Rick Ferri's Portfolio

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Re: Rick Ferri's Portfolio

Postby fishdrzig » Tue Feb 05, 2013 2:46 pm

Rick

4% Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)

Is there a time when you won't carry this in your portfolio or maybe switch to VUSTX?
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Tue Feb 05, 2013 6:21 pm

That is a VERY good question. Not VUSTX, but perhaps intermediate-term investment grade. The answer is perhaps...but not yet. Spreads are still attractive relative to investment grade corporate. I consider the ratio of yields rather than just the spread, and also the fees of the fund relative to yield. That's how I made a decision on emerging market debt a few years ago. Right now, I'm holding my position and rebalancing as HY has gained or lost. This had added extra return to the bond side in addition to higher yield. So, to muddy the water more, my answer is a definite maybe. :wink:



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Re: Rick Ferri's Portfolio

Postby FoolStreet » Wed Feb 06, 2013 1:18 am

Rick Ferri wrote:I wrote a blog that explains this concept:

The Total Economy Portfolio

I also wrote a similar article on this concept for the Forbes Investing Guide (print) and on their website:

Forbes Investment Guide -The Total Economy Portfolio.

Rick Ferri


Rick, let me preface my question by stating that I have one of your book's and Bernstein's 4 Pillars books on my table and am going through them regarding this question. Nevertheless, the thread is open so here's goes:

In your Economic Tilt example, why not just use large cap instead of TSM? You might save .07 on the ER. And, I thought I read somewhere (F & F?) That the mid cap stocks were pretty irrelevant assuming had already large cap. My investing thesis had been. - as a percentage of equity - 40pct large cap, 30 pct small cap, and 30 pct international. And that TSM vs S&P500 was largely indistinguishable as far as ris or return were concerned due to relative weightings.

In practice, I just realized that my own allocation is not what I thought. Instead of small cap, I realize I have had small/mid cap, which tracks the Russell 3000(ex SP500), NOT the Russell 2000 as I thought. I guess 14 years ago when I set it up, I must have figured the large and separate small/mid-cap was approximating the market sufficiently. I don't think the Wilshire 5000 was in vogue quite yet. To make things slightly more confusing, my wife's 401k has TSM and the small/mid in the rough percentages I described.

So now, I'm trying to rejigger the allocations to be more elegant. I'm thinking of either something very similar to your economic tilt, but trying to figure out if it matters whether to use TSM or Large Cap as that US Stock anchor.

Thoughts? I may need to top post with a new full port format as I also have some bomnd allocation questions....
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Wed Feb 06, 2013 12:57 pm

I prefer to start all portfolios with four legs of a stool:

1) Total US stock Market
2) Total Developed International Markets
3) Total Emerging Markets
4) Total Bond Market

From here, a portfolio can be sliced and diced as desired or needed. I add small-value exposure to each equity position (US, Developed, Emerging) and I add REITs to US. This provides the economic tilt as written on the article. I also divide equally between Pacific and Europe developed markets for better currency diversification. On the bond side, I add TIPS and high yield to make a total total market bond portfolio.

These are strategy considerations. It doesn't change philosophy. We both have the same philosophy, but your strategy is yours and mine is mine. There is no right or wrong answer as long as you have good reason to do something and have the discipline to stay the course.

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Re: Rick Ferri's Portfolio

Postby FoolStreet » Wed Feb 06, 2013 11:28 pm

Rick Ferri wrote:I prefer to start all portfolios with four legs of a stool:

1) Total US stock Market
2) Total Developed International Markets
3) Total Emerging Markets
4) Total Bond Market

From here, a portfolio can be sliced and diced as desired or needed. I add small-value exposure to each equity position (US, Developed, Emerging) and I add REITs to US. This provides the economic tilt as written on the article. I also divide equally between Pacific and Europe developed markets for better currency diversification. On the bond side, I add TIPS and high yield to make a total total market bond portfolio.

These are strategy considerations. It doesn't change philosophy. We both have the same philosophy, but your strategy is yours and mine is mine. There is no right or wrong answer as long as you have good reason to do something and have the discipline to stay the course.

Rick Ferri


Thanks for the inputs and insight on our common philosophy. Good times.
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Re: Rick Ferri's Portfolio

Postby abuss368 » Thu Feb 07, 2013 12:04 am

Rick,

In terms of the Intermediate Term TIPS fund in your portfolio, are you planning to stay with this fund or are you considering changing to the Short Term TIPS Index fund considering Vanguard's recent change to the Target and Life funds?
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Thu Feb 07, 2013 12:07 pm

I could not care less what Vanguard does in their balanced funds.

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Re: Rick Ferri's Portfolio

Postby xram » Sun Mar 10, 2013 4:46 pm

Rick Ferri wrote:I no longer own the Bridgeway Ultra-Small Company Fund (BRSIX). The proceeds are now divided between IJS and VTI. The number of stocks on US exchanges has dimished down to about 3,600 from 7,000 in the 1990s. A small value fund and a total market fund covers them all equitably and at less cost than including BRSIX.

Rick Ferri


Mr Ferri,

Is VBR an acceptable alternative to IJS In your opinion? Thank you.

https://personal.vanguard.com/us/FundsS ... IntExt=INT

Thanks
Last edited by xram on Sun Mar 10, 2013 4:55 pm, edited 1 time in total.
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Re: Rick Ferri's Portfolio

Postby xram » Sun Mar 10, 2013 4:55 pm

fishdrzig wrote:Rick

4% Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)

Is there a time when you won't carry this in your portfolio or maybe switch to VUSTX?


Since VWEHX is closed to new investors, do you have a second choice?

This should be held in tax-advantaged space?

Roth IRA versus 401k, make a difference?

Thank you very much,
Xram
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Sun Mar 10, 2013 5:41 pm

Yes, but you probably can't buy it. It's the TIAA-CREF High Yield Fund institutional share class. iShares High Yield Corporate Bond ETF (HYG) is OK if you absolutely must have HY. The 0.50% fee is a killer and the fund can develop large discounts to NAV on volatile days.

HY would go in a tax-sheltered account if you're in a high tax bracket. The type doesn't matter.

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Re: Rick Ferri's Portfolio

Postby Mel Lindauer » Sun Mar 10, 2013 6:29 pm

xram wrote:
fishdrzig wrote:Rick

4% Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)

Is there a time when you won't carry this in your portfolio or maybe switch to VUSTX?


Since VWEHX is closed to new investors, do you have a second choice?

This should be held in tax-advantaged space?

Roth IRA versus 401k, make a difference?

Thank you very much,
Xram


If you're a Flagship Client willing to invest $50,000 or more, you still can get in via VWEAX.
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Re: Rick Ferri's Portfolio

Postby atfish » Sun Mar 10, 2013 8:13 pm

"And remember that I spent the first 8 years out of college serving in the Marines."

Thanks so much Rick for serving our country.
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Re: Rick Ferri's Portfolio

Postby tomd37 » Sun Mar 10, 2013 8:23 pm

Mel,

Can you elaborate on VWEAX being available for $50K+ if a Flagship client. If I search on the VG website it shows as being closed. Is it open under some special situation or condition? Thanks.

Oops! While not on the VG site under the fund listing, the closure announcement of 5/24/2012 does state it remains available to the clients of Vanguard Flagship Services, so I suspect that is what your mean.
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Re: Rick Ferri's Portfolio

Postby Mel Lindauer » Sun Mar 10, 2013 8:38 pm

tomd37 wrote:Mel,

Can you elaborate on VWEAX being available for $50K+ if a Flagship client. If I search on the VG website it shows as being closed. Is it open under some special situation or condition? Thanks.

Oops! While not on the VG site under the fund listing, the closure announcement of 5/24/2012 does state it remains available to the clients of Vanguard Flagship Services, so I suspect that is what your mean.


Just go to your account and attempt to make an exchange into the fund. If you qualify, the exchange will go through.
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Re: Rick Ferri's Portfolio

Postby tomd37 » Sun Mar 10, 2013 8:42 pm

Thanks Mel, I am Flagship level.
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Re: Rick Ferri's Portfolio

Postby xram » Sun Mar 10, 2013 11:19 pm

Rick Ferri wrote:Yes, but you probably can't buy it. It's the TIAA-CREF High Yield Fund institutional share class. iShares High Yield Corporate Bond ETF (HYG) is OK if you absolutely must have HY. The 0.50% fee is a killer and the fund can develop large discounts to NAV on volatile days.

HY would go in a tax-sheltered account if you're in a high tax bracket. The type doesn't matter.

Rick Ferri


Thank you..

http://etfdb.com/index/iboxx--liquid-hi ... sortdir/a/

Anybody else have any suggestions. See link above.

Thanks
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Re: Rick Ferri's Portfolio

Postby Taylor Larimore » Mon Mar 11, 2013 7:55 am

xram:
Anybody else have any suggestions.


Portfolios can get along very nicely without a Hi-Yield bond fund.

Best wishes.
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Re: Rick Ferri's Portfolio

Postby xram » Mon Mar 11, 2013 8:27 am

Taylor Larimore wrote:xram:
Anybody else have any suggestions.


Portfolios can get along very nicely without a Hi-Yield bond fund.

Best wishes.
Taylor


Thanks. I'm sure you are correct. Mr. Swedroe doesn't recommend one. Mr. Ferri has one in his portfolio. Right now corporates only make up 3.9% of my bond side (added up all the little bits in my other funds but no free standing high yield corporate fund). I decided to adjust my bond side to the following. Betting on all the horses! (the swedroe horse and the ferri horse :happy )

Fixed Income.....................35%
Total U.S. Bond Market..........10%
Intermediate Treasury Fund....9%
International Bond Fund........4%
TIPS.................................4%
National MUNI Fund..............4%...... <----- plus more muni when I run out of tax advantaged space
High Yield Corporate............4%
+...I-BONDS ....................$25,500
+...EE-BONDS ....................$10,000
VTI, VBR, VTWV, SCHH, VXUS, VEA, VWO, VSS, FM, VNQI, VBTLX, VFITX, SCHP, VWITX, IBONDS, EEBONDS, EF(EverBank), UTAH-529
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Re: Rick Ferri's Portfolio

Postby fishdrzig » Thu Mar 14, 2013 8:22 am

Mr Ferri,

Is VBR an acceptable alternative to IJS In your opinion? Thank you.

https://personal.vanguard.com/us/FundsS ... IntExt=INT

Thanks
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Thu Mar 14, 2013 6:31 pm

Other product swaps are also acceptable providing the low-fee and broad diversification philosophy remains in tact.

Rick
Last edited by Rick Ferri on Thu Mar 14, 2013 7:00 pm, edited 1 time in total.
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Re: Rick Ferri's Portfolio

Postby learning_head » Thu Mar 14, 2013 6:58 pm

Thank you, Rick, for sharing this!

Couple of questions:

- would you say VXUS is a good substitute for VPL and VGK? I realize VXUS also includes small caps but just as well on US side, you have VTI (which includes small caps) + separate small cap fund. Or are there some advantages (rebalancing?) for keeping VPL and VGK separate?

- since you use REITs on US side, does it make sense to use a REIT fund on international side as well? (Or would it be too small of a size to matter given that you have Int'l as a smaller part of overall break-down?)

Thanks again
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Thu Mar 14, 2013 7:08 pm

Your strategy may differ from others in the funds you select to represent asset classes. It will make little difference in return. It's the philosophy that matters. Philosophy makes a big difference in returns.

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Re: Rick Ferri's Portfolio

Postby Gmaloof » Fri Mar 15, 2013 12:09 pm

Is anyone aware of international SCV funds or ETFs that cover both developed and emerging markets for non DFA accounts?
International SCV seems like the one area non-DFA investors have few good choices.

I know Rick mentioned a few years back that Russell was looking to enter this area with a new entry but I haven't seen any additional updates since.
TIA...
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Re: Rick Ferri's Portfolio

Postby learning_head » Fri Apr 05, 2013 7:06 pm

Rick Ferri wrote:I no longer own the Bridgeway Ultra-Small Company Fund (BRSIX). The proceeds are now divided between IJS and VTI. The number of stocks on US exchanges has dimished down to about 3,600 from 7,000 in the 1990s. A small value fund and a total market fund covers them all equitably and at less cost than including BRSIX.

Rick Ferri


Hi Rick, based on your book (All about Asset Allocation), BRSIX's advantage is that it covers different market segment with average market cap of less than 200M (currently 156M per M*), while I see that funds like IJS and VBR have average market cap of its companies at 1.1B and 1.4B. Again, according to M*, IJS has 30% of its portfolio in Micro-caps, VBR has 20%, BRSIX - 99.8%.

So, could you elaborate on why this switch makes sense - even with less number of stocks, they seem to cover different market segments?

If you are saying that while in the past you thought the cost difference was not enough to deter from this asset class but now you think it is, I think that's reasonable. But if there is another reason, I'd like to understand it. Were VBR/IJS having even less of micro-cap coverage in the past than now and 20-30% is enough to compensate for cost difference? Or is BRSIX now more into growth part of the market (which I think it is vs VBR/IJS), which may cancel its usefulness? Or was there more research showing that diversification effect of micro vs small is not large enough as once thought?

Thanks!
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Re: Rick Ferri's Portfolio

Postby TheIndexer » Fri Apr 05, 2013 9:58 pm

Curious how Rick or others sugest tilting international to SCV when DFA funds aren't available? What funds do people use? For example, there's no international equivalent to Vanguard Small-Cap Value Index Fund in Vanguard's offerings, I don't think.

Or, do people just tilt U.S. equities only? If so, should they be tilted even more to compensate for international equities not being tilted? Or am I over-complicating this... :)
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Fri Apr 05, 2013 10:20 pm

There are MANY ways to tilt to small value in the US and internationally. I happen to think RAFI and Wisdom Tree ETF products are a good place to look. There are numerous others. DFA is option that's only open to advisers and some 401(k) plans, but don't let that stop you from exploring everything else out there. There was value and small cap investing long before there was DFA.

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Re: Rick Ferri's Portfolio

Postby TheIndexer » Sat Apr 06, 2013 9:16 am

Thanks Rick.

I was mostly referring to the fact that it's relatively easy to tilt to small-value in the US with a two-fund approach using TSM plus a small-value fund, like VBR (Vanguard Small-Cap Value) or what you have, IJS. There are a fair amount of US funds like these which are heavily weighted towards small-value.

But a two fund approach on the international side seems more challenging. DFA seems to have the only fund actually targeting foreign small value. Other foreign "small cap" funds have lots of mid caps - e.g. Wisdom Tree DLS has 55% mid cap vs. something on the US side like IJS which has only 4%. There doesn't seem to be much consensus on this board on which funds to use to tilt foreign equities to small value, or at least the puzzle isn't as easy as it is on the US side.
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Re: Rick Ferri's Portfolio

Postby TheIndexer » Sat Apr 06, 2013 2:33 pm

Another question for you Rick.

In this blog post of yours you advocate 2/3 in a TSM fund and 1/3 in a SCV fund.
http://www.rickferri.com/blog/strategy/ ... ue-stocks/

But there are so many different SCV funds, and a 1/3 position in each results in different style boxes.

For example, 2/3 in TSM and 1/3 in VBR (Vanguard Small Cap Value) results in:

16 16 16
7 7 5
17 11 5

But replacing VBR with RZV (S&P SmallCap 600 Pure Value) which lots of people use changes this to:

16 16 16
4 4 4
22 12 5

Are those differences significant to you? That's an extra 5% in SCV. Do you still recommend 1/3 in SCV regardless of which SCV fund you use?
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Re: Rick Ferri's Portfolio

Postby learning_head » Sat Apr 06, 2013 3:23 pm

Hi Rick, I think you might have missed my question above (Indexer replied right after with another one and you might have thought this thread was revived by his post). Would love to hear you response here as I am trying to understand this better. Thanks!

learning_head wrote:
Rick Ferri wrote:I no longer own the Bridgeway Ultra-Small Company Fund (BRSIX). The proceeds are now divided between IJS and VTI. The number of stocks on US exchanges has dimished down to about 3,600 from 7,000 in the 1990s. A small value fund and a total market fund covers them all equitably and at less cost than including BRSIX.

Rick Ferri


Hi Rick, based on your book (All about Asset Allocation), BRSIX's advantage is that it covers different market segment with average market cap of less than 200M (currently 156M per M*), while I see that funds like IJS and VBR have average market cap of its companies at 1.1B and 1.4B. Again, according to M*, IJS has 30% of its portfolio in Micro-caps, VBR has 20%, BRSIX - 99.8%.

So, could you elaborate on why this switch makes sense - even with less number of stocks, they seem to cover different market segments?

If you are saying that while in the past you thought the cost difference was not enough to deter from this asset class but now you think it is, I think that's reasonable. But if there is another reason, I'd like to understand it. Were VBR/IJS having even less of micro-cap coverage in the past than now and 20-30% is enough to compensate for cost difference? Or is BRSIX now more into growth part of the market (which I think it is vs VBR/IJS), which may cancel its usefulness? Or was there more research showing that diversification effect of micro vs small is not large enough as once thought?

Thanks!
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Re: Rick Ferri's Portfolio

Postby backofbeyond » Sat Apr 06, 2013 3:44 pm

For those of us with access to TSP, how would you compare the G and F funds to Rick's bond allocations? That is, if you were attempting to as closely mirror Rick's allocation to Bonds: What would G & F replace and what would be left on the plate that you'd have to go outside of TSP to replicate?

Thanks!
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Sat Apr 06, 2013 4:24 pm

learning_head wrote:Hi Rick, I think you might have missed my question above (Indexer replied right after with another one and you might have thought this thread was revived by his post). Would love to hear you response here as I am trying to understand this better. Thanks!


The number of stocks on the US equity market has shrunk from about 7600 in 1996 to about 3600 today. Consequently, small cap stocks and micro cap stocks are overlapping in many index funds. Also, BRSIX is not a cheap fund. The fee was about 0.65%. The weighted average cost of all other funds in the portfolio was about 0.17%.

I had to decide if it was still worth keeping BRSIX and accepting lower unique exposure to micro-cap over time, or to forgo the higher cost and use only al low-cost small-cap value. My decision was to sell BRSIX, restructure the amount in small-cap value and gain whatever exposure to micro-cap the total market fund provided (there is more now that Vanguard has switched to CRSP).

Was this the right choice? I let you know in 20 years.

Rick Ferri
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Sat Apr 06, 2013 4:31 pm

TheIndexer wrote:Another question for you Rick.

In this blog post of yours you advocate 2/3 in a TSM fund and 1/3 in a SCV fund.
http://www.rickferri.com/blog/strategy/ ... ue-stocks/

But there are so many different SCV funds, and a 1/3 position in each results in different style boxes.

For example, 2/3 in TSM and 1/3 in VBR (Vanguard Small Cap Value) results in:

16 16 16
7 7 5
17 11 5

But replacing VBR with RZV (S&P SmallCap 600 Pure Value) which lots of people use changes this to:

16 16 16
4 4 4
22 12 5

Are those differences significant to you? That's an extra 5% in SCV. Do you still recommend 1/3 in SCV regardless of which SCV fund you use?


I use IJS, although RZV is a valid choice also. I don't think the fund you select matters as much as understanding how that fund fits into the portfolio. Several funds require a different allocation to get the same SV tilt, as you show in your post. The question becomes one of cost. How much are you paying per unit of SV risk? What are you paying for RZV and what are you paying for a little bit more of VBR to achieve the same result?

Rick Ferri
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Re: Rick Ferri's Portfolio

Postby Gmaloof » Tue Apr 16, 2013 1:26 pm

backofbeyond wrote:For those of us with access to TSP, how would you compare the G and F funds to Rick's bond allocations? That is, if you were attempting to as closely mirror Rick's allocation to Bonds: What would G & F replace and what would be left on the plate that you'd have to go outside of TSP to replicate?

Thanks!

TSP F fund = Total Bond market

TSP G fund = Similar in some aspects but not exactly a TIPS fund.

There is no High Yield fund available to TSP investors. If you want that you would need to have an IRA account outside of TSP like Vanguard.
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Re: Rick Ferri's Portfolio

Postby jay22 » Fri May 10, 2013 3:01 pm

Just read this thread. What an excellent read.

Rick Ferri wrote:I prefer to start all portfolios with four legs of a stool:

1) Total US stock Market
2) Total Developed International Markets
3) Total Emerging Markets
4) Total Bond Market


From here, a portfolio can be sliced and diced as desired or needed. I add small-value exposure to each equity position (US, Developed, Emerging) and I add REITs to US. This provides the economic tilt as written on the article. I also divide equally between Pacific and Europe developed markets for better currency diversification. On the bond side, I add TIPS and high yield to make a total total market bond portfolio.

These are strategy considerations. It doesn't change philosophy. We both have the same philosophy, but your strategy is yours and mine is mine. There is no right or wrong answer as long as you have good reason to do something and have the discipline to stay the course.

Rick Ferri

Rick, something I was wondering - any particular reason you didn't go with Total International Market for the international exposure?
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Re: Rick Ferri's Portfolio

Postby Rick Ferri » Sat May 11, 2013 5:18 pm

I prefer a fixed allocation to developed and emerging markets and rebalance occasionally, but having one fund for both works well also.

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Re: Rick Ferri's Portfolio

Postby Copernicus » Fri May 17, 2013 8:02 pm

Learning a lot from books and on these boards. I read about 'Tobin separation theorem'. I do not get it!
It states that you assess own target risk level, assign appropriate ratio of stocks vs bonds in the portfolio to achieve that riskiness of the portfolio; but the sub-assets within stocks and bond sections are not critical.

- I see that BH's adhere to the appropriate percentage of bonds, but elect to have more or less small cap or international stocks within their portfolios. How can this not change the riskiness of the portfolios?

- For an exaggerated example, how could a portfolio of (50% Total Stock Market fund ad 50% Total Bond Market fund) have comparable risk as a portfolio of (10% Total Stock Market fund + 40% small cap index or Emerging Mkt fund)+(10% Total Bond Mkt fund+40% High-Yield or Foreign Bonds)?

- I guess the underlying assumption is that stock and bond segments are 'well-diversified'. But how does one decide whether the individual's mix of stocks or bonds is diversified enough?

- In that regards, is it possible to calculate expected (long-term) standard deviation of a portfolio allocation (its numerical risk) and compare it with numbers of other alternate target portfolios to determine how much off one is getting by selecting a particular asset mix? I think such a calculation can be done for expected long-term return of a asset mix using historical returns data. Are standard deviations amenable to this?

- If it is possible, would the effort be worthwhile in constructing a portfolio?
Thank you in anticipation of helpful comments!
Copernicus
 
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Re: Rick Ferri's Portfolio

Postby jmk » Fri May 17, 2013 10:08 pm

Rick Ferri wrote:Yes, but you probably can't buy it. It's the TIAA-CREF High Yield Fund institutional share class. iShares High Yield Corporate Bond ETF (HYG) is OK if you absolutely must have HY. The 0.50% fee is a killer and the fund can develop large discounts to NAV on volatile days.


Not sure how you get TIAA-CREF High Yield institutional class. I work at a large university and even we seem to only have the retail (0.64 ER) version of TIAA HY. That seems just too expensive.
jmk
 
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