ETF advice for retirement portfolio

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Xenos
Posts: 4
Joined: Thu Mar 16, 2017 1:49 pm

ETF advice for retirement portfolio

Postby Xenos » Thu Mar 16, 2017 1:54 pm

Hi,

I'm trying to set up a retirement portfolio of ETFs (about 70% stock index and 30% bond index). I'm going with ETFs primarily because I want something that follows the market index and has low fees. My goal is to also have a diversified portfolio.

ETF stock choice so far:Vanguard Total Stock Market Index (VTI)
However, it seems to have most of its holdings in large cap companies.
Question 1:
Do I need to have an ETF that follows the small and midsize cap companies to balance it out (i.e VXF)?

Question 2:
Likewise, do I need an international ETF to further diversify my portfolio (i.e. VXUS)?

I'm also having problems finding the right bond ETF now. My research has led to some potential choices like Vanguard Total Bond Market (BND) and Vanguard Intermediate-Term Corporate Bond (VCIT). But I need more help in this area especially with the Fed just raising the interest rates again.
Question 1:
What bond index fund do you recommend?

Any advice is welcomed.

livesoft
Posts: 55289
Joined: Thu Mar 01, 2007 8:00 pm

Re: ETF advice for retirement portfolio

Postby livesoft » Thu Mar 16, 2017 2:18 pm

1. Many folks would say that you do not need more than the Total Stock Market Index fund for US stocks because it has the market weights of large, mid, and small caps. Many folks other (myself included) say that one should want to overweight small-caps and mid-caps, so one should have an additional US equity fund such as VXF or VBR. The two sides will never agree, so you have to decide which camp you want to side with or if you want to compromise and overweight small/mid-caps a little bit instead of a lot. It is truly your decision and a good research topic for you.

2. Most folks on this forum do suggest one needs international to further diversify, but some folks do not. Once again it is your decision. Some folks like 0% international, but others are happy with a typical range of 20% to 40% of equities, and still others want to have 50% of equities in international. It is truly your decision and a good research topic for you.

3. I use BND and VCSH for my bond allocation. Some people use BND only. Some use BIV. Some use CDs. Some use I-bonds. Some use a stable value fund. Some use a mix. There is no way to predict the future, so there is no way to tell you which of any of these options (or mix of them) will turn out to be best.

Hmmm, it looks like you asked questions that cannot be answered. Congratulations! :share beer

And welcome to the forum.
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Xenos
Posts: 4
Joined: Thu Mar 16, 2017 1:49 pm

Re: ETF advice for retirement portfolio

Postby Xenos » Thu Mar 16, 2017 2:27 pm

livesoft wrote:1. Many folks would say that you do not need more than the Total Stock Market Index fund for US stocks because it has the market weights of large, mid, and small caps. Many folks other (myself included) say that one should want to overweight small-caps and mid-caps, so one should have an additional US equity fund such as VXF or VBR. The two sides will never agree, so you have to decide which camp you want to side with or if you want to compromise and overweight small/mid-caps a little bit instead of a lot. It is truly your decision and a good research topic for you.

2. Most folks on this forum do suggest one needs international to further diversify, but some folks do not. Once again it is your decision. Some folks like 0% international, but others are happy with a typical range of 20% to 40% of equities, and still others want to have 50% of equities in international. It is truly your decision and a good research topic for you.

3. I use BND and VCSH for my bond allocation. Some people use BND only. Some use BIV. Some use CDs. Some use I-bonds. Some use a stable value fund. Some use a mix. There is no way to predict the future, so there is no way to tell you which of any of these options (or mix of them) will turn out to be best.

Hmmm, it looks like you asked questions that cannot be answered. Congratulations! :share beer

And welcome to the forum.

Thanks livesoft. I thought I had my ETFs down, but I'm getting last minute second guessing problems. The joys of having too much time recently. Ideally, I wanted to get most diversification while incurring the lowest fees possible. I consider myself a conservative to moderate investor, though I'm a big fan of passive investment. I'm just starting out now with the retirement process and wanted to get it done right, and then leave it alone. Low PITA factor. Once that is done, I can eventually turn my attention to non-retirement investing.

Jack FFR1846
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Joined: Tue Dec 31, 2013 7:05 am

Re: ETF advice for retirement portfolio

Postby Jack FFR1846 » Thu Mar 16, 2017 2:30 pm

If you want to buy an ETF that pretty much tracks VTI, open a Schwab account and buy SCHB. No fees and 0.03% ER vs 0.05% for VTI. You can get a bonus for opening an account there if you don't already have one.

I own both SCHB at Schwab and VTI at TDAmeritrade.
Bogle: Smart Beta is stupid

robertmcd
Posts: 85
Joined: Tue Aug 09, 2016 9:06 am

Re: ETF advice for retirement portfolio

Postby robertmcd » Thu Mar 16, 2017 2:48 pm

Following up what livesoft said, I would start out with a three fund portfolio using vanguard etfs (VTI, VXUS, and BND). I would not recommend implementing a factor based investing plan (tilting, diversifying across asset classes, increasing efficiency, whatever you want to call it) until you have done a lot of research on the topic. If you think it could be the strategy for you, read some of larry swedroe's books, and do some reading here about size and value premiums, the best etfs to target these taking into account costs, bid/ask spreads, efficiency, factor loadings, etc. I would honestly learn about factors and how to invest in them for a month or two before making any changes. I know I originally thought I could just buy some VBR (vanguard small cap value) because all small cap value is the same, and I was very wrong.

I believe in international diversification, and I would recommend at least 20% in international equities with market weight of emerging markets. I am at about 40% international right now but my new contributions will continue to go into it until I hit 50%.

I think the vanguard etfs are superior to schwabs. Schwab's may be cheaper, but they do not have as good of coverage as vanguards when it come to small/micro caps or emerging markets, have higher bid/ask spreads, and vanguard offsets the added expense ratio with more securities lending revenue. For example, VTI ER of .05% actually become -.01% to -.02% after securities lending. You can get paid to hold every liquid stock in the US!

When it comes to a bond fund BND is a good choice, although I prefer using only treasuries because I don't want my bonds to drop when my equities do. Vanguard intermediate term government bond etf (VGIT) is a great option if wanting to avoid corporate bonds.

Xenos
Posts: 4
Joined: Thu Mar 16, 2017 1:49 pm

Re: ETF advice for retirement portfolio

Postby Xenos » Thu Mar 16, 2017 3:13 pm

Jack FFR1846 wrote:If you want to buy an ETF that pretty much tracks VTI, open a Schwab account and buy SCHB. No fees and 0.03% ER vs 0.05% for VTI. You can get a bonus for opening an account there if you don't already have one.

I own both SCHB at Schwab and VTI at TDAmeritrade.

Hi Jack, I actually don't want to buy another ETF that is similar or overlap with VTI. But it is good to know that SCHB has a lower fee and there's a bonus to opening a Schwab account.

Xenos
Posts: 4
Joined: Thu Mar 16, 2017 1:49 pm

Re: ETF advice for retirement portfolio

Postby Xenos » Mon Mar 20, 2017 2:34 pm

robertmcd wrote:Following up what livesoft said, I would start out with a three fund portfolio using vanguard etfs (VTI, VXUS, and BND). I would not recommend implementing a factor based investing plan (tilting, diversifying across asset classes, increasing efficiency, whatever you want to call it) until you have done a lot of research on the topic. If you think it could be the strategy for you, read some of larry swedroe's books, and do some reading here about size and value premiums, the best etfs to target these taking into account costs, bid/ask spreads, efficiency, factor loadings, etc. I would honestly learn about factors and how to invest in them for a month or two before making any changes. I know I originally thought I could just buy some VBR (vanguard small cap value) because all small cap value is the same, and I was very wrong.

I believe in international diversification, and I would recommend at least 20% in international equities with market weight of emerging markets. I am at about 40% international right now but my new contributions will continue to go into it until I hit 50%.

I think the vanguard etfs are superior to schwabs. Schwab's may be cheaper, but they do not have as good of coverage as vanguards when it come to small/micro caps or emerging markets, have higher bid/ask spreads, and vanguard offsets the added expense ratio with more securities lending revenue. For example, VTI ER of .05% actually become -.01% to -.02% after securities lending. You can get paid to hold every liquid stock in the US!

When it comes to a bond fund BND is a good choice, although I prefer using only treasuries because I don't want my bonds to drop when my equities do. Vanguard intermediate term government bond etf (VGIT) is a great option if wanting to avoid corporate bonds.

Hi Robert,
I apologize for not following up sooner, but I appreciate the advice. I will try to look into the books you mentioned. Primarily, I wanted to have something that I can just buy and hold without doing anything additional. At least that's the goal for the retirement portfolio. Non-retirement accounts (ie. taxable accounts) may involve a more hands on approach.

I did have a question about your international diversification. I guess I always hesitate to go with that much international equity in a portfolio because of the higher fees, and because I wonder if US companies already have a bit of international stocks in them already. So I guess my question is why are you going with such a high percentage for your portfolio?

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nedsaid
Posts: 7751
Joined: Fri Nov 23, 2012 12:33 pm

Re: ETF advice for retirement portfolio

Postby nedsaid » Mon Mar 20, 2017 3:36 pm

robertmcd wrote:Following up what livesoft said, I would start out with a three fund portfolio using vanguard etfs (VTI, VXUS, and BND). I would not recommend implementing a factor based investing plan (tilting, diversifying across asset classes, increasing efficiency, whatever you want to call it) until you have done a lot of research on the topic. If you think it could be the strategy for you, read some of larry swedroe's books, and do some reading here about size and value premiums, the best etfs to target these taking into account costs, bid/ask spreads, efficiency, factor loadings, etc. I would honestly learn about factors and how to invest in them for a month or two before making any changes. I know I originally thought I could just buy some VBR (vanguard small cap value) because all small cap value is the same, and I was very wrong.

I believe in international diversification, and I would recommend at least 20% in international equities with market weight of emerging markets. I am at about 40% international right now but my new contributions will continue to go into it until I hit 50%.

I think the vanguard etfs are superior to schwabs. Schwab's may be cheaper, but they do not have as good of coverage as vanguards when it come to small/micro caps or emerging markets, have higher bid/ask spreads, and vanguard offsets the added expense ratio with more securities lending revenue. For example, VTI ER of .05% actually become -.01% to -.02% after securities lending. You can get paid to hold every liquid stock in the US!

When it comes to a bond fund BND is a good choice, although I prefer using only treasuries because I don't want my bonds to drop when my equities do. Vanguard intermediate term government bond etf (VGIT) is a great option if wanting to avoid corporate bonds.


This is a very good post. I would say the basic Vanguard ETFs are good enough, if you have US Total Stock Market, US Total Bond Market, and Total International Stock; you have the basics covered. I personally own the Vanguard US Total Bond Market in both mutual fund and ETF form. People (including Larry Swedroe) have criticized it for various reasons but I think it is good enough. Be sure and reinvest the dividends. I like the mutual funds best because this is never an issue, with ETF's it depends upon the brokerage whether or not you can reinvest with no fees.
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