8.5% for 2016. Can I do better????

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B83772
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8.5% for 2016. Can I do better????

Post by B83772 » Thu Jan 05, 2017 12:47 pm

This time of year, I always wonder if I'm doing the right thing. I'm in my mid-forties, married and have 3 kids.

I choose Fidelity Funds because that's our plan at work. I contribute the maximum. I should work another 20 years.

I'm 70/30 with the following funds. I rebalance yearly in mid-December.

Ticker Name Allocation
FSEVX Fidelity Extended Market Index Fund - Premium Class (mid-cap blend) 10.00%
FSSVX Fidelity Small Cap Index Fund - Premium Class (small blend) 10.00%
FSRVX Fidelity Real Estate Index Fund - Premium Class (reit) 10.00%
FSTVX Fidelity Total Market Index Fund - Premium Class (large blend) 20.00%


FSIVX Fidelity International Index Fund - Premium Class (foreign large blend) 15.00%
FPMAX Fidelity Emerging Markets Index Fund - Premium Class (divers. e.m.) 5.00%

FSITX Fidelity U.S. Bond Index Fund - Premium Class (intermediate bond) 30.00%


My biggest concern is my bond fund. It has done ok, but I just wonder if I could do better. I'm relatively content with 8.5%, but would like to eke out a bit more and still maintain 70/30.

Any ideas?

Backtest portfolio provides this information... I couldn't enter the exact funds in the visualizer because some of them aren't that old.

From 2006-2016
Initial Balance\\\Final Balance\\\\CAGR\\\\Std.Dev.\\\Best Year\\\Worst Year\\\\\Max. Drawdown\\Sharpe Ratio\\\\Sortino Ratio\\\\US Mkt Correlation
$10,000\\\\\\\\\\\\$20,631\\\\\\\\\\\\\6.81%\\\\11.72%\\\\24.96%\\\\\\-24.18%\\\\\\\\\\-38.30%\\\\\\\\\\\\\0.54\\\\\\\\\\\\\\\\\0.78\\\\\\\\\\\\\\\\\0.96

From 1996-2016
Initial Balance\\\Final Balance\\\\CAGR\\\\Std.Dev.\\\Best Year\\\Worst Year\\\\\Max. Drawdown\\Sharpe Ratio\\\\Sortino Ratio\\\\US Mkt Correlation
$10,000\\\\\\\\\\\\$51,092\\\\\\\\\\\\8.08%\\\\\10.74%\\\\\26.71%\\\\\\-24.18%\\\\\\\\\-38.30%\\\\\\\\\\\\\0.57\\\\\\\\\\\\\\\\\0.83\\\\\\\\\\\\\\\\\0.94

From 1986-2016

Initial Balance\\\Final Balance\\\\CAGR\\\\Std.Dev.\\\Best Year\\\Worst Year\\\\\Max. Drawdown\\Sharpe Ratio\\\\Sortino Ratio\\\\US Mkt Correlation
$10,000\\\\\\\\\\\\$62,237\\\\\\\\\\\\8.67%\\\\\10.56%\\\\26.71%\\\\\\\-24.18%\\\\\\\\\-38.30%\\\\\\\\\\\\\0.62\\\\\\\\\\\\\\\\0.90\\\\\\\\\\\\\\\\\\0.94

Thank you!

Grt2bOutdoors
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Re: 8.5% for 2016. Can I do better????

Post by Grt2bOutdoors » Thu Jan 05, 2017 10:04 pm

The enemy of a good plan is the thought of a better plan.

Your asset allocation looks good, your asset class percentages look good, you hold low cost index funds. The purpose of bonds is to temper portfolio volatility and ensure return of capital, the fund you hold is doing it's job. IMO, you can not do better without substantially increasing risk.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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whodidntante
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Re: 8.5% for 2016. Can I do better????

Post by whodidntante » Thu Jan 05, 2017 11:07 pm

Look into factor investing. You presently overweight small for domestic, so you do this, maybe unknowingly. But a small and value tilt would be worth considering. Expected returns of EM are a bit higher due to the low valuations. Small and value also work for international. You can also pare bonds. By taking more risk you might increase returns.

The low risk thing to do is to save more money.

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ruralavalon
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Re: 8.5% for 2016. Can I do better????

Post by ruralavalon » Fri Jan 06, 2017 12:02 pm

In my opinion your asset allocation of 70/30 is within the range of what is reasonable for someone in their mid forties. Fidelity is a good choice for your provider, your selection of funds is good, and you are using well diversified index funds with low expense ratios.

I see no reason to change what you are doing.

In my opinion 8.5% is a reasonable return, I don't suggest decreasing your bond holding or taking more risk.

What type of accounts are the funds located in?
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Tamalak
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Re: 8.5% for 2016. Can I do better????

Post by Tamalak » Fri Jan 06, 2017 2:58 pm

The urge to "do better" will lead to chasing performance, which will lead to selling low and buying high, which will lead to doing worse.

Don't be too greedy in good times or too fearful in bad times.

Stay the course.

B83772
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Re: 8.5% for 2016. Can I do better????

Post by B83772 » Fri Jan 06, 2017 3:09 pm

ruralavalon wrote:In my opinion your asset allocation of 70/30 is within the range of what is reasonable for someone in their mid forties. Fidelity is a good choice for your provider, your selection of funds is good, and you are using well diversified index funds with low expense ratios.

I see no reason to change what you are doing.

In my opinion 8.5% is a reasonable return, I don't suggest decreasing your bond holding or taking more risk.

What type of accounts are the funds located in?


I should have mentioned this at the onset. It's a 401 account.

I was considering a different bond fund. FSITX as per the fidelity website...

"Top 5 Issuers
AS OF 9/30/2016
65.7% of Total Portfolio

UNITED STATES TREASURY
FNMA GTD MTG PASS THRU CTF
FED HOME LOAN MTG CORP - GOLD
GNMA II
GNMA GUARANTEED PASS THRU CERT"



My other logical low e/r Fidelity choices would be...

FSIYX Fidelity® Inflation-Protected Bond Index Fund - Premium Class
FIBAX Fidelity® Intermediate Treasury Bond Index Fund - Premium Class
FLBAX Fidelity® Long-Term Treasury Bond Index Fund - Premium Class
FSBAX Fidelity® Short-Term Treasury Bond Index Fund - Premium Class

...or combination thereof.

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ruralavalon
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Re: 8.5% for 2016. Can I do better????

Post by ruralavalon » Fri Jan 06, 2017 4:05 pm

Of those choices, my suggestion would be Fidelity U.S. Bond Index Fund Premium Class (FSITX).
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livesoft
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Re: 8.5% for 2016. Can I do better????

Post by livesoft » Fri Jan 06, 2017 4:11 pm

I think you did fine, but some people did better and some people did worse.

You can start by looking to see what did better and then decide if that will persist. A typical 60/40 portfolio returned between about 7% and 11% for 2016. You posted a 70/30 portfolio with a return near the middle of that. The 4% spread between the high and low returns of typical 60/40 portfolios suggests to me that one has be lucky to get closer to the top end of that range. Do you feel lucky?

Or maybe look at what did worse and hope for reversion to the mean in 2017?

BTW, Vanguard Wellington returned 11.1% in 2016 before taxes. Do you feel lucky?

Then beyond asset class and fund selection, you have the market timing thing. I don't think folks would recommend that to do better.
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MSDOGS1976
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Re: 8.5% for 2016. Can I do better????

Post by MSDOGS1976 » Fri Jan 06, 2017 4:24 pm

If you are planning on working another 20 years I would stay as you are. Perhaps reduce your stock exposure when you reach your mid 50's. But you look good to me as of now.

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F150HD
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Re: 8.5% for 2016. Can I do better????

Post by F150HD » Fri Jan 06, 2017 6:06 pm

B83772 wrote:Ticker Name Allocation
FSEVX Fidelity Extended Market Index Fund - Premium Class (mid-cap blend) 10.00%
FSSVX Fidelity Small Cap Index Fund - Premium Class (small blend) 10.00%
...
FSTVX Fidelity Total Market Index Fund - Premium Class (large blend) 20.00%


Dont these 3 have significant overlap? so you're investing in the same stocks at least 3 times. (unless that was your goal)

Willing to stand corrected....

DoWahDaddy
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Re: 8.5% for 2016. Can I do better????

Post by DoWahDaddy » Fri Jan 06, 2017 6:31 pm

I'm 70/30 too. I also earned 8.5%. My individual funds are completely different than yours. In other words, don't worry about it, tweaking won't matter much.
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nedsaid
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Re: 8.5% for 2016. Can I do better????

Post by nedsaid » Fri Jan 06, 2017 6:58 pm

I think you are doing just fine. Keep doing what you are doing and you will be a very happy camper upon retirement. If you made 8.5%, I suspect you are doing better than many pension funds. Best wishes, Ned.
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TheTimeLord
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Re: 8.5% for 2016. Can I do better????

Post by TheTimeLord » Fri Jan 06, 2017 7:16 pm

Grt2bOutdoors wrote:The enemy of a good plan is the thought of a better plan.


Very true.
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BrandonBogle
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Re: 8.5% for 2016. Can I do better????

Post by BrandonBogle » Fri Jan 06, 2017 7:29 pm

I'm 73%/27% with different funds and did 8.7% in 2016. All right about normal. If you want to "amp" up your returns, spend the time you would pursue those gains doing something that would bring you side income or reduce other expenses (do you own yard work, etc.). Those will be more productive than chasing a better return.

dbr
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Re: 8.5% for 2016. Can I do better????

Post by dbr » Fri Jan 06, 2017 7:35 pm

What you got in any given year has nothing at all to do with whether or not you have a good plan or could do better.

Even if you don't change anything there is very little chance your 2017 return will be the same as your 2016 return.

If you are asking if you have a good plan, then sure, yes, it is probably fine, but we don't know what your objectives are to really say much.

tibbitts
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Re: 8.5% for 2016. Can I do better????

Post by tibbitts » Fri Jan 06, 2017 8:05 pm

F150HD wrote:
B83772 wrote:Ticker Name Allocation
FSEVX Fidelity Extended Market Index Fund - Premium Class (mid-cap blend) 10.00%
FSSVX Fidelity Small Cap Index Fund - Premium Class (small blend) 10.00%
...
FSTVX Fidelity Total Market Index Fund - Premium Class (large blend) 20.00%


Dont these 3 have significant overlap? so you're investing in the same stocks at least 3 times. (unless that was your goal)

Willing to stand corrected....

That's one reasonable way to get a mid/small tilt, depending on what choices are available. Overlap is not necessarily a bad thing.

AlohaJoe
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Re: 8.5% for 2016. Can I do better????

Post by AlohaJoe » Sat Jan 07, 2017 12:17 am

B83772 wrote:FSITX Fidelity U.S. Bond Index Fund - Premium Class (intermediate bond) 30.00%

My biggest concern is my bond fund. It has done ok, but I just wonder if I could do better. I'm relatively content with 8.5%, but would like to eke out a bit more and still maintain 70/30.


You have a total bond fund, which returns 2.5% in 2016. That makes up 0.75 percentage points of your 8.5% return.

If you switched to an intermediate-term corporate fund (i.e. getting rid of all the safe US Treasuries) like VCIT then you'd have gotten 9.3% for the year.

If you switched to a high yield corporate fund like HYG then you'd have gotten 11.7% for the year.

This isn't exactly rocket science. If you want more risk but more return the options in bonds are pretty straightforward for most of us. Use fewer Treasuries and more Corporates. But, at least on Bogleheads, most people would say "why not just increase your equity percentage instead of going into corporate bonds"? If you don't have a good answer to that question, you probably shouldn't change your holdings.

Dieharder
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Re: 8.5% for 2016. Can I do better????

Post by Dieharder » Sat Jan 07, 2017 12:37 am

Why do you want to do better? Is something not working out?

8.5% is good for 70/30 allocation this year. Compare to the following all in one portfolios - Vg TRD 2030, Vg TRD 2035, Vg LS Grth.

You should focus on savings rate and cutting on expenses if you wish to make the retirement portfolio larger. Do not take on more risk. Fixed income is for safety and do not forget 2008.

acura301
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Re: 8.5% for 2016. Can I do better????

Post by acura301 » Sat Jan 07, 2017 1:33 am

B83772,
I'm certainly not advocating that you mimic my portfolio, but I have a 70/30 portfolio and I had a 9.6% return for this year. Equities are 90% VTSAX and 10% VTIAX. Bonds are 40% VBTLX, 40% VICSX, and 20% VWEAX. I'm also 34 and perhaps I can afford to take a bit more credit risk. I am aware my bond allocation goes against typical Boglehead advice and I'm okay with that.

LibertyLover
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Re: 8.5% for 2016. Can I do better????

Post by LibertyLover » Sat Jan 07, 2017 7:54 am

Your portfolio is decent. If you wanted to, you could increase risk to potentially increase returns by increasing your allocation to emerging markets (maybe 5-10%).

Please be aware of the volitility and potential down years that could occur with this approach. You have to be willing to stock with it if you do.

You could also increase your small cap allocation. By doing so your portfolio will not correlate as much to the market which during underperforming tones could lead to teaching error regret.

I do both of these things but you have to be aware of potential outcomes before taking the plunge. You could try optimizing the portfolio by paying around with the portfoliovisualizer calculators.

DetroitRick
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Re: 8.5% for 2016. Can I do better????

Post by DetroitRick » Sat Jan 07, 2017 9:46 am

I think you did just fine. And just based on your time horizon (since we don't know your risk tolerance) I really like your asset allocation as well. At your age, I would use a very similar allocation (I'd go just a bit lower on bonds, but that is just me, and definitely not a recommendation to you). You have good international exposure that includes EM, a reasonable equity/fixed income balance, and excellent low-cost fund choices. Maxing your contribution, as you are, is probably way more beneficial than any tweaking you could do.

Precise results for a period are secondary to bigger issues like an asset allocation that meets your needs, contributions that are "do-able" for you and good fund choices. But I'll add that, with an extremely similar asset allocation, I had extremely similar return results last year (8.3% on our IRA's combined, vs. your 8.5%).

Just as a general validation, you can also construct a benchmark return comparison based on broad market indices and your own asset allocation. There are many ways to do so, but my quick computation also shows that you had solid performance by that "objective" benchmark. You might specifically arrive at a benchmark return for 2016 of 7.22% , which you nicely exceeded, by taking this return data from Morningstar for 2016: Dow Jones Total US Stock Market 12.62% (weight at 40%), MSCI - EAFE 1.00% (weight at 15%), MSCI - Emerging Markets 11.19% (weight at 5%), BarCap Agg 2.65% (weight at 30%) and Dow Jones US Select Reit index 6.68% (weight at 10%). So by at least one objective measure, your return was fine. Moreover, the long-term results you posted seem very much in line with segment performance metrics for all those periods.

With regard to that bond fund, if I was going to do anything, and presuming GOOD alternatives are readily available to you, I personally would choose to split that position into two or three pieces (retaining part of your current holding, though). But that's because I'm less committed to indexing in the bond segment (I use both approaches myself). I think certain managers can do a decent job of expanding and contracting fixed income risk according to market conditions and issuer evaluations (varying treasuries, corps and securitized positions at various times, changing duration, etc.). So, worth considering, but not that big of a deal. I think you have a great portfolio myself.

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rustymutt
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Re: 8.5% for 2016. Can I do better????

Post by rustymutt » Sat Jan 07, 2017 9:53 am

Grt2bOutdoors wrote:The enemy of a good plan is the thought of a better plan.

Your asset allocation looks good, your asset class percentages look good, you hold low cost index funds. The purpose of bonds is to temper portfolio volatility and ensure return of capital, the fund you hold is doing it's job. IMO, you can not do better without substantially increasing risk.


As a buy and holder myself, the one thing I will do whenever the academics indicate, tweak the funds/ETFs I own to make my portfolio more suited to my IPO. For example I added treasury indexed inflation bonds to mine, when they became available to me. As part of my 40 percent bond holdings.
I changed to EFAV, from some other ETF when it become available to me. So thought isn't always bad. Just my point of view.
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Dieharder
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Re: 8.5% for 2016. Can I do better????

Post by Dieharder » Sat Jan 07, 2017 1:10 pm

acura301 wrote:B83772,
I'm certainly not advocating that you mimic my portfolio, but I have a 70/30 portfolio and I had a 9.6% return for this year. Equities are 90% VTSAX and 10% VTIAX. Bonds are 40% VBTLX, 40% VICSX, and 20% VWEAX. I'm also 34 and perhaps I can afford to take a bit more credit risk. I am aware my bond allocation goes against typical Boglehead advice and I'm okay with that.


Hi-Yield bonds are almost half equity, so you have to count 50% of that as equity risk, and Corporates are about 25% equity risk. When you take that into consideration, you do not have 30% safe fixed income allocation, only about 24%. That makes your portfolio 76% (75% if you want to round) equity and only about 24% fixed income. You have to compare it with 75/25 Stocks / Bonds (Treasury or TBM) for performance. Some years it works well because there is no credit risk showing up, but then credit risk show up you will take hit on equities as well as a good portion of your bonds. Just look at what happpened to Hi-Yields and Corporates in 2008. I believe bonds are for safety. You can acccomplish higher returns by taking on more equity risk, no need to waste time with Hi-Yield and Corporates unless you can predict when credit risk will show up.

Grt2bOutdoors
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Re: 8.5% for 2016. Can I do better????

Post by Grt2bOutdoors » Sat Jan 07, 2017 3:32 pm

rustymutt wrote:
Grt2bOutdoors wrote:The enemy of a good plan is the thought of a better plan.

Your asset allocation looks good, your asset class percentages look good, you hold low cost index funds. The purpose of bonds is to temper portfolio volatility and ensure return of capital, the fund you hold is doing it's job. IMO, you can not do better without substantially increasing risk.


As a buy and holder myself, the one thing I will do whenever the academics indicate, tweak the funds/ETFs I own to make my portfolio more suited to my IPO. For example I added treasury indexed inflation bonds to mine, when they became available to me. As part of my 40 percent bond holdings.
I changed to EFAV, from some other ETF when it become available to me. So thought isn't always bad. Just my point of view.


Generally speaking, use of fixed income is to reduce risk. If one wants to increase return, they will need to be willing, able and need to take risk. The OP has a good plan, increasing return usually means taking more risk. My fear when I see these types of posts are the posters will be asking the same question when their "new" allocation fails to meet their expectations, leading to more tweaking that may or may not follow benchmarks, leading to yet more tweaking. A 8.5% return is a fantastic return, if the OP had emerging markets or small cap value tilt to portfolio they may have eeked out an additional 1-2% return this year, but there will be times when those asset classes will underperform.
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dbr
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Re: 8.5% for 2016. Can I do better????

Post by dbr » Sat Jan 07, 2017 8:04 pm

Grt2bOutdoors wrote:Generally speaking, use of fixed income is to reduce risk. If one wants to increase return, they will need to be willing, able and need to take risk. The OP has a good plan, increasing return usually means taking more risk. My fear when I see these types of posts are the posters will be asking the same question when their "new" allocation fails to meet their expectations, leading to more tweaking that may or may not follow benchmarks, leading to yet more tweaking. A 8.5% return is a fantastic return, if the OP had emerging markets or small cap value tilt to portfolio they may have eeked out an additional 1-2% return this year, but there will be times when those asset classes will underperform.


Good comments. But the heart of the matter is that starting the thought process with one year's return is useless. I would in fact disagree that 8.5% return is fantastic if that is what happened in one particular year. Actually it is meaningless. The original post sounds like an expectation that doing something will make the 2017 return even higher, which is pure nonsense.

Nowhere has the OP presented what he thinks his expected return is and whether or not he could manage to meet his objectives with that return together with the expected variability that would go with it. Only then does it make sense to think about whether the return could or should be higher. Higher is not necessarily better either, depending on the consequences of variability.

rkhusky
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Re: 8.5% for 2016. Can I do better????

Post by rkhusky » Sat Jan 07, 2017 8:21 pm

Dieharder wrote:Why do you want to do better? Is something not working out?

8.5% is good for 70/30 allocation this year. Compare to the following all in one portfolios - Vg TRD 2030, Vg TRD 2035, Vg LS Grth.


Vanguard Target Retirement 2030 has an AA of 72/27. Its returns have been 7.85%, 9.50% and 4.98% over 1 year, 5 year, and 10 year. Fidelity has similar funds. They are good to compare with, since if they do better than you are doing, you might as well switch over to them and let Vanguard/Fidelity do all the rebalancing and glide path adjustments. You can just sit back and let them do the work. Of course, if you are also doing taxable investing, you may want to set up a more tax-efficient portfolio.

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baw703916
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Re: 8.5% for 2016. Can I do better????

Post by baw703916 » Sat Jan 07, 2017 8:36 pm

A lot of what your return is in a particular year just depends on how each asset class happens to perform. For example, anybody who happened to have a lot of international equities looked like a dunce in 2016, anybody who had all their equities in the U.S. looked like a genius. In 2017 it could be the exact opposite.

I did do a quick calculation of how a Vanguard 3-Fund Portfolio (TSM/TBM/TISM) with the same breakdown of US equities/Bonds/International equities (50/30/20) would have performed. That, in my view, is more informative as to whether the funds you hold are doing as they should, rather than just happening to be in the hot asset class for that particular year. So I think it's a useful benchmark.

So the Vanguard 3-Fund portfolio that best reflects your own portfolio's composition would have returned 8.04% last year. Your actual portfolio outperformed by almost 50 basis points, in spite of the Fidelity funds having slightly higher expense ratios on average. So you're doing well!

You could do better, but it would almost certainly involve either taking more risk or accurately guessing the best-performing sector in advance. 8-) If you feel your risk level is appropriate for your situation, then I wouldn't recommend changing anything.
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Radjob4me
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Re: 8.5% for 2016. Can I do better????

Post by Radjob4me » Sat Jan 07, 2017 8:56 pm

I am a similar age and also 70/30 in stocks/bonds. While my stocks are all in index funds, I personally have used fidelity Total bond (FTBFX, it's managed - ER 0.45%) with slightly better returns even after ER fees. Something to consider. But of course this would not give outsized gains over what you have already.

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