Portfolio Work

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Portfolio Work

Postby BogeyT » Fri Mar 22, 2013 1:31 pm

Have been trying to get a decent IRA portfolio together for a 65 year old not looking to use the money for 3-5 years (if then):
I feel I'm spinning my wheels here! What does anyone/everyone think?
VDIGX 3.6% Dividend Growth
VEXAX 4.5% Extended Market Index
VHDYX 3.9% High Dividend Yield
VASVX 7.7% Selected Value
VSMAX 3.5% Small Cap Index
VGSTX 6.5% STAR
VTSAX 5.8% Total Stk Mkt Return
VWINX 9.5% Wellesley
VWELX 10.5% Wellington
USAAX 4.5% USAA Growth
VBILX 3.8% Intermediate Term Bond Index
VFICX 9.4% Intermediate Term Investment Grade
VBTLX 3.7% Total Bond Mkt Index
USHYX 2.9% USAA High Income
VBIRX 3.7% Short Term Bond Index
VFIIX 7.3% GNMA
USIBX 9.2% USAA Intermediate Bond
Last edited by BogeyT on Fri Mar 22, 2013 2:46 pm, edited 1 time in total.
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Re: Portfolio Work

Postby Mel Lindauer » Fri Mar 22, 2013 2:38 pm

BogeyT wrote:Have been trying to get a decent IRA portfolio together for a 65 year old not looking to use the money for 3-5 years (if then):
I feel I'm spinning my wheels here! What does anyone/everyone think?
VDIGX 3.6%
VEXAX 4.5%
VHDYX 3.9%
VASVX 7.7%
VSMAX 3.5%
VGSTX 6.5%
VTSAX 5.8%
VWINX 9.5%
VWELX 10.5%
USAAX 4.5%
VBILX 3.8%
VFICX 9.4%
VBTLX 3.7%
USHYX 2.9%
VBIRX 3.7%
VFIIX 7.3%
USIBX 9.2%


I'm sure you'll get a lot more responses if you post the fund names rather than the ticker symbols. We can't possibly remember all of the ticker symbols.
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Re: Portfolio Work

Postby Grt2bOutdoors » Fri Mar 22, 2013 5:56 pm

BogeyT wrote:Have been trying to get a decent IRA portfolio together for a 65 year old not looking to use the money for 3-5 years (if then):
I feel I'm spinning my wheels here! What does anyone/everyone think?
VDIGX 3.6% Dividend Growth
VEXAX 4.5% Extended Market Index
VHDYX 3.9% High Dividend Yield
VASVX 7.7% Selected Value
VSMAX 3.5% Small Cap Index
VGSTX 6.5% STAR
VTSAX 5.8% Total Stk Mkt Return
VWINX 9.5% Wellesley
VWELX 10.5% Wellington
USAAX 4.5% USAA Growth
VBILX 3.8% Intermediate Term Bond Index
VFICX 9.4% Intermediate Term Investment Grade
VBTLX 3.7% Total Bond Mkt Index
USHYX 2.9% USAA High Income
VBIRX 3.7% Short Term Bond Index
VFIIX 7.3% GNMA
USIBX 9.2% USAA Intermediate Bond


Holy smokes, batman! :shock: :oops: I count 17 funds there and no fewer than 3 "balanced funds" which incorporate at least 6 of those other funds in their composition. What are your objectives other than "does not need money for 3-5 years"?
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Re: Portfolio Work

Postby Mel Lindauer » Fri Mar 22, 2013 6:05 pm

BogeyT wrote:Have been trying to get a decent IRA portfolio together for a 65 year old not looking to use the money for 3-5 years (if then):
I feel I'm spinning my wheels here! What does anyone/everyone think?
VDIGX 3.6% Dividend Growth
VEXAX 4.5% Extended Market Index
VHDYX 3.9% High Dividend Yield
VASVX 7.7% Selected Value
VSMAX 3.5% Small Cap Index
VGSTX 6.5% STAR
VTSAX 5.8% Total Stk Mkt Return
VWINX 9.5% Wellesley
VWELX 10.5% Wellington
USAAX 4.5% USAA Growth
VBILX 3.8% Intermediate Term Bond Index
VFICX 9.4% Intermediate Term Investment Grade
VBTLX 3.7% Total Bond Mkt Index
USHYX 2.9% USAA High Income
VBIRX 3.7% Short Term Bond Index
VFIIX 7.3% GNMA
USIBX 9.2% USAA Intermediate Bond


Hi Bogey:

I don't mean to sound harsh, but that looks more like a "collection of funds" rather than a portfolio. You have lots of overlapping funds and small percentages in a large number of funds. Just owning a lot of funds doesn't provide more diversification than owning one or more funds which provide you with the asset allocation and diversification you desire.

Since it appears these funds are all in your IRA, there are not tax consequenses in fixing things. Here's what I'd recommend you consider:
1. Determine your desired asset allocation.
2. Look at Vanguard's Target Retirement funds and Life Strategy funds and determine which one most closely matches your desired asset allocation.
3. Transfer your funds into the appropriate fund which will offer you a nicely-diversified portfolio in a single fund. (This also makes life simple for your spouse should you predecease him/her.)
4. Get on with your life.

You will be required to start withdrawing from your IRA at age 70.5.
Best Regards - Mel | | Semper Fi
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Re: Portfolio Work

Postby retiredjg » Fri Mar 22, 2013 6:14 pm

No wonder your head is spinning. :D All of that can be covered pretty well with about 3 or 4 funds. No need to hold all of those. That type of complexity is what is causing you grief.

Is there a reason you are just considering your IRA? Do you have any other accounts? Do you have a spouse with accounts?

People here can help you plan a good, simple, and low cost portfolio. See the link at the bottom of this message for how to ask that type of question.

Welcome to the forum!
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Re: Portfolio Work

Postby BogeyT » Fri Mar 22, 2013 9:52 pm

IRA Objectives:
55% stock
45% bonds
The funds listed are in addition to a cash reserve balance. Transferred funds from another firm to Vanguard and have been trying use VG website tools (i.e. financial engines) to diversify portfolio, maximize return while limiting downside exposure (in as much as this is possible!). Do not plan to use IRA funds until mandatory withdrawals kick in at 70.5 which is about 5 years away. No other accounts, wife has very small IRA in just a couple of funds.
I believe these are all great funds but started to do a "lazy portfolio" which really became anything but lazy! Suggestions would be sincerely appreciated and welcomed.
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Re: Portfolio Work

Postby Duckie » Fri Mar 22, 2013 10:39 pm

BogeyT, you want an AA of 55% stocks, 45% bonds, with unknown international. I'll recommend 30% of stocks. That breaks down to 38% US stocks, 17% international stocks, and 45% bonds. Here are two options for your IRA:

Option #1
His Traditional IRA at Vanguard -- 100%
100% (VTXVX) Vanguard Target Retirement 2015 Fund (0.16%)

or

Option #2
His Traditional IRA at Vanguard -- 100%
38% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.06%)
17% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)
40% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.10%)
5% (VIPSX) Vanguard Inflation-Protected Securities Fund Investor Shares (0.20%)

Both options hold the same assets in roughly the same percentage. The second is a little cheaper but has to be manually rebalanced. The first will get more conservative over the years. I'd probably vote for the first option just for simplicity. Also, it might keep you from tinkering with it.
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Re: Portfolio Work

Postby abuss368 » Fri Mar 22, 2013 10:45 pm

Hi BogeyT,

17 funds! Wow to say the least. That would be an administrative, higher cost, no additional diversification, rebalancing nightmare for us. Perhaps that many funds does not bother you.

Too often investors incorrectly believe that having additional and unnecessary mutual funds provides additional diversification or protection from the next downturn. Yet many of the funds fall into the same category resulting in fund overlap.

Mel has provided excellent advice above in recommending a Life Strategy or Target fund.

If you do not want to go that route, I would consider a Total Markets approach from Vanguard that consists of:

* Total Stock Market
* Total International Market
* Total Bond Market

If you want, you may benefit from a REIT and Inflation Bond fund, but these funds are not necessary.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + REITs
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Re: Portfolio Work

Postby retiredjg » Sat Mar 23, 2013 10:48 am

I like all the options suggested so far. Here are two more.

1) LifeStrategy Moderate Growth Fund (which is 60% stocks) combined with a bond fund of your choice to bring the stock percentage down to 55%. (About 90% LifeStrategy and 10% Bond Fund should do it).

2) A combination of 40% Wellington (about 66% stock) and 60% Target Retirement 2025 (about 50% stock) should come out at about 55/45. If you are interested in an actively managed fund, the Wellington would satisfy that itch. The Target Retirement fund would migrate toward more bonds, so the whole portfolio would migrate toward more bonds, but a little slower.


Notice that everyone's suggestion have something in common - the 3 core funds (total stock, total international, total bond). Some ideas have a little extra something added on.

There is no need to have near the number of funds that you are considering. That would not be easy or lazy or simple in any way.
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Re: Portfolio Work

Postby BogeyT » Sat Mar 23, 2013 10:56 am

I calculate the 4 funds mentioned returns about 4.5%. What am I missing? How about this?
VGPMX 2% Precious Metals
VFSTX 25% Short Term Inv Grade
VWEHX 25% High Yield Corporate
VIPSX 25% Inflation Protected
VEIEX 13% Emerging Mkts
VEURX 2% Europe
VPACX 2% Pacific
VGSIX 2% REIT
NAESX 2% Small Cap
VTSMX 2% Total Stk Mkt Index
Returns approximately 6.5%
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Re: Portfolio Work

Postby retiredjg » Sat Mar 23, 2013 1:08 pm

BogeyT wrote:VGPMX 2% Precious Metals
VFSTX 25% Short Term Inv Grade
VWEHX 25% High Yield Corporate
VIPSX 25% Inflation Protected
VEIEX 13% Emerging Mkts
VEURX 2% Europe
VPACX 2% Pacific
VGSIX 2% REIT
NAESX 2% Small Cap
VTSMX 2% Total Stk Mkt Index


This idea has 8% in US stocks and 17% in stocks from foreign countries, mostly in the emerging markets countries. I don't see that as reasonable at all. You did seem to count the junk bonds as stocks, but that does not make up for having only 8% in real US stocks.

A 2% allocation to an asset class is a waste, in my opinion.

It appears you are focused on return. I think you should focus on preserving your assets and having a simple portfolio that doesn't require any attention.

Are you calculating from the expected return from each fund or from past returns?

I assume that you realize that has nothing to do with what the returns might actually be.
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Re: Portfolio Work

Postby dickenjb » Sat Mar 23, 2013 1:16 pm

Looks like you are focused on past returns.

Like driving by looking in the rear view mirror.
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Re: Portfolio Work

Postby Minot » Sat Mar 23, 2013 3:12 pm

dickenjb wrote:Looks like you are focused on past returns.

Like driving by looking in the rear view mirror.
It also looks like you are trying to beat the market. Good luck with that. The evidence is that, over time, very few succeed; almost all end up with less, many with a lot less.
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Re: Portfolio Work

Postby BogeyT » Sat Mar 23, 2013 6:22 pm

So what I'm hearing is past performance has nothing to do with future potential. Preservation at 65 is more important than higher return. The following would be a annual rebalance and forget it the rest of the time?
Wellington VWELX 50%
LS Moderate VSMGX 25%
LS Conservative VSCGX 25%
I'm guessing we are looking at about 7.3% return BASED ON PAST PERFORMANCE?
About 57.7% bonds, 41.2% stocks, 1.1% reserves. To get closer to 55-45 stocks over bonds weight it closer to LS Moderate??
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Re: Portfolio Work

Postby retiredjg » Sat Mar 23, 2013 7:22 pm

BogeyT wrote:So what I'm hearing is past performance has nothing to do with future potential.

It is almost humanly impossible not to look at past performance. I'm sure most everyone does it sometimes. But the future might not look like the past. The future might be different. The future has a way of presenting stuff none of us ever even thought about. For example, whoever though we'd take pictures with the telephone, of all things.

We know what we think will happen. But we don't know what will happen. You have to prepare for all possibilities, not just the one you expect.


Preservation at 65 is more important than higher return.

At 65, Yes. Unless you have so much money that you will never need it (in which case you might invest for heirs or charity).

What is the upside of getting a higher return? Now compare that to the downside of a greater loss suffered because of greater risk taken trying to get the higher returns. Consider that these things are both likely to happen. If you compare them, does it seem wise only strive for higher return? Or should you follow a more moderate path in case you actually need the money?


The following would be a annual rebalance and forget it the rest of the time?
Wellington VWELX 50%
LS Moderate VSMGX 25%
LS Conservative VSCGX 25%

This works out to roughly what you want - about 57% stocks. It's not the only way to get there, just one way to get there. (Perhaps a better idea might have been just Wellington and LS Conservative). It combines one actively managed fund with 2 funds that contain only index funds. Some people would consider that a good thing (active and index both). Others would want only active or only index. What do you want?

I don't know how much rebalancing would be needed since each fund rebalances itself. I guess if one fund greatly outgrew the others you'd want to bring things back to this.

About 57.7% bonds, 41.2% stocks, 1.1% reserves.

It seems to be 57 - 58% stocks to me.


I'm guessing we are looking at about 7.3% return BASED ON PAST PERFORMANCE?

I have no idea. That depends on what the market does in the future. For the people who do predict the future, they don't seem to think that returns will be as high as they have been the last 50 or 100 years. I don't know if they are right or not.


We know you want about 55% stocks. What else is important to you? Do you like index funds or actively managed funds? Or both? Do you want to work with your portfolio every week or month or do you want to check it once or twice a year? Do you like a lot of foreign stock? Just a touch? Somewhere in between?
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Re: Portfolio Work

Postby coolguy954 » Sat Mar 23, 2013 7:27 pm

BogeyT wrote:Have been trying to get a decent IRA portfolio together for a 65 year old not looking to use the money for 3-5 years (if then):
I feel I'm spinning my wheels here! What does anyone/everyone think?
VDIGX 3.6% Dividend Growth
VEXAX 4.5% Extended Market Index
VHDYX 3.9% High Dividend Yield
VASVX 7.7% Selected Value
VSMAX 3.5% Small Cap Index
VGSTX 6.5% STAR
VTSAX 5.8% Total Stk Mkt Return
VWINX 9.5% Wellesley
VWELX 10.5% Wellington
USAAX 4.5% USAA Growth
VBILX 3.8% Intermediate Term Bond Index
VFICX 9.4% Intermediate Term Investment Grade
VBTLX 3.7% Total Bond Mkt Index
USHYX 2.9% USAA High Income
VBIRX 3.7% Short Term Bond Index
VFIIX 7.3% GNMA
USIBX 9.2% USAA Intermediate Bond


wow...that can't be real...duckie already posted what I was going to do
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Re: Portfolio Work

Postby BogeyT » Sun Mar 24, 2013 8:03 am

Well, I must say I have been converted from "treasure hunter". It appears I have much work to do to go from 17 funds down to a much more reasonable level!
My wife ask me a question relative to the mandatory withdrawals starting at 70.5 Should fund distributions be in the form of cash to generate what will be withdrawn or invest in an income producing fund to generate it? Can an income (cash) mutual fund be added to the mix or is that not the more appropriate method?
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Re: Portfolio Work

Postby retiredjg » Sun Mar 24, 2013 2:06 pm

I don't see any reason to try to generate cash to use for RMDs. You can just sell some of the fund(s) once a year and then reinvest that money in your taxable account.

If you are in the 25% or higher tax bracket, you might want to be careful that you only buy tax-efficient stock index funds or muni bonds in the taxable account. If you are in the 15% or lower tax bracket, it likely does not matter a great deal, especially if you end up spending earnings from that money.

If/when you are done "treasure hunting" and want help picking a fund(s), it would be helpful to know the answers to my questions above.

    We know you want about 55% stocks. What else is important to you? Do you like index funds or actively managed funds? Or both? Do you want to work with your portfolio every week or month or do you want to check it once or twice a year? Do you like a lot of foreign stock? Just a touch? Somewhere in between?
It may be possible to get what you want with just one fund. Or two. Maybe three. These funds that contain other funds are widely diversified, pretty darn low cost, and easy to maintain. Some require no maintenance at all, just taking the RMD when the time comes.

There is no reason, in your older age, to make this complex. We all face the possibility of losing the ability to manage a portfolio. Many people here who are capable of handling a very complex portfolio have simplified so as not to leave a spouse with something s/he would find incomprehensible.

When you decide what you want, people here will help you find it.
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