Can this 24-ETF portfolio be simplified?

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Can this 24-ETF portfolio be simplified?

Postby 2BCruising » Wed Apr 03, 2013 2:24 pm

The following is a diversified growth-oriented portfolio with 24 ETF holdings. It's split roughly 30%/50%/20% between bonds/equities/other (real estate + commodities).

For those of you who espouse the simple/lazy approach to AA, can you recommend a similar portfolio with fewer ETF holdings? BTW, this portfolio is based on a very elaborate modeling of economic/market data, and every holding was selected for a very targeted reason. Thanks much.

BND Vanguard Total Bond 13%
VIG Vanguard Divd Appre 7%
IFGL iShares FSE NAREIT 6%
DXJ WisdTree Japan Hedged Eq 6%
VNQ Vanguard REIT 6%
QQQ PowerShares QQQ 6%
EWH iShares MSCI HK 6%
SCPB Barclays ST Corp Bond 5%
SPLV PowerShares Low Volatility 4%
DBC PowerShares Commodity 4%
IAU iShares Gold Trust 4%
IWM iShares Russell 2000 3%
VTI Vanguard Total stock 3%
EWG iShares Germany 3%
SPY SPDR S&P 500 3%
VEA Vanguard International 3%
TIP iShares TIPS Bond 3%
IEF iShares 7-10 yr Treasury 3%
ALD WisdTree Asia Local Debt 3%
HYS Pimco 0-5 Hi-Yield 2%
QLTA iShares AAACorp Bond 2%
ECON EGShares Emerg Mkts 2%
VWO Vanguard Emerg Mkts 1%
GLD Gold 1%
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Re: Can this 24-ETF portfolio be simplified?

Postby YDNAL » Wed Apr 03, 2013 2:56 pm

2BCruising wrote:The following is a diversified growth-oriented portfolio with 24 ETF holdings. It's split roughly 30%/50%/20% between bonds/equities/other (real estate + commodities).

For those of you who espouse the simple/lazy approach to AA, can you recommend a similar portfolio with fewer ETF holdings? BTW, this portfolio is based on a very elaborate modeling of economic/market data, and every holding was selected for a very targeted reason. Thanks much.

Welcome, 2BCruising!

A holding that represents 1, 2, 3% of the total portfolio is meaningless despite any perceived gain to attempt to model economic/market data or despite a targeted reason (some I consider dubious anyways).

That said, how can you expect suggestion(s) of a similar portfolio with all the "stuff" in those ETFs ? What are you trying to do?

Here's some of the stuff (to name a few):
2BCruising wrote:QQQ PowerShares QQQ 6% <-- Nasdaq-100 Index
EWH iShares MSCI HK 6% <-- MSCI Hong Kong Index
IAU iShares Gold Trust 4%
EWG iShares Germany 3% <-- MSCI Germany Index
ALD WisdTree Asia Local Debt 3% <-- what is that?
HYS Pimco 0-5 Hi-Yield 2% <-- Junk?
GLD Gold 1% <-- IAU and GLD?

Have you seen the reading list?
Link - http://www.bogleheads.org/readbooks.htm
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: Can this 24-ETF portfolio be simplified?

Postby livesoft » Wed Apr 03, 2013 3:07 pm

A similar portfolio? No.
A different simplified portfolio? Yes!

Start with 3 ETFs and 3 ETFs only: VTI, VXUS, and BND. After that come back and I will give you a couple more ETFs to consider.

Good luck!
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Can this 24-ETF portfolio be simplified?

Postby 2BCruising » Wed Apr 03, 2013 3:26 pm

Thanks for the welcome and the reading list.

As way of background, I'm paying an advisor 1% to manage this portfolio (which consists of periodic rebalancing) - the portfolio is designed to protect on the downside. I posed the question because the portfolio seems to be getting a bit diversified (24 ETFs ... yikes), and so I wonder if it's possible/wise to manage it myself with a much simpler mix of ETFs.
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Re: Can this 24-ETF portfolio be simplified?

Postby SteveB3005 » Wed Apr 03, 2013 3:29 pm

VT and BND, no need for more unless you need to tax loss harvest. Then add VTI and VXUS to the mix, these four will do it and cover harvesting contingencies.
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Re: Can this 24-ETF portfolio be simplified?

Postby BuckyBadger » Wed Apr 03, 2013 3:32 pm

If you switch over to a three fund lazy portfolio you'll save yourself headaches AND tons of money, and you'll probably do better overall.
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Re: Can this 24-ETF portfolio be simplified?

Postby mhc » Wed Apr 03, 2013 3:40 pm

2BCruising wrote:Thanks for the welcome and the reading list.

As way of background, I'm paying an advisor 1% to manage this portfolio (which consists of periodic rebalancing) - the portfolio is designed to protect on the downside. I posed the question because the portfolio seems to be getting a bit diversified (24 ETFs ... yikes), and so I wonder if it's possible/wise to manage it myself with a much simpler mix of ETFs.


These articles are a good place to start:
http://www.bogleheads.org/wiki/Getting_Started
http://www.bogleheads.org/wiki/3-fund_portfolio
http://www.bogleheads.org/wiki/Principl ... _Placement

Most people should be able to learn how to manage their own portfolios. This would save you 1%. A 1% savings compounds to a huge savings over many years.

If you want specific help on changing your portfolio, then post in this format:
viewtopic.php?t=6212

It is important to know the details for specific help. For example, how much cap gains on each fund and what kind of accounts are the funds in.
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Re: Can this 24-ETF portfolio be simplified?

Postby slowlrnr » Wed Apr 03, 2013 3:48 pm

BuckyBadger wrote:If you switch over to a three fund lazy portfolio you'll save yourself headaches AND tons of money, and you'll probably do better overall.

+1

Why are you only interested in ETF's? Did you read something that says it is better to invest in ETF's?
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Re: Can this 24-ETF portfolio be simplified?

Postby YDNAL » Wed Apr 03, 2013 4:35 pm

2BCruising wrote:Thanks for the welcome and the reading list.

You are welcome, 2B Cruising! I hope you pick-up a couple of books to get started.

2BCruising wrote:As way of background, I'm paying an advisor 1% to manage this portfolio (which consists of periodic rebalancing) - the portfolio is designed to protect on the downside. I posed the question because the portfolio seems to be getting a bit diversified (24 ETFs ... yikes), and so I wonder if it's possible/wise to manage it myself with a much simpler mix of ETFs.

A couple of things:
  • When you say "getting a bit diversified (24 ETFs... yikes)", honestly, it tells me that you don't grasp the principle of diversification.
  • Regarding the "advisor", my take is that (s)he is trying to complicate things to seem that you need her/him... nothing being further from the truth. In fact, I can take just a few ETFs from the list you own and stop there (all one needs for the most part).
2BCruising wrote:BND Vanguard Total Bond
VIG Vanguard Divd Appre 7%
IFGL iShares FSE NAREIT 6%
DXJ WisdTree Japan Hedged Eq 6%
VNQ Vanguard REIT 6%
QQQ PowerShares QQQ 6%
EWH iShares MSCI HK 6%
SCPB Barclays ST Corp Bond 5%
SPLV PowerShares Low Volatility 4%
DBC PowerShares Commodity 4%
IAU iShares Gold Trust 4%
IWM iShares Russell 2000 3%

VTI Vanguard Total stock
EWG iShares Germany 3%
SPY SPDR S&P 500 3%

VEA Vanguard International
TIP iShares TIPS Bond

IEF iShares 7-10 yr Treasury 3%
ALD WisdTree Asia Local Debt 3%
HYS Pimco 0-5 Hi-Yield 2%
QLTA iShares AAACorp Bond 2%
ECON EGShares Emerg Mkts 2%

VWO Vanguard Emerg Mkts
GLD Gold 1%
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Re: Can this 24-ETF portfolio be simplified?

Postby Clearly_Irrational » Wed Apr 03, 2013 6:35 pm

Start with this:

VTI 24%
VEU 36%
BND 40%

That's a cap weighted three fund 60/40 portfolio. Anything more complicated needs specific justification.
Last edited by Clearly_Irrational on Fri May 10, 2013 1:02 pm, edited 1 time in total.
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Re: Can this 24-ETF portfolio be simplified?

Postby stratton » Wed Apr 03, 2013 7:51 pm

2BCruising wrote:The following is a diversified growth-oriented portfolio with 24 ETF holdings. It's split roughly 30%/50%/20% between bonds/equities/other (real estate + commodities).

For those of you who espouse the simple/lazy approach to AA, can you recommend a similar portfolio with fewer ETF holdings? BTW, this portfolio is based on a very elaborate modeling of economic/market data, and every holding was selected for a very targeted reason. Thanks much.


I'm regorganizing this:

US Large cap 23%
VIG Vanguard Divd Appre 7%
SPLV PowerShares Low Volatility 4%
QQQ PowerShares QQQ 6%
VTI Vanguard Total stock 3%
SPY SPDR S&P 500 3%

Analysis: What's gained in low volatility is lost with QQQ. Suggestion: 11% in VIG or SPLV and 12% Total Stock Market would have about the same small/large/low volatility weightings.

US small cap 3%
IWM iShares Russell 2000 3%

Analysis: Lose this.


Intl Developed 18%
DXJ WisdTree Japan Hedged Eq 6%
EWH iShares MSCI HK 6%
EWG iShares Germany 3%
VEA Vanguard International 3%

Analysis: 24% foreign currency exposure when you include the bond funds and ignore the hedged Japan equity. Optimum is around 25 to 30% for foreign currency exposure. Overweighting Asia a bit much and trying to hide in the best Euro nation. EM stocks are underweight by just looking at them, but Hong Kong (aka HK) is a probably half mainland China. What is gained by being defensive is lost in less diversification. Replace all foreign stock with Total Intl. and get roughly the same market weight of 25% EM. International small cap would work better as a diversifier.

EM stocks 3%
ECON EGShares Emerg Mkts 2%
VWO Vanguard Emerg Mkts 1%

Analysis: Lose this.

Commodities 9%
DBC PowerShares Commodity 4%
IAU iShares Gold Trust 4%
GLD Gold 1%

Analysis: This is stupid. Both IAU and GLD hold gold bullion.

REITS 12%
VNQ Vanguard REIT 6%
IFGL iShares FTSE dev ex-US RE 6%

Analysis: Kind of heavy on real estate.


US Bonds 28%
BND Vanguard Total Bond 13%
SCPB Barclays ST Corp Bond 5%
QLTA iShares AAACorp Bond 2%
IEF iShares 7-10 yr Treasury 3%
TIP iShares TIPS Bond 3%
HYS Pimco 0-5 Hi-Yield 2%

Analysis: Yuck! You can replicate this with 25% in BND and 3% TIPS. If you want the junk then get something like Pimco Total Return ETF (BOND) instead of BND because they have a little junk, but the ER is higher. More TIPS would actually have some impact too as 3% is a bit on the dinky side.


Intl Bonds 3%
ALD WisdTree Asia Local Debt 3%

Analysis: I can take this or leave it. A broader EM debt fund might be better.

I can get pretty close without all the smoke screen to camouflage the normal market weightings. I could even get rid of ALD by putting another 2% in BND and 1% in Total Intl.

11% VIG
15% VTI
21% total intl
4% DBC
5% IAU
6% VNQ
6% IFGL
25% BND
3% TIP
3% ALD

I think the original numbers added to 99% percent so I'm sticking with those numbers.

Paul
...and then Buffy staked Edward. The end.
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Re: Can this 24-ETF portfolio be simplified?

Postby EDN » Wed Apr 03, 2013 8:40 pm

Windhaven alert! Just use the 3 indexes they benchmark themselves to, since Schwab paid a sily sum to buy them (based on a meaningless short-term past track record), they've underperformed them pretty badly.

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Food for thought.

Postby Taylor Larimore » Wed Apr 03, 2013 8:51 pm

As way of background, I'm paying an advisor 1% to manage this portfolio (which consists of periodic rebalancing) - the portfolio is designed to protect on the downside. I posed the question because the portfolio seems to be getting a bit diversified (24 ETFs ... yikes), and so I wonder if it's possible/wise to manage it myself with a much simpler mix of ETFs.

2BCruising:

Welcome to the Bogleheads Forum!

Compare your portfolio with this simple and easily self-managed portfolio:

The Three Fund Portfolio

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Can this 24-ETF portfolio be simplified?

Postby parsi1 » Wed Apr 03, 2013 8:54 pm

If you want to simplify, use a one fund portfolio of a Vanguard life strategy or a Vanguard Target Dated fund, for a more complete/complicated portfolio add Reit.
What has been your annual return with the 24-fund portfolio? have you beat any of the bench mark indexes like S&P 500 or you are lagging?
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Re: Can this 24-ETF portfolio be simplified?

Postby InvestorNewb » Wed Apr 03, 2013 9:06 pm

parsi1 wrote:What has been your annual return with the 24-fund portfolio? have you beat any of the bench mark indexes like S&P 500 or you are lagging?


I'm also curious about this... 24 ETFs seems overkill and superfluous.

Check out my 4-fund portfolio for a simpler one. (see signature)
Current Holdings: VTI, VXUS, VNQ, VCE (largest to smallest)
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Re: Can this 24-ETF portfolio be simplified?

Postby Chuck » Thu Apr 04, 2013 12:32 am

I would look at the cost basis of each holding to make sure you wouldn't be taking a big tax hit just to simplify to fewer holdings. I have a few things that aren't a perfect fit for my target portfolio, but I keep them because it's cheaper than simplifying, even over the long term.
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Re: Can this 24-ETF portfolio be simplified?

Postby grabiner » Thu Apr 04, 2013 1:28 am

2BCruising wrote:The following is a diversified growth-oriented portfolio with 24 ETF holdings. It's split roughly 30%/50%/20% between bonds/equities/other (real estate + commodities).

For those of you who espouse the simple/lazy approach to AA, can you recommend a similar portfolio with fewer ETF holdings? BTW, this portfolio is based on a very elaborate modeling of economic/market data, and every holding was selected for a very targeted reason. Thanks much.


There isn't much point in holding multiple holdings in the same asset class. You can have three asset classes (which makes for a very simple portfolio) or 11 (which is what I have in my slice-and-dice portfolio), but either way, you can simplify. I'll arrange the portfolio by asset class. Also, tiny holdings probably aren't worthwhile even if they are in theoretically separate classes (such as high-yield bonds); they won't make enough difference to be worth the trouble.

Is this a taxable or tax-deferred portfolio? You might need to keep some tax-efficient ETFs that would be expensive to sell in a taxable account, such as SPY, IWM, VEA, and VWO. If you do, don't buy any more, and just treat them appropriately in your portfolio (SPY+IWM is close to Total Stock Market, and VEA+VWO is close to Total International). I would still recommend selling any ETF which is expensive

BND Vanguard Total Bond 13%
SCPB Barclays ST Corp Bond 5%
TIP iShares TIPS Bond 3%
IEF iShares 7-10 yr Treasury 3%
ALD WisdTree Asia Local Debt 3%
HYS Pimco 0-5 Hi-Yield 2%
QLTA iShares AAACorp Bond 2%

Replace these with BND and TIP. QLTA, SCPB, and IEF combined are essentially the same as BND, and the other two are tiny.

VIG Vanguard Divd Appre 7%
QQQ PowerShares QQQ 6%
SPLV PowerShares Low Volatility 4%
VTI Vanguard Total stock 3%
IWM iShares Russell 2000 3%
SPY SPDR S&P 500 3%


Again, this looks like a random mix; you have Total Stock Market, large-cap, small-cap, growth, and value. If you are trying to get a generally diversified portfolio, just use VTI; if you are deliberately trying to tilt it in some way (say by overweighting small-caps), use VTI and one more fund to do that.

DXJ WisdTree Japan Hedged Eq 6%
EWH iShares MSCI HK 6%
EWG iShares Germany 3%
VEA Vanguard International 3%
ECON EGShares Emerg Mkts 2%
VWO Vanguard Emerg Mkts 1%

You are greatly overweighting Asia here. I don't think this is a deliberate decision, so you could replace the whole thing with VXUS.

IFGL iShares FSE NAREIT 6%
VNQ Vanguard REIT 6%

No simplification is needed here, but you might switch from IFGL to Vanguard's VNQI for lower expenses. (And these should not be held at all in a taxable account.) This REIT allocation also looks a bit high.

DBC PowerShares Commodity 4%
IAU iShares Gold Trust 4%
GLD Gold 1%

I don't happen to like commodities or gold, but if you do have them, there is no point in holding both IAU and GLD unless you have GLD that you don't want to sell for tax reasons.

Making all these changes, you can keep about the same allocation with:
20% BND
10% TIP
30% VTI
20% VXUS
5% VNQ
5% VNQI
5% DBC
5% IAU

and I would recommend dropping the last two for 10% more VTI.

I'm paying an advisor 1% to manage this portfolio (which consists of periodic rebalancing) - the portfolio is designed to protect on the downside.

It wouldn't have done this (in either the old or new form); any portfolio which is 60% stock would have lost about 20% of its value in 2000-2002 and 30% of its value in 2007-2009.
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Re: Can this 24-ETF portfolio be simplified?

Postby matt.danley » Thu Apr 04, 2013 2:41 pm

2BCruising wrote:DBC PowerShares Commodity 4%
IAU iShares Gold Trust 4%
GLD Gold 1%


In my personal opinion, you could reduce your holdings to eight (or fewer) ETFs based on the broader asset classes.

For Equities: You could actually just use VT or VTI/VXUS, but slice-and-dicers usually prefer to separate out US/Intl/Emerging to overweight higher beta areas.
VTI (If you want lower volatility, SPLV)
VEU (EFAV)
VWO (EEMV)

For Bonds: I use 10Y Treasuries as my fixed income allocation. My wife has some corporate bonds in her IRA. BND is fine.
IEF/BND

For Real Estate:
VNQ
VNQI (if you want International)

For Alternatives:
IAU/GLD/PHYS (if you want Gold, which I think is 100% fine)
DJP (Futures-based commodity exposure, can also use VDE as a leveraged commodities)

So my recommendation would be:
VTI (26%)
VEU (18%)
VWO (3%)
BND (30%)
VNQ (6%)
VNQI (6%)
DJP (5%)
IAU (5%)

IMO, the extra "diversification" you get with other 1-3% allocations is not worth the extra costs. If you wanted to add any layer of complexity in addition to running an eight ETF portfolio, I would add a moving average trend following system to these ETFs. Don't over complicate this. "Investing" rarely if ever leads to wealth generation. Having a high savings rate and a low cost of investments are the two most important aspects to focus on for building your wealth.

All the best.
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Re: Can this 24-ETF portfolio be simplified?

Postby Scott S » Thu Apr 04, 2013 3:07 pm

+1 to "yes, and you should simplify this portfolio". A 2-4 fund portfolio will work just about as well, and save you money. :sharebeer
My Plan: * Age-10 in bonds until I reach age 60, 50/50 thereafter. * Equity split: 50/50 US/Int'l, Bond split: 50/50 TBM/TIPS. * Everything over 2 months' expenses gets invested.
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Re: Can this 24-ETF portfolio be simplified?

Postby 2BCruising » Thu Apr 04, 2013 4:46 pm

Thanks, everyone, for taking the time to analyze, comment and recommend.

And yes, this portfolio has lagged its benchmark over the past three years ... hence my frustration. I'll take your suggestions and do some replacing/re-balancing on my own. Your feedback is much appreciated.
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Re: Can this 24-ETF portfolio be simplified?

Postby jccasey » Fri May 10, 2013 10:39 am

2BCruising:
Is your portfolio currently managed by Windhaven? They have been selling what appears to be a very good 11 year track record but have failed to hit any of their benchmarks over the past 5 years. I suspect they got lucky in the early years because they were heavily allocated to commodities and emerging markets, which did well. Their recent poor performance seems to be proof that they simply got lucky for a period of time.
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Re: Can this 24-ETF portfolio be simplified?

Postby barnaclebob » Fri May 10, 2013 11:28 am

Where can you plot 24 funds on one chart, i'd like to see that...morningstar looks like it only allows 8 or so.
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Re: Can this 24-ETF portfolio be simplified?

Postby nedsaid » Sat May 11, 2013 1:25 am

I guess my reaction is that you are paying 1% too much to have this managed.

What is the need for single country funds like Hong Kong, Germany, and Japan? Why are two gold funds needed? Two emerging markets funds?

Not a horrible portfolio, but I don't really see a strategy here. I don't see what market premiums that this portfolio is trying to capture. It just seems all over the map. My guess is that some of these picks are from making market predictions about what they think will perform well in the near future. Germany and Japan have performed well recently and I suppose Hong Kong is a play on China. I think you need a better strategy than picking individual countries like stocks. There should be more of a focus on broad asset classes rather than very narrow sections of the stock and bond markets.

You sound like someone who needs to write out an investment policy statement. What are your goals for this money? What is your desired asset allocation? Do you believe in the small over large and value over growth premiums? Or do you believe in efficient markets and indexing? Do managed funds have a place in your portfolio? What level of risk are you willing to accept?

Run this through the Morningstar X-Ray and see what you really have.

My own portfolio has a lot of stuff in it but big picture is that I tilt towards small and medium cap stocks and I tilt towards value. My bonds I keep mostly in investment grade medium term bonds. A complicated portfolio isn't necessarily bad, it is bad if there is no real strategy behind it.

So the first thing is to find out what you really have. Then get a plan and a strategy. Then align your portfolio to fit the strategy.
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Re: Can this 24-ETF portfolio be simplified?

Postby Archie Sinclair » Sat May 11, 2013 3:47 pm

2BCruising wrote:BTW, this portfolio is based on a very elaborate modeling of economic/market data, and every holding was selected for a very targeted reason.

Are you familiar with overfitting?

"Overfitting occurs when a statistical model describes random error or noise instead of the underlying relationship. Overfitting generally occurs when a model is excessively complex, such as having too many parameters relative to the number of observations. A model which has been overfit will generally have poor predictive performance, as it can exaggerate minor fluctuations in the data."(http://en.wikipedia.org/wiki/Overfitting)

It's possible to choose an elaborate combination of dozens of ETFs that would have precisely maximized performance in the past. But that doesn't mean that it will work in the future. It's sort of like shooting an arrow at a wall and then drawing a bulls-eye around the exact place where the arrow hits.

This advisor is in the business of making it seem like you need him or her to manage this overcomplicated portfolio.
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Re: Can this 24-ETF portfolio be simplified?

Postby sometimesinvestor » Sun May 12, 2013 10:33 am

While not exactly boglehead I think its ok to make one or two bets (because its fun, helps you pay attention , might work out well) What I mean by a bet others have called tilting(think overweighting small caps, emerging markets etc).My current bet and not necessarily correct is eliminating long duration bonds and overweighting small cap international.,
I think this portfolio is making too many different bets especially in the selection of foreign stocks and of course unless you are a billionaire and need incredible liquidity owninng both GLD and IAU is just wrong. Stick with the latter if you want gold.

Years ago I invested in a large number of equity mutual funds of different types so that I would outperform in at least one fund. I am now convinced that I was paying high fees for what was essentially a total market fund,ETFs have lower fees but that is still an issue you should be concerned about.
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Re: Can this 24-ETF portfolio be simplified?

Postby nedsaid » Sun May 12, 2013 11:19 am

The problem with placing short term bets is that markets act in a way that you do not expect. The bets on Germany and Japan look really smart right now. I heard that the German market was at an all-time high and that the Japanese market has been hot. After reading all the headlines and articles about the crisis in Europe, the death of the Euro, and pretty much the end of civilization in Europe; I was surprised to check my international funds (all heavy in Europe) and to see they were all up!!

A financial advisor told me to reduce my Europe holdings because of all the uncertaintly. I stuck with what I had and it turned out that the European markets went straight up!!

It looks like the 24 ETF portfolio is a series of short term bets. The advisors might be right on all of them. My suspicion is that the advisors will be right on some and wrong on some and that the bets will cancel each other out. You will probably get the market return less the one percent and perhaps more.

I have placed long term bets on the small/mid cap premium and on the value premium. My portfolio is tilted but not by too much. I still have a lot of large stocks and growth stocks. It is that I have tilted a bit from the market. So I have made long term bets based on academic research but in my view I have not overdone it. It is not based on "Canada will be hot
next year" or "pharmaceuticals will be the place to be." I own some individual stocks but in general I am invested in
broad asset classes. Will I be right? Won't know until I retire and see if I have "enough." If I am wrong, I won't be wrong by much. I am taking a chance that the small/mid cap and value premiums will get me the extra return I seek.

An even simpler approach of a total US Stock Index, a total International Index, and a total US Bond Index works great too. Lower costs and not everyone believes in the small/mid cap and value premiums.

So take a long term approach on your portfolio and don't try to score on short term guesses on what is going to be hot next year.
A fool and his money are good for business.
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Re: Can this 24-ETF portfolio be simplified?

Postby 123 » Sun May 12, 2013 11:53 am

A couple of posts have mentioned Windhaven management which I have looked into in the past but have passed on so far. One of the "selling" points of Windhaven management is downside protection (actually moderation since they say their mix will sacrafice some highs to avoid some lows). It's a fundamentally different portfolio mix to include downside moderation versus market return.

What options would work for a Boglehead to provide downside moderation (other then simply a higher percentage in cash/treasuries)?

Or is downside moderation a marketing fiction?
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Re: Can this 24-ETF portfolio be simplified?

Postby nedsaid » Sun May 12, 2013 12:22 pm

Downsized moderation works in theory and works when backtested. The problem is that the correlation between asset classes change over time and no one really knows how asset classes will perform in the next crisis. This is the problem I have with the Monte Carlo simulations. Much better than nothing but still very educated guesswork.

For example, a big hike in interest rates could possibly crater both stocks and bonds. It is possible that in this scenario that bonds would not provide the downside protection that they have in the past. No one knows for sure.

Sometimes in a crisis, EVERYTHING goes down. Some things will go down more than others. In panics, sometimes the baby, the bathwater, and even the tub get thrown out the window. There are periods of time that even broad diversification doesn't work very well.

So I believe in portfolio theory and I believe in broad diversification. But on rare occasions even excellent strategies don't work very well. So you just have to wait until sanity returns and asset values recover.

In investing, you tilt the odds in your favor as much as you can but nothing is guaranteed.
A fool and his money are good for business.
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Re: Can this 24-ETF portfolio be simplified?

Postby G-Money » Sun May 12, 2013 3:21 pm

123 wrote:What options would work for a Boglehead to provide downside moderation (other then simply a higher percentage in cash/treasuries)?

Other short- or intermediate-term investment grade bonds will work, too, but not as well. CDs, stable value funds, savings bonds will work, and, depending on whom you ask, may be better than cash/treasuries.

123 wrote:Or is downside moderation a marketing fiction?

Once you start venturing outside of the options outlined above, yes, it's mostly marketing fiction.
Don't assume I know what I'm talking about.
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Re: Can this 24-ETF portfolio be simplified?

Postby Clearly_Irrational » Mon May 13, 2013 12:27 am

G-Money wrote:
123 wrote:Or is downside moderation a marketing fiction?

Once you start venturing outside of the options outlined above, yes, it's mostly marketing fiction.


I would disagree, however I would say that often times the protection is expensive and may not be something you can easily incorporate into a regular buy and hold stock/bond portfolio. Options for example.
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Re: Can this 24-ETF portfolio be simplified?

Postby LH » Mon May 13, 2013 4:26 am

I would junk that and start over, have to take into account taxable accounts if any, and tax consequences.

All those small allocations are just noise. Now, if you are actually Bill Gates, then sure, something like that has meaning perhaps if 1 percent is a billion dollars or something, gotta spread out the market impact and such.

As far as I can ascertain, something like that is just complexity that your advisor is selling you, unless there is a reason to have multiple gold funds, multiple EM funds, such as some are not offered in certain accounts.

If I would jumble mine up, and list them out though, it may look like yours though....... I have 9 asset classes, and 8 of them have ETF and Funds, as well as an HSA that has a different name for the bond fund I think....

So sure, I guess I have 16 different vehicles I invest by. I also have two individual stocks in taxable, I guess I could throw them in too.

But it comes out for me:

13.5 percent each: TSM, SCV, REIT (US), then australiasia, europe, emerging (foreign)
8 percent each: aggregate bonds, TIPS
3 percent gold. (about halfway into gold)

So maybe its just presentation. It might not actually be that bad/messy as you are making it seem offhand? But looking at it though, it does not seem very coherent. Does seem to be messy, and complicated for no evident reason. Like picking Germany and Japan, why not france and australia? Or belgium? Why concentrate there? etc. etc.

I would junk it, start over.
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