Rick Ferri's 60/40 portfolio mix

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
DebiT
Posts: 121
Joined: Sat Dec 28, 2013 1:45 pm

Rick Ferri's 60/40 portfolio mix

Post by DebiT » Mon Dec 29, 2014 4:53 pm

I have Ferr's book All About Asset Allocation, published 2006, and a couple of different blog posts, all referencing his 60/40 allocation mix. They are very similar but not completely, so I am wondering if he has changed things. Book included small and microcap, with less TSM and more REIT. Foreign allocations used different vehicles, but essentially the same. On the bond side, book included 20/10/10/5 InvGrade/HY/TIPS?Emerging markets. Both blog posts were 24 BND, 8 HY, 8 TIPS.

What do Boglelead's think about Ferri's mix? Searching seems to yield so much info that it's hard to tell. Basic idea makes sense. I'm moving more and more toward indexing.

Also noticed no room here for any dividend funds, which I have been wanting to add. Comments about this aspect?

Thanks for any advice.
Age 60, complete retirement not til 70, target is 50/50 -- Stock US 30, Intl 15, REIT 5. Bonds US 45, cash ~5

Singularity
Posts: 25
Joined: Sun Nov 09, 2014 11:11 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Singularity » Mon Dec 29, 2014 5:46 pm

Also noticed no room here for any dividend funds, which I have been wanting to add. Comments about this aspect?
Dividend funds may be a little too popular these days with the low interest rate environment many are searching for yield.
They are not necessarily safer that the Broad Total Market or S&P 500. http://investorplace.com/2014/07/divide ... VKHXhl4Awo

Dividends can be attractive but don't expect them to limit your volatility much. Vanguard Total Market ETF (VTI) also outperforms Vanguard Dividend Appreciation ETF (VIG).
They also have a 98% correlation and VIG for example is 15% less volatile.

https://www.portfoliovisualizer.com/ass ... F01%2F2009

Code: Select all

Name	Ticker	                              VTI	 VIG	          Annualized Return	Annualized Standard Deviation
Vanguard Total Stock Market ETT (VTI)	      -	  0.98	         18.08%	                15.38%
Vanguard Div Appreciation ETF (VIG)	        0.98	  -	         15.14%	                13.28%

Bracket
Posts: 417
Joined: Sun Mar 10, 2013 7:50 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Bracket » Mon Dec 29, 2014 10:56 pm

I modeled my portfolio largely after that presented in the 2010 edition of All About Asset Allocation. In that book he did not recommend EM bonds, but otherwise was mostly the same I think. Since then though I believe he has also stopped advocating BRSIX (or any microcap fund) due to I believe Vanguard's changing it's TSM index fund to the new CRSP total market index, which means it now extends more into the microcap space and would overlap somewhat with BRSIX, and also because BRSIX does not track its index very well. I think he also mentioned it's ER was also rather high. He had a post on this somewhere, but unfortunately I don't have a link. As far as I know he still advocates tilting to small cap value (not small) and REITs, using vanguard REIT index fund and IJS, and more recently he has mentioned PSXV as another good small cap value option.

Personally I sit at 80/20 but follow his portfolio in that I hold the total US market along with a 2:1 tilt to small cap value using IJS and VBR, as well as 10% of my portolio in REITS. I don't split my international into Europe and Asia like in the book but just use Vanguard's total international index fund along with VSS for small cap int'l ( i have no access to DFA int'l small value fund). I do hold 20% of my bonds in TIPS as he mentioned, but no high yield, mostly because I have no room in tax-advantaged space for them. Many here would also argue against high yield bonds.

I have been happy with this portfolio so far and have no plans to alter it.

User avatar
TimeRunner
Posts: 1372
Joined: Sat Dec 29, 2012 9:23 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by TimeRunner » Tue Dec 30, 2014 9:29 am

"What'd ya expect in an opera, a happy ending?" -Bugs Bunny ...:... One cannot enlighten the unconscious.

User avatar
StevieG72
Posts: 819
Joined: Wed Feb 05, 2014 9:00 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by StevieG72 » Tue Dec 30, 2014 10:37 am

I like his equal weighting on international between Europe, Pacific, and Emerging Markets.

VTIAX has a higher percentage in Europe, less in Pacific, and even a lower pertentage in Emerging Markets. It does include a small percentage of Canadian stocks as well.

I sold all of my VTIAX to tax harvest some losses and to switch to equal weight in Europe, Pacific, Emerging Markets.
Fools think their own way is right, but the wise listen to others.

Valuethinker
Posts: 35652
Joined: Fri May 11, 2007 11:07 am

Re: Rick Ferri's 60/40 portfolio mix

Post by Valuethinker » Tue Dec 30, 2014 10:43 am

FWIW I think Ferri overcomplicates it.

But his basic strategy is OK. I would not go above 10% in REITs-- you will add volatility to your portfolio. You will also consume valuable tax exempt space.

If you hold Total Stock Market, Total International, Total Bond (or US Treasury Intermediate Term bond), and TIPS then you pretty much have covered the landscape. You have some REIT exposure in TSM, some small cap in TSM, about the main thing you are missing is HY bonds (not in TBM). And EM bonds, but I really think you can do without those (if you want Emerging Market exposure, the stock fund is a better bet, as part of your equities, say 5%).

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Rick Ferri's 60/40 portfolio mix

Post by dbr » Tue Dec 30, 2014 10:58 am

What I think is that there is an impression there that there is something important about mixing and matching all those funds, and in reality it isn't important.

User avatar
DaftInvestor
Posts: 4018
Joined: Wed Feb 19, 2014 10:11 am

Re: Rick Ferri's 60/40 portfolio mix

Post by DaftInvestor » Tue Dec 30, 2014 12:15 pm

If you read all the various discussions on this forum (and read the Boglehead Guide to Investing) I believe the biggest disagreement you will find with Ferri's AA book is the High-Yield Bond allocation. Folks will argue that High-Yield Bonds are too closely correlated with movements in stocks (so should almost be thought of more as equity - as you won't get the stability in a down-stock-market you will get with Investment Grade bonds). I've learned since I've been here that most Bogleheads stay clear of HY Bonds altogether.

EDIT: Just found the most recent thread regarding the HY Bond debate/discussion here:
viewtopic.php?f=1&t=153994

User avatar
galeno
Posts: 1275
Joined: Fri Dec 21, 2007 12:06 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by galeno » Tue Dec 30, 2014 12:29 pm

For USA persons anything beyond 60% VT + 35% BND + 5% CASH (TER = 0.09%) is speculating.

To stay in business Rick needs to justify his fees by complicating the above super simple and extremely cheap super port.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Laura » Tue Dec 30, 2014 9:28 pm

Sorry to disagree with you on what is needed for US investors and what needs to stay in business. First, many studies have shown that including international increases diversification in the portfolio. REITs are also an entirely different asset class and add diversification as well. It may or may not be needed but Rick suggests using it as do many others. Rick certainly does not need to justify his very low fees by adding complexity. In fact, his recommendations are incredibly straightforward and do not require assistance to manage. He provides a service for people who choose not to manage their own investments for a variety of reasons.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

Humdrum
Posts: 55
Joined: Mon Nov 03, 2014 9:09 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Humdrum » Wed Dec 31, 2014 12:14 am

Valuethinker wrote:FWIW I think Ferri overcomplicates it.

But his basic strategy is OK. I would not go above 10% in REITs-- you will add volatility to your portfolio. You will also consume valuable tax exempt space.

If you hold Total Stock Market, Total International, Total Bond (or US Treasury Intermediate Term bond), and TIPS then you pretty much have covered the landscape. You have some REIT exposure in TSM, some small cap in TSM, about the main thing you are missing is HY bonds (not in TBM). And EM bonds, but I really think you can do without those (if you want Emerging Market exposure, the stock fund is a better bet, as part of your equities, say 5%).
If one were to a do a 60/40 with the Total Stock Market, Total International, Total Bond and TIPS. Then what would be the best % to put into each fund for just the right balance and to capture the total market?

User avatar
OZAR
Posts: 115
Joined: Sat Aug 21, 2010 4:06 pm
Location: Las Vegas

Re: Rick Ferri's 60/40 portfolio mix

Post by OZAR » Wed Dec 31, 2014 1:17 am

There is no ' BEST'- everyone's situation is different.




40% TSM
20% International
30% TBM
10% TIPS


Full disclosure I am a tilter

User avatar
galeno
Posts: 1275
Joined: Fri Dec 21, 2007 12:06 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by galeno » Wed Dec 31, 2014 10:52 am

If you want to capture the TOTAL market you want to use 60% VT for stocks and 40% BND for bonds.

You can make VT (ER=0.18%) cheaper by using 2 funds 50% VTI + 50% VXUS (ER=0.10) or 3 funds 50% SCHB + 40% SCHF + 10% SCHE (ER=0.07%).

We prefer to carry our all world stocks in one big grocery bag vs 2 or 3 smaller ones.

As far as TIPS go? Really? In a 60/40 port do you really need TIPS? Especially now they being so expensive?

I say no.
Humdrum wrote:If one were to a do a 60/40 with the Total Stock Market, Total International, Total Bond and TIPS. Then what would be the best % to put into each fund for just the right balance and to capture the total market?
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by pingo » Wed Dec 31, 2014 2:56 pm

Minor edits below:
galeno wrote:To stay in business Rick needs to justify his fees by complicating the above super simple and extremely cheap super port.
I'm trying to find a thread from not too long ago where someone had a similar question and Rick Ferri chimed in. I thought it was a perfect example of the kind of helper he is. (For that particular poster, Rick supported the use of a Total International Index Fund versus separate European/Pacific/Emerging funds.) Unfortunately, the best example I can offer at the moment is this thread, but I think you'll find his interactions consistent my views of the man (below).

He doesn't walk on water, but I believe he tries his best to manage the conflicts of interest that must naturally arise from wanting what's best for investors and needing to put food on the table. Of Rick I have observed the following:

Rick regularly helps people on this forum.
Rick donates all book royalties to the Semper Fi Fund.
Rick and his firm are known for referring people here.
Rick donates time to answer emails from readers of his books.
Rick's firm has been known to encourage individual(s) that they can do it themselves.
Rick tries to offer non-clients many viable non-DFA, non-advisor required options for Fama-French style investing.
If I'm not mistaken, his contributions to The Bogleheads Guide to Investing were free of charge, which is fitting for a publication that donates its proceeds to The National Constitution Center--a favorite cause of John Bogle.

Rick was recommending his European:Pacific:Emerging arrangement back before Total International was tax efficient. (Total Int'l used to be a fund of funds.)
Rick stands by the performance of his arrangement and follows up with us about its continued performance from time to time, but he is also a big supporter of Total International and the "majesty of simplicity".
Rick acknowledges that he falls into the Fama-French camp, but believes that one's investment philosophy comes first for investment success. He defends factor investing and The Three Fund Portfolio evenhandedly and tries to rein in any hyperbole or over-zealousness about either style.

Investment advisory service solicitations are not allowed on this forum, but I am not ignorant of the fact --nor is he-- that his blog, books, forum contributions and posts such as mine must naturally draw attention to his business as seen here, but I find him to be genuinely interested in what is best for investors even when that is in conflict with what may be in his best interest.
Last edited by pingo on Fri Jan 09, 2015 6:01 am, edited 10 times in total.

chaz
Posts: 13601
Joined: Tue Feb 27, 2007 2:44 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by chaz » Wed Dec 31, 2014 3:02 pm

I like Balanced Index fund. 60/40
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

Bracket
Posts: 417
Joined: Sun Mar 10, 2013 7:50 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Bracket » Wed Dec 31, 2014 3:13 pm

pingo wrote:
galeno wrote:To stay in business Rick needs to justify his fees by complicating the above super simple and extremely cheap super port.
I'm trying to find a thread from not too long ago where someone had a similar question and Rick Ferri chimed in. I thought it was a perfect example of the kind of helper he is. (For that particular poster, Rick supported the use of a Total International Index Fund.) Unfortunately, the best example I can offer at the moment is this thread about international REITs, but I think you'll find his interactions consistent my views of the man (below).

He doesn't walk on water, but I believe he tries his best to manage the conflicts of interest that must naturally arise from wanting what's best for investors and needing to put food on the table. Of Rick I have observed the following:

Rick regularly helps people on this forum.
Rick donates all book royalties to the Semper Fi Fund.
Rick and his firm are known for referring people here.
Rick donates time to answer emails from readers of his books.
Rick's firm has been known to encourage individual(s) that they can do it themselves.
Rick tries to offer non-clients many viable non-DFA, non-advisor required options for Fama-French style investing.
If I'm not mistaken, he donated his contributions to The Bogleheads Guide to Investing, which donates its proceeds to The National Constitution Center--a favorite cause of John Bogle.

Rick was recommending his European:Pacific:Emerging arrangement back before Total International was tax efficient. (Total Int'l used to be a fund of funds.)
Rick stands by the performance of his arrangement and follows up with us about its continued performance from time to time, but he is also a big supporter of Total International and the "majesty of simplicity".
Rick acknowledges that he falls into the Fama-French camp, but believes that one's investment philosophy comes first for investment success.

Investment advisory service solicitations are not allowed on this forum, but I am not ignorant of the fact --nor is he-- that his blog, books, forum contributions and posts such as mine must naturally draw attention to his business as seen here, but I find him to be genuinely interested in what is best for investors even when that is in conflict with what may not be in his best personal interest.
I was going to write a post similar to this but I'm glad you beat me to it.

+1

User avatar
galeno
Posts: 1275
Joined: Fri Dec 21, 2007 12:06 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by galeno » Wed Dec 31, 2014 6:18 pm

I'm a big Rick Ferri fan. But business is business. Rick hopes that his slice and dice 60/40 portfolio will beat the Boglehead 3 fund 60/40 port by more than enough to offset his fee.

Here's the problem. Over the last 80+ years, a frictionless (cost free) 60/40 port has delivered a 5.0% real CAGR. With stocks and bonds so richly valued, it's prudent to lower expectations. Expect a very bumpy slow frictionless 3-4% real CAGR for the next 30 years.

Now you need to subtract costs. Ours are ER=0.3%, taxes=0.4%, and AWR=2.5% for a total of 3.2%. An advisor fee of 0.25-0.50% would be too heavy a cost on our already overburdened retirement portfolio.

Using a gross 4% AWR, a 0.25% fee is the same as an income tax rate = 6%. A 0.50% fee doubles your income tax rate to 12%. Using a gross AWR=3.0% the taxes are 8% and 16% respectively.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

User avatar
bilperk
Posts: 538
Joined: Tue Feb 20, 2007 7:00 am
Location: Florida

Re: Rick Ferri's 60/40 portfolio mix

Post by bilperk » Wed Dec 31, 2014 6:49 pm

galeno wrote:I'm a big Rick Ferri fan. But business is business. Rick hopes that his slice and dice 60/40 portfolio will beat the Boglehead 3 fund 60/40 port by more than enough to offset his fee.

Here's the problem. Over the last 80+ years, a frictionless (cost free) 60/40 port has delivered a 5.0% real CAGR. With stocks and bonds so richly valued, it's prudent to lower expectations. Expect a very bumpy slow frictionless 3-4% real CAGR for the next 30 years.

Now you need to subtract costs. Ours are ER=0.3%, taxes=0.4%, and AWR=2.5% for a total of 3.2%. An advisor fee of 0.25-0.50% would be too heavy a cost on our already overburdened retirement portfolio.

Using a gross 4% AWR, a 0.25% fee is the same as an income tax rate = 6%. A 0.50% fee doubles your income tax rate to 12%. Using a gross AWR=3.0% the taxes are 8% and 16% respectively.
This is a really uninformed post. Advisors are not just about the funds they may put you in. Who cares if you use an advisor, most of us don't. Does that mean some folks don't need one? All Risk hopes, I'm guessing, is that his clients will be successful in reaching their goals.
Bill

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by pingo » Wed Dec 31, 2014 7:43 pm

galeno wrote:I'm a big Rick Ferri fan. But business is business. Rick hopes that his slice and dice 60/40 portfolio will beat the Boglehead 3 fund 60/40 port by more than enough to offset his fee.

Here's the problem. Over the last 80+ years, a frictionless (cost free) 60/40 port has delivered a 5.0% real CAGR. With stocks and bonds so richly valued, it's prudent to lower expectations. Expect a very bumpy slow frictionless 3-4% real CAGR for the next 30 years.

Now you need to subtract costs. Ours are ER=0.3%, taxes=0.4%, and AWR=2.5% for a total of 3.2%. An advisor fee of 0.25-0.50% would be too heavy a cost on our already overburdened retirement portfolio.

Using a gross 4% AWR, a 0.25% fee is the same as an income tax rate = 6%. A 0.50% fee doubles your income tax rate to 12%. Using a gross AWR=3.0% the taxes are 8% and 16% respectively.
I respect the point and I think Rick's conduct is consistent with those types of considerations. I think we can all agree that no-one should dismiss potential conflicts of interest out-of hand, nor should we ignore the different investment philosophies/interests that inform individual contributions to this board.

I also concede billperk's point that there are personal, "qualitative" factors that can outweigh additional costs to an extent. In fact, the point is not incompatible with the one you've made.

Larry Swedroe is another advisor that helps out on the forum who is (already tired of) frequently making the point that advisory firms can provide services that go beyond investment advice and fund access that may justify the additional costs to the investor, even if they are not expected to overcome the additional costs. (For example, when a firm also provides necessary tax services in-line with investment planning, or when it is able to help investors stick with a plan--assuming the plan is still appropriate.)

We hear of advisors suggesting that the higher expected returns of their special brands of funds overcome the additional advisory fees; suggesting that one should expect outperformance because of their services. I have seen Rick ferociously reject the notion.

When Rick promotes the non-profit Bogleheads.org on his blog here, he speaks of its brutal honesty from experience (although he doesn't mention it in the article). I've watched how he faces some of that honest brutality that occasionally is directed at him, which is another reason he garners my respect. Edit: Oh, look. It's happening, yet again. (Link.)
Last edited by pingo on Fri Jan 09, 2015 6:04 am, edited 21 times in total.

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Laura » Wed Dec 31, 2014 7:49 pm

There are many people who will not invest consistently without guidance. There are others who do a terrible DIY job and end up pulling out of the market. The list for investing failure goes on and on. These people will surely end up ahead of where they would have been on their own, even after paying the adviser fee. Not everyone can or should go it alone.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

Bubbagump
Posts: 61
Joined: Thu May 09, 2013 11:42 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Bubbagump » Thu Jan 01, 2015 12:31 am

I wrote a whole thesis and then apparently didn't hit post. Ah well... read this thread.

viewtopic.php?f=1&t=151281

Rick pretty much says it how it is. A three fund portfolio is plenty and anything else is icing.

kolea
Posts: 1234
Joined: Fri Jul 11, 2014 5:30 pm
Location: Maui and Columbia River Gorge

Re: Rick Ferri's 60/40 portfolio mix

Post by kolea » Thu Jan 01, 2015 12:55 pm

A comment here on CFA's (certified financial advisers):

I used a CFA for a few years. I come from a family of activist-investors and inherited both that inclination and a portfolio of stocks. I was busy with a career and handed it all over to a CFA to manage. It worked well for me at the time but the high fees (1.0 - 1.5%) made it a bad deal for retirement and I have since dropped the CFA, adopted indexing, and taken on my own investment management.

At times I could still benefit from some trusted advice but I would never again pay a CFA a percentage based fee. This forum is great but the signal-to-noise ratio around here is such that it is sometimes hard to find an answer that you have confidence in. This is particularly true when it comes to complex tax issues.

At any rate, I think there is a place for CFAs.
Kolea (pron. ko-lay-uh). Golden plover.

User avatar
nedsaid
Posts: 10216
Joined: Fri Nov 23, 2012 12:33 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by nedsaid » Thu Jan 01, 2015 5:20 pm

I own Rick's book on asset allocation and I recommend it to others.

There are a lot of good portfolios out there. The Rick Ferri portfolio is very similar to the DFA portfolios, the Merriman portfolio, and the Swedroe recommended portfolios. They are small/value tilted. I have seen the Lazy portfolios, the "Gone Fishing" portfolios and these are good too. Nothing wrong with the simple Boglehead 3-5 fund portfolio.

What I like about Rick Ferri is his honesty. He is liking the simple three fund portfolio more and more. It seems pretty odd for an advisor who advocates small/value tilts. But it shows that he changes his mind as he learns more. As I recall, he no longer recommends Micro-Cap.

If you stuck with the earlier portfolio from Rick's book, you will do just fine. The key is to be broadly diversified and to keep your costs low. There are many roads to Dublin.
A fool and his money are good for business.

tibbitts
Posts: 7936
Joined: Tue Feb 27, 2007 6:50 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by tibbitts » Thu Jan 01, 2015 5:33 pm

TwoByFour wrote:A comment here on CFA's (certified financial advisers):

I used a CFA for a few years. I come from a family of activist-investors and inherited both that inclination and a portfolio of stocks. I was busy with a career and handed it all over to a CFA to manage. It worked well for me at the time but the high fees (1.0 - 1.5%) made it a bad deal for retirement and I have since dropped the CFA, adopted indexing, and taken on my own investment management.

At times I could still benefit from some trusted advice but I would never again pay a CFA a percentage based fee. This forum is great but the signal-to-noise ratio around here is such that it is sometimes hard to find an answer that you have confidence in. This is particularly true when it comes to complex tax issues.

At any rate, I think there is a place for CFAs.
AFAIK a CFA is a Chartered Financial Analyst, which has very little to do with being a financial adviser. I believe Rick is specifically a portfolio/investment manager, and not (himself) a financial adviser.

User avatar
steve roy
Posts: 1575
Joined: Thu May 13, 2010 5:16 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by steve roy » Thu Jan 01, 2015 5:47 pm

Rick Ferri made a point of saying at the last Bogleheads' forum that developing a viable investment plan AND STICKING WITH IT was as important as anything.

In answer to a question, Rick said slice and dice ... or Three Fund ... or small cap value tilting ... is less important than executing your preferred plan and hanging in there through thick and thin.

This pretty much goes along with my thinking. If you've got a complicated, whiz-bang plan that outperforms, say, a LifeStrategy Fund or the Three Fund portfolio, but it's complexity causes you to bail out at the worst possible moment, the Whiz Bang plan isn't worth very much, is it?

Seattlenative
Posts: 426
Joined: Fri Sep 12, 2014 11:23 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Seattlenative » Thu Jan 01, 2015 7:17 pm

galeno wrote:For USA persons anything beyond 60% VT + 35% BND + 5% CASH (TER = 0.09%) is speculating....To stay in business Rick needs to justify his fees by complicating the above super simple and extremely cheap super port.
As a matter of fact, I just finished a spreadsheet looking at the actual rate of return on one of my Schwab IRAs from the date the funds transferred over to Schwab (05/16/13) through 12/31/14.

I looked at my actual results over that time frame, then compared it directly with an almost identical 2-fund portfolio: 60% VT + 35% SCHZ + 5% Cash. Results: the 2-fund portfolio including the 5% cash allocation (which I showed at the measly 0.01% rate in the Schwab Bank sweep fund, which is really minimal) is that inclusive of all dividend earnings, as I have with this existing IRA, the two-fund portfolio BEAT my actual results by 3.8%. Note that nearly all of my transactions within the Schwab account have been using their OneSource commission-free ETFs, so this is not really a case of commissions eating into returns.

I could run the same numbers using the Schwab equivalent of the Boglehead 3-fund portfolio: SCHX, SCHA, and for international since there's not a fund comparable to VXUS use SCHF, SCHC and SCHE. I'll report back shortly as soon as I look through our Boglehead discussions to determine the exact equivalent allocations which would calculate out to the three-fund portfolio including a 5% cash position.

Seattlenative
Posts: 426
Joined: Fri Sep 12, 2014 11:23 pm

Re: Rick Ferri's 60/40 portfolio mix

Post by Seattlenative » Thu Jan 01, 2015 7:22 pm

galeno wrote:If you want to capture the TOTAL market you want to use 60% VT for stocks and 40% BND for bonds. You can make VT (ER=0.18%) cheaper by using 2 funds 50% VTI + 50% VXUS (ER=0.10) or 3 funds 50% SCHB + 40% SCHF + 10% SCHE (ER=0.07%).

We prefer to carry our all world stocks in one big grocery bag vs 2 or 3 smaller ones. As far as TIPS go? Really? In a 60/40 port do you really need TIPS? Especially now they being so expensive? I say no.

I just prepared a speadsheet analyzing the actual performance of one of my IRAs at Schwab, and have determined that over a 19.5 month time span ending 12/31/14, the 2-fund porfolio (60% VT + 35% SCHZ + 5% cash) beats my results by 3.8%. I recently added some VT positions to my four IRAs (VT constitutes 14.2% of my retirement accounts) and am thinking long and hard about whether it would simplify my life to totally adopt a 2-fund portfolio, keeping a 5% cash cushion which mainly allows me to buy extra shares during a major market downturn.

Post Reply