Which portfolio is better?

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boggler
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Which portfolio is better?

Post by boggler » Thu Apr 18, 2013 10:03 pm

I have some new cash to allocate and am debating how to split it up. Specifically, I'm concerned about the equity portion, and have narrowed it down to two options:

1: Invest it all in VT. I love the simplicity of this. (I'm not worried about the tiny bit higher expense ratio or the smaller holdings, as I imagine this will change over time and doesn't make a big difference anyway.)

2: Invest it like this. I like the tilt towards emerging markets.
ASSET CLASS INVESTMENT % AMOUNT
US Stocks Vanguard VTI ETF 35% $17,500
Foreign Stocks Vanguard VEA ETF 22% $11,000
Emerging Markets Vanguard VWO ETF 28% $14,000
Dividend Stocks Vanguard VIG ETF 5% $2,500
Natural Resources iPath DJP ETF 5% $2,500
Municipal Bonds iShares MUB ETF 5% $2,500

(Note, this portfolio came from Wealthfront, but I'm not necessarily going to use their service.)

How do I decide what is appropriate? Again, this is for the equity portion, and my goal is to invest for the very long term.

DaveS
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Location: Reno, NV

Re: Which portfolio is better?

Post by DaveS » Fri Apr 19, 2013 1:41 am

28% in Emerging is an overweight. Also the VIG etf is similar to the large cap portion of total market. I don't think natural resources is really an asset class. The combination of funds seems to be based on speculative tilt based on hunches that might not pay off. Why not three funds, Vanguard Total Stock Market, Vanguard Total International and a muni bond fund. I perfer TFI to MUB because it has a shorter duration, or if you don't mind funds instead of ETF's, Vanguard has some excellent muni funds. If you just had equal weights to the two total funds you would have almost the same composition as VT but at a lower combined cost. That way you would have a piece of about 8 thousand stocks. VT is a slimmed down version of the totals with only about 3000 different stocks and they charge more for it. Dave

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nisiprius
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Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Which portfolio is better?

Post by nisiprius » Fri Apr 19, 2013 5:45 am

Twelve Pillars of Wisdom, John C. Bogle:
Pillar 2. When All Else Fails, Fall Back on Simplicity.
Nobody can tell you which portfolio is better.

Nobody can even tell you which portfolio is better under specific future scenarios. People are always saying things like "if you think the future will be X, then invest in Y because Y tends to do better when X happens." There are two problems. First, you don't know that X will happen. And second, if you actually check, you will be amazed at how unreliable the "if X, then Y" statements are. Investments seem to do whatever they please regardless of theory. "When X happens Y does well" usually turns out to mean "A few years ago X happened once and Y did better, but the picture before then is muddled, but the time before when X happened and Y did poorly shouldn't count because it wasn't really X, etc. etc." And "I have a handwaving economics argument why X should cause Y to do well, but I'm not going to mention the fact that other heavy-hitting experts don't agree."

Does the smorgasbörd approach reflect clever optimization or does it just represent indecision? If it is indecision, will you be able to stick fairly strictly to the mix you've chosen, or will you worry about the components that are underperforming and keep adjusting the mix? All the "tilting" theories apply to very long term investing and assume that you are going to stay one course pretty faithfully for a pretty long time.

I've never held any Vanguard Emerging Markets (VEIEX). I love to climb into my time machine and travel back to 2003 and buy some.

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But I'm pretty glad I wasn't holding Vanguard Emerging Markets from 1994 to 2003. Over that total time period, Total Stock doubled your money, VEIEX lost money. 1997 and 1998 look pretty brutal. Would you have be able to hang onto VEIEX in the interest of "diversification" over a two-year time period in which $10,000 in VEIEX shrank to $7,000 while Total Stock grew to $16,000?

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Overall, since inception of VEIEX, a $10,000 investment grew to not quite $40,000--and one in plain old Vanguard Total [U.S.] Stock Market grew to not quite $50,000.

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So, how's your crystal ball?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Calm Man
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Re: Which portfolio is better?

Post by Calm Man » Fri Apr 19, 2013 10:54 am

Given your 2 choices: #1. It is so much easier to execute and maintain and probably will return about the same as #2.

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InvestorNewb
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Re: Which portfolio is better?

Post by InvestorNewb » Fri Apr 19, 2013 11:12 am

I would also go with VT - it's way simpler.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

YDNAL
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Location: Biscayne Bay

Re: Which portfolio is better?

Post by YDNAL » Fri Apr 19, 2013 12:04 pm

boggler wrote:I have some new cash to allocate and am debating how to split it up.....

2: Invest it like this. I like the tilt towards emerging markets.
ASSET CLASS INVESTMENT % AMOUNT
US Stocks Vanguard VTI ETF 35% $17,500
Foreign Stocks Vanguard VEA ETF 22% $11,000
Emerging Markets Vanguard VWO ETF 28% $14,000
Dividend Stocks Vanguard VIG ETF 5% $2,500
Natural Resources iPath DJP ETF 5% $2,500
Municipal Bonds iShares MUB ETF 5% $2,500
I find little use in slicing $50K like that - think BIG picture. What other Assets do you have?
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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