Ultimate Buy and Hold - 8 slices vs 4

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Ultimate Buy and Hold - 8 slices vs 4

Postby Trev H » Mon Jun 01, 2009 6:36 pm

.
Good Evening Bogleheads...

This post is mostly directed to the S&D folks.

Many of you are familiar with the article on the Ultimate Buy and Hold Portfolio (link below if not).

http://www.fundadvice.com/articles/buy- ... ategy.html

In the example there the US and Intl general equity components are split up between Large, Large Value, Small, Small Value (total of 8 parts) but then there is a separate holding for EM and REIT.

In my data set the International Equity returns include Developed and EM at 85:15 ratio (similar to how Vanguards Total International, International Value and International Explorer, and FTSE X-US Intl Large & Small Cap) funds do.

I updated my 1970 sheet to include returns thru 5/31/2009 and calculated the results below.

Image

Vanguard - does not offer a ISV fund, and their only ILV offering is the low cost managed fund International Value. Not ideal, but best you can do there. We do have the ISB option now with FTSE X-US Intl Small Cap.

Thought it was interesting how close the 4 slice combo of (LB,SV,ILV,IS) and the 8 slice combo of (LB,LV,SB,SV,ILB,ILV,ISB,ISV) did performance wise.

For most of the near 40 years you can't see one line over the other.

Looks like a reasonable way to greatly simplify the Ultimate Buy and Hold to me.

Included a 50/50 Lumper for comparison.

Have a Nice Evening !

==
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Postby Triple digit golfer » Mon Jun 01, 2009 6:41 pm

This is all fine and dandy, but good luck to the average investor in having access to these funds in their 401(k)s.

Like me. 50% of my retirement money is in my 401(k), the other half an IRA at Vanguard.

Other than the 500 index, there is no other decent fund options in the 401(k). There's an international midcap value fund with a 5.75% sales load and a 1.89% ER. And an international large growth fund just as bad. And some equally as bad small cap blend funds.
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Postby livesoft » Mon Jun 01, 2009 7:01 pm

TrevH: Thanks for the post. I've come to the same conclusion just from a practical standpoint: One can simplify the FundAdvice portfolio and still get about the same results with the same risk.

My 401(k) has all the different asset classes, so that's not a problem for me. Plus it's such a small amount of our total portfolio since we invest 50% of our income which of course overflows our 401(k)s.

So I try to use VTI, VEU for large cap domestic and foreign. Then VBR or IJS for small cap value. Then GWX, SCZ, or VSS for int'l small cap. I spice it up with extra emerging markets EEM and DGS, but these are probably not necessary.

Our 401(k)s have the fixed income as well as several value funds that we try not to use.

Once again, it's good to see that shorthand is just as good as a full-blown S&D portfolio.
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Postby woof755 » Mon Jun 01, 2009 7:03 pm

Triple digit golfer wrote:This is all fine and dandy, but good luck to the average investor in having access to these funds in their 401(k)s.

Like me. 50% of my retirement money is in my 401(k), the other half an IRA at Vanguard.

Other than the 500 index, there is no other decent fund options in the 401(k). There's an international midcap value fund with a 5.75% sales load and a 1.89% ER. And an international large growth fund just as bad. And some equally as bad small cap blend funds.


To some extent you can help yourself out. With traditional and Roth IRAs (and we all have to admit we carry several of these apiece between ourselves and our spouses), access to ISB and SCV through VG are obtainable--if you have to rollover to VG, then do it. TSM and Total international are great taxable account options b/c of their tax-friendliness.

I'm fortunate to have TSM in my 401(k) and many VG offerings separately in a 403(b). But, I can only imagine the pain of looking at a slew of Blackrock offerings in a 401(k) and wishing your plan administrator had a clue.
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Postby Triple digit golfer » Mon Jun 01, 2009 7:20 pm

woof755 wrote:
Triple digit golfer wrote:This is all fine and dandy, but good luck to the average investor in having access to these funds in their 401(k)s.

Like me. 50% of my retirement money is in my 401(k), the other half an IRA at Vanguard.

Other than the 500 index, there is no other decent fund options in the 401(k). There's an international midcap value fund with a 5.75% sales load and a 1.89% ER. And an international large growth fund just as bad. And some equally as bad small cap blend funds.


To some extent you can help yourself out. With traditional and Roth IRAs (and we all have to admit we carry several of these apiece between ourselves and our spouses), access to ISB and SCV through VG are obtainable--if you have to rollover to VG, then do it. TSM and Total international are great taxable account options b/c of their tax-friendliness.

I'm fortunate to have TSM in my 401(k) and many VG offerings separately in a 403(b). But, I can only imagine the pain of looking at a slew of Blackrock offerings in a 401(k) and wishing your plan administrator had a clue.


Well, it's just me, no spouse, and unfortunately I don't make nearly enough to start filling taxable space...yet :)

I have a set-up as follows right now. Only the 500 index is in the 401(k). Everything else Roth IRA:

500 index 49%
TSM 7%
TISM 24%
TBM 20%

Far from perfect, but still very decent. It's what I got to work with :)
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Postby caklim00 » Mon Jun 01, 2009 7:36 pm

Triple digit golfer wrote:This is all fine and dandy, but good luck to the average investor in having access to these funds in their 401(k)s.

Like me. 50% of my retirement money is in my 401(k), the other half an IRA at Vanguard.

Other than the 500 index, there is no other decent fund options in the 401(k). There's an international midcap value fund with a 5.75% sales load and a 1.89% ER. And an international large growth fund just as bad. And some equally as bad small cap blend funds.
I totally agree, but sometimes when life gives you lemons...

In all seriousness, it sounds like your 401K is complete crap. Do you have any decent smallcap options? You may have to give up on trying to get a value tilt in your 401K. I tilt fairly agressively towards small in my 401k holding 50% Russell 2000, 40% ACWI Index, and 10% S&P 500. Its all part of my diabolical plan to target
50% Large/50% small
50% domestic/50% international

I use my IRA to tilt towards Value, but don't have a 50% constraint due to my 401k limitations...
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Intl SB

Postby gatorking » Mon Jun 01, 2009 7:38 pm

Hi Trev,
What if one wanted to eliminate Intl Small Blend from the portfolio. Is there a combination of US SV and US SB that can be a good substitute?

Thanks.
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Postby livesoft » Mon Jun 01, 2009 7:44 pm

Triple digit golfer wrote:...
I have a set-up as follows right now. Only the 500 index is in the 401(k). Everything else Roth IRA:

500 index 49%
TSM 7%
TISM 24%
TBM 20%

Why have 7% TSM in your Roth since 75% of it duplicates your 500 index in the 401k? Why not have 7% SV instead? I'm only asking because of your lament.
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Postby Ichiro » Mon Jun 01, 2009 7:49 pm

TrevH, I have to say that I very much appreciate your ideas and the effort you put into communicating them. Short story ~ I am persuaded by your ideas and currently implementing them with my stock allocations.
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Postby Triple digit golfer » Mon Jun 01, 2009 7:49 pm

livesoft wrote:
Triple digit golfer wrote:...
I have a set-up as follows right now. Only the 500 index is in the 401(k). Everything else Roth IRA:

500 index 49%
TSM 7%
TISM 24%
TBM 20%

Why have 7% TSM in your Roth since 75% of it duplicates your 500 index in the 401k? Why not have 7% SV instead? I'm only asking because of your lament.


Eh, what's the point? If markets change and that 500 index turns into 52%, for example, then my SV goes down to 4%. Then what do I buy more of to rebalance that SV? Might as well stick to broad markets at this point. Maybe someday if I change jobs or make more money to invest, I'll S&D. For now, I'm content.
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Postby Phatphoeater » Mon Jun 01, 2009 7:53 pm

livesoft wrote:
Triple digit golfer wrote:...
I have a set-up as follows right now. Only the 500 index is in the 401(k). Everything else Roth IRA:

500 index 49%
TSM 7%
TISM 24%
TBM 20%

Why have 7% TSM in your Roth since 75% of it duplicates your 500 index in the 401k? Why not have 7% SV instead? I'm only asking because of your lament.


you could also think about splitting your 31% in IRA equity holdings evenly between SCV and TISM giving you 15/16% SCV/TISM. You get more small and value exposure this way which adds a bit more FF diversification (at the expense of global diversification).

I'll let more knowledgable folks comment whether international vs. size/price diversification provides better risk adjusted return.
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Postby caklim00 » Mon Jun 01, 2009 7:57 pm

Phatphoeater wrote:
livesoft wrote:
Triple digit golfer wrote:...
I have a set-up as follows right now. Only the 500 index is in the 401(k). Everything else Roth IRA:

500 index 49%
TSM 7%
TISM 24%
TBM 20%

Why have 7% TSM in your Roth since 75% of it duplicates your 500 index in the 401k? Why not have 7% SV instead? I'm only asking because of your lament.


you could also think about splitting your 31% in IRA equity holdings evenly between SCV and TISM giving you 15/16% SCV/TISM. You get more small and value exposure this way which adds a bit more FF diversification (at the expense of global diversification).

I'll let more knowledgable folks comment whether international vs. size/price diversification provides better risk adjusted return.
I'm thinking there is a reason you have international at 24%, so I wouldn't recommend changing that (although you could split between TISM and International Smallcap). But, I would buy SCV instead of TSM. Thats just me, do what feels right to you. But, don't go jumping back and forth.
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Postby Triple digit golfer » Mon Jun 01, 2009 9:27 pm

caklim00 wrote:
Phatphoeater wrote:
livesoft wrote:
Triple digit golfer wrote:...
I have a set-up as follows right now. Only the 500 index is in the 401(k). Everything else Roth IRA:

500 index 49%
TSM 7%
TISM 24%
TBM 20%

Why have 7% TSM in your Roth since 75% of it duplicates your 500 index in the 401k? Why not have 7% SV instead? I'm only asking because of your lament.


you could also think about splitting your 31% in IRA equity holdings evenly between SCV and TISM giving you 15/16% SCV/TISM. You get more small and value exposure this way which adds a bit more FF diversification (at the expense of global diversification).

I'll let more knowledgable folks comment whether international vs. size/price diversification provides better risk adjusted return.
I'm thinking there is a reason you have international at 24%, so I wouldn't recommend changing that (although you could split between TISM and International Smallcap). But, I would buy SCV instead of TSM. Thats just me, do what feels right to you. But, don't go jumping back and forth.


24% international = 30% of equities in international.

Again, I would maybe choose SCV, but if my 401(k) goes up as a percentage of my portfolio, that's gonna throw my allocation out of whack. I need one fund that's in both the IRA and 401(k). The TSM and 500 index just about are the same, so I consider them the same. If my 401(k) goes up as a percentage of my total portfolio, I simply sell some TSM. The 500 index goes up in the 401(k), so I just sell some TSM in the IRA.

As I up my 401(k) contributions but not my IRA (max at $5,000), this situation will occur and that SCV would turn into like 3-4%. And I don't like the idea of allocations changing like that.

What do others do in situations like this?

Let's say someone has this:

401(k)
TSM 30%
TISM 30%

Assume no other decent options in the 401(k).

IRA
TBM 20%
TIPS 20%

Now stocks take off and bonds tumble.

It now looks like this:

401(k)

TSM 34%
TISM 35%

IRA

TBM 14%
TIPS 17%

How do you rebalance? You have to buy bonds in the 401(k), but what if your only bond fund is an intermediate active fund with a -.87% 5 year annualized return and a 1.53% expense ratio?

Whaddya do?!
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Postby livesoft » Mon Jun 01, 2009 9:33 pm

What would I do in that situation? I would have a much more flexible asset allocation. I would simply not worry about being out-of-whack ... especially at a young age.

hint: if you are quick, you can simply DELETE duplicate posts rather than edit them. :)
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Postby Triple digit golfer » Mon Jun 01, 2009 9:37 pm

livesoft wrote:What would I do in that situation? I would have a much more flexible asset allocation. I would simply not worry about being out-of-whack ... especially at a young age.

hint: if you are quick, you can simply DELETE duplicate posts rather than edit them. :)


As I get older and accumulate more assets, I'll add some more stuff. Right now, as I accumulate, I figure I can't go wrong with broad market indexes.

I tried to delete, but the "X" was only available on the first post, not the second, and when I clicked it, it said it had been responded to already.
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Postby Sunny Sarkar » Mon Jun 01, 2009 9:45 pm

A quick visual of the OP's graph seems to indicate that S&D took off (versus TSM) between 1974 and 1980, and then simply maintained the advantage. How would the graph look if it started at 1980?
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In my Company Plan...

Postby Trev H » Mon Jun 01, 2009 9:47 pm

.
My company plan is not so nice either - other than the excellent match the company provides. If I put in 3% they add in 6% for a total of 9% - - - That part is sweet :-)

I don't have the Value options there either, but do have two index funds available at a somewhat reasonable price (ok less than the stinker higher cost managed funds there).

No REIT there either.

In the Company Plan I do this.

30% 500 Index
30% Russell 2000 Index
20% International Large Blend (includes EM).
20% International Mid/Small (includes EM).

I would equal weight US/Intl but the Intl there is quite a bit more costly so I split that 60/40.

Then at Vanguard (rollover IRA and ROTH).

22.5% US Large Blend (a combo of Value Index & PrimeCap Core)
22.5% US Small Value
10% REIT
22.5% International Value
22.5% FTSE X-US Intl Small Cap

===
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Postby Trev H » Mon Jun 01, 2009 10:06 pm

Gatorking wrote...

==
What if one wanted to eliminate Intl Small Blend from the portfolio. Is there a combination of US SV and US SB that can be a good substitute?
==

I am not sure why you would want to eliminate International Small Blend unless you had access to International Small Value and wanted to use that instead.

The thing about the 4 fund combo of LB, SV, ILV, ISB is the correlations --- especially the extremely low correlations of the US Small Value and International Small Blend.

Near 40 Year correlation SV, ISB = 0.34

The average correlation of 36 rolling 5 year periods = 0.20

There were 12 - 5 year spans where the correlations were NEGATIVE.

That is a match made in asset class heaven !

If you look at mixes including Bonds (InterTerm Treasury) if you simply increase the Bond allocation by 5-10% (over a Markets mix) you reduce the volatility below that of the Large Markets mix.

If you absolutely had to eliminate the International Small Side then, increasing exposure to US SV would probably be the best bet maintain somewhat similar performance.

===
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Re: Ultimate Buy and Hold - 8 slices vs 4

Postby tarnation » Mon Jun 01, 2009 11:27 pm

Trev H wrote:.
Vanguard - does not offer a ISV fund, and their only ILV offering is the low cost managed fund International Value. Not ideal, but best you can do there. We do have the ISB option now with FTSE X-US Intl Small Cap.

Thought it was interesting how close the 4 slice combo of (LB,SV,ILV,IS) and the 8 slice combo of (LB,LV,SB,SV,ILB,ILV,ISB,ISV) did performance wise.

This would seem to imply that the correlations between LB and LV and other classes makes including both just marginally beneficial. Did you look at replacing ILV with ILB (and would be all index at VG)? Or as another alternate, moving the Value component all to domestic (where it should be cheaper to buy), e.g. (LV,SV,ILB,ISB)?

Disclaimer: I am a Lumper but am splitter-curious.
Image
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Postby heyyou » Mon Jun 01, 2009 11:57 pm

With no domestic Growth or Blend, you would often have to endure significant tracking error.

With the blend, when portfolio return is less than a lumper, but somewhat correlated, that is less stressful than the above.
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Postby On Approach » Tue Jun 02, 2009 1:55 am

My company plan is not so nice either - other than the excellent match the company provides. If I put in 3% they add in 6% for a total of 9% - - - That part is sweet


At my previous employer, I put in 6%, they put in 6% plus another 5-1/2% (even if I didn't contribute) - now that was very sweet. I gave that up in part for job security, a 6% salary increase, more paid vacation and sick leave, COLA on salary plus performance-based raises, and I put in 5% they add 5%. Couldn't be much better.
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Postby james22 » Tue Jun 02, 2009 5:33 am

60/40 SV/ILV
Risk ≠ Reward
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For Sunny...

Postby Trev H » Tue Jun 02, 2009 5:56 am

Sunny,

Here is what it looks like if you start in 1980 instead.



Image
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Postby Adrian Nenu » Tue Jun 02, 2009 6:29 am

You can split it into 40 slices or however many you like, but if you get the stock/bond mix wrong, you are done.

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Postby Trev H » Tue Jun 02, 2009 6:30 am

And below is a example of taking on size/value tilts while reducing equity risk (as Larry Suggest).

60/40 Lumper - vs = 50/50 Simplified Ultimate Buy and Hold


Image


Below are the summary stats and notice that holding higher risk / higher expected return components does not = a more risky portfolio. Risk measures included = StDev (Volatility), Sharpe Ratio (Risk Adjusted Return), and Bear Market results (down side risk).

Code: Select all
====================================
............................12.5% LB
............................12.5% SV
..............30.0% TSM....12.5% ILV
..............30.0% ILB....12.5% ISB
..............40.0% ITT....50.0% ITT
====================================
10K Growth...395,509.48...659,512.62
CAGR...............9.63........11.04
StDev.............11.60........10.02
Sharpe.............0.39.........0.58
====================================
Bear Market Comparison..............
====================================
1973..............-8.18........-6.38
1974.............-12.96........-9.18
2000..............-2.24........+7.35
2001..............-6.32........-0.58
2002..............-5.15........-0.87
2008.............-19.01.......-13.02
====================================


===
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Postby Trev H » Tue Jun 02, 2009 6:36 am

.
Heyyou said...

===
With no domestic Growth or Blend, you would often have to endure significant tracking error.
===

The Simplified Ultimate Buy and Hold portfolio includes 25% exposure to US Large Cap Blend (plenty of Beta - IMO).

On TE - below is a bit I saved from a comment that Larry made on TE.

"I don't give a hoot about TE which is a fool's concern because it confuses strategy with outcome".

===
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Postby Yukon » Tue Jun 02, 2009 6:36 am

Awesome!

But I agree with Sunny; it appears since 1980 or 81 the graphs would all align nicely on top of one another.

Care to show that graph?
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Postby Trev H » Tue Jun 02, 2009 6:55 am

Tarnation,

Below a look at what you suggested.

The difference between holding ILB instead of ILV for the International Large component - which you could do at Vanguard with an all index portfolio.

Image

Not a Huge Difference.

ILV does have lower correlation to US Large and SV than ILB does - and when you mix components with higher return and lower correlation it does make a nice difference at the portfolio level.

Less Volatility and Higher Return (Win - Win).

With ILV
========
10K Growth
1,209,045.69
CAGR
12.74
StDev
19.36
Sharpe
0.46

vs..

With ILB
========
10K Growth
1,070,676.23
CAGR
12.39
StDev
19.45
Sharpe
0.44
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Postby Trev H » Tue Jun 02, 2009 6:59 am

Yucon said...

===
But I agree with Sunny; it appears since 1980 or 81 the graphs would all align nicely on top of one another.

Care to show that graph?
===

See the post above (time 4:56 am) where I did that.

Thanks
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If you are looking for the pain...

Postby Trev H » Tue Jun 02, 2009 7:26 am

If you are looking for a period where a Globally 3F Diversified Portfolio suffered TE compared to a Home Country Biased Lumper...

1995-1999 was the timeframe.


Image


I showed 1995 thru to 05/31/2009 to show what happened after 1999.

A Globally 3F Diversified portfolio will no doubt suffer TE and it will be most Extreme when a Home Country Biased Lumper mix is getting Bubblicious (as was the case for TSM 1995-1999).

If you look at this period - what do you see ?

Was it TE that the investor should have been worried about ?

Or was it Bubble ?

In the end, a Globally Diversified mix of assets including 3F diversification wins !

===
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So ..... to make all this very simple.

Postby Analystic » Tue Jun 02, 2009 7:50 am

Based on this discussion, to make it very simple, which Vanguard funds by name would someone buy to implement this? I take it the graph at the top is only for the equity portion? And then, which funds by name for the bond portion?
Disclaimer: I am making all of this up.
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Re: So ..... to make all this very simple.

Postby livesoft » Tue Jun 02, 2009 8:06 am

Analystic wrote:Based on this discussion, to make it very simple, which Vanguard funds by name would someone buy to implement this? I take it the graph at the top is only for the equity portion? And then, which funds by name for the bond portion?

I named them in the third post in this thread. A bond portion: BND, TIP, SHY, AGG, etc. Many more are named at the fundadvice web site.

I must say I am disheartened by the question. No one should blindly follow this strategy without more reading and understanding of it. More reading and understanding of this strategy would make the question of which funds to use moot. Also one should know what their replacement funds are gonna be when they do tax-loss-harvesting.
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See question above ..

Postby Analystic » Tue Jun 02, 2009 8:12 am

As in ..
My friend just retired from a big company in her early 50's and want's to know what to do with her 401k which can now be converted to an IRA. She is being stalked by advisers of various sorts. I told her about moving her money to Vanguard as I did and she likes the idea. She is smart but not experienced managing money at all. I'm going to send her this link and some other overview articles that I have saved. I would guess that her risk tolerance is low. So .... "Just buy this much of these funds if you like this approach: ___________"
Disclaimer: I am making all of this up.
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I must say I am disheartened by the question.

Postby Analystic » Tue Jun 02, 2009 8:16 am

Please do not be disheartened. You are exactly right. I understand that. I have a friend that just needs someplace to start and I do not want to be her investment adviser.
Disclaimer: I am making all of this up.
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Re: So ..... to make all this very simple.

Postby tarnation » Tue Jun 02, 2009 8:43 am

Analystic wrote:Based on this discussion, to make it very simple, which Vanguard funds by name would someone buy to implement this? I take it the graph at the top is only for the equity portion? And then, which funds by name for the bond portion?

http://www.bogleheads.org/forum/viewtopic.php?t=37978
Image
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Postby fishndoc » Tue Jun 02, 2009 2:23 pm

Trev H wrote:

In the end, a Globally Diversified mix of assets including 3F diversification wins !

So far, but it ain't over yet...

Trev,
thanks for the data and graphs - your work is always good, but this is the best summary I have seen of this info.
It is encouraging that it appears (so far) that we can use Intern SC blend, and not have to search/wait for a low cost Intern SC value vehicle.

Wayne
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Re: I must say I am disheartened by the question.

Postby fishndoc » Tue Jun 02, 2009 2:29 pm

Analystic wrote:Please do not be disheartened. You are exactly right. I understand that. I have a friend that just needs someplace to start and I do not want to be her investment adviser.


Exactly right!

I would recommend buying her a copy of the Coffeehouse Investor, and the Bogleheads Guide to Investing, and strongly recommend that she not do a thing with her money until she reads both.

That said, I think this is a great thread that lays out concisely one way of approaching investing: Slice & Dice with Value and Small Cap tilt.

Wayne
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Funds...

Postby Trev H » Tue Jun 02, 2009 6:01 pm

The exact Vanguard Funds that could be used to setup the Simplified Ultimate Buy and Hold LB,SV,ILV,IS combo..

LB = Large Cap Index or 500 Index
SV = Small Cap Value Index
ILV = International Value
ISB = FTSE X-US Intl Small Cap (or International Explorer).

If you wanted to stick with all Index funds then could sub FTSE X-US Intl Large Cap fund for International Value.

On the Bond allocation side, I would suggest InterTerm Treasury Bonds and TIPS.

==
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Re: Funds...

Postby fishndoc » Tue Jun 02, 2009 6:46 pm

Trev H wrote:The exact Vanguard Funds that could be used to setup the Simplified Ultimate Buy and Hold LB,SV,ILV,IS combo..

LB = Large Cap Index or 500 Index
SV = Small Cap Value Index
ILV = International Value
ISB = FTSE X-US Intl Small Cap (or International Explorer).

If you wanted to stick with all Index funds then could sub FTSE X-US Intl Large Cap fund for International Value.

On the Bond allocation side, I would suggest InterTerm Treasury Bonds and TIPS.

==


Another option for ILV, for those that have a Schwab account, is their Fundamental Index International Large Cap fund. It's expense ratio, for now at least, is actually lower than Vanguard International Value - 0.35% vs 0.47%. While the Schwab fund is classified as "blend", using the Morningstar Xray shows it is very similar to International Value.

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Postby kdmusic » Tue Jun 02, 2009 7:35 pm

Trev,

Thanks for all of your work in this area. I was already s/d, but am very much excited by the idea of reducing the number of funds without changing the risk/return profile appreciably. You should have a lazy portfolio on the wiki and on Paul Farrell's marketwatch site!

Keith
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Postby livesoft » Tue Jun 02, 2009 7:53 pm

You gotta take "ultimate" out of the name. Perhaps this is "sliced" portfolio, but not a "diced" one.
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Postby kdmusic » Tue Jun 02, 2009 8:03 pm

how about "Trev H's Lumper Trouncer."

kdd
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Postby Triple digit golfer » Tue Jun 02, 2009 8:34 pm

kdmusic wrote:how about "Trev H's Lumper Trouncer."

kdd


I prefer "Trev H's Portfolio That Trumped Lumpers In The Past."
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Postby elgob.bogle » Tue Jun 02, 2009 9:11 pm

About this time in the discussion, Captain Picard might have said "Make it so, numer one". :lol:

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Postby BlueEars » Tue Jun 02, 2009 9:14 pm

For US large blend I've been using Primecap (VPMCX). For international mid/small I'm planning on using International Explorer (VINEX) by moving some Total Intl (VGSTX) to it.

If there is some real longer term index data on FTSE All-World ex-US Small-Cap Index (VFSVX) I'd like to see it. So far I've only been able to look at very short term info. So I'm wondering why VFSVX is on any Boglehead radar screens with so little supporting info -- or am I missing something?
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Postby livesoft » Tue Jun 02, 2009 9:17 pm

An asset class is an asset class. It doesn't really matter which fund you use to fill the asset class as long as it is low cost and relatively true to the asset class. The Vanguard fund is the latecomer to the scene, but there are many others that have been there long before it.
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Re: Funds...

Postby Analystic » Tue Jun 02, 2009 9:36 pm

Trev H wrote:The exact Vanguard Funds that could be used to setup the Simplified Ultimate Buy and Hold LB,SV,ILV,IS combo..

LB = Large Cap Index or 500 Index
SV = Small Cap Value Index
ILV = International Value
ISB = FTSE X-US Intl Small Cap (or International Explorer).

If you wanted to stick with all Index funds then could sub FTSE X-US Intl Large Cap fund for International Value.

On the Bond allocation side, I would suggest InterTerm Treasury Bonds and TIPS.

==

Thanks!
Disclaimer: I am making all of this up.
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Postby Trev H » Tue Jun 02, 2009 9:42 pm

.
Les,

I agree with Livesoft on the asset class statement.

Below is from my return data source document for the International equity returns shown in the charts. Other than ILB (or Total International) most of the older data came from IFA.com and I am listing the sources they list.


ILB - Total International:
============================
MSCI EAFE Index 1970-1987 (Developed Only)
85% EAFE Index, 15% Emerg Mkt Index 1988-1996
Vanguards Total Intel Index Fund 1997-2008

ILV - International Large Value including EM
===============================
85% IV, 15% EV (ifa.com) 1970-1990
IV – 1970-1974 MSCI EAFE Gross Div -3.67 bp/month
---- 1975-1990 MSCI EAFE Value Gross Div -3.67 bp/month
EV - 1970-1988 IFA EM Index
---- 1989-1990 Fama/French EM Value Index -5.0 bp/month
1991-2008 Vanguards International Value Fund

ISB - International Small Cap including EM
============================================
1970-1996 85% IS, 15% ES (ifa.com)
IS - Dimensional Intl Small Cap Index -4.58bp/month
ES - 1970-1988 IFA Emerging Markets Index,
---- 1989-1996 Fama/French EM Small -6.5bp/month
1997-2008 Vanguards International Explorer Fund
2009-Forward Vanguards FTSE X-US Intl Small Cap Index

ISV – International Small Value including EM
============================================
1970-2008 85% ISV, 15% ESV (data from ifa.com + DFA Funds)
ISV 1970-1981 Dimensional Intl Small Cap Index -4.58 bp/month
--- 1982-1994 Dimensional Intl Small Value Index -5.75 bp/month
--- 1995-Present – DFA Intl Small Cap Value Fund DISVX
ESV = 50% EV, 50% ES *calculated* (ifa.com)
--- EV 1970-1988 IFA EM Index
------ 1989-1998 Fama/French EM Value Index -5.0 bp/month
------ 1999-Present DFA EM Value Fund DFEVX
--- ES 1970-1988 IFA EM Index
------ 1989-1998 Fama/French EM Small Index -6.5 bp/month
------ 1999-Present DFA EM Small Cap Fund DEMSX

==

And if you look at the same mixes starting in 1997 going forward, using nothing but Vanguard Fund Returns you get the same (or at least very similar results).

Total Intl & International Explorer had their first full year in 1997.

My data set does use actual Vanguard Fund returns where possible (best of asset class) which for 1997-2008 for ISB = International Explorer - but going forward will be FTSE X-US Intl Small Cap.

I bought into FTSE X-US Intl Small Cap during the subscription period, and the lack of fund history did not concern me at all - I was really just wanting asset class specific performance and the diversification ISB offers.

Last time I checked that part of my S&D was up 20%+ since I bought it - could become my new best friend :-)

* Added a bit later (after checking)... it is actually up 30.35% as of today - Ok - officially my new best friend now.

Actually I like all the parts and expect them to all be my best friend at times - when one lags, another will take up the slack. REIT and SV are the laggers now, but it was no long ago they had their time to shine and no doubt will again.

==
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Postby BlueEars » Tue Jun 02, 2009 10:46 pm

Trev H wrote:...
ISB - International Small Cap including EM
============================================
1970-1996 85% IS, 15% ES (ifa.com)
IS - Dimensional Intl Small Cap Index -4.58bp/month
ES - 1970-1988 IFA Emerging Markets Index,
---- 1989-1996 Fama/French EM Small -6.5bp/month
1997-2008 Vanguards International Explorer Fund
2009-Forward Vanguards FTSE X-US Intl Small Cap Index
...

Trev,
My concern is the FTSE X-US Intl Small Cap is too much of an unknown. When I look at VISVX as a contrary example, I can see how it performed for many years. Also since it switched to MSCI in 2003, I can check out the MSCI SV index for 15 years of history. The monthly numbers for the MSCI index and VISVX agree very closely. Also I can see the M* view of VISVX for right now.

For International Explorer I can also look at several years of history and a comparable M* view. BUT what do we have for VFSVX? So far I've seen no Vanguard data which gives me a warm feeling that the index is representative of what I'd like to put thousands of my $'s into. The FTSE site has no information that is helpful to me regarding historical performance behavior. The M* site has no portfolio info. The VG site is sorely lacking as well.

So why are people choosing this fund? What data are they relying on? Or is it just a name? How can you just replace VINEX with VFSVX? I'm just asking because I am curious and would like understand if I'm missing the boat on this -- not trying to ask anyone to defend the fund which should stand on its own merits. And what about that 0.75% purchase fee?
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Postby tarnation » Tue Jun 02, 2009 11:27 pm

Les wrote:
Trev H wrote:...
ISB - International Small Cap including EM
============================================
1970-1996 85% IS, 15% ES (ifa.com)
IS - Dimensional Intl Small Cap Index -4.58bp/month
ES - 1970-1988 IFA Emerging Markets Index,
---- 1989-1996 Fama/French EM Small -6.5bp/month
1997-2008 Vanguards International Explorer Fund
2009-Forward Vanguards FTSE X-US Intl Small Cap Index
...

Trev,
My concern is the FTSE X-US Intl Small Cap is too much of an unknown. When I look at VISVX as a contrary example, I can see how it performed for many years. Also since it switched to MSCI in 2003, I can check out the MSCI SV index for 15 years of history. The monthly numbers for the MSCI index and VISVX agree very closely. Also I can see the M* view of VISVX for right now.

For International Explorer I can also look at several years of history and a comparable M* view. BUT what do we have for VFSVX? So far I've seen no Vanguard data which gives me a warm feeling that the index is representative of what I'd like to put thousands of my $'s into. The FTSE site has no information that is helpful to me regarding historical performance behavior. The M* site has no portfolio info. The VG site is sorely lacking as well.

So why are people choosing this fund? What data are they relying on? Or is it just a name? How can you just replace VINEX with VFSVX? I'm just asking because I am curious and would like understand if I'm missing the boat on this -- not trying to ask anyone to defend the fund which should stand on its own merits. And what about that 0.75% purchase fee?


I am personally not concerned about lack of fund history. 2100 stocks from ~44 Countries should be pretty representative of the international small cap asset class.

Also, since VINEX is active, I would be more concerned about it replicating any past performance in the future. Also, as active expect less tax efficiency.

In addition, I imagine the VINEX holdings are a subset of VFSVX, what is it about the other 1,891 stocks you don't like? :)

I am not jazzed about the 0.75% purchase fee, but we bought in during the subscription period.
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