3 Best ETF for very Lazy Portflolio strategy

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3 Best ETF for very Lazy Portflolio strategy

Postby Tomdc2012 » Wed May 29, 2013 11:24 am

After 5 years trying to beat the index and buying individual stocks I have decided to give up and take a new start by investing in Index Funds.
This forum really convinced me that with a “passive” strategy I’ll be able to save more time for my family and I’ll get better returns! thanks for all your contributions.
I’d like to keep as simple as possible by buying only 3 index funds :

1-US Equity stock market
2- International equities
3-Bonds

I have currently an account at Schwab and Fidelity. I’d like to stay with them and not opening a new one.
Considering that I plan to buy these 3 ETF each month during the next 30 years (I am 30) I’d like to make the best choice as possible right now and then set up an automatic investment process without having to think to much about it.
What would be the best choice among Fidelity’s ETF and Schwab’s ETF for these 3 categories ? Both propose free commission ETF, with low ER, and comparable bid/ask spreads :
If I go with Schwab I’d take :
1-SCHB fur US Equities :past returns are higher than SCHX while the ER is the same and it is less concentrate than SCHX
2-SCHF for international equities
3-SCHZ
If I go with Fidelity I’d take :
1-ITOT or IVV ? for US stocks
2-IXUS for international (ER is 0.16% vs 0.09 for SCHF)
3-AGG for Bonds (Concentration risk is 6.71 vs 17.16 for SCHZ )

Since I have an account in Schwab and Fidelity I have no problem in picking one ETF at Schwab and the two others at Fidelity or the opposite. Also I like the idea to stay with two broker – just in case one go out of business one day…
I just want to get the “best” ones of both worlds in order to optimize this very simple portfolio ! maybe the best ones are not commission free (I have not made a comprehensive review of all others ETF they propose) ? but since I want to buy them each month I think free commission is really nice

What would be your preferred ETF's to follow that terrific strategy? and why ?
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Re: 3 Best ETF for very Lazy Portflolio strategy

Postby BigFoot48 » Wed May 29, 2013 12:50 pm

I'm at Schwab, and these are my core holdings. I switched to ETFs when I restructured my portfolio a few years ago and wanted to reduce my trading costs. As it turned out, I so rarely trade/re-balance that it may take a decade to recoup the costs of converting from mutual funds to ETFs.

Schwab S&P500 - SWPPX (chosen because it was commission-free, and close enough to Total Market for me)
Vanguard Total International Stock - VXUS
Vanguard Total Bond - BND
Vanguard Inflation-Protected Securities VIPSX (either an ETF wasn't available when I converted, or I didn't plan on trading this fund so left it alone, can't remember which.)

But if you are accumulating, and want no-fee, then the Schwab funds may be just fine. I would just investigate them to make sure their performance and fees are "close enough" to Vanguard.
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Re: 3 Best ETF for very Lazy Portflolio strategy

Postby e5116 » Wed May 29, 2013 1:01 pm

2-SCHF for international equities


For International Equities at Schwab, you'd want to hold both SCHF and SCHE. SCHF is just Developed Markets (i.e. is not the entire foreign equity universe) while SCHE is Emerging. You can look up the latest market weights at a variety of sites, but I think it should be somewhere around 75% SCHF, 25% SCHE. I hold SCHF (Foreign Developed), SCHE (Foreign Emerging), and SWTSX (Total US Stock Mutual Fund) at Schwab; most of my holdings are at Vanguard.
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Re: 3 Best ETF for very Lazy Portflolio strategy

Postby ogd » Wed May 29, 2013 1:46 pm

Welcome TomDc! To bogleheads and to indexing in general.

Tomdc2012 wrote:If I go with Schwab I’d take :
1-SCHB fur US Equities :past returns are higher than SCHX while the ER is the same and it is less concentrate than SCHX
2-SCHF for international equities
3-SCHZ
If I go with Fidelity I’d take :
1-ITOT or IVV ? for US stocks
2-IXUS for international (ER is 0.16% vs 0.09 for SCHF)
3-AGG for Bonds (Concentration risk is 6.71 vs 17.16 for SCHZ )

Since I have an account in Schwab and Fidelity I have no problem in picking one ETF at Schwab and the two others at Fidelity or the opposite. Also I like the idea to stay with two broker – just in case one go out of business one day…


Both of these are great options (ITOT rather than IVV). In terms of what broker to choose...

As much as I like Schwab, there's no denying it's a place for traders and you'll constantly be encouraged to do it, whereas Fidelity caters more to savers. In your situation, it's as if you recently quit smoking and Fidelity is a liquor store with cigarettes discreetly tucked behind the counter, while Schwab is a smoke shop with a drinks fridge. You might want to get your drinks at Fidelity, just sayin'. In that analogy, a Vanguard mutual fund account (no brokerage) is the American Lung Association or something...

If you trust your commitment, on the other hand, I'd recommend focusing on the one account you're most likely to keep long-term (e.g. if you have a 401k at Fidelity), and use the other one sparingly, for example just for SCHF or even less. Keeping track and rebalancing between brokers is not fun.
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Re: 3 Best ETF for very Lazy Portflolio strategy

Postby Investing is boring » Wed May 29, 2013 1:48 pm

VTI
VXUS
BND

Simple.
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ETFs vs. Mutual Funds

Postby Taylor Larimore » Wed May 29, 2013 2:30 pm

Tom:

Welcome to the Bogleheads Forum!
I have currently an account at Schwab and Fidelity. I’d like to stay with them and not opening a new one. Considering that I plan to buy these 3 ETF each month during the next 30 years (I am 30) I’d like to make the best choice as possible right now and then set up an automatic investment process without having to think to much about it.


Our wiki lists the Three Portfolio Funds & ETFs with different companies here:

http://www.bogleheads.org/wiki/Three-Fund_Portfolio

I think you should consider mutual funds over ETFs, particularly if you plan regular investments:

* Returns are usually better: http://www.efficientfrontier.com/ef/104/stupid.htm

* Boglehead Rick Ferri, author of "The ETF Book," wrote: "The more I learn about what goes on behind the scenes in ETF trading, especially where that spread goes and who is getting rich, the more I'm inclined to use traditional open-end mutual funds."

* Automatic Investment Plans, and automatic withdrawals & exchanges may not be doable with ETFs.

* Exact dollar amounts may not be doable with ETFs.

* Mutual funds purchase at NAV without bid/ask spreads of ETFs.

* Never a worry about best time of day to purchase.

I would also consider holding everything at one good company for simplicity.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: 3 Best ETF for very Lazy Portflolio strategy

Postby Tomdc2012 » Wed May 29, 2013 7:55 pm

Thanks a lot for your replies and useful links :

I'll probably go with free commission ETF from Schwab : SCHB (60%) ; SCHF (10%) ; SCHE (10%) ; SCHZ (20%). Expense ratio are lower than fidelity.

Regarding the arguments on mutual funds, here are my thoughts :

* returns are really better : I read carefully the link about efficient frontier and I am not convinced at all. We don't know precisely which tracker have been compared to which mutual funds. For me the table is not relevant at all. (one simple example : the 5 year return of the ETF IVV is 5.76% vs 5.12% for Vanguard 500 Index Fund Investor Shares (VFINX). Not to mention that the ER is 3 times higher for Vanguard Mutual Fund (0.17% vs 0.06%)

* What means Rick Ferri ? For the most basic trackers mentioned above, spread are very low and it doesn't seem to be an issue. (Maybe on smaller ETF it is a real problem ?)

* Exact dollar amounts : Is it really an issue ? I don't think so

* Never a worry about best time of day to purchase : I'll invest once a month, for buy and long hold, I don't see why I should worry about the best time of the day considering the low spread on the above tracker.

All in all, I think I'll pay more fees with mutual funds than ETF and returns will probably be very close. I want a lazy portfolio, but at least I can do it myself to avoid mutual fees ;-)
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Re: ETFs vs. Mutual Funds

Postby tj-longterm » Wed May 29, 2013 8:41 pm

Taylor Larimore wrote:I think you should consider mutual funds over ETFs, particularly if you plan regular investments:

* Returns are usually better: http://www.efficientfrontier.com/ef/104/stupid.htm



Taylor, this article is about comparing ETFs (in particular iShares) to Vanguard, not Vanguard Funds vs Vanguard ETFs. Most here wouldn't be surprised to find that a Vanguard fund is better than an iShares ETF. The reason he says to not buy ETFs is because "corporate culture counts" and the Vanguard culture is better than the iShares culture.

So I agree, non-Vanguard ETFs probably are not a great idea, but I'm not sure how you could draw a conclusion that one shouldn't buy Vanguard ETFs, particularly if you have your account outside Vanguard and therefore don't have access to Admiral class funds.

However, your other points I agree with, and I can't see many advantages to keeping an account at Schwab or Fidelity over Vanguard anyway.
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Re: ETFs vs. Mutual Funds

Postby RNJ » Wed May 29, 2013 8:53 pm

Taylor Larimore wrote:Tom:

Welcome to the Bogleheads Forum!
I have currently an account at Schwab and Fidelity. I’d like to stay with them and not opening a new one. Considering that I plan to buy these 3 ETF each month during the next 30 years (I am 30) I’d like to make the best choice as possible right now and then set up an automatic investment process without having to think to much about it.


Our wiki lists the Three Portfolio Funds & ETFs with different companies here:

http://www.bogleheads.org/wiki/Three-Fund_Portfolio

I think you should consider mutual funds over ETFs, particularly if you plan regular investments:

* Returns are usually better: http://www.efficientfrontier.com/ef/104/stupid.htm

* Boglehead Rick Ferri, author of "The ETF Book," wrote: "The more I learn about what goes on behind the scenes in ETF trading, especially where that spread goes and who is getting rich, the more I'm inclined to use traditional open-end mutual funds."

* Automatic Investment Plans, and automatic withdrawals & exchanges may not be doable with ETFs.

* Exact dollar amounts may not be doable with ETFs.

* Mutual funds purchase at NAV without bid/ask spreads of ETFs.

* Never a worry about best time of day to purchase.

I would also consider holding everything at one good company for simplicity.

Best wishes.
Taylor


To a word, this is terrific advice. For the asset classes to which you are seeking exposure, I can't think of a single good argument to use ETFs. To your post specifically, there is nothing "lazy", "automatic" or thought-free about purchasing ETFs.

Think Vanguard Admiral shares :wink:

Then go live your life.
Last edited by RNJ on Wed May 29, 2013 11:11 pm, edited 3 times in total.
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Re: 3 Best ETF for very Lazy Portflolio strategy

Postby ogd » Wed May 29, 2013 9:28 pm

Tomdc2012 wrote:* returns are really better : I read carefully the link about efficient frontier and I am not convinced at all. We don't know precisely which tracker have been compared to which mutual funds. For me the table is not relevant at all. (one simple example : the 5 year return of the ETF IVV is 5.76% vs 5.12% for Vanguard 500 Index Fund Investor Shares (VFINX). Not to mention that the ER is 3 times higher for Vanguard Mutual Fund (0.17% vs 0.06%)


Taylor means the Vanguard Admiral class mutual funds, which can be purchased at Vanguard only. The proper comparison would be VFIAX, ER 0.05%, which does outperform IVV by a tiny amount, as in the kind of money you'd leave in the laundry accidentally.

Tomdc2012 wrote:* What means Rick Ferri ? For the most basic trackers mentioned above, spread are very low and it doesn't seem to be an issue. (Maybe on smaller ETF it is a real problem ?)


Rick Ferri is an author and contributor on this forum.

Tomdc2012 wrote:* Never a worry about best time of day to purchase : I'll invest once a month, for buy and long hold, I don't see why I should worry about the best time of the day considering the low spread on the above tracker.


The spreads and NAV premium/discounts do exist, whether you worry about them or not. For IVV the range seems to be -0.30 .. 0.10 for the past year. For SCHB the history is harder to see on schwab.com right now, but it should be a larger range because it's a 20x smaller fund.
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Re: 3 Best ETF for very Lazy Portflolio strategy

Postby baw703916 » Wed May 29, 2013 10:03 pm

So, it turns out that Bill Bernstein wrote more than one post on ETFs on his Efficient Frontier site. Not that you shouldn't read the one linked to earlier, but to be fair, I think this one deserves reading as well:

http://www.efficientfrontier.com/ef/901/shootout.htm

Secondly, saying that "index funds usually outperform ETFs" is downright silly for a truly apples to apples comparison: VTSAX to VTI (admiral shares and ETF shares of TSM). It's mathematically impossible for them to have a sustained performance difference since they are share classes of the same fund, have the same expense ratio, and any difference between ETF price and NAV can be arbitraged away.
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Re: 3 Best ETF for very Lazy Portflolio strategy

Postby TheGreyingDuke » Thu May 30, 2013 12:10 am

Tomdc2012 wrote:* Never a worry about best time of day to purchase : I'll invest once a month, for buy and long hold, I don't see why I should worry about the best time of the day considering the low spread on the above tracker.


Except if you buy ETFs at the beginning of the trading day you will find that the spreads are often quite large, as compared to their "normal".
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