Best Fit for Core Funds

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Best Fit for Core Funds

Postby mphilips » Tue Dec 25, 2012 9:11 am

Given the following fund choices (available in my core plan) what is the best 60/40 allocation?

Stock Investments

Large Cap

VANG GRTH INDEX INST
VANG VAL INDEX INST
VANGUARD INST INDEX

Mid-Cap

FID LOW PRICED STK K
FID MID CAP STOCK K
VANG MIDCAP IDX INST

Small Cap

ABF SM CAP VAL INST
VANG SM CAP IDX INST
WASATCH SM CAP GRTH

International

FID DIVERSIFD INTL K
VANG TOT INTL STK IS

Blended Fund Investments*

OAKMARK EQ & INC I
VANG TARGET RET 2010
VANG TARGET RET 2015
VANG TARGET RET 2020
VANG TARGET RET 2025
VANG TARGET RET 2030
VANG TARGET RET 2035
VANG TARGET RET 2040
VANG TARGET RET 2045
VANG TARGET RET 2050
VANG TARGET RET 2055
VANG TARGET RET 2060
* VANG TARGET RET INC

Bond Investments
Stable Value
FID MIP II CL 3
Income
PIM TOTAL RT INST
VANG TOT BD MKT INST

Short Term Investments
FID RETIRE MMKT


Also for a more conservative investment portfolio for someone who is 60 and retired which would you suggest:

VTINX which is 8% cash, 62% bonds (5% international bonds), and 30% stock (9% international stock) ER 0.17%

or

30% cash invested in FID MIP II CL 3 ER 0.24%
50% bonds split (41% PTTRX (Pimco Total Return) ER 0.46%, 9% VBTIX (Vanguard Total Bond) ER 0.07%), and
20% stock split
Fidelity Diversified International... FDIKX 2% ER 0.7 % (can also be VTSNX - VANG TOT INTL STK IS ER 0.13%)
Vanguard Value Index... VIVIX 6% ER 0.08%
Vanguard Growth Index... VIGIX 7% ER 0.08%
Fidelity Low-Priced Stock Fund;K FLPKX 2% ER 0.76% (can also be VMCIX - VANG MIDCAP IDX INST ER 0.08%)
Wasatch Small Cap Growth... WAAEX 3% ER 1.24% (can also be VSCIX - VANG SM CAP IDX INST ER 0.08%)
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Re: Best Fit for Core Funds

Postby Johm221122 » Tue Dec 25, 2012 9:33 am

I would suggest ,you think of portfolio as one and post this way
viewtopic.php?f=1&t=6212
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Re: Best Fit for Core Funds

Postby livesoft » Tue Dec 25, 2012 9:55 am

If one didn't want to make any calculations or any rebalancing, then here is what I would do:

Pick a Vanguard Target Retirement fund that had the closest allocation to 60:40 that you could find. Look every year and make sure it was still the closest to 60:40 and if not exchange to the one that was closest to 60:40.

This link: https://advisors.vanguard.com/VGApp/iip ... undId=0682 has a graphic showing all the asset allocations of Vanguard Target Retirement funds

The reason to pick the TR fund rather than a mixture of funds is that many folks cannot seem to rebalance at market lows or market highs and this is critical to getting the best returns. TR funds seem to be able to do this with ease.

And I think it is a no brainer to go with the Vanguard fund rather than that mix of funds.
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Re: Best Fit for Core Funds

Postby grabiner » Tue Dec 25, 2012 10:48 am

Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index. Your international allocation can be Total International, and your bond allocation Total Bond Market. With institutional shares, you'll have extremely low expenses.

You want a 60/40 portfolio; you didn't specify an international allocation, so I'll assume 30% of the stock. Thus:

30% Institutional Index
6% Mid-Cap Index
6% Small-Cap Index
18% Total International
40% Total Bond Market Index

Rebalance annually to this allocation.
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Re: Best Fit for Core Funds

Postby mphilips » Sat Jan 05, 2013 10:18 am

Merry Christmas and Happy New Year... thanks for your input.
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Re: Best Fit for Core Funds

Postby mphilips » Fri Jan 11, 2013 10:52 am

grabiner wrote:Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index. Your international allocation can be Total International, and your bond allocation Total Bond Market. With institutional shares, you'll have extremely low expenses.

You want a 60/40 portfolio; you didn't specify an international allocation, so I'll assume 30% of the stock. Thus:

30% Institutional Index
6% Mid-Cap Index
6% Small-Cap Index
18% Total International
40% Total Bond Market Index

Rebalance annually to this allocation.


Why not use PTTRX for a portion of the bond allocation?
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Re: Best Fit for Core Funds

Postby mphilips » Fri Jan 25, 2013 12:01 pm

One more question... if the target retirement funds don't offer the 40 / 60 allocation that I am looking for is there anything wrong with a mix of the target funds themselves. For example 60% VTENX and 40% VTINX creates an asset allocation that is very close to 40 / 60 ... It also includes 2 % in cash.
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Re: Best Fit for Core Funds

Postby dbr » Fri Jan 25, 2013 12:06 pm

mphilips wrote:One more question... if the target retirement funds don't offer the 40 / 60 allocation that I am looking for is there anything wrong with a mix of the target funds themselves. For example 60% VTENX and 40% VTINX creates an asset allocation that is very close to 40 / 60 ... It also includes 2 % in cash.


No, nothing, except that if you are going to do that maybe a better idea is to go back to just assembling separate funds, starting with a simple three fund portfolio. Note that being "off" by as much as ten percentage points doesn't make that much difference.

I haven't seen in the thread so far whether or not we are talking about all of your porfolio or just part of it, and what the breakdown is between taxable and tax preferred accounts.
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Re: Best Fit for Core Funds

Postby mphilips » Fri Jan 25, 2013 3:37 pm

In my 401K core account I have a number of Vanguard Index funds to choose from but they left out an important one VTSMX. Instead they offer a variety of index funds for different market caps which are listed above. So in order to have the 3 fund portfolio I have to use 5 funds. Another comment about re-balancing made me think that the target funds might be a better choice but none of them are allocated with 40% stock and 60% bonds. 60% VTENX and 40% VTINX comes close to a 40 / 60 allocation. Since I am 59 and 1/2 today I am going to look into an in-service rollover into a Vanguard 401K. Does anyone know if you have to quite contributing to your 401K to do this?
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Re: Best Fit for Core Funds

Postby dbr » Fri Jan 25, 2013 3:48 pm

VTENX is 43% stocks. Surely that is close enough that one would not need to bother adding anything else.

The hooker is that being it is already after 2010, within the next four years this fund is supposed to become effectively VTINX, in which case you could just buy VTINX now, at 30% stocks.

One does sympathize over the absence of TSM in the plan.

Also, again, are we assuming all your investments are in this 401K?
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Re: Best Fit for Core Funds

Postby mphilips » Sat Jan 26, 2013 2:26 pm

I am currently invested 100% in VTINX but I am interested in having more exposure to stocks. VTENX may be the answer.
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Re: Best Fit for Core Funds

Postby mphilips » Sat Jun 15, 2013 9:13 am

grabiner wrote:Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index. Your international allocation can be Total International, and your bond allocation Total Bond Market. With institutional shares, you'll have extremely low expenses.

You want a 60/40 portfolio; you didn't specify an international allocation, so I'll assume 30% of the stock. Thus:

30% Institutional Index
6% Mid-Cap Index
6% Small-Cap Index
18% Total International
40% Total Bond Market Index

Rebalance annually to this allocation.


When I enter a distribution of stocks using 70% VIIIX 15% VMCIX and 15% VSCIX - Vanguards portfolio analysis shows a discrepancy in a comparison with the total US stock market which is listed as 65% Large Cap 28% Mid Cap and 7% Small Cap. By contrast VTSAX lines up exactly with this 65/28/7 allocation. Please explain why the 70/15/15 allocation does not line up this way.




If this represents the Total US stock market shouldn't it match up?
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Re: Best Fit for Core Funds

Postby grabiner » Sat Jun 15, 2013 2:48 pm

mphilips wrote:
grabiner wrote:Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index.

When I enter a distribution of stocks using 70% VIIIX 15% VMCIX and 15% VSCIX - Vanguards portfolio analysis shows a discrepancy in a comparison with the total US stock market which is listed as 65% Large Cap 28% Mid Cap and 7% Small Cap. By contrast VTSAX lines up exactly with this 65/28/7 allocation. Please explain why the 70/15/15 allocation does not line up this way.


The problem is with Vanguard Portfolio Watch. Vanguard puts most funds 100% in one category, and that isn't correct for Small-Cap Index, which is not 100% small-cap by the definition of small-caps which makes them only 7% of Total Stock Market.

Here is the data from Morningstar, which divides the market as 70% large, 20% mid, 10% small.

Total Stock Market: 72/19/9
Intstitutional or 500 Index: 87/12/0 (adds to 99 because of rounding)
Mid-Cap Index: 16/83/0
Small-Cap Index: 0/42/58

70/15/15 portfolio: 64/28/8

So this has a slight overweight to mid-caps. However, the overweight is in the largest of the mid-caps, which behave more like small-caps, as the mid-caps in the S&P 500 are mostly the largest ones, while the mid-cap and small-cap indexes cover all the mid-caps. Thus this allocation should behave much like a total-market allocation. 80/5/15 would come closer to the percentages at 71/21/8, but the exact correct percentage will vary.
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Re: Best Fit for Core Funds

Postby mphilips » Sun Jun 16, 2013 9:14 am

Thanks for clearing this up. I did notice is that even though "market capitalization" displayed the discrepancy the "industry sectors" lined up very closely.
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Re: Best Fit for Core Funds

Postby mphilips » Thu Jun 20, 2013 4:48 pm

I'd be interested in hearing what the forum thinks about the pros/cons between the following 2 50/50 allocations

1.)

60% VTXVX / 40% VTENX ( mix of Vanguard 2010 and 2015 target retirement ) 0.16% fees


2.)

28% VIIIX - Vanguard Institutional Index
6% VMCIX - Vanguard Mid Cap Index
6% VSCIX - Vanguard Small Cap Index
10% VTSNX - Vanguard Total International Index

20% VBTIX - Vanguard Total Intermediate Bond Index
20% PTTRX - Pimco Total Return Fund Institutional
10% MIP II - Fidelity Stable Value

grouped together fees are 0.16%
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Re: Best Fit for Core Funds

Postby mphilips » Wed Jun 26, 2013 4:48 pm

Anyone?
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Re: Best Fit for Core Funds

Postby sambb » Wed Jun 26, 2013 5:04 pm

target retirement, is nice for the rebalancing and it is nice otherwise.
Some people will harp on the slightly higher expense ratio, but it really is small for the automatic action of it in rebalancing. Makes it easy. You'd do better than most other people with these/
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Re: Best Fit for Core Funds

Postby mphilips » Tue Jul 02, 2013 5:21 pm

I do appreciate that the target funds take care of the re-balancing for you but I am tending to think that I want to maintain a certain allocation even once I am in retirement and mixing the 2 funds is sort of a hack to obtain the allocation that I really want but does not exist in any one target fund. My other interest is in trying to obtain some stability in the bond portion of my portfolio, hence the stable value fund although I really don't know how to compare this one with any other. It also gives me an opportunity to decide how much of an international exposure I want instead of the 30% allocation in the target funds.
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Re: Best Fit for Core Funds

Postby tyler_cracker » Tue Jul 02, 2013 5:37 pm

mphilips wrote:mixing the 2 funds is sort of a hack to obtain the allocation that I really want but does not exist in any one target fund.


not sure i'd call linear interpolation a "hack". the approach is sound. one could argue that the hack is using seven funds instead of two! ;)

hence the stable value fund although I really don't know how to compare this one with any other.


another point in favor of the TR approach.

It also gives me an opportunity to decide how much of an international exposure I want instead of the 30% allocation in the target funds.


a point in favor of rolling your own.

to answer your question generally, the main advantage of the TR approach is that it's dead simple. the main advantage of the roll your own approach is that you have more control.

more specifically, if i were going to roll my own, i'd probably just hold intermediate bonds. much simpler and probably a lot cheaper.
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Re: Best Fit for Core Funds

Postby mphilips » Wed Jul 03, 2013 3:24 pm

tyler_cracker wrote:more specifically, if i were going to roll my own, i'd probably just hold intermediate bonds. much simpler and probably a lot cheaper.


I really only have 3 choices in my core 401K for bond funds; VBTIX, PTTRX and the Fidelity stable value fund. I have considered moving funds out of my 401K into a IRA account offering CD's.
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