Bogleheads

[jquincya]

I have been researching David Swensen's Unconventional Success Lazy Portfolio that is highlighted in the Wiki.

Is this an appropriate portfolio for somene in their young 30s? What are general feelings on the board about this lazy portfolio?

Thanks.

[kcyahoo]

Short version, others may chime in with the longer version.
You will find that Simple/Lazy Portfolios in general are favored here. There are several varieties. Google it. Do more reading (wiki & Reading list). Determine your asset allocation. Pick one and stay with it.
_________________
Retired @ 57, now 67
was 50/45/5, then 42/54/04 heading for 30/65/05 in 2012.
KC

[simplesimon]

To elaborate a little more on what kcyahoo said...

There's really only a few simple rules when it comes to your portfolio that almost everybody here would agree with:
1) Pick a stock/bond ratio that is appropriate for your risk tolerance.
2) Keep costs low.
3) Stick to your plan.

Nobody could tell you for certain what mix of REITs, emerging markets, treasury bonds, or any asset class for that matter, will give you the best returns by the time you need the money. Stick to the three rules above.

[Avo]

I am not a fan of Swenson's portfolio because he never explains how he arrived at it, in particular the large component devoted to REITs is a huge tilt away from market weighting.

The best-explained lazy portfolio is Merriman's,

http://www.fundadvice.com/arti....ategy.html

http://www.fundadvice.com/portfolio.html

[grok87]

[Avo]

[catchup]

I would read the book and his recent interviews so you can decide for yourself.
For practical purposes, I have followed his model portfolio and advice to a T, although issues still arise depending on individual circumstances (for example, trying to figure out if it is better to own low interest treasury bonds at 15% of portfolio or to pay off higher interest loans with the same money, at the risk of messing up my allocations; owning active funds in my 403b;)

I am very happy with this decision. I'd be better off if I had a pure Swensen portfolio.
I've been able to survive the worst economic crisis since the depression while essentially breaking even on my investments over the last 2 years. I use 15% Reits and 10% EM. TIPs have gone up 10% this year, a big Swensen rec at the beginning of the year. He has also increased emphasis on EM, which has outperformed just about everything.

Of course there are plenty of other good options that follow the Boglehead principles.

[Lbill]

Can anyone confirm that Swensen recommends long-term nominal treasuries? In the latest edition of Pioneering Portfolio Management he states:

[jquincya]

Dear Mr. Swensen:

I am a big fan and owner of Unconventional Success, as are many on the Morningstar Vanguard Diehards forum. On the Diehards forum, there is confusion about one of the asset classes you discuss. No one can agree on what duration of US Treasury Bonds you suggest in your generic, starting point, portfolio on page 34.

For example, On page 50, you say "The purity of noncallable, long-term, default-free Treasury bonds provides the most powerful diversification to investor portfolios."

But on page 318 there is a table entitled "Core Asset Class ETFs Provide Useful Portfolio Management Tools" where you list US Bond ETFs of short, medium, and long duration. Those listed are as follows: IShares Lehman 1 to 3 Year Treasury (SHY), IShares Lehman 7 to 10 Year Treasury (IEF), and IShares Lehman 20+ Year Treasury (TLT).

Would you please clarify your suggested US Treasury Bonds duration for the generic, starting point portfolio? If not too much trouble, would you please provide the Vanguard mutual fund name or names that you suggest for the generic portfolio?

I offered to write you on behalf of the Diehards. Would you mind if I posted a copy of your response on the Vanguard Diehards forum? If it is not ok, I will paraphrase your response for the forum.

I, along with legions of Diehards, look forward to your response. Thank you very much!

Sincerely,
Richard


(I decided to post Swensen's response in its entirety since he did not tell me not to. In my judgment, there is nothing he would mind having posted.)


Richard -

Thank you for your nice message - In response to your question about the bond portfolio, I would try to match the market characteristics - See the following chart -

Durations as of August 31, 2006:
Lehman US Treasury Index - 5.07
IShares 1-3 Treasury (SHY) - 1.67
IShares 7-10 Treasury (IEF) - 6.45
IShares 20+ Treasury (TLT) - 13.00

The easiest way to match the market would be to own some of the 1-3 Treasury (70%) and some of the 20+ Treasury (30%) so the weighted average duration matches the market's 5.07 years -

I hope this helps -

David Swensen

[Lbill]

jquincya- Thanks a ton for your post. Is that really from the horse's mouth? If so, it is very helpful to have his viewpoint on this. Hey, he sounds like a Permanent Portfolio guy (the PP recommends a 50/50 allocation between short and long-term treasuries.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[Tramper Al]

[Lbill]

Tramper - it's been explained to me that you have better "convexity" by using the barbell approach instead of going all in intermediate treasuries. I think that means that the long portion will respond to events in a different fashion than the short portion, and this duplexity can have superior performance during certain circumstances. That sorta makes sense to me. Although when I looked at the historical data using Simba's spreadsheet there wasn't much difference between a 50/50 mix of short and long vs. 100% in intermediate. Go figure.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[Tramper Al]

[jquincya]

I found the post on Morningstar but wasn't sure how to properly interpret it.

Which funds are the recommended funds for the Swensen portfolio based on our discussion and Swensen's post?

Thanks.

[Lbill]

Tramper - You could be right about over-interpreting Swenson's comments. However, when you factor in his comments about holding long treasuries in his books, it seems to me that he would prefer the short-long barbell approach so you can hold some long treasuries as insurance.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[jquincya]

Does this mean the VUSTX should / could be used for the treasury portion of the portfolio?

[Tramper Al]

[grok87]

[dumbmoney]

This is as clear as mud. Who calls 5 years "long term"?
_________________
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

[Lbill]

Perhaps the mystery can be further unravelled from the quote from Pioneering Portfolio Management:

[jquincya]

Since there was uncertaintly as to which funds he recommends, I emailed professor Swensen.

He wrote back this morning and indicated that the Intermediate Term Treasury Fund should be used for the entire 15%. His reasoning was that the intermediate fund, as of September 30, most closely matches the market duration.

Also, I have seen some who believe the Total International Fund should be used for the developed markets portion of the portfolio, but he confirmed that for the 15% developed markets allocation, VDMIX should be used.

[stratton]

[Lbill]

[Tramper Al]

[catchup]

Great information. Email him again and ask him more questions!