Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Are there any examples of how to construct a Swedroe small value tilt portfolio using Vanguard Index Funds ?
Thanks,
Bustoff
Thanks,
Bustoff
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Larry Swedroe holds mostly taxable assets - this may (or may not) apply to you.Bustoff wrote:Are there any examples of how to construct a Swedroe small value tilt portfolio using Vanguard Index Funds ?
Thanks,
Bustoff
- First, he used to hold high quality individual Municipal Bonds and TIPS plus US small value, International small value and Emerging Value.
Second, you can't "replicate" this with Vanguard Index funds.Sat Aug 01, 2009 11:28 pm, LS wrote:Roughly my portfolio looks like this--since most assets in taxable accounts
70% AAA/AA munis and TIPS (currently 40% of tax advantaged fixed income assets)
equities split 40 US/60 int'l with US as SV and int'l split between ISV and EMV with ratio about 3:1 and small allocation to CCF
Third, is this just a curiosity thing?
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Here is a possibility:
◦ Small Cap Value - VISVX– 15% → (ER = .35)
◦ Emerging Markets - VEIEX – 15% → (ER = .33)
◦ Inflation Protected Bonds - VIPSX – 35% (ER = .2)
◦ Intermediate Term Bonds- VFITX– 35% (ER=.26)
Some might say that Vanguard-only funds do not provide a large enough small value tilt, but this particular portfolio was designed using the same methodology as the Larry Portfolio and has the desired M* xray breakdown. This portfolio has produced the desired effects of much lower equity holdings, lower standard deviation, and similar returns to the Fat-Tails portfolio, since 1985.
Also, it should be noted that the Vanguard TIPS fund has note existed for this long, and there has been some discussion about the accuracy of the projected returns.
You may also be interested in this recent thread: http://www.bogleheads.org/forum/viewtop ... 0#p1598490
◦ Small Cap Value - VISVX– 15% → (ER = .35)
◦ Emerging Markets - VEIEX – 15% → (ER = .33)
◦ Inflation Protected Bonds - VIPSX – 35% (ER = .2)
◦ Intermediate Term Bonds- VFITX– 35% (ER=.26)
Some might say that Vanguard-only funds do not provide a large enough small value tilt, but this particular portfolio was designed using the same methodology as the Larry Portfolio and has the desired M* xray breakdown. This portfolio has produced the desired effects of much lower equity holdings, lower standard deviation, and similar returns to the Fat-Tails portfolio, since 1985.
Also, it should be noted that the Vanguard TIPS fund has note existed for this long, and there has been some discussion about the accuracy of the projected returns.
You may also be interested in this recent thread: http://www.bogleheads.org/forum/viewtop ... 0#p1598490
"Successful investing is all about common sense." |
~ John Bogle.
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Thanks YDNAL.YDNAL wrote: Third, is this just a curiosity thing?
Short answer is no.
The longer answer is no, because I'm afraid of having too much allocated to bonds. (my risk profile recommends 70% bonds)
So having read a couple of Swedroe's books, it occurred to me that his approach of taking more risk on the equity rather than the bond side might be a way to justify reducing my risk on the bond side. I'm not sure if my thinking is flawed, but that's why I was asking.
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Bustoff,Bustoff wrote:Thanks YDNAL.YDNAL wrote: Third, is this just a curiosity thing?
Short answer is no.
The longer answer is no, because I'm afraid of having too much allocated to bonds. (my risk profile recommends 70% bonds)
So having read a couple of Swedroe's books, it occurred to me that his approach of taking more risk on the equity rather than the bond side might be a way to justify reducing my risk on the bond side. I'm not sure if my thinking is flawed, but that's why I was asking.
I'm not sure what you mean (underlined).
With regards to Swedroe's strategy:
1. INCREASE high quality Bonds.
2. DECREASE Equities by holding the riskier variety.
3. So, IF you are "afraid having too much allocated to Bonds," why wouldn't you be 100 times more afraid to hold the "riskier of Equities"?
ivesjl wrote:Here is a possibility:
◦ Small Cap Value - VISVX– 15% → (ER = .35)
◦ Emerging Markets - VEIEX – 15% → (ER = .33) <-- provides NEITHER International Small Value nor Emerging Value
◦ Inflation Protected Bonds - VIPSX – 35% (ER = .2) <--|
◦ Intermediate Term Bonds- VFITX– 35% (ER=.26) <----| assumes large(r) tax-advantaged space
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
At 59 and retired, I simply don't understand how of allocating 70% to total bond fund is safe for my time horizon.
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Bustoff,
The entire point of Swedroe's approach is to lower volatility.
To make up for the higher bond holdings, the equity portion is concentrated in riskier categories (small cap and value).
Notice in the graph below that despite much less in equity (80% versus 30%, of total portfolio), the Larry Portfolio has roughly similar average returns and CAGR. What is radically different is the standard deviation (14.83% and 8.45%) and the correlation with the US stock market.
YDNAL,
Thanks for pointing that out, another possibility might be VFSVX. That I know of, Vanguard doesn't have a small cap international index fund.
The entire point of Swedroe's approach is to lower volatility.
To make up for the higher bond holdings, the equity portion is concentrated in riskier categories (small cap and value).
Notice in the graph below that despite much less in equity (80% versus 30%, of total portfolio), the Larry Portfolio has roughly similar average returns and CAGR. What is radically different is the standard deviation (14.83% and 8.45%) and the correlation with the US stock market.
YDNAL,
Thanks for pointing that out, another possibility might be VFSVX. That I know of, Vanguard doesn't have a small cap international index fund.
"Successful investing is all about common sense." |
~ John Bogle.
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Wouldn't VSS be a somewhat appropriate choice for Small Cap (and a bit of value) international and emerging markets.
http://portfolios.morningstar.com/fund/ ... ture=en-us
http://portfolios.morningstar.com/fund/ ... ture=en-us
A man is rich in proportion to the number of things he can afford to let alone.
- stevewolfe
- Posts: 1676
- Joined: Fri Oct 10, 2008 7:07 pm
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
So if your risk tolerance says you can tolerate 30% equities and 70% fixed income then why not break up the fixed income a bit if you are uncomfortable with total bond? Is this all in a tax-deferred account? In an IRA? If so, maybe what is best for you is to consider doing a partial rollover of the IRA that contains the bond funds to a credit union, like Pentagon Federal, with competitive IRA CD rates. Say 50/50. That way, you have 35% in Total Bond at 0.10% expenses and the other 1/2 can be used to build a ladder or a barbell of CD's... This might help you sleep better with the 70% fixed income allocation.Bustoff wrote:At 59 and retired, I simply don't understand how of allocating 70% to total bond fund is safe for my time horizon.
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
If you look through history, you can see that in December 2012, Bustoff was considering Vanguard TR Income (VTINX) for all assets - about 50/50 Taxable/Tax-advantaged.stevewolfe wrote:So if your risk tolerance says you can tolerate 30% equities and 70% fixed income then why not break up the fixed income a bit if you are uncomfortable with total bond? Is this all in a tax-deferred account? In an IRA? If so, maybe what is best for you is to consider doing a partial rollover of the IRA that contains the bond funds to a credit union, like Pentagon Federal, with competitive IRA CD rates. Say 50/50. That way, you have 35% in Total Bond at 0.10% expenses and the other 1/2 can be used to build a ladder or a barbell of CD's... This might help you sleep better with the 70% fixed income allocation.Bustoff wrote:At 59 and retired, I simply don't understand how of allocating 70% to total bond fund is safe for my time horizon.
http://www.bogleheads.org/forum/viewtop ... 0#p1567860
Since, there are multiples threads on this "Bond" issue. There is a January 2013 that says:
http://www.bogleheads.org/forum/viewtop ... 8#p1592568
Bustoff wrote:My call with the CFP is on Monday. I found a couple of the risk tolerance questions difficult. (For instance, in 2008, I got out of everything in March. However, I don't think I would react that way in the future so I responded that I would hold rather than sell.) My current mix is 10% stocks, 10% bonds, 80% in a variety of CD's, stable value and cash. Our tax adv. and taxable spaces are roughly equal. Our current expenses run around 40K. I get a small non-cola pension of 20k/year.
Bustoff wrote:I'm pretty much clueless compared to Vanguard or for that matter most Bogleheads, but it just runs against all common sense to me when Vanguard recommends putting half of my life saving into the TBF.
Bustoff wrote:Now if I could just mentally separate the "fear".
I admit it, the markets scare me. They're spooky. And I don't respond well to spooky behavior.
Bustoff, you have an apparent problem overcoming the psychological part of investing - and also an apparent problem recognizing that you should invest for the long-term (you are 59yo after all). If you can't overcome this, the only appropriate Fixed Income investment for YOU seems to be CDs... then do that.Bustoff wrote:Sorry for the delay. The figure I came up with is 1.22%.Thank you, we know you are pulling 20k annually, but that does not answer the question, what percent of retirement assets is 20k? That figure is critical in determining if you can get by with very low equity allocation.
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: Build Swedroe Tilt Portfolio with Vanguard Index Funds ?
Sounds like Bustoff would benefit from an inexpensive advisor that could keep him/her from emotionally buying and selling at exactly the wrong times. There is no shame in this at all. Most people, particularly the majority of people not posting on this board, do not have the combination of time, desire or emotional fortitude to make investing work as well for them as a low cost index based advisor could. Some people after years of DYI and educating themselves still turn things over to a an advisor simply to save themselves and thier spouses the time and angst of managing it themselves.
The Average Investor Should Use An Investment Advisor: How to Find One
Professional Financial Advice: How Much Should Investors Pay?
And the followup with a decent list of low cost index based options
Investing Blog Roundup: Evaluating an Adviser
The Average Investor Should Use An Investment Advisor: How to Find One
Professional Financial Advice: How Much Should Investors Pay?
And the followup with a decent list of low cost index based options
Investing Blog Roundup: Evaluating an Adviser