio be the same 60/40? Or, is it OK to have an entire portfolio dedicated to bonds or equities? Help!
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Re: Breaking the "slice and dice" habit

Postby dbr » Thu Feb 07, 2013 4:39 pm

Usually one starts by considering the portfolio as a whole and then locates the various assets according to tax considerations. That is what you are hearing from Vanguard. That would pretty much be the mantra here.

I understand Rick Ferri, for one, does not necessarily follow that practice.
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Re: Breaking the "slice and dice" habit

Postby BuckyBadger » Thu Feb 07, 2013 5:08 pm

Although you will get some coments about "what about a divorce," in general I think we all consider our retirement as a whole.

For example, we have his and hers Roths, his and hers, 401ks, and one taxable account. Bothe Roths have nothing but total US. The taxable has only total internationl. All of our bonds are in his 401k, although I'm going to be allocating a bit of our future contributions to bonds in her 401k to rebalance with new contributions. He has no international in his 401k. I have no bonds in mine (now).

It started this way because of the funds we had available. He had a chep total bond fund and I didn't.

It's just so much easier to rebalance once, not rebalance every single bucket of your retirement money,
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Re: Breaking the "slice and dice" habit

Postby scone » Thu Feb 07, 2013 5:10 pm

I think it just depends on what you want. I designed our Roths to be complete, diversified mini-portfolios that mesh into the larger 401k. The Roths have a 50-50 stock/bond allocation, and the 401k has a much lower stock allocation. The point of this is to let the Roths grow a little quicker, since we are beyond the income limits now and can no longer contribute. I also had the idea that the Roths (or possibly the income stream from the Roths) could be willed to a charity, separately from the 401k, and each "component part" would continue to function as a separate portfolio. But that's just my situation, YMMV. I can't see anything wrong with each component being totally one asset class or another. The important part is, you have to think this through and try to identify what will work best for you. If you don't yet know what you want, you can make a best guess and "iterate" to a better solution over the years as you rebalance. Your portfolio plan is an evolving document, it will change as you change, grow, and learn. It's not cast in stone.
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On Location and Allocation

Postby EDN » Thu Feb 07, 2013 5:14 pm

On Asset Location: I would say yes, equities in Roths/Taxable and bonds in IRAs makes sense if you are OK with the divergence in returns across individual accounts (I actually have a few clients who prefer for this not to be the case despite probable benefits).

On Asset Allocation: Vanguard doesn't believe in tilting to small and value (despite offering funds to do so). So you aren't going to find them recommending this approach. I disagree with Vanguard, and if you've invested this way in the past, I cannot imagine changing horses in mid stream.

I'm not sure I'd blindly follow Vanguard CFP's advice.

Eric
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Re: Breaking the "slice and dice" habit

Postby stilts1007 » Thu Feb 07, 2013 5:24 pm

I found the "Principles of Tax-Efficent Fund Placement" Wiki helpful:
http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement
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Re: On Location and Allocation

Postby Aptenodytes » Thu Feb 07, 2013 5:45 pm

EDN wrote:On Asset Location: I would say yes, equities in Roths/Taxable and bonds in IRAs makes sense if you are OK with the divergence in returns across individual accounts (I actually have a few clients who prefer for this not to be the case despite probable benefits).

On Asset Allocation: Vanguard doesn't believe in tilting to small and value (despite offering funds to do so). So you aren't going to find them recommending this approach. I disagree with Vanguard, and if you've invested this way in the past, I cannot imagine changing horses in mid stream.

I'm not sure I'd blindly follow Vanguard CFP's advice.

Eric

This advice makes sense. You pose one question but you really need to ask two, along EDN's lines. I would go further than EDN and suggest that nobody should ever follow a Vanguard CFP's advice blindly. If you believed in small/value tilts before there's no reason to abandon your plan now.
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Re: Breaking the "slice and dice" habit

Postby yorkpond » Thu Feb 07, 2013 6:09 pm

dbr wrote:Usually one starts by considering the portfolio as a whole and then locates the various assets according to tax considerations. That is what you are hearing from Vanguard. That would pretty much be the mantra here.

I understand Rick Ferri, for one, does not necessarily follow that practice.


Yup, you're right. I got an analysis from Portfolio solutions (Rick Ferri) and there was no regard for taxes at all. Each portfolio was exactly the same. It will be interesting to see what the CFP has to say on Monday. We're not rushing to re-allocate but want to be comfortable with our decision. Thanks so much. You're very helpful.
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Re: On Location and Allocation

Postby yorkpond » Thu Feb 07, 2013 6:14 pm

EDN wrote:On Asset Location: I would say yes, equities in Roths/Taxable and bonds in IRAs makes sense if you are OK with the divergence in returns across individual accounts (I actually have a few clients who prefer for this not to be the case despite probable benefits).

On Asset Allocation: Vanguard doesn't believe in tilting to small and value (despite offering funds to do so). So you aren't going to find them recommending this approach. I disagree with Vanguard, and if you've invested this way in the past, I cannot imagine changing horses in mid stream.

I'm not sure I'd blindly follow Vanguard CFP's advice.

Eric


That's the big issue for us...."divergence in returns across individual accounts". I was always able to immediately find out results using the Fidelity website; not so with Vanguard. Much more difficult to do so. I have always added smaller % of REITS, small cap value, emerging market, and even extended market indexes into each account. I'll get clarification from the CFP on Monday regarding the "no bonds" in the Roth's. Thanks for the insight.
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Re: On Location and Allocation

Postby yorkpond » Thu Feb 07, 2013 6:19 pm

EDN wrote:On Asset Location: I would say yes, equities in Roths/Taxable and bonds in IRAs makes sense if you are OK with the divergence in returns across individual accounts (I actually have a few clients who prefer for this not to be the case despite probable benefits).

On Asset Allocation: Vanguard doesn't believe in tilting to small and value (despite offering funds to do so). So you aren't going to find them recommending this approach. I disagree with Vanguard, and if you've invested this way in the past, I cannot imagine changing horses in mid stream.

I'm not sure I'd blindly follow Vanguard CFP's advice.

Eric


It is very hard to change. Investing since 1982 and always tried to diversify. The CFP with whom I spoke kept telling me the diversity within the TSM, TBM and TISM. Mentioning that there is enough diversity in AA with just these 3 funds. Can't wait to hear how he responds to my wife on Monday. She is adamant that there are more smaller % to small and value, and REIT. Thanks for responding.
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Re: Breaking the "slice and dice" habit

Postby yorkpond » Thu Feb 07, 2013 6:21 pm

stilts1007 wrote:I found the "Principles of Tax-Efficent Fund Placement" Wiki helpful:
http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement


Thanks,
I've seen this article and it's a good one. Just have to feel comfortable after all is said and done. We'll have plenty of conversations both with the CFP and on this great site. Thanks
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Re: Breaking the "slice and dice" habit

Postby yorkpond » Thu Feb 07, 2013 8:20 pm

Thanks to all. Will post again after Monday's CFP video call. Leaning toward my decades old diversified portfolios. I see no downside at this point. I'll be interested in the CFP response.
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Re: Breaking the "slice and dice" habit

Postby MKP » Thu Feb 07, 2013 8:55 pm

yorkpond wrote:Thanks to all. Will post again after Monday's CFP video call. Leaning toward my decades old diversified portfolios. I see no downside at this point. I'll be interested in the CFP response.


Technically speaking there is a downside. By slicing and dicing you could create returns that lag the total market. Obviously someone could counter with "well I could exceed the total market return", but I think underperforming is more heavily weighted than outperforming.

Conversely, if you portfolio is well diversified and a significant portion of your assets is in TSM/TBM/Tint, then I think you will be fine if you want to add a little LCV/SCV/EMKTs.
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The Vanguard recommended portfolio.

Postby Taylor Larimore » Thu Feb 07, 2013 10:15 pm

yorkpond wrote:First post for me. I'm very excited. -- The planner recommended the 4 fund portfolio. -- I'm having a hard time with this consolidated approach.

Question: If the overall portfolio for both of us is 60/40 does it really matter where the bonds, equities are placed? Should each portfolio be the same 60/40? Or, is it OK to have an entire portfolio dedicated to bonds or equities? Help!

Yorkpond:

Welcome to the Bogleheads forum!

I'm not sure what the "4 fund portfolio" is, but you can read the advantages of a 3-fund portfolio HERE. It is usually better NOT to have duplicate portfolios in every account for these reasons:

* Multiplies the number of funds.
* Fewer funds result in bigger funds which may offer reduced cost.
* Earlier Voyager/Flagship status.
* Fewer funds make rebalancing easier and less frequent.
* Simplifies asset-allocation
* Less paperwork and portfolio maintenance.

Yes, it is VERY important to use only tax-efficient funds in taxable accounts. Total Stock Market and Total International are both very tax efficient. By locating both stocks and bonds in the same account, one or the other is likely to be in the wrong type account.

Unless you have a strong reason not to, I would go along with the professional CFPs advice (who has more of your personal data than we do). You may do better than the Vanguard advice but the chances of doing worse are infinite.

Later, after having had actual experience with the Vanguard recommended portfolio, you can "tweak" your portfolio if you think it worthwhile.

Best wishes.
Taylor
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Re: Breaking the "slice and dice" habit

Postby abuss368 » Thu Feb 07, 2013 11:48 pm

yorkpond wrote:
dbr wrote:Usually one starts by considering the portfolio as a whole and then locates the various assets according to tax considerations. That is what you are hearing from Vanguard. That would pretty much be the mantra here.

I understand Rick Ferri, for one, does not necessarily follow that practice.


Yup, you're right. I got an analysis from Portfolio solutions (Rick Ferri) and there was no regard for taxes at all. Each portfolio was exactly the same. It will be interesting to see what the CFP has to say on Monday. We're not rushing to re-allocate but want to be comfortable with our decision. Thanks so much. You're very helpful.


This is the practice I have followed and I am very happy and thankful for the results. We plan to stay the course.
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Re: Breaking the "slice and dice" habit

Postby NateH » Thu Feb 07, 2013 11:58 pm

I'm not sure if you have one question or two:

(1) Vanguard CFPs are unlikely to offer a value-tilted portfolio to anyone, from what i've read. Their recommendations on % equity /%FI have been pretty good, again from what i read when posters offer up their plan for discussion.

(2) you have one portfolio. You have multiple accounts. If you have 50k of SCV in your Roth IRA or 10k in each of 5 different accounts i guess that's up to you. Taxes matter, so don't put inefficient assets in taxable accounts. Also, Costs matter; if you get to certain dollar levels, you automatically qualify for Admiral shares. This might only be possible if you put all of one asset class in a single account. For example, the Admiral level for (all?) bond funds is 50k. If you have 50k allocated to each type of bond fund in each IRA, then there's no difference. Otherwise, you are paying more to maintain your mental accounting system.

Personally, i use the single account / single fund method where i can. It's easier to keep track of.
it doesn't bother me that my 401k is 85% TIPS and my Roth IRA is 100% SCV. my wife's rollover is almost all International equity. It all adds up the same in the end.
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Re: Breaking the "slice and dice" habit

Postby JimInIllinois » Fri Feb 08, 2013 12:21 am

MKP wrote:Technically speaking there is a downside. By slicing and dicing you could create returns that lag the total market. Obviously someone could counter with "well I could exceed the total market return", but I think underperforming is more heavily weighted than outperforming.


By investing in the total market you could create returns that lag slicing and dicing. What is relevant is the degree and frequency of underperformance. The argument for slicing and dicing is that you can achieve the same expected return as the market with a smaller allocation to equities and a lower standard deviation.
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Re: Breaking the "slice and dice" habit

Postby yorkpond » Fri Feb 08, 2013 1:37 pm

MKP wrote:
yorkpond wrote:Thanks to all. Will post again after Monday's CFP video call. Leaning toward my decades old diversified portfolios. I see no downside at this point. I'll be interested in the CFP response.


Technically speaking there is a downside. By slicing and dicing you could create returns that lag the total market. Obviously someone could counter with "well I could exceed the total market return", but I think underperforming is more heavily weighted than outperforming.

Conversely, if you portfolio is well diversified and a significant portion of your assets is in TSM/TBM/Tint, then I think you will be fine if you want to add a little LCV/SCV/EMKTs.


I agree and a large portion will be in the core. I'm just talking about overweighting in each of the above with a 5% addition and reducing the TSM by 15%. I was advised to keep bonds out of the Roth's. I need more input there both from our bloggers and from the Vanguard CFP; but, we'll see about that on Monday. Thanks for your thoughtful response.
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Re: Breaking the "slice and dice" habit

Postby yorkpond » Fri Feb 08, 2013 1:38 pm

yorkpond wrote:
MKP wrote:
yorkpond wrote:Thanks to all. Will post again after Monday's CFP video call. Leaning toward my decades old diversified portfolios. I see no downside at this point. I'll be interested in the CFP response.


Technically speaking there is a downside. By slicing and dicing you could create returns that lag the total market. Obviously someone could counter with "well I could exceed the total market return", but I think underperforming is more heavily weighted than outperforming.

Conversely, if you portfolio is well diversified and a significant portion of your assets is in TSM/TBM/Tint, then I think you will be fine if you want to add a little LCV/SCV/EMKTs.


I agree and a large portion will be in the core. I'm just talking about overweighting in each of the above with a 5% addition and reducing the TSM by 15%. I was advised to keep bonds out of the Roth's. I need more input there both from our bloggers and from the Vanguard CFP; but, we'll see about that on Monday. Thanks for your thoughtful response.


Correction: The TSM would be reduced by 10% and EMKTs would be a 5% position.
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Re: Breaking the "slice and dice" habit

Postby hoppy08520 » Fri Feb 08, 2013 1:54 pm

This wiki article might interest you:Asset Allocation in Multiple Accounts

For Rick Ferri's take on this, see in particular this post:

viewtopic.php?f=1&t=98662#p1426569
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Re: The Vanguard recommended portfolio.

Postby yorkpond » Fri Feb 08, 2013 1:57 pm

Taylor Larimore wrote:
yorkpond wrote:First post for me. I'm very excited. -- The planner recommended the 4 fund portfolio. -- I'm having a hard time with this consolidated approach.

Question: If the overall portfolio for both of us is 60/40 does it really matter where the bonds, equities are placed? Should each portfolio be the same 60/40? Or, is it OK to have an entire portfolio dedicated to bonds or equities? Help!

Yorkpond:

Welcome to the Bogleheads forum!

I'm not sure what the "4 fund portfolio" is, but you can read the advantages of a 3-fund portfolio HERE. It is usually better NOT to have duplicate portfolios in every account for these reasons:

* Multiplies the number of funds.
* Fewer funds result in bigger funds which may offer reduced cost.
* Earlier Voyager/Flagship status.
* Fewer funds make rebalancing easier and less frequent.
* Simplifies asset-allocation
* Less paperwork and portfolio maintenance.

Yes, it is VERY important to use only tax-efficient funds in taxable accounts. Total Stock Market and Total International are both very tax efficient. By locating both stocks and bonds in the same account, one or the other is likely to be in the wrong type account.

Unless you have a strong reason not to, I would go along with the professional CFPs advice (who has more of your personal data than we do). You may do better than the Vanguard advice but the chances of doing worse are infinite.

Later, after having had actual experience with the Vanguard recommended portfolio, you can "tweak" your portfolio if you think it worthwhile.

Best wishes.
Taylor


Hi Taylor,
Thanks for the thoughtful response. I understand the need for simplicity and the diversification that is inherent in TSM and TBM, TISM. The CFP indicated the advantages of not having bonds in the Roth's; so, all the bonds would be in our Rollover's totaling the 40%. That would leave only equities in our Roth's and Taxable account. We're just having a hard time breaking the decades old investing habit of having many more funds in each account. We'll have to see what the CFP's advice is on the "tweaking" now or later. Ken
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"Asset Allocation in Multiple Accounts"

Postby Taylor Larimore » Fri Feb 08, 2013 2:13 pm

Yorkpound:

We're just having a hard time breaking the decades old investing habit of having many more funds in each account.


Most of us are grateful to the members of this forum for helping us break our old (bad) investing habits.

Our Boglehead wiki has a lengthy article about locating funds to enjoy the benefits of simplicity. You can read the article here:

Asset Allocation in Multiple Accounts

Best wishes.
Taylor
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Re: Breaking the "slice and dice" habit

Postby abuss368 » Fri Feb 08, 2013 3:10 pm

At the end of the day follow Warren Buffett's sleep test. If you are up at night you made the wrong decision. Do what makes you sleep well.

Best.
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Re: Breaking the "slice and dice" habit

Postby Easy Rhino » Fri Feb 08, 2013 3:57 pm

the most important account is the taxable account. Don't put tax-inefficient investments in there.

As for which type of investment is better in a Roth vs Traditional IRA... sure I've seen the argument for high-growth investments in a Roth, and I sorta kinda follow it myself, but I don't think it matters too much. you may encounter more practical limititations when you need more "space" in an account in order to rebalance to your desired overall AA.
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Re: Breaking the "slice and dice" habit

Postby kenyan » Fri Feb 08, 2013 4:45 pm

NateH wrote:For example, the Admiral level for (all?) bond funds is 50k. If you have 50k allocated to each type of bond fund in each IRA, then there's no difference. Otherwise, you are paying more to maintain your mental accounting system.


Clarification for both you and the OP: The Admiral Shares breakpoints are for index vs. non-index, not based upon the underlying asset type.

Index funds offer Admiral Shares at 10k.

Actively managed funds usually offer Admiral Shares at 50k.

The reason you might be confused about bond funds is that several bond funds that might as well be index funds but aren't - TIPS, Municipal bond funds - are actively managed and require 50k. Bond index funds such as Total Bond Market Index and Intermediate-Term Index offer Admiral Shares at 10k, as expected.
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Re: Breaking the "slice and dice" habit

Postby Peter Foley » Fri Feb 08, 2013 6:46 pm

In my humble opinion there is a rank order of things you need to get right when setting up a portfolio.
1. Asset allocation percentages of major asset classes (equities/non equities) - first on my list
2. Tax efficient placement of funds - second on my list
3. Allocations of sub classes within major classes (overweighting) as desired to add diversification or to take advantage of some aspect of the market (small value, mid cap, etc. on the equities side; total bond, TIPs, Intermediate term treasuries, etc. in the non equities portion of one's AA) - third on my list
4. Additional asset classes as desired - commodities, real estate - fourth on my personal list, a debatable ranking to be sure.

You seem to be in agreement with the Vanguard advisor on the first two. There is nothing wrong with a "slice and dice" approach if you want to add 3 and 4.

As Taylor said, there are many roads to Dublin.
Last edited by Peter Foley on Sat Feb 09, 2013 4:27 pm, edited 1 time in total.
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Re: Breaking the "slice and dice" habit

Postby rj49 » Fri Feb 08, 2013 7:28 pm

Actually, in William Bernstein's last book he recommends a simple TSM/TI/TBM portfolio for most investors. Bill Schultheis also switched to that approach in his last book, after recommending a slice-n-dice Coffeehouse Portfolio earlier. I find that reading any of Mr. Bogle's books helps me stay comfortable with a total markets approach, and if you Google 'John Norstad Investing in Total Markets', you'll find some very sensible articles that argue against slice-n-dicing, unless you have particular circumstances that warrant it. Finally, take a look at fund returns for 2007-2008, and you'll see that owning different market segments didn't help, and the riskier asset classes showed why they are riskier--only owning high-quality bonds gave a diversifying effect.

If you have the urge to tinker and try for outsized returns, then Burton Malkiel and others recommend having a 'fun fund', separate from retirement assets, where you can go for different asset classes, ETFs, or individual stocks.

As far as fund placement, the key to it all is investor behavior, because if you have all stocks in your taxable account and panic and sell if it goes down 30% in a bear market, then all the wisdom and tax savings will be wiped out by selling low and buying high. I know that once I got over $100k in TSM in my taxable account I got very nervous, constantly monitoring the market, whereas I check my retirement accounts very infrequently, so I'm willing to tolerate the tax inefficiency of having CDs and ibonds in my taxable (at 15%) portfolio.
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Re: Breaking the "slice and dice" habit

Postby MKP » Fri Feb 08, 2013 9:08 pm

rj49 wrote:Actually, in William Bernstein's last book he recommends a simple TSM/TI/TBM portfolio for most investors. Bill Schultheis also switched to that approach in his last book, after recommending a slice-n-dice Coffeehouse Portfolio earlier. I find that reading any of Mr. Bogle's books helps me stay comfortable with a total markets approach, and if you Google 'John Norstad Investing in Total Markets', you'll find some very sensible articles that argue against slice-n-dicing, unless you have particular circumstances that warrant it. Finally, take a look at fund returns for 2007-2008, and you'll see that owning different market segments didn't help, and the riskier asset classes showed why they are riskier--only owning high-quality bonds gave a diversifying effect.

If you have the urge to tinker and try for outsized returns, then Burton Malkiel and others recommend having a 'fun fund', separate from retirement assets, where you can go for different asset classes, ETFs, or individual stocks.

As far as fund placement, the key to it all is investor behavior, because if you have all stocks in your taxable account and panic and sell if it goes down 30% in a bear market, then all the wisdom and tax savings will be wiped out by selling low and buying high. I know that once I got over $100k in TSM in my taxable account I got very nervous, constantly monitoring the market, whereas I check my retirement accounts very infrequently, so I'm willing to tolerate the tax inefficiency of having CDs and ibonds in my taxable (at 15%) portfolio.



that is similar to some things I have read regarding people who still like to "pick" stocks while investing in the total market. They have "play" money on the side - maybe 5%, that can be used to spice things up.
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Re: Breaking the "slice and dice" habit

Postby abuss368 » Fri Feb 08, 2013 11:34 pm

yorkpond wrote:
dbr wrote:Usually one starts by considering the portfolio as a whole and then locates the various assets according to tax considerations. That is what you are hearing from Vanguard. That would pretty much be the mantra here.

I understand Rick Ferri, for one, does not necessarily follow that practice.


Yup, you're right. I got an analysis from Portfolio solutions (Rick Ferri) and there was no regard for taxes at all. Each portfolio was exactly the same. It will be interesting to see what the CFP has to say on Monday. We're not rushing to re-allocate but want to be comfortable with our decision. Thanks so much. You're very helpful.


What was the portfolio that was recommended by Portfolio Solutions? Did it include TIPS and REITS in all accounts including taxable accounts?
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Re: The Vanguard recommended portfolio.

Postby yorkpond » Sat Feb 09, 2013 12:21 pm

yorkpond wrote:
Taylor Larimore wrote:
yorkpond wrote:First post for me. I'm very excited. -- The planner recommended the 4 fund portfolio. -- I'm having a hard time with this consolidated approach.

Question: If the overall portfolio for both of us is 60/40 does it really matter where the bonds, equities are placed? Should each portfolio be the same 60/40? Or, is it OK to have an entire portfolio dedicated to bonds or equities? Help!

Yorkpond:

Welcome to the Bogleheads forum!

I'm not sure what the "4 fund portfolio" is, but you can read the advantages of a 3-fund portfolio HERE. It is usually better NOT to have duplicate portfolios in every account for these reasons:

* Multiplies the number of funds.
* Fewer funds result in bigger funds which may offer reduced cost.
* Earlier Voyager/Flagship status.
* Fewer funds make rebalancing easier and less frequent.
* Simplifies asset-allocation
* Less paperwork and portfolio maintenance.

Yes, it is VERY important to use only tax-efficient funds in taxable accounts. Total Stock Market and Total International are both very tax efficient. By locating both stocks and bonds in the same account, one or the other is likely to be in the wrong type account.

Unless you have a strong reason not to, I would go along with the professional CFPs advice (who has more of your personal data than we do). You may do better than the Vanguard advice but the chances of doing worse are infinite.

Later, after having had actual experience with the Vanguard recommended portfolio, you can "tweak" your portfolio if you think it worthwhile.

Best wishes.
Taylor


Hi Taylor,
Thanks for the thoughtful response. I understand the need for simplicity and the diversification that is inherent in TSM and TBM, TISM. The CFP indicated the advantages of not having bonds in the Roth's; so, all the bonds would be in our Rollover's totaling the 40%. That would leave only equities in our Roth's and Taxable account. We're just having a hard time breaking the decades old investing habit of having many more funds in each account. We'll have to see what the CFP's advice is on the "tweaking" now or later. Ken


The 4 fund portfolio would include a REIT component in the 5% range.
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Re: Breaking the "slice and dice" habit

Postby Dandy » Sat Feb 09, 2013 12:40 pm

In general bonds in tax sheltered makes sense. I have some equities in all types of accounts. Maybe as little as 20% in IRA. I also have muni bonds in taxable. I like to add a little equity for growth in Retirement accoounts and a little stability with bonds in taxable accounts. It also makes rebalancing using just your retirement accounts more likely and thus avoids unnecessary cap gains. I see no good reason to keep the exact same allocation in both retirement and taxable accounts -- except simplicity.
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Re: Breaking the "slice and dice" habit

Postby baw703916 » Sat Feb 09, 2013 1:13 pm

rj49 wrote: Finally, take a look at fund returns for 2007-2008, and you'll see that owning different market segments didn't help, and the riskier asset classes showed why they are riskier--only owning high-quality bonds gave a diversifying effect.


I have to disagree with you a little. Actually 2007-08 is one of the best arguments for not following a Total Market approach (not that I think it's a bad approach, nor would I discourage anyone from following it). One of the arguments for a Total Market approach is that you don't know whether Small Value or Emerging Markets will be next year's best performers or worst performers--so by owning everything you avoid "style risk". But in 2007-08 it didn't matter if you owned all SV or TSM; your equities performed badly either way.

What did well in 2007-08 is the Larry Swedroe approach of holding a lower percentage of riskier equities, and a lot of high quality bonds (not TBM). Under normal circumstances the fact that the equities are riskier gives a higher expected return, so the overall porfolio return is close to that of a Total Market portfolio. But if everything crashes, even the riskiest equities can't perform that much worse (TSM went down by more than 50% between Oct. 2007 and March 2009; it's not possible for any asset class to go down by more than 100%). The performance of your overall portfolio was saved by 1) holding less equities, 2) holding a lot of the types of bonds that benefit from a flight to safety.

Brad
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Re: Breaking the "slice and dice" habit

Postby sdrone » Sat Feb 09, 2013 1:20 pm

I find it interesting that you moved your account to Vanguard, instead of simply not listening to the Fidelity rep. now you have a Vanguard rep giving you suggestions, but that doesn't make you happy either.

You can do the same Vanguard investments in the Fidelity accounts on the cheap using ETFs.

I think my advice here is "don't make moves just to make moves." Step back and make a plan before doing anything.
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Re: Breaking the "slice and dice" habit

Postby Frugal Al » Mon Feb 11, 2013 10:51 am

For the sake of simplicity and getting the lowest ER possible it certainly makes sense to look at total asset allocation on a macro portfolio basis. However, in the whole scheme of things it is one of the least important aspects of the portfolio, relatively speaking. There are any number of reasons to do asset allocation on a micro, rather than a macro basis, particularly if the accounts may someday end up going to their respective owners, such as in a divorce.
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Re: Breaking the "slice and dice" habit

Postby Rick Ferri » Mon Feb 11, 2013 1:05 pm

hoppy08520 wrote:This wiki article might interest you:Asset Allocation in Multiple Accounts

For Rick Ferri's take on this, see in particular this post:

viewtopic.php?f=1&t=98662#p1426569


Thanks for posting. My view has only been made stronger by recent changes to the tax code and potential future changes.

I'm at an ETF conference this week and have limited ability to respond.

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
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Re: Breaking the "slice and dice" habit

Postby yorkpond » Sun Feb 17, 2013 12:58 pm

Well, after a second CFP video call we "tentatively" decided on the following allocation after letting the CFP at Vanguard know of our desire to slightly tilt towards value and add REIT. He was not happy with the REIT because Vanguard considers it a sector fund. In fact, he was not able to enter the REIT into the plan. He had to put the allocation of REIT's into the TSM.

Here's what we came up with for now:

TSM 27%
TISM 18%
SCV 5%
Value Index 5%
REIT 5%
TBM 25%
Intermed. Term Inv. Grade Bond 15%

These classes were spread unevenly across 5 accounts. Unwinding our positions from Fidelity starts next week. When that settles we'll have a Flagship dedicated rep who will get me a second opinion from an embedded CFP on the "plan" and see what he has to say. I'll post percentages on each of the 5 accounts next week.
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Re: Breaking the "slice and dice" habit

Postby Taylor Larimore » Sun Feb 17, 2013 1:34 pm

Yorktown:

You have not exactly broken "the slice and dice habit," but it's a good start. :wink:

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Breaking the "slice and dice" habit

Postby yorkpond » Wed Feb 20, 2013 12:39 pm

Taylor Larimore wrote:Yorktown:

You have not exactly broken "the slice and dice habit," but it's a good start. :wink:

Best wishes.
Taylor


Of course, your absolutely correct. Compared to what I had at Fidelity, this portfolio is much simplified. The only part of this portfolio is having to spread the allocation across 5 accounts and look at them as one. Two Roth's, Two Rollovers and one taxable. I am a bit concerned that the taxable account has a 2/3 TISM, and 1/3 TSM allocation. Apparently, this will be a new habit to break. I have to think of the portfolio as ONE. So, as I enter it on Yahoo as a portfolio I only have one entry for all the assets and one portfolio. Out of site, out of mind. Unwinding will start this week once they straighten out our cost basis screw up during the transfer.
Any thoughts on having 5 identical portfolios or just one with assets spread across the 5? Thanks for all the help.
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Re: Breaking the "slice and dice" habit

Postby cazaubon » Wed Feb 20, 2013 3:51 pm

«What did well in 2007-08 is the Larry Swedroe approach of holding a lower percentage of riskier equities, and a lot of high quality bonds (not TBM). Under normal circumstances the fact that the equities are riskier gives a higher expected return, so the overall porfolio return is close to that of a Total Market portfolio. But if everything crashes, even the riskiest equities can't perform that much worse (TSM went down by more than 50% between Oct. 2007 and March 2009; it's not possible for any asset class to go down by more than 100%). The performance of your overall portfolio was saved by 1) holding less equities, 2) holding a lot of the types of bonds that benefit from a flight to safety.»

Which bonds would be considered high quality/benefitting from a flight to safety and a preferable choice to TBM? I am looking for the right bond fund(s) for the bond portion of my portfolio - it's a basic 3 fund type portfolio, but would like to hear alternatives to the TBM portion.
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Re: Breaking the "slice and dice" habit

Postby baw703916 » Wed Feb 20, 2013 9:29 pm

cazaubon wrote:
What did well in 2007-08 is the Larry Swedroe approach of holding a lower percentage of riskier equities, and a lot of high quality bonds (not TBM). Under normal circumstances the fact that the equities are riskier gives a higher expected return, so the overall porfolio return is close to that of a Total Market portfolio. But if everything crashes, even the riskiest equities can't perform that much worse (TSM went down by more than 50% between Oct. 2007 and March 2009; it's not possible for any asset class to go down by more than 100%). The performance of your overall portfolio was saved by 1) holding less equities, 2) holding a lot of the types of bonds that benefit from a flight to safety


Which bonds would be considered high quality/benefitting from a flight to safety and a preferable choice to TBM? I am looking for the right bond fund(s) for the bond portion of my portfolio - it's a basic 3 fund type portfolio, but would like to hear alternatives to the TBM portion.


Treasuries did very well, and tend to do well generally in any type of deflationary financial panic. Combining them with TIPS (to guard against inflation risk) works well in a tax-advantaged account. In a taxable account (Larry Swedroe's real life situation) he recommends highly rated municipal bonds (AA or AAA rated general obligation or essential services (water, schools, etc.) bonds. He has the luxury of hand picking his bonds. For someone who will be using a fund, a good ochoice is the Baird Institutional Municipal Bond Fund (BMBIX) which in spite of the name only has a $25K minimum.

If you look at how TBM performed in 2008, it appeared to just sail right through and had a typical return, without NAV rising or dropping significantly. But what really happened if you break down the bunds into the subclasses, the Treasuries did great, the mortgage-back securities took a bit of a hit, and the corporates got trashed. So there was diversification within the fund's holdings. If you had a portfolio consisting mostly of bonds, then this was a good result. But for an investor holding a mostly equities portfolio, you really could have used bonds that compensated for the 50% drop in your equities.

Brad
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Re: Breaking the "slice and dice" habit

Postby cazaubon » Thu Feb 21, 2013 1:05 pm

Thank you for that reply, it answers my question very well. I am going to stick to treasuries since I have a lot of equity and want something that will counterbalance that in a crash.
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