Which of these 2 portfolios would you choose?

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TheTimeLord
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Which of these 2 portfolios would you choose?

Post by TheTimeLord » Sun Jan 26, 2014 11:43 am

Edit: This is a portfolio for a tax deferred account with a time horizon over 10 years.

Portfolio A
100% Wellington

Portfolio B
65% Equity/35% Bond

30% US Equity (VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares)
20% International Equity (VDMAX - Vanguard Developed Markets Index Fund Admiral)
10% REIT (VGSLX - Vanguard REIT Index Fund Admiral Shares)
5% Emerging Market (VEMAX - Vanguard Emerging Markets Stock Index Fund Admiral Shares)

15% Total Bond (VBTLX - Vanguard Total Bond Market Index Fund Admiral Shares)
10% Tips (VIPSX - Vanguard Inflation-Protected Securities Fund Investor Shares)
5% International Bond (VTIBX - Vanguard Total International Bond Index Fund Investor Shares)
5% Emerging Market Bond (VGOVX - Vanguard Emerging Markets Government Bond Index Fund Investor Shares)
Last edited by TheTimeLord on Sun Jan 26, 2014 1:08 pm, edited 1 time in total.
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WHL
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Re: Which of these 2 portfolios would you choose?

Post by WHL » Sun Jan 26, 2014 12:59 pm

A strictly for simplicity. I don't even know what the Wellington fund contains.

Cut all of the BS tilts out of portfolio B, stick with the standard 3 funds, and I'd take it.

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Re: Which of these 2 portfolios would you choose?

Post by stan1 » Sun Jan 26, 2014 1:05 pm

There is nothing wrong with Wellington in a tax deferred account (or even a taxable account for a retiree in a low tax bracket who wants to live off dividends/distributions). One could do much, much worse.

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TheTimeLord
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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Sun Jan 26, 2014 1:07 pm

stan1 wrote:There is nothing wrong with Wellington in a tax deferred account (or even a taxable account for a retiree in a low tax bracket who wants to live off dividends/distributions). One could do much, much worse.
I should have stated this is a portfolio for a tax deferred account with a time horizon over 10 years. I will make an edit to the OP.
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TheTimeLord
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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Sun Jan 26, 2014 1:09 pm

WHL wrote:A strictly for simplicity. I don't even know what the Wellington fund contains.

Cut all of the BS tilts out of portfolio B, stick with the standard 3 funds, and I'd take it.
Out of curiousity what are you seeing as tilts?
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Re: Which of these 2 portfolios would you choose?

Post by stan1 » Sun Jan 26, 2014 1:14 pm

StarbuxInvestor wrote:
stan1 wrote:There is nothing wrong with Wellington in a tax deferred account (or even a taxable account for a retiree in a low tax bracket who wants to live off dividends/distributions). One could do much, much worse.
I should have stated this is a portfolio for a tax deferred account with a time horizon over 10 years. I will make an edit to the OP.
It's all about perspective. I would have no qualms whatsoever setting my mom up with a 100% Wellington (or Wellesley) portfolio (large cap value/dividend equity and corporate bond tilt over the market weights of index based alternatives such as Target Retirement or Lifestrategy). Even if I was managing her accounts I would go with a single fund approach just in case something happened to me.

Personally for me I would choose neither. I'd choose TSM+TSIM + Small Value and go with more corporate bonds than TBM offers by itself.

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TheTimeLord
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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Sun Jan 26, 2014 1:21 pm

stan1 wrote:
StarbuxInvestor wrote:
stan1 wrote:There is nothing wrong with Wellington in a tax deferred account (or even a taxable account for a retiree in a low tax bracket who wants to live off dividends/distributions). One could do much, much worse.
I should have stated this is a portfolio for a tax deferred account with a time horizon over 10 years. I will make an edit to the OP.
It's all about perspective. I would have no qualms whatsoever setting my mom up with a 100% Wellington (or Wellesley) portfolio (large cap value/dividend equity and corporate bond tilt over the market weights of index based alternatives such as Target Retirement or Lifestrategy). Even if I was managing her accounts I would go with a single fund approach just in case something happened to me.

Personally for me I would choose neither. I'd choose TSM+TSIM + Small Value and go with more corporate bonds than TBM offers by itself.
What would be the composition of the portfolio you would choose in a tax deferred Vanguard account?
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Re: Which of these 2 portfolios would you choose?

Post by midareff » Sun Jan 26, 2014 1:22 pm

I would take Wellington because I prefer the corporate bonds in Wellington to the bond assortment in Portfolio B. If I was going to design a 65/35 portfolio around VG offerings I would go 27.5% Total US + 27.5% Total International + 10% Reit for the equity side and 5% ST IG + 20% IT Index +10 HY on the bond side. If you wanted to spice it up a bit you could split the equity side a bit more at 17.5% Total US and 17.5% Total International+ 10% SV and 10% VSS on the international side.

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Re: Which of these 2 portfolios would you choose?

Post by PB » Sun Jan 26, 2014 3:41 pm

IMHO, the most important thing is this: do you want to manage the 8-fund Portfolio B? And are you able to manage it without the potential behavioral mistakes that come along with it?

I ask because if you keep your AA 65/35, the volatility of the two portfolios will likely be roughly similar. But the volatility of the individual funds in Portfolio B will likely be pretty intense. And of course, you have to rebalance Portfolio B with discipline, while Wellington would handle this for you. And handle it quite well (pun intended).

Otherwise (because I'm bored ;-), I ran the instant x-rays, and from my POV your biggest choice regards international equity: Wellington is 10% of TP, while Portfolio B is 25%. Nothing to sneeze at. Wellington's ER is slightly higher, but it's yield is slightly higher too, and will likely remain higher.

Portfolio A
http://webgallery.ws/forum/Axray.png

Portfolio B
http://webgallery.ws/forum/Bxray.png

And while past performance does not guarantee future performance, any backtesting is still not easy because TIPS are relatively new, Intl bonds, etc.

But very generally, even 10-12 year backtesting seems to validate the notion that your core asset allocation will be the biggest factor in returns, not the slicing and dicing. And it also seems to suggest that Wellington may be a little less volatile.

Your Portfolio A = Portfolio 1 (Wellington)
Your Portfolio B = Portfolio 2 (slice and dice with essentially comparable funds, because the sector VG funds have little history)
Assets = $200,000 for test

2002-2013
http://webgallery.ws/forum/2002-2013.png

1999-2013 without TIPS
http://webgallery.ws/forum/1999-2013NoTIPS.png

So again, for me, it's your AA and whether you can manage Portfolio B with discipline. The rest is secondary IMHO.

All the best.

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Re: Which of these 2 portfolios would you choose?

Post by jmndu99 » Sun Jan 26, 2014 4:07 pm

Which would you choose???
StarbuxInvestor wrote:Edit: This is a portfolio for a tax deferred account with a time horizon over 10 years.

Portfolio A
100% Wellington

Portfolio B
65% Equity/35% Bond

30% US Equity (VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares)
20% International Equity (VDMAX - Vanguard Developed Markets Index Fund Admiral)
10% REIT (VGSLX - Vanguard REIT Index Fund Admiral Shares)
5% Emerging Market (VEMAX - Vanguard Emerging Markets Stock Index Fund Admiral Shares)

15% Total Bond (VBTLX - Vanguard Total Bond Market Index Fund Admiral Shares)
10% Tips (VIPSX - Vanguard Inflation-Protected Securities Fund Investor Shares)
5% International Bond (VTIBX - Vanguard Total International Bond Index Fund Investor Shares)
5% Emerging Market Bond (VGOVX - Vanguard Emerging Markets Government Bond Index Fund Investor Shares)

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TheTimeLord
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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Sun Jan 26, 2014 4:25 pm

jmndu99 wrote:Which would you choose???
StarbuxInvestor wrote:Edit: This is a portfolio for a tax deferred account with a time horizon over 10 years.

Portfolio A
100% Wellington

Portfolio B
65% Equity/35% Bond

30% US Equity (VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares)
20% International Equity (VDMAX - Vanguard Developed Markets Index Fund Admiral)
10% REIT (VGSLX - Vanguard REIT Index Fund Admiral Shares)
5% Emerging Market (VEMAX - Vanguard Emerging Markets Stock Index Fund Admiral Shares)

15% Total Bond (VBTLX - Vanguard Total Bond Market Index Fund Admiral Shares)
10% Tips (VIPSX - Vanguard Inflation-Protected Securities Fund Investor Shares)
5% International Bond (VTIBX - Vanguard Total International Bond Index Fund Investor Shares)
5% Emerging Market Bond (VGOVX - Vanguard Emerging Markets Government Bond Index Fund Investor Shares)
At the moment I basically have both. A core position in Wellington with the rest allocated roughly as outlined in portfolio B. I have just consolidated a 401k into the IRA account. Those funds are all cash. So I am looking at how to allocate those funds.
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Re: Which of these 2 portfolios would you choose?

Post by nisiprius » Sun Jan 26, 2014 4:54 pm

I would make the choice on the basis of personal preference. Whichever suits your personality. And whatever you can stick with going forward.

If it were me, and if I thought REIT, EM overweight, TIPS, and emerging markets bonds are important, then I would find it difficult to relinquish them in Wellington. (In my personal portfolio I threw out my REIT holding, don't overweight EM, and can't even imagine wanting EM bonds--but I am very enthusiastic about TIPS).

I don't think it is possible to say one of them is better or worse than the other without throwing subjectivity into the scales.

Just to make things difficult, I would also throw this into the list of possibilities. An all-in-one fund like Wellington, with a similar stock/bond allocation, but based on index funds:

Choice c, Vanguard LifeStrategy Moderate Growth Fund (VSMGX)

Vanguard Total Stock Market Index Fund Investor Shares 42.6%
Vanguard Total Bond Market II Index Fund Investor Shares 31.7%
Vanguard Total International Stock Index Fund Investor Shares 17.9%
Vanguard Total International Bond Index Fund Investor Shares 7.8%
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TheTimeLord
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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Tue Jan 28, 2014 10:13 am

My IRA rollover is complete so if anyone has an alternative portfolio in the 65/35 area feel free to suggest. Right now I am tempted to split the baby and go 50% Wellington 50% The Modified Swensen Portfolio.
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Re: Which of these 2 portfolios would you choose?

Post by dbr » Tue Jan 28, 2014 10:38 am

What would cause you to come up with a choice like this? If you are just picking and choosing from things that are in a book (Swenson) or available as a famous fund (Wellington), then I don't see any rational way to pose a question here. As you suggest, you can put half in each, but that doesn't make any more sense. There are, after all, dozens of other combinations of investments one could ponder. Nisi suggested one. I would come from the school that a simple three fund approach with the stock/bond ratio of choice is the starting point and would not add or do differently without a good reason to do so. I suspect a lot of books walk through asset allocation with simple suggestions first and more complicated ones in following pages as if the earlier text were for beginners and the later text for more knowledgeable and sophisticated investors. I don't think such a progression is the case at all.

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Re: Which of these 2 portfolios would you choose?

Post by Bogle101 » Tue Jan 28, 2014 10:44 am

Obviously portfolio B
25% S&P 500 | 25% Extended Market | 20% International | 10% REIT | 10% Sector Funds | 10% Cash

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Re: Which of these 2 portfolios would you choose?

Post by gvsucavie03 » Tue Jan 28, 2014 10:52 am

Wouldn't the Vanguard Balanced Index fund be a better choice (60/40) than the Wellington? Yes, the AA is slightly different, but the diversification is not even comparable... only a few hundred bonds and stocks in Wellington versus thousands in the Balanced fund. Plus the Admiral share ER of the Wellington is .17 with $50K minimum versus the Balanced that has a .10 ER and only $10K minimum....

I know the question is Wellington versus the 8-fund portfolio you posted, but the Balanced Index would net almost the same result with far more simplicity....

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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Tue Jan 28, 2014 10:55 am

dbr wrote:What would cause you to come up with a choice like this? If you are just picking and choosing from things that are in a book (Swenson) or available as a famous fund (Wellington), then I don't see any rational way to pose a question here. As you suggest, you can put half in each, but that doesn't make any more sense. There are, after all, dozens of other combinations of investments one could ponder. Nisi suggested one. I would come from the school that a simple three fund approach with the stock/bond ratio of choice is the starting point and would not add or do differently without a good reason to do so. I suspect a lot of books walk through asset allocation with simple suggestions first and more complicated ones in following pages as if the earlier text were for beginners and the later text for more knowledgeable and sophisticated investors. I don't think such a progression is the case at all.
He did, and an excellent one, but if my math is correct it was 60/40 instead of my targeted 65/35. I prefer a 30 point spread to a 20 point spread. Someone may suggest the Balance Index Fund but from what I have seen while the action between Balance Index and Wellington is similar, Balance Index consistently lags slightly in return and yield. Maybe it is the corporate bond bias?
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TheTimeLord
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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Tue Jan 28, 2014 11:01 am

gvsucavie03 wrote:Wouldn't the Vanguard Balanced Index fund be a better choice (60/40) than the Wellington? Yes, the AA is slightly different, but the diversification is not even comparable... only a few hundred bonds and stocks in Wellington versus thousands in the Balanced fund. Plus the Admiral share ER of the Wellington is .17 with $50K minimum versus the Balanced that has a .10 ER and only $10K minimum....

I know the question is Wellington versus the 8-fund portfolio you posted, but the Balanced Index would net almost the same result with far more simplicity....
I looked up Balance Index vs. Wellington last night and since 2000 it trailed in a meaningful way although they move virtually in tandem. Also Wellington seemed to do better during the crisis years. As far as I know there is no meaningful diversification difference in a balanced portfolio holds 100 stocks and one holding 5,000. In either porfolio you don't hold enough of any one position. In fact if I remember correctly Wellington's top holdings are of a similar concentrate to the S&P 500 which holds 500 stocks and less than the Nasdaq 100.
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Re: Which of these 2 portfolios would you choose?

Post by gvsucavie03 » Tue Jan 28, 2014 11:04 am

StarbuxInvestor wrote:
gvsucavie03 wrote:Wouldn't the Vanguard Balanced Index fund be a better choice (60/40) than the Wellington? Yes, the AA is slightly different, but the diversification is not even comparable... only a few hundred bonds and stocks in Wellington versus thousands in the Balanced fund. Plus the Admiral share ER of the Wellington is .17 with $50K minimum versus the Balanced that has a .10 ER and only $10K minimum....

I know the question is Wellington versus the 8-fund portfolio you posted, but the Balanced Index would net almost the same result with far more simplicity....
I looked up Balance Index vs. Wellington last night and since 2000 it trailed in a meaningful way although they move virtually in tandem. Also Wellington seemed to do better during the crisis years. As far as I know there is no meaningful diversification difference in a balanced portfolio holds 100 stocks and one holding 5,000. In either porfolio you don't hold enough of any one position. In fact if I remember correctly Wellington's top holdings are of a similar concentrate to the S&P 500 which holds 500 stocks and less than the Nasdaq 100.
Crap... not enough decimials... nevermind *edited* $70 per $100K

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Re: Which of these 2 portfolios would you choose?

Post by dbr » Tue Jan 28, 2014 11:07 am

StarbuxInvestor wrote:
dbr wrote:What would cause you to come up with a choice like this? If you are just picking and choosing from things that are in a book (Swenson) or available as a famous fund (Wellington), then I don't see any rational way to pose a question here. As you suggest, you can put half in each, but that doesn't make any more sense. There are, after all, dozens of other combinations of investments one could ponder. Nisi suggested one. I would come from the school that a simple three fund approach with the stock/bond ratio of choice is the starting point and would not add or do differently without a good reason to do so. I suspect a lot of books walk through asset allocation with simple suggestions first and more complicated ones in following pages as if the earlier text were for beginners and the later text for more knowledgeable and sophisticated investors. I don't think such a progression is the case at all.
He did, and an excellent one, but if my math is correct it was 60/40 instead of my targeted 65/35. I prefer a 30 point spread to a 20 point spread. Someone may suggest the Balance Index Fund but from what I have seen while the action between Balance Index and Wellington is similar, Balance Index consistently lags slightly in return and yield. Maybe it is the corporate bond bias?
Then you can buy the funds separately and adjust the allocation to what you want. I still think holding out Wellington as a paragon of asset allocation generates a red herring.

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Re: Which of these 2 portfolios would you choose?

Post by Aptenodytes » Tue Jan 28, 2014 11:11 am

You need to clarify what you mean by "a time horizon over 10 years." I am guessing that you do not mean "a time horizon over 10 years," i.e. the account will be liquidated by the time 10 years are up. You probably mean you will stop contributing to it in 10 years, but that's just a guess.

B seems reasonable except for underweighting emerging markets. If you are afraid of the volatility in EM, why not just eliminate them altogether? My own preference would be for having EM at market weights.

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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Tue Jan 28, 2014 11:16 am

dbr wrote:I still think holding out Wellington as a paragon of asset allocation generates a red herring.
I don't mean to hold it up as a paragon just a very consistently successful fund whose asset allocation falls in line with my risk tolerance. And when compared to other products of similar asset allocation it tends to compare favorably. Given its success over so many years I have to assume it has more to do with its asset allocation than its managers or philosophy.
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Re: Which of these 2 portfolios would you choose?

Post by TheTimeLord » Tue Jan 28, 2014 11:18 am

Aptenodytes wrote:You need to clarify what you mean by "a time horizon over 10 years." I am guessing that you do not mean "a time horizon over 10 years," i.e. the account will be liquidated by the time 10 years are up. You probably mean you will stop contributing to it in 10 years, but that's just a guess.

B seems reasonable except for underweighting emerging markets. If you are afraid of the volatility in EM, why not just eliminate them altogether? My own preference would be for having EM at market weights.
The phrase time horizon over 10 years means I have no plans to liquidate any of these investments for at least the next 10 years. The EM allocation comes from Swensen who I admire. And earlier I was acused of overweighting EM. Go figure.

Definition of 'Time Horizon'
The length of time over which an investment is made or held before it is liquidated.
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Re: Which of these 2 portfolios would you choose?

Post by Aptenodytes » Tue Jan 28, 2014 11:26 am

StarbuxInvestor wrote:The EM allocation comes from Swensen who I admire. And earlier I was acused of overweighting EM. Go figure.
EM are in the vincinity of 13-15% of global stock markets and growing, so 5% is definitely underweight. Your actual time horizon is in the vicinity of 40 years or so, which for me is plenty of time to ride out EM volatility. I just can't fathom a rationale for leaving EM returns on the table -- deciding not to overweight EM seems very reasonable, but deliberately underweighting by a factor of three just seems weird.

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Re: Which of these 2 portfolios would you choose?

Post by dbr » Tue Jan 28, 2014 1:31 pm

StarbuxInvestor wrote:
dbr wrote:I still think holding out Wellington as a paragon of asset allocation generates a red herring.
I don't mean to hold it up as a paragon just a very consistently successful fund whose asset allocation falls in line with my risk tolerance. And when compared to other products of similar asset allocation it tends to compare favorably. Given its success over so many years I have to assume it has more to do with its asset allocation than its managers or philosophy.
Asset allocation yes. I would be cautious regarding the concept of "similar" asset allocation as the whole point of Wellington goes beyond simply the stock/bond ratio. Also, I believe there was a point in the history of the fund when management got seriously off track. See this article 1967-1978:

http://www.vanguard.com/bogle_site/sp20 ... onbth.html

I note you took exception to a model that was 60/40 instead of a preferred 65/35. Have you noted that the prospectus for Wellington only says that they target to be between 60/40 and 70/30? If you actually want to be sure between and within those limits, I would think Wellington would not be for you as they can move around at their discretion.

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