Portfolio Opinions and Thoughts

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MrFlish
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Portfolio Opinions and Thoughts

Post by MrFlish » Thu Feb 09, 2017 8:37 am

Hello, I'm preparing to transfer my 401 upon retirement this year, to an IRA. One of the portfolio options I'm considering is shown below. I wanted to get some feedback and thoughts from the community.

Assumptions:
Portfolio initial balance ~1.3mm
Objective is biased towards captial preservation while allowing an opportunity for growth.
AA is 50/50, rebalanced annually
Investment window is 20-30 years
Annual withdrawal rate would be in the 3-5% range over that period.
Will have a fixed pension that will provide ~30% of the annual budget
SSN will provide ~25% of annual budget

VFIAX: Vanguard 500 Index 10%
VIMAX:Vanguard Mid-Cap Index 20%
VSMAX:Vanguard Sm-Cap Index 20%
VBTLX:Vanguard Total Bond Mkt. Index 50%

Thanks in advance...

radiowave
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Re: Portfolio Opinions and Thoughts

Post by radiowave » Thu Feb 09, 2017 9:14 am

If you are rolling over your 401 to Vanguard, I would recommend the Admiral Total Stock fund VTSAX which incorporates VFIAX: Vanguard 500 Index 10% VIMAX:Vanguard Mid-Cap Index 20% and VSMAX:Vanguard Sm-Cap Index 20%. Will make things easier to manage.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

aristotelian
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Re: Portfolio Opinions and Thoughts

Post by aristotelian » Thu Feb 09, 2017 9:20 am

If you feel you can live with that bond allocation and tolerate that much risk on the stock side, I would say this looks fine overall. You will have 55% of your income from fixed income sources, and another 25% pretty stable from VBTLX. That leaves you with about 20% of the portfolio in the market.

In the stock portion, you have a big tilt toward mid-cap and small-cap. I assume you have thought that through and that is a conscious choice. For the mid and small portion you could go with VEXAX just for simplicity.

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iceport
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Re: Portfolio Opinions and Thoughts

Post by iceport » Thu Feb 09, 2017 9:27 am

Here are a few quick thoughts:

► A 50/50 allocation is a good, balanced approach to a retirement portfolio that is supplemental to other significant income streams.

► The lack of any international exposure, particularly at a time when US equities are so highly valued by comparison, would bother me. It also contradicts the apparent tilt toward an otherwise higher risk/return equity allocation.

► The single total bond market fund for the fixed income side is OK, but you could diversify that a bit as well, with TIPS perhaps. Do you have access to a high yielding stable value fund in your 401k? If the fees are not too high, and the stable value fund yield is high enough, it might be worth leaving a portion of your portfolio there.
"Discipline matters more than allocation.” ─William Bernstein

Elbowman
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Re: Portfolio Opinions and Thoughts

Post by Elbowman » Thu Feb 09, 2017 10:34 am

iceport wrote: ► The lack of any international exposure, particularly at a time when US equities are so highly valued by comparison, would bother me. It also contradicts the apparent tilt toward an otherwise higher risk/return equity allocation.
+1

aristotelian
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Re: Portfolio Opinions and Thoughts

Post by aristotelian » Thu Feb 09, 2017 10:50 am

iceport wrote:
► The lack of any international exposure, particularly at a time when US equities are so highly valued by comparison, would bother me. It also contradicts the apparent tilt toward an otherwise higher risk/return equity allocation.
By what measure are US equities overvalued? By P/E US is about in the middle, same as Developed Markets overall, cheaper than Developed Europe. Emerging Markets appear to be under valued, but there may be good reasons for that. It is not clear to me that Emerging Markets are likely to be stable in the event of a US collapse.

http://www.starcapital.de/research/stockmarketvaluation

There is a separate thread on the use of international for further diversification, but in my opinion the better hedge against a stock correction/crash would be bonds. If he is to pursue international, I would suggest that it come out of the stock allocation, not the bond allocation, and perhaps focus on Emerging Markets.

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MrFlish
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Re: Portfolio Opinions and Thoughts

Post by MrFlish » Thu Feb 09, 2017 11:20 am

Great points...

I'm think I'm going to stay away from the international section presently. Not sure I can make a good argument why other than I don't have a lot of confidence in the section based on my gut reaction to current events.

If I were to make any adjustments it might be moving the AA to 40/60 Equity/Bonds to further dampen the volatility of the equity mix or consolidate the equity funds down to something like VEXAX for cost and simplifications sake.

I've been running the set up on portfolio visualizer to see how it might react to a pretty volatile period and it seemed to react fairly well and stayed within my objectives.

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iceport
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Re: Portfolio Opinions and Thoughts

Post by iceport » Thu Feb 09, 2017 11:38 am

aristotelian wrote:
iceport wrote:
► The lack of any international exposure, particularly at a time when US equities are so highly valued by comparison, would bother me. It also contradicts the apparent tilt toward an otherwise higher risk/return equity allocation.
By what measure are US equities overvalued? By P/E US is about in the middle, same as Developed Markets overall, cheaper than Developed Europe. Emerging Markets appear to be under valued, but there may be good reasons for that. It is not clear to me that Emerging Markets are likely to be stable in the event of a US collapse.

http://www.starcapital.de/research/stockmarketvaluation
It's interesting that you would choose that table to support the notion that US valuations are not high compared to the rest of the world. Possibly, your conclusion is drawn from cherry-picking the lone P/E metric. By most other measures, US valuations are far less "attractive" than the vast majority of the rest of the world, as the rest of the table clearly demonstrates.
aristotelian wrote:If he is to pursue international, I would suggest that it come out of the stock allocation, not the bond allocation...
Absolutely. Not sure why this would even be in doubt.
"Discipline matters more than allocation.” ─William Bernstein

aristotelian
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Re: Portfolio Opinions and Thoughts

Post by aristotelian » Thu Feb 09, 2017 11:50 am

iceport wrote: It's interesting that you would choose that table to support the notion that US valuations are not high compared to the rest of the world. Possibly, your conclusion is drawn from cherry-picking the lone P/E metric. By most other measures, US valuations are far less "attractive" than the vast majority of the rest of the world, as the rest of the table clearly demonstrates.
I was asking a question, not making a conclusion. P/E is the first metric that comes to mind when it comes to valuation so if you would use others I would be curious why. Also for those who are advocating international, would you target Emerging as the better diversification hedge?

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