How to achieve 3 fund portfolio using the following funds

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Topic Author
slowlrnr
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Joined: Fri Feb 01, 2013 5:45 pm

How to achieve 3 fund portfolio using the following funds

Post by slowlrnr »

Long time lurker and strong believer in 3 fund portfolio (thank you Taylor).

Is there any way I can acheive 40 total bond index, 30 total domestic stock index and 30 total international stock index using the following funds.

American Funds American Balanced A - ABALX - 0.63%
American Funds Bond Fund of Amer A - ABNDX - 0.6%
Vanguard Developed Markets Index Inv - VDMIX - 0.2%
American Funds Growth Fund of Amer A - AGTHX - 0.71%
PIMCO Total Return Admin - PTRAX - 0.71%
Vanguard Mid Cap Index Fund Signal VMISX - 0.1%
Vanguard Small Cap Index Signal - VSISX - 0.1%
Great-West SF Balanced Fund G1 MXSHX - 0.76% - Argggh!
Great-West SF Lifetime 2020 Fund G1 - MXSPX - 0.77%
Great-West SF Lifetime 2030 Fund G1 - MXASX - 0.81%
Great-West SF Lifetime 2040 Fund G1 - MXESX - 0.82%
Vanguard High Dividend Yield Index Inv - VHDYX- 0.2% ER
Last edited by slowlrnr on Tue Jun 11, 2013 7:31 pm, edited 2 times in total.
pingo
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Re: How to achieve 3 fund portfolio using the following fund

Post by pingo »

Expense ratios and ticker symbols, where available, please? :D
Topic Author
slowlrnr
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Re: How to achieve 3 fund portfolio using the following fund

Post by slowlrnr »

pingo wrote:Expense ratios and ticker symbols, where available, please? :D
Updated the original post. I am trying some combinations in the xray tool but still not able to figure out the distribution. Do you see any hope here with these hopeless funds.
Twins Fan
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Re: How to achieve 3 fund portfolio using the following fund

Post by Twins Fan »

Not terrible. Those fees are more reasonable than many out there. Is this in a 401k, or some type of plan like that?

Without knowing the whole situation, here's a guess of how things could go for you... Some sort of combo between the American funds balanced, mid cap index, and small cap index to try and come close to total stock market, and then Pimco total return held in this account. Then hold total international and total bond in a Roth or traditional IRA. Split the fixed income parts 50/50 between the Pimco fund and total bond. Easy to rebablance that way and a simulated three fund of sorts. It could be made to work if that's all you have available.
Topic Author
slowlrnr
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Re: How to achieve 3 fund portfolio using the following fund

Post by slowlrnr »

Twins Fan wrote:Not terrible. Those fees are more reasonable than many out there. Is this in a 401k, or some type of plan like that?

Without knowing the whole situation, here's a guess of how things could go for you... Some sort of combo between the American funds balanced, mid cap index, and small cap index to try and come close to total stock market, and then Pimco total return held in this account. Then hold total international and total bond in a Roth or traditional IRA. Split the fixed income parts 50/50 between the Pimco fund and total bond. Easy to rebablance that way and a simulated three fund of sorts. It could be made to work if that's all you have available.
Thank you for the answer.

Yes, they are funds in 401k and I want to achieve the same results through these funds as my other portfolio which is three fund portfolio.

So essentially, I will have to rebalance the holdings in roth/traditional or her 401k and treat it as one portfolio.

Now, if you were to pick only three funds from this, what would those be and how would I rebalance TISM, TSM and TBM?
Iorek
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Re: How to achieve 3 fund portfolio using the following fund

Post by Iorek »

slowlrnr wrote:Long time lurker and strong believer in 3 fund portfolio (thank you Taylor).

Is there any way I can acheive 40 total bond index, 40 total domestic stock index and 40 total international stock index using the following funds.
If those are percentages, then I am going to venture a guess that there is no way you can do it. :wink:
Topic Author
slowlrnr
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Re: How to achieve 3 fund portfolio using the following fund

Post by slowlrnr »

Iorek wrote: If those are percentages, then I am going to venture a guess that there is no way you can do it. :wink:
lol! fixed the original post :)
Twins Fan
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Re: How to achieve 3 fund portfolio using the following fund

Post by Twins Fan »

slowlrnr wrote:So essentially, I will have to rebalance the holdings in roth/traditional or her 401k and treat it as one portfolio.

Now, if you were to pick only three funds from this, what would those be and how would I rebalance TISM, TSM and TBM?
Yes, and think of it as one portfolio... because it is. All of your accounts between you and her (assuming your married here) make up your portfolio.

You could do the american funds balanced fund, mid cap index, and small cap index to mimic total stock market the best you could. Then hold the international and bond portions in her 401k, or in a Roth and rebalance there.

What funds do you/does she have in her 401k? Do you two have a Roth for either or both of you? You have some options here, but we need the whole picture to better advise you.
medstudent12
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Re: How to achieve 3 fund portfolio using the following fund

Post by medstudent12 »

There probably won't be a way to approximate the entire market using only three funds from the ones you listed (barring the use of one of the target date funds, perhaps...). You'll end up missing a chunk of the market.

That said, you could use something like the following:

Equities:
American Funds American Balanced A - ABALX - 0.63%
Vanguard Mid Cap Index Fund Signal VMISX - 0.1%
Vanguard Small Cap Index Signal - VSISX - 0.1
Vanguard Developed Markets Index Inv - VDMIX - 0.2%


Fixed Income:
PIMCO Total Return Admin - PTRAX - 0.71% or American Funds Bond Fund of Amer A - ABNDX - 0.6%

Plug in your desired allocations to get a fairly simple portfolio that basically covers everything. See this link (http://www.bogleheads.org/wiki/Approxim ... ock_Market) for more info on approximating the total stock market, if you want.

It's not three funds, but it's not all that bad. :happy

As was mentioned previously, you could use a Roth or Traditional IRA at Vanguard to get access to some different funds to balance out this 401k, if you so desire.
Topic Author
slowlrnr
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Re: How to achieve 3 fund portfolio using the following fund

Post by slowlrnr »

Twins Fan wrote: You could do the american funds balanced fund, mid cap index, and small cap index to mimic total stock market the best you could. Then hold the international and bond portions in her 401k, or in a Roth and rebalance there.

What funds do you/does she have in her 401k? Do you two have a Roth for either or both of you? You have some options here, but we need the whole picture to better advise you.
Thank you again.

Her 401k has ssga total bond and ssga total stock so able to do the three fund distribution there including international in both our Roth IRA.
patrick
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Re: How to achieve 3 fund portfolio using the following fund

Post by patrick »

Allocating the portfolio as a whole, rather than each account separately, is a huge benefit when you have a 401K like this. How much you can gain depends on what fraction of your portfolio is in the 401K. I wouldn't use any fund charging 0.6% or more if I could avoid it!

Vanguard High Dividend Yield Index seems to include stocks of all market caps -- if used in place of total US stock market it would avoid a size tilt, and while it wouldn't be my first choice in an unrestricted portfolio I don't think it's too bad. Then again, I don't think using small/mid only is all that bad either. Vanguard Developed Markets Index is actually fairly good but note that it excludes emerging markets, small caps, and Canada so if you want a full international exposure you'd want to supplement it outside the 401K, if you can. But I would put first priority on getting the bond portion outside of this portfolio to escape 0.6% or more.
Topic Author
slowlrnr
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Re: How to achieve 3 fund portfolio using the following fund

Post by slowlrnr »

Thank you for the replies all and insight. So seems like I have to do some more homework and figure out the percentage in each fund and then pick the low ER funds and stay away from anything over .5% ER. From two inputs seems like American Balanced should be okay but I am still not convinced with .63% and thinking low ER options only but then again, not so great reviews about Vanguard High Yield fund and it does not compare to TSM at all is making it more difficult.
Twins Fan
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Re: How to achieve 3 fund portfolio using the following fund

Post by Twins Fan »

How much do you plan on contributing to the 401k yearly? Is there a match?

The idea of only contributing to the mid and small cap indexes would work also. If you are going to max the contributions out there, you may end up heavily tilted though. The 0.63 ER is not ideal, no, but it's not terrible either.
Topic Author
slowlrnr
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Re: How to achieve 3 fund portfolio using the following fund

Post by slowlrnr »

Twins Fan wrote:How much do you plan on contributing to the 401k yearly? Is there a match?

The idea of only contributing to the mid and small cap indexes would work also. If you are going to max the contributions out there, you may end up heavily tilted though. The 0.63 ER is not ideal, no, but it's not terrible either.
At least 12k this year and yes there is match of 1k. Yes, that is my concern that heavily tilted towards mid and small and does not help with reaching TSM distribution at all. I am going to think about .63 but if you say it is worth it, I will investigate more. Thank you again.
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MoreCowbell
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Re: How to achieve 3 fund portfolio using the following fund

Post by MoreCowbell »

To address the original question, I think this is easy:

40% PIMCO Total Return PTRAX
30% Vanguard High Dividend Yield Index VHDYX
30% Vanguard Developed Market Index VDMIX

Nice, simple, low cost, value-tilted portfolio.
Dan
medstudent12
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Re: How to achieve 3 fund portfolio using the following fund

Post by medstudent12 »

Looking more at the VHDYX fund, it doesn't seem all that bad. It is more of a large value fund, rather than a large blend fund (like Total Stock Market), but it will do given the limitations inherent in your options. You can compare each fund's holding style using Morningstar - just enter in the ticker symbol, scroll down to Holding Style box, and compare away. It does seem that the VHDYX fund is a bit light on small and mid cap, and has basically nothing in terms of growth holdings. If that's fine with you, then it could work as a "total market ex-growth" type index, thereby allowing you to build a workable 3 fund portfolio as described above.
pingo
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Re: How to achieve 3 fund portfolio using the following fund

Post by pingo »

I'll be honest: I might be tempted go with the Great-West SecureFoundation® LT 2020 (MXSPX). I know it's ER is 0.77%, but hear me out.

The Great-West target funds are index fund portfolios equivalent to a 3 fund portfolio (even though they use 7).
Using the Great-West target (index) funds makes your selection far more diversified than options discussed so far, including all caps and all regions.
All-in-one funds shield our eyes from some volatility .
No need to rebalance.

But, there are a few more issues to iron out. First off, you started this thread in February that is more complete, but you didn't list all the 401k options that are listed here. Also, we needed to know federal and state income tax brackets, not effective tax rates.

Sadly, once you did the work to post improve the original post, as suggested in Asking Portfolio Questions, you didn't get any help. :|

It may be more helpful to update this thread with the info in your prior thread, or to move the discussion back over there, now that you have an attentive audience.

Also, think of your desired asset allocation and resulting portfolio like plates on a tray as you approach the buffet: you have 1 large plate, 1 medium plate, plus 2 saucers and you'd like to eat cornflakes, milk, strawberries, eggs and bacon. You can efficiently and simply put each item on different plates according to the size of the plate and the total desired portions, or you can cram small amounts of everything on each plate so that each plate is arranged identically with a bit of each item on each one (even the saucers). Regardless, the amount of food is the same, but one option may make more sense than the other.

You and your spouse may want to discuss whether it is advantageous (or preferable) to view all plates as a single meal, for example...

Hypothetical #1 (not your situation)

His 401k
56% US Equities

Her 403b
24% International Equities

His IRA
10% Bonds

Her IRA
10% Bonds


...or as separate, different-sized meals that are all the same, like...


Hypothetical #2 (not your situation)

His 401k (56%)
31% US Stocks
14% International Stocks
11% Bonds

Her 403b (24%)
13% US Stocks
06% International Stocks
5% Bonds

His IRA (10%)
06% US Stocks
02% International Stocks
02% Bonds

Her IRA (10%)
06% US Stocks
02% International Stocks
02% Bonds

Right now you are asking for help to allocate separate portfolios for each account. I wouldn't blame you after the underwhelming response your first thread.

Separate portfolios are not automatically bad, but keep in mind that the asset allocation of the above hypotheticals are identical, but the first one is simpler and locates asset classes according to which account configuration offers the lowest costs to obtain all desired asset classes. In the second hypothetical, each account would be forced to purchase less-diversified funds at higher costs. All else being equal, the arrangement with the lowest costs, greater diversification and same overall asset allocation wins.

If you would like us to help you organize a portfolio that is more like Hypothetical #1 (even if you're not sure it's what you'd choose in the end), we should probably move back over to the other thread, so you don't have to totally rework this one. I will post a couple thoughts I have for the other thread, in case that helps as well.
Last edited by pingo on Fri Jul 11, 2014 9:33 am, edited 2 times in total.
Topic Author
slowlrnr
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Re: How to achieve 3 fund portfolio using the following fund

Post by slowlrnr »

Aren't you the smart one, Pingo ;)

Yes the response to that thread was not overwhelming but also gave me an opportunity to read up more on this amazing site and gain lot of imformation.

Yes, I do treat my portfolio overall as one but the only problem I see is rebalancing everything again after I finally go a hang of it :( with the taxable and non-taxable, etc.

Anyway, I think that is a wise option and have to put all the holdings again and see what I need to rebalance.

I still do not know if I want to go with .77% ER GW fund since that is really high.
pingo
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Re: How to achieve 3 fund portfolio using the following fund

Post by pingo »

slowlrnr wrote:Yes, I do treat my portfolio overall as one but the only problem I see is rebalancing everything again after I finally go a hang of it :( with the taxable and non-taxable, etc.
Yes, sometimes it's a challenge to see how it can be done until another can point out with specificity how it all works together...and then you'll wonder why you never saw it before. At least that how it happened to me and I'm no pro by any stretch. (The real pros aren't nearly as long-winded...)
slowlrnr wrote:Anyway, I think that is a wise option and have to put all the holdings again and see what I need to rebalance.
Like I said, just paste the info from the older thread into the intial post in this one and update anything if there is new/different information now. Or, paste the funds you list here into the intital post of the other thread and tell us to go find you there. If we can see all the information in one place, we can show you how it all works together in harmony and simplicity.
slowlrnr wrote:I still do not know if I want to go with .77% ER GW fund since that is really high.
Yeah. I don't blame yah. It's a darn shame that such a decent offering has been made so expensive. :(
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Sammy_M
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Re: How to achieve 3 fund portfolio using the following fund

Post by Sammy_M »

slowlrnr wrote:Long time lurker and strong believer in 3 fund portfolio (thank you Taylor).

Is there any way I can acheive 40 total bond index, 30 total domestic stock index and 30 total international stock index using the following funds.
If you want a market weighted porfolio with those options, you'll unfortunately need to hold 3 US equity funds, 1 international fund, and 1 bond fund. If you want nice round 10% increments, you could go with...

Code: Select all

30% DOMESTIC, broken down as...
...10% LG: American Funds Growth Fund of Amer A - AGTHX - 0.71% 
...10% LV: Vanguard High Dividend Yield Index Inv - VHDYX- 0.2%
...10% SB: Vanguard Small Cap Index Signal - VSISX - 0.1% 

30% INTL: Vanguard Developed Markets Index Inv - VDMIX - 0.2% 
40% BONDS: PIMCO Total Return Admin - PTRAX - 0.71%
That is a decent portfolio with an average expense ratio of around 0.45%. It should take you about 2 minutes to rebalance to this in your 401K, so I wouldn't worry about missing out on the majestic 3 fund portfolio.

Down the road,
1. Add a safe Vanguard Bond fund in your IRA (e.g., TBM) and get away from using PTRAX. Once you've met your bond allocation within the IRA,
2. Then add TSM and get way from using AGTHX. It'd be fine to put TSM in taxable if needed.
3. You could (but don't necessarily need to) add some Vanguard Emerging Markets exposure in your IRA if you want to get closer to TISM. TISM is about 80% developed and 20% emerging.
Topic Author
slowlrnr
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Re: How to achieve 3 fund portfolio using the following fund

Post by slowlrnr »

Thank you again to each and everyone of you for the input.

Just found out today, that the greatwest funds have been removed from the fund options and instead T. Rowe price retirement funds have been added. I will update the original post also with more information and currently deciding toward the following:

60% PIMCO Total Return Admin - PTRAX (high ER of .71%). I had one question though about "Asset Allocation" section in the MorningStar Quote page where it says "Cash" - Net is 50.76% Short is 66.4% and Long is 15.68%. Can someone please explain what am I looking at? Also, probably because of this, the bond shows 146% for Net. Any pointers would be helpful too.

The above is my thinking that it replaces total bond fund but if I am completely off, please stop me.

30% - Vanguard High Dividend Yield Index VHDYX (ER of 0.2 %)
5% - Vanguard Mid Cap Index Fund Signal VMISX (Low ER of 0.1%)
5% - Vanguard Small Cap Index Signal - VSISX (Low ER of 0.1%)

I will rebalance international with my remaining portfolio by increasing contribution to international in Roth space or in the other 401k. Not yet decided since I have punch in the numbers on the xray tool and figure out the final AA.
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