Portfolio Review ?

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Taylor Larimore
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Portfolio Review ?

Post by Taylor Larimore »

Bogleheads:

I have a friend who asked me to review his 4-fund portfolio:

50% Stocks:

25% Vanguard Total Stock Market (VTSSX)
25% Vanguard Global Minimal Volatility Fund (VMVFX)'

50% Bonds:

25% Vanguard Total Bond Market Index Fund VBMFX
25% Short Term Investment Grade Fund (VFSUX)

Assuming his stock/bond allocation is acceptable, we would appreciate your thoughts.

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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LAlearning
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Re: Portfolio Review ?

Post by LAlearning »

Would get rid of volitilty and just have a more conservative allocation.
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cfs
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Re: Portfolio Review ?

Post by cfs »

Thanks.

Thanks Taylor. Doing a search I see about 300 Vanguard funds of all share classes, and in my opinion your friend made a good selection. No, I would not change a thing. And to your friend, good luck with your investments.

Thanks for reading.
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patrick013
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Re: Portfolio Review ?

Post by patrick013 »

Your friend is obviously a moderate investor using the Global
Min Volatility Fund as defensive cushion in the stock allocation.
For one inclined to global investments it's not a bad idea.
age in bonds, buy-and-hold, 10 year business cycle
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Re: Portfolio Review ?

Post by EyeDee »

.
I would recommend replacing Vanguard Global Minimal Volatility Fund with Total World Stock Index Fund to avoid stock fund manager risk and I would recommend replacing Short Term Investment Grade Fund with Short Term Bond Index Fund to reduce the use of corporates a little and to reduce the manager risk a little (Vanguard bond funds tend to be index like, but there is still some manager judgement risk in an active bond fund).
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investorguy1
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Re: Portfolio Review ?

Post by investorguy1 »

Minimum Volatility has recently done extremely well. So I think it may be a little late to the party on that one. Lot's of people are scared of the markets now and the clever mutual fund marketers realize that and found a way to profit from it. Larry Swedroe has pointed out that low volatility is different than other factors. With value the cheaper you get the higher the expected return. The same is true for size and momentum. However when it comes to volatile stocks it's only the ones with the highest beta that under perform. So Larry would recommend screening on just those high beta "lottery ticket stocks". I don't know if a min vol fund that does that.
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Re: Portfolio Review ?

Post by LadyGeek »

This thread is now in the Investing - Help with Personal Investments forum (portfolio help).

I also removed a duplicate thread containing one reply - cfs pointed out the duplicate (thanks).
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patrick013
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Re: Portfolio Review ?

Post by patrick013 »

investorguy1 wrote:So Larry would recommend screening on just those high beta "lottery ticket stocks". I don't know if a min vol fund that does that.
I'm thinking high quality, low volatility, dividend funds, utility and telecom
and consumer staples all qualify as defensive investments. Some more
than others. Probably less than market returns but lower beta and more
stability in a market correction. Domestic necessities are mostly defensive.
Higher return than bonds with less overall risk. It's a safety allocation but
on a global scale.
age in bonds, buy-and-hold, 10 year business cycle
SGM
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Re: Portfolio Review ?

Post by SGM »

The global volatility fund is hedged and is rule oriented with flexibility. Apropos to nothing, I like 2 of the 3 top holdings J&J and BCE which are unsold leftovers from when I was buying mostly individual stocks. The fund looks conservative and has held up well while the foreign markets have done poorly. Vanguard likes it enough to put it into the managed payout fund.

It seems like a reasonable choice if you want international. The expense ratio is a bit higher than index funds, but still reasonable. It may underperform the international index fund in the future if the markets rebound. If lowering volatility is a chief goal and you still want international it seems fine to me.
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Re: Portfolio Review ?

Post by pkcrafter »

Taylor, I think the two equity funds are an interesting combination, but I also think the proportions are not optimal. A 50/50 ratio creates a portfolio of almost 50% U.S, 50% international, but the international is almost all small and mid. Market cap is also quite low at 10B.

A mix of 70% TSM and 30% min. volatility produces a mix that has a market cap of about 27B, which I think is in a range that is advantageous to tilters. This combination is ~85% U.S. and 15% international. Of course, we don't really know how min. vol. will perform once the bloom is off, but I don't think using this new fund is a bad idea, although I'm always leery of the great new thing. After all is analyzed, it's still tough to best the 3-fund, broad brush approach in the long run.

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SpringMan
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Re: Portfolio Review ?

Post by SpringMan »

Your friends 4 fund portfolio is not bad in my opinion. The minimum volatility fund does include a nice chunk of international equity and has had good performance, maybe some recency bias could come into play. I like your 3 fund portfolio better, Total Stock Market, Total International Stock Market and Total Bond Market. I used to own VFSUX, short term investment grade bonds, in an IRA along side of Total Bond Market but decided to consolidate bonds into Total Bond Market. A short term bond fund to me did not make sense held in an IRA. Total Bond Market fund is hard to beat. So my recommendation would be 50% TBM (preferably tax advantaged) and 50% equity between TSM and TISM according to how he feels about international.
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Christine_NM
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Re: Portfolio Review ?

Post by Christine_NM »

The 25% international should be divided into hedged and unhedged. That is, hold both Global Min Vol and Total International. The proportion is largely a matter of opinion.

Having two bond funds is a good idea, but those are not the two I would pick.
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investorguy1
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Re: Portfolio Review ?

Post by investorguy1 »

patrick013 wrote:
investorguy1 wrote:So Larry would recommend screening on just those high beta "lottery ticket stocks". I don't know if a min vol fund that does that.
I'm thinking high quality, low volatility, dividend funds, utility and telecom
and consumer staples all qualify as defensive investments. Some more
than others. Probably less than market returns but lower beta and more
stability in a market correction. Domestic necessities are mostly defensive.
Higher return than bonds with less overall risk. It's a safety allocation but
on a global scale.
This not a defensive sector fund it is a low volatility fund. Only 37% of the fund is in defensive sectors. It holds the market weight in utilities, telecom, healthcare and staples. The yield is 1.65% compared to 2.25% for Vanguard's Total world fund.
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SpringMan
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Re: Portfolio Review ?

Post by SpringMan »

Christine_NM wrote:The 25% international should be divided into hedged and unhedged. That is, hold both Global Min Vol and Total International. The proportion is largely a matter of opinion.

Having two bond funds is a good idea, but those are not the two I would pick.
When you say 25% international, are you talking about stocks or bonds? Global Min Vol fund, as far as I know, is not hedged and neither is Total International so I don't understand your comment. Maybe you are referring to international bonds.
Best Wishes, SpringMan
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Re: Portfolio Review ?

Post by sunnywindy »

The portfolio thesis seems to be, 1) bonds are more risky than people think so I will tilt to safer short term bonds, and 2) I still want global equity coverage but not excessive risk so I will tilt towards low volatility. 50/50 bond/stock ratio gives good downside protection while also offering some upside. In my opinion, a good execution of their thesis.

What we don't know is whether or not this allocation is appropriate for this particular person. ???
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investorguy1
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Re: Portfolio Review ?

Post by investorguy1 »

sunnywindy wrote:The portfolio thesis seems to be, 1) bonds are more risky than people think so I will tilt to safer short term bonds, and 2) I still want global equity coverage but not excessive risk so I will tilt towards low volatility. 50/50 bond/stock ratio gives good downside protection while also offering some upside. In my opinion, a good execution of their thesis.

What we don't know is whether or not this allocation is appropriate for this particular person. ???
I think that is an excellent observation. Note that the OP said "Assuming his stock/bond allocation is acceptable." However given your insight perhaps the more Bogleheadish way to reduce risk would be to reduce the allocation to stocks instead of trying to reduce risk by going with low volatility and short term bonds. This would also make the portfolio simpler, cheaper, more tax efficient. Reducing equities would also help reduce (left hand) tail risk.

One reason to go shorter term bonds however may be if you have a shorter time horizon and you want to match that up with the maturity of your bonds. But I would also think that shorter maturity bonds would also reduce the diversification benefits of longer maturity bonds (because duration risk tends to have low correlation with market risk). Another thing is if we get into a situation where there is an inverted yield curve you could lose more in the short term fund.
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patrick013
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Re: Portfolio Review ?

Post by patrick013 »

investorguy1 wrote:
patrick013 wrote:
investorguy1 wrote:So Larry would recommend screening on just those high beta "lottery ticket stocks". I don't know if a min vol fund that does that.
I'm thinking high quality, low volatility, dividend funds, utility and telecom
and consumer staples all qualify as defensive investments. Some more
than others. Probably less than market returns but lower beta and more
stability in a market correction. Domestic necessities are mostly defensive.
Higher return than bonds with less overall risk. It's a safety allocation but
on a global scale.
This not a defensive sector fund it is a low volatility fund. Only 37% of the fund is in defensive sectors. It holds the market weight in utilities, telecom, healthcare and staples. The yield is 1.65% compared to 2.25% for Vanguard's Total world fund.
You're absolutely right, there are better defensive funds. But I can see high
quality funds, low vol funds, dividend funds, used for that purpose also as
they perform according to overall market performance. They should have
higher return than bonds with lower volatility and perceived risk. Not
really recommending it just trying to identify what it is.
age in bonds, buy-and-hold, 10 year business cycle
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Re: Portfolio Review ?

Post by njboater74 »

Why the Short-Term Investment Grade bond (VFSUX)?

I love these discussions, because they can be a great way to learn about a particular investment and the role it can play in your portfolio.

I can see that it has low credit risk, low interest rate risk, a decent yield, and will provide a good stabilizing force in your portfolio, but a lot of bond funds, including TBM, do that. What makes this fund appropriate here?
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Re: Portfolio Review ?

Post by Christine_NM »

SpringMan wrote:
Christine_NM wrote:The 25% international should be divided into hedged and unhedged. That is, hold both Global Min Vol and Total International. The proportion is largely a matter of opinion.

Having two bond funds is a good idea, but those are not the two I would pick.
When you say 25% international, are you talking about stocks or bonds? Global Min Vol fund, as far as I know, is not hedged and neither is Total International so I don't understand your comment. Maybe you are referring to international bonds.
Global Min Vol hedges its currencies. See Vanguard's description. I imagine that is why it has done well recently. No I did not mean international bonds.
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Re: Portfolio Review ?

Post by Lobster »

Taylor Larimore wrote:Bogleheads:
I have a friend who asked me to review his 4-fund portfolio:
I imagine it will do just fine. Of course your friend could simplify further with the Three Fund Portfolio which will achiever greater diversity at lower cost, but I trust you are already aware of this :wink:
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Re: Portfolio Review ?

Post by abuss368 »

Taylor Larimore wrote:Bogleheads:

I have a friend who asked me to review his 4-fund portfolio:

50% Stocks:

25% Vanguard Total Stock Market (VTSSX)
25% Vanguard Global Minimal Volatility Fund (VMVFX)'

50% Bonds:

25% Vanguard Total Bond Market Index Fund VBMFX
25% Short Term Investment Grade Fund (VFSUX)

Assuming his stock/bond allocation is acceptable, we would appreciate your thoughts.

Thank you and best wishes.
Taylor
Hi Taylor,

I would really strongly consider Jack Bogle's Two Fund Portfolio of Total Stock and Total Bond. The older I get the more I am realizing that I hard to beat. In fact, I have a family member who has used it for years and love it. They will never make it more complex. No need to complicate with international, TIPS, small cap, etc.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Taylor Larimore
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Portfolio Review and Bank's Hidden Charges

Post by Taylor Larimore »

Bogleheads:

Thank you for your replies. I sent my good friend a link to this thread and he is very grateful.

By the way, my friend's independent adviser discovered that my friend was overcharged more than $300,000 by his bank for hidden advisory fees he did not order. When caught, the bank refunded the overcharges.

Every investor should carefully examine their statements for hidden costs by comparing statement returns with published returns (available free from Morningstar).

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
lgs88
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Re: Portfolio Review and Bank's Hidden Charges

Post by lgs88 »

Taylor Larimore wrote:Bogleheads:

Thank you for your replies. I sent my good friend a link to this thread and he is very grateful.

By the way, my friend's independent adviser discovered that my friend was overcharged more than $300,000 by his bank for hidden advisory fees he did not order. When caught, the bank refunded the overcharges.

Every investor should carefully examine their statements for hidden costs by comparing statement returns with published returns (available free from Morningstar).

Best wishes.
Taylor
$300,000?!

Is that not theft, plain and simple?
merely an interested amateur
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Taylor Larimore
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Post by Taylor Larimore »

Is that not theft, plain and simple?
lgs88:

Very experienced author and advisor Bill Bernstein wrote:
You are engaged in a life-and-death struggle with the financial services industry. -- Act as if every broker, insurance salesman, mutual funds salesperson and financial advisor you encounter is a hardened criminal, and stick to low-cost index funds, and you'll do just fine.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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