New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

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triceratop
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by triceratop » Mon Feb 20, 2017 2:12 pm

MotoTrojan wrote:Thanks all. After a bit more digging, this is what I am thinking:

Taxable:
40% VTI Total Market
20% VXUS Total Int. (includes small-caps, dig that)

Roth:
10% VTV Large-cap Value
10% VB Small-cap Blend (low expense, some mids)
15% VIOV Small-cap Value (higher expense but I like the smaller median)
5% VNG REIT

One question: It would help with allocation balancing if I picked one of the Roth indexes and also added it to my Taxable. Which would be most tax efficient? I assume it would be VB-VTV-VIOV in decreasing order of tax efficiency, but I did read that VIOV is a good bit more efficient than VBR so I am not sure.

Thanks all, bit more manageable and overall has a more clear direction/reasoning (broad coverage of US with a tilt towards Small/Value, some good broad coverage of International, and then some REIT's thrown in for fun/diversification.
Two points. 1) for tax efficiency see viewtopic.php?t=208818 (use IJS for VIOV's tax efficiciency; you can add your own funds as needed) 2) If you believe in the value premium, as reflected in your overall asset allocation, why do you choose VB instead of VBR? VBR also has a chunk of mid-cap (value) but you're not diluting your SCV tilt via VIOV that way.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by MotoTrojan » Wed Feb 22, 2017 6:35 pm

triceratop wrote:
MotoTrojan wrote:Thanks all. After a bit more digging, this is what I am thinking:

Taxable:
40% VTI Total Market
20% VXUS Total Int. (includes small-caps, dig that)

Roth:
10% VTV Large-cap Value
10% VB Small-cap Blend (low expense, some mids)
15% VIOV Small-cap Value (higher expense but I like the smaller median)
5% VNG REIT

One question: It would help with allocation balancing if I picked one of the Roth indexes and also added it to my Taxable. Which would be most tax efficient? I assume it would be VB-VTV-VIOV in decreasing order of tax efficiency, but I did read that VIOV is a good bit more efficient than VBR so I am not sure.

Thanks all, bit more manageable and overall has a more clear direction/reasoning (broad coverage of US with a tilt towards Small/Value, some good broad coverage of International, and then some REIT's thrown in for fun/diversification.
Two points. 1) for tax efficiency see viewtopic.php?t=208818 (use IJS for VIOV's tax efficiciency; you can add your own funds as needed) 2) If you believe in the value premium, as reflected in your overall asset allocation, why do you choose VB instead of VBR? VBR also has a chunk of mid-cap (value) but you're not diluting your SCV tilt via VIOV that way.
VERY interesting. This seems to show that VIOV is actually more tax efficient than VTI, which I was assuming was the most tax efficient... Is there a chance this is due to VIOV not selling any gains, which would be expected over the long-term (assuming strong gains)?

This throws a little curve-ball my way, as besides VNQ, all of my funds are more or less equally tax efficient. Where to put what...

As to VB vs. VBR. I wanted some mid-cap exposure without carrying a mid-cap fund, hence the Total Market. VB compared to S&P600 is almost like a smallish-mid-cap fund, so I was using it to boost that and diversify from the much smaller VIOV, with value tilt. Having looked at my overall small-tilt though, I don't think I need the VB at all.

VTI: 55%
VXUS: 20%
VIOV: 20%
VNQ: 5%

This seems to be a pretty happy mix; very tax efficient, overall a fairly low ER, and covers my goals of total market coverage (including International to a small extent), with a (very) small-value tilt, and some REITs thrown in for diversification.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by triceratop » Wed Feb 22, 2017 7:21 pm

MotoTrojan wrote:
triceratop wrote:
MotoTrojan wrote:Thanks all. After a bit more digging, this is what I am thinking:

Taxable:
40% VTI Total Market
20% VXUS Total Int. (includes small-caps, dig that)

Roth:
10% VTV Large-cap Value
10% VB Small-cap Blend (low expense, some mids)
15% VIOV Small-cap Value (higher expense but I like the smaller median)
5% VNG REIT

One question: It would help with allocation balancing if I picked one of the Roth indexes and also added it to my Taxable. Which would be most tax efficient? I assume it would be VB-VTV-VIOV in decreasing order of tax efficiency, but I did read that VIOV is a good bit more efficient than VBR so I am not sure.

Thanks all, bit more manageable and overall has a more clear direction/reasoning (broad coverage of US with a tilt towards Small/Value, some good broad coverage of International, and then some REIT's thrown in for fun/diversification.
Two points. 1) for tax efficiency see viewtopic.php?t=208818 (use IJS for VIOV's tax efficiciency; you can add your own funds as needed) 2) If you believe in the value premium, as reflected in your overall asset allocation, why do you choose VB instead of VBR? VBR also has a chunk of mid-cap (value) but you're not diluting your SCV tilt via VIOV that way.
VERY interesting. This seems to show that VIOV is actually more tax efficient than VTI, which I was assuming was the most tax efficient... Is there a chance this is due to VIOV not selling any gains, which would be expected over the long-term (assuming strong gains)?

This throws a little curve-ball my way, as besides VNQ, all of my funds are more or less equally tax efficient. Where to put what...

As to VB vs. VBR. I wanted some mid-cap exposure without carrying a mid-cap fund, hence the Total Market. VB compared to S&P600 is almost like a smallish-mid-cap fund, so I was using it to boost that and diversify from the much smaller VIOV, with value tilt. Having looked at my overall small-tilt though, I don't think I need the VB at all.

VTI: 55%
VXUS: 20%
VIOV: 20%
VNQ: 5%

This seems to be a pretty happy mix; very tax efficient, overall a fairly low ER, and covers my goals of total market coverage (including International to a small extent), with a (very) small-value tilt, and some REITs thrown in for diversification.
This would not be due to not selling gains. It is true that one can expect IJS and VIOV to be tax efficient with respect to gains due to the particulars of how shares with appreciated shares can be retired through the redemption in-kind process that Authorized Participants in the ETF market can take part in. IJS has also recently had a low dividend yield which is very helpful, while VTI's percentage of qualified dividends has suffered recently.

I agree that VB compared to SP600 is larger; my point was more that you can gain that same mid-cap exposure through VBR. VB owns small/mid growth in addition to value, which dilutes your value tilt.

I would use much more international myself (global market cap closer to 50%), but that is a fine asset allocation if it works for you and you can stick with it.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by MotoTrojan » Wed Feb 22, 2017 8:12 pm

triceratop wrote:
MotoTrojan wrote:
triceratop wrote:
MotoTrojan wrote:Thanks all. After a bit more digging, this is what I am thinking:

Taxable:
40% VTI Total Market
20% VXUS Total Int. (includes small-caps, dig that)

Roth:
10% VTV Large-cap Value
10% VB Small-cap Blend (low expense, some mids)
15% VIOV Small-cap Value (higher expense but I like the smaller median)
5% VNG REIT

One question: It would help with allocation balancing if I picked one of the Roth indexes and also added it to my Taxable. Which would be most tax efficient? I assume it would be VB-VTV-VIOV in decreasing order of tax efficiency, but I did read that VIOV is a good bit more efficient than VBR so I am not sure.

Thanks all, bit more manageable and overall has a more clear direction/reasoning (broad coverage of US with a tilt towards Small/Value, some good broad coverage of International, and then some REIT's thrown in for fun/diversification.
Two points. 1) for tax efficiency see viewtopic.php?t=208818 (use IJS for VIOV's tax efficiciency; you can add your own funds as needed) 2) If you believe in the value premium, as reflected in your overall asset allocation, why do you choose VB instead of VBR? VBR also has a chunk of mid-cap (value) but you're not diluting your SCV tilt via VIOV that way.
VERY interesting. This seems to show that VIOV is actually more tax efficient than VTI, which I was assuming was the most tax efficient... Is there a chance this is due to VIOV not selling any gains, which would be expected over the long-term (assuming strong gains)?

This throws a little curve-ball my way, as besides VNQ, all of my funds are more or less equally tax efficient. Where to put what...

As to VB vs. VBR. I wanted some mid-cap exposure without carrying a mid-cap fund, hence the Total Market. VB compared to S&P600 is almost like a smallish-mid-cap fund, so I was using it to boost that and diversify from the much smaller VIOV, with value tilt. Having looked at my overall small-tilt though, I don't think I need the VB at all.

VTI: 55%
VXUS: 20%
VIOV: 20%
VNQ: 5%

This seems to be a pretty happy mix; very tax efficient, overall a fairly low ER, and covers my goals of total market coverage (including International to a small extent), with a (very) small-value tilt, and some REITs thrown in for diversification.
This would not be due to not selling gains. It is true that one can expect IJS and VIOV to be tax efficient with respect to gains due to the particulars of how shares with appreciated shares can be retired through the redemption in-kind process that Authorized Participants in the ETF market can take part in. IJS has also recently had a low dividend yield which is very helpful, while VTI's percentage of qualified dividends has suffered recently.

I agree that VB compared to SP600 is larger; my point was more that you can gain that same mid-cap exposure through VBR. VB owns small/mid growth in addition to value, which dilutes your value tilt.

I would use much more international myself (global market cap closer to 50%), but that is a fine asset allocation if it works for you and you can stick with it.
Yeah I've been debating the international. Lot of big names with very different opinions there. 20-30% seems like the sweet spot so I could split the difference. I've been interested in VSS to keep the theme of tilting small, but wanted to hold off for that added complexity, since VXUS does include a decent bit of Mids, and a few Smalls. Figured that added risk would complement the portfolio nicely when I go to add some bonds down the road.

Given that I've now wiped out VB entirely, any strong reason to mix VIOV with VBR? I kind of like the simplicity and small company leanings of S&P600 but am currently just under total US allocation of mids.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by hellobogle » Thu Feb 23, 2017 9:43 am

I commend you for asking questions and taking the advice from the Bogleheads community. You have made great strides since your original allocation post. I would say that it is way easier to stick with a plan that is SIMPLE. I am good with spreadsheets and percents calculations and stuff, but it can be mindboggling to rebalance over different accounts. Most Bogleheads recommend a simple 3-fund portfolio: Total US, Total International, and some sort of Bond fund. While on the surface, this may seem simple, there are even debates over whether one needs each of these three or how much of each.

Total US: Warren Buffett suggests most people would do best with 90% S&P 500. He believes in investing in America, and he is one of the best (luckiest?) investors out there. However, Japan's economy tanked and has been struggling to recover. If all of your eggs are in one basket, you may be taking on unnecessary risk.

Total International: Because of the risk of investing only in the US, some people invest internationally. Right now, global economy is about 50% US and 50% outside US. However, Vanguard's retirement funds recently increased international allocation from 30% to 40%. International investing carries currency risk, and not all international markets have the same regulations that the US has.

Bonds: These are meant to soften the blow to your risk tolerance when returns go south. They are more stable so you don't watch your entire portfolio oscillate with volatility. It is entirely possible that you can withstand 2008-like returns without batting an eye, but there will come a time when you feel like "taking a bit off the table" is the wisest thing you could do. Bonds prevent huge losses, but they also prevent huge gains.

So the recommended "3-fund portfolio" can vary from just 90%SP500/10%bond to 25%US/25%Intl/50%bond depending on your risk tolerance. Since you are new to investing, you do not yet know your risk tolerance. It's certainly better to start with like 15% bonds to weather your first storm and adjust accordingly after that than to make an emotional decision to sell during a crisis.

This should be the base portfolio from which you can then tilt to small-value. It's best to use the morningstar style boxes to look at tilting.

-----VTI:------------VBR:----------VIOV:----------VB:
---23-25-24------00-00-00------00-00-00------00-00-00
---06-06-06------16-15-09------00-00-02------11-13-18
---03-03-03------30-24-05------45-39-15------19-20-18


If small and value are what you are after, then VIOV looks like the best bet. If you are looking for small-value with some midcaps, then VBR is your choice. If you are only looking for small and midcaps with no significant value tilt, then choose VB. There is really is no need to combine more than VTI and one other tilting fund.

You also mention that you do not wish to include VSS since VXUS already has enough midcaps. Here is what the style box shows:

-----VXUS:----------VSS:
---29-28-23------01-01-02
---06-05-05------23-20-20
---02-01-01------14-12-08

It appears that VTI has more small and midcaps than VXUS. Why exactly do you want to tilt US? Do those same reasons apply to international? You need to have a solid reasoning for WHY you choose tilt because you will constantly be getting more news and more information that may encourage you to change course.

I would also take a look at the ultimate buy and hold portfolio post which shows that you can get a tilted portolfio with comparable results even if you use less funds.

viewtopic.php?t=38374

My final comment is just that 5% VNQ isn't going to make much difference in exchange for the complexity it causes.

TLDR:
1. SImpler is better.
2. Think about the reason for your tilts.
3. You can get the same tilt with less funds.
4. Small allocations (~5%) do not make much difference and cause greater complexity. (see #1)

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by BrandonBogle » Thu Feb 23, 2017 10:13 am

hellobogle wrote: My final comment is just that 5% VNQ isn't going to make much difference in exchange for the complexity it causes.

TLDR:
...
4. Small allocations (~5%) do not make much difference and cause greater complexity. (see #1)
I was thinking the same thing, but hadn't spoken up yet.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by MotoTrojan » Tue Mar 07, 2017 10:48 pm

Some responses to recent replies:

My comment about holding off on VSS wasn't necessarily that VXUS had tilted exposure to smaller international stocks, but that VXUS had some, while other large international funds I have seen commonly used are only large cap (S&P500 vs. Total US Market comparison). Thus for now, considering that VXUS has some exposure to smaller companies, and Int. is only 25% of my portfolio, I am fine with just keeping it more simple and only holding VXUS for Int. funds.

As to the 5% REIT, I think I came about that by targeting a 10% Real Estate number, but may have erroneously decided 5% VNQ because VIOV is ~5% Real Estate. I'll do some more soul searching and see if eliminating it, or increasing it to target 10% real-estate overall, is the right answer. I am comfortable excluding bonds entirely right now, and thus figured a holding of REITs would give me some good diversification while still maintaining high expected returns.

You never know til you live it... My first major crisis/crash will be an experience, but given my long horizon I feel I can talk myself into seeing it as a great opportunity to buy cheap, rather than a huge loss... time will tell!

Thanks again for all the feedback. I may not have moved all the way to a 3-fund holding, but these comments have pushed me to do a lot of valuable research and put together a much better thought out, tax efficient plan, rather than piecing a bunch of random funds together. The learning continues, I just finished A Random Walk; now onto book #3.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by BrandonBogle » Tue Mar 07, 2017 10:51 pm

The Three Fund Portfolio is not for everyone and not the only "right answer". It, however, is a marvelous starting point and a great model to compare against. The simplicity really does have value. The good thing is that if you ultimately decide to deviate from it for something, you will have thoroughly thought about it and are likely to stick with it. Great job!

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by MotoTrojan » Wed Mar 08, 2017 3:28 pm

After a REIT research deep-dive, I am seeing too many conflicting messages on their long-term benefit. Some say good diversification, some say better returns than TSM, some say they are overvalued right now, others say a good buy. I need to get a better understanding of the overall interaction between growth, yields, interest rates, etc. for REITs (and admittedly, bonds as well) before I start throwing much at them.

VTI: 55%
VXUS: 25%
VIOV: 20%

My 3-fund portfolio for now :).

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by nobodyimportant » Thu Mar 16, 2017 1:51 am

i could be wrong.
i agree with other posters. too many funds.
i like etfs. not funds. lower fees. also turnover % of holdings matters.
vanguard etf shares are like future currency that yields money into your bank account.

sample etf portfolios i thought about before i filled up on wonderful dividend paying vanguard shares.
p a
voo 100%

p b
voo 90%
bnd 10%

p c
voo 60%
veu 20%
vnqi 10%
vnq 10%

p d
vym 40%
veu 30%
vnqi 20%
vnq 10%

thought about vym and vnqX for dividend income and currency hedge.
thought about voo for long term growth.
thought about veu for global along with vnqi.
i am not for bonds.

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BrandonBogle
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Post by BrandonBogle » Thu Mar 16, 2017 6:22 am

@nobodyimportant, Just keep in mind that for Vanguard, the ETF is just another share class of the mutual funds and thus, the turnover rates between them are the same. Additionally, comparing Admiral Shares to the ETF have the same expense ration and costs (except for early in a funds existence where the shares have a purchase fee). I personally use ETFs for the most part as well, but either would work pretty much the same. Ultimately, just make sure you are tax-efficiently put those "dividend paying" holdings in good accounts. For instance, I would not buy BND outside of a tax-advantaged account except for extenuating circumstances that would rarely apply to a 25 year old.

Ultimately, if your risk tolerance is to have no bonds, that is fine. There are many who do and not have the world end for them (just as I am sure there are many who do). As long as you can stomach it, more power to you.


FYI, I do practice what I preach. If you subscribe to counting a mortgage as a negative bond (reduces your AA's bond holdings), then I'm 100% stocks too and have been over 100% at times.

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