Allocation Decisions: LENDX, SRRIX and QSPIX

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Boricua
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Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

My current portfolio looks like this:

27% DFA Core II
27% DFA Ex US Core Equity
6% QSPIX (10% of equities)
40% Intermediate Treasuries

I learned recently that I might be able to access LENDX (Stone Ridge Alternative Lending Risk Premium Fund) and SRRIX (Stone Ridge Reinsurance Risk Premium Interval Fund) in my retirement accounts. Based on the various posts from Larry Swedroe, I'm considering an allocation to SRRIX and LENDX .

Here are 3 options I'm considering:

Option 1
=======
25% DFA Core II
25% DFA Ex US Core Equity
20% Alternatives (10% LENDX, 5% SRRIX , 5% QSPIX)
30% Intermediate Treasuries

Option 2
=======
25% DFA Core II
25% DFA Ex US Core Equity
20% Alternatives (6.66% LENDX, 6.66% SRRIX , 6.66% QSPIX)
30% Intermediate Treasuries

Option 3
=======
25% DFA Core II
25% DFA Ex US Core Equity
15% Alternatives (5% LENDX, 5% SRRIX , 5% QSPIX)
35% Intermediate Treasuries

I know many on this forum think that a simple Vanguard 3-fund portfolio is best. If that's how you feel, that's fine with me and this question probably isn't for you. For those who are inclined to consider options like QSPIX, LENDX and SSRIX, I have the following questions:

1. Do you think any of the proposed options #1, #2 or #3 would be *significantly* more risky than my current allocation?

2. As between LENDX, SSRIX and QSPIX, do you like an even weighting (as in #2 or #3) or would you weight something like LENDX more heavily as in option #1?

3. If you would weight one of the alternatives more heavily than the others, which one would be be? Would it be LENDX as in #1 or would it be one of the others?

4. Do you think there are other options I should consider with respect to LENDX, SRRIX and QSPIX?

Thoughts and comments would be appreciated.
dave_k
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by dave_k »

Since the increased alternatives are coming partly from equities, reducing treasuries from 40% to 30-35%, I don't think it would be significantly more risky. If the diversification benefits are true they may not be any more risky, especially option 3, but I'm no expert.

I'm curious, how are you able to access LENDX and SRRIX in your retirement accounts?

I'm interested in those as well, but would reallocate entirely from equities, or nearly so.
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Boricua
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

dave_k wrote:I'm curious, how are you able to access LENDX and SRRIX in your retirement accounts?
Our retirement plan accounts have a brokerage window. The accounts are with a RIA that provides access to DFA and, perhaps, LENDX / SRRIX in the future.
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matjen
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by matjen »

I would go with Option 3 to begin with. You can always increase your alternatives percentages if you feel comfortable but best to start smaller in my mind. The other point I would add is that Larry Swedroe is at 10% if memory serves. Now he has tax-advantaged constraints that might be driving that but I still wouldn't feel comfortable out of the gate going massively more into these things than he has. Just my .02.
A man is rich in proportion to the number of things he can afford to let alone.
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Boricua
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

matjen

Thanks for your response. Based on past posts, I agree that Larry appears to be at around 10% for LENDX and SRRIX plus whatever he has in QSPIX in taxable. I think he has written that he would hold more LENDX and/or SRRIX if he had the space, but I take your point about not going too far with things.
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Taylor Larimore
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Taylor Larimore »

I have the following questions:

1. Do you think any of the proposed options #1, #2 or #3 would be *significantly* more risky than my current allocation?

2. As between LENDX, SSRIX and QSPIX, do you like an even weighting (as in #2 or #3) or would you weight something like LENDX more heavily as in option #1?

3. If you would weight one of the alternatives more heavily than the others, which one would be be? Would it be LENDX as in #1 or would it be one of the others?

4. Do you think there are other options I should consider with respect to LENDX, SRRIX and QSPIX?
Boricua:

Your portfolio includes DFA funds which normally require an additional advisor's fee. What does your DFA advisor recommend?

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Theoretical
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Theoretical »

I'd treat both of the new funds as equity-ish because both have tail risks that bonds do not.

The reinsurance risk in particular could go very tail-y if a natural disaster or terrorist attacked sets off a flurry of claims.

I'd be curious how an institutional reinsurance portfolio did in the wake of 9/11.

Alternate lending seems like it'll have the effect of credit risk on th equity portion, increasing losses to a value tilt.
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grap0013
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by grap0013 »

50% equities
5% LENDX
5% SRRIX
5% QSPIX
5% QMHIX
30% treasuries

Addition of QMHIX will cut your left tail risk as well as improve overall diversification.
There are no guarantees, only probabilities.
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Boricua
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

Taylor

Our advisor is one of the low cost advisors. They offer various levels of service. We go with their bare bones service which is low cost but it doesn't provide a lot of extra hand holding. It's probably not for everyone but it works for us.


Theoretical and grap0013

Thank you for sharing your perspectives. They are much appreciated.
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Taylor Larimore
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Taylor Larimore »

I know many on this forum think that a simple Vanguard 3-fund portfolio is best. If that's how you feel, that's fine with me and this question probably isn't for you.
Boricua:

You are correct, your question isn't for me. :happy

I appreciate your reply.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Boricua
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

Taylor Larimore wrote:You are correct, your question isn't for me. :happy

I appreciate your reply.

Best wishes.
Taylor
As a wise man once said, there are many roads to Dublin. :happy

Best,

Boricua
lack_ey
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by lack_ey »

In general I would say to err on the low side when it comes to alternatives, so whichever option you are contemplating on the low side is what I would suggest (option 3). You can do the analysis about potential portfolio benefit, risk/return, mixing assets, reducing reliance on the equity risk premium, etc. but when it comes down to the grind of living through the results, there's nothing like losing money in an unconventional strategy that is costing a lot while everybody else doing something simpler is doing better. Wrong and with company (e.g. stock market crash, everybody is sad) is bad enough; wrong and alone is worse.
Boricua wrote:1. Do you think any of the proposed options #1, #2 or #3 would be *significantly* more risky than my current allocation?
No.
Boricua wrote:2. As between LENDX, SSRIX and QSPIX, do you like an even weighting (as in #2 or #3) or would you weight something like LENDX more heavily as in option #1?

3. If you would weight one of the alternatives more heavily than the others, which one would be be? Would it be LENDX as in #1 or would it be one of the others?
I don't have the data, knowledge, and background to analyze the relative after-fee performance and characteristics of the three and then estimate the potential tail risk/correlation with equities (for the style premia fund, which is market neutral, should be pretty low, but I can't say much about the others), so I don't really have an opinion here. Actually, the only thing I notice here is that if you believe significantly in factor investing, which I assume you have to in order to use the style premia fund, why use the DFA core equity funds? Or are you primarily interested there in the non-equity components of that fund?
Boricua wrote:4. Do you think there are other options I should consider with respect to LENDX, SRRIX and QSPIX?
Managed futures, I guess, if you're a believer in trend following. Unlike the first two it's not overall net long in assets that very well in theory should make money, and though it ranges across a number of assets like QSPIX, it is not as diversified (being one strategy rather than four different styles) so I would use a lower weight there.

Maybe equity market neutral? Vanguard has basically one of the only cheap-ish (0.25%) alternatives funds available in their market neutral fund. There are plenty of others as well. It could be worth going to multiple shops to mitigate the impact of one firm's ideas leading multiple funds astray.

I wonder if all these small slices seem worth it for you. Maybe not.
Theoretical
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Theoretical »

Also, one of the insurance risks to consider is that in times of economic downturn, insurance fraud goes way up.
Topic Author
Boricua
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

lack_ey,

Thank you for your detailed and thought provoking response.
but when it comes down to the grind of living through the results, there's nothing like losing money in an unconventional strategy that is costing a lot while everybody else doing something simpler is doing better. Wrong and with company (e.g. stock market crash, everybody is sad) is bad enough; wrong and alone is worse.
That's an excellent point. I have some direct experience with this sort of thing. I used to have a small portion of my overall portfolio in the Permanent Portfolio. I remember reading an article by William Bernstein in which he argued that (a) the PP was a fine portfolio and (b) most investors wouldn't be able to stick with it in the long run. "But I will", I thought at the time. Eventually I lost my conviction, in part because some of the leading advocates for the approach became less vocal in their support. Given this past experience, I fully acknowledge your point as a legitimate concern with respect to alternatives.

Also, I've been trying to simplify and tinker less over the last few years. Adding more funds runs counter to that. That said, I'm swayed by Larry Swedroe's enthusiasm for some of these alternatives.
Actually, the only thing I notice here is that if you believe significantly in factor investing, which I assume you have to in order to use the style premia fund, why use the DFA core equity funds? Or are you primarily interested there in the non-equity components of that fund?
The first thing I'd say is that I have DFA funds in taxable accounts. Those commitments predate my QSPIX investments. In addition, I liked the multi-style exposure across a variety of asset groups.

Maybe equity market neutral? Vanguard has basically one of the only cheap-ish (0.25%) alternatives funds available in their market neutral fund. There are plenty of others as well. It could be worth going to multiple shops to mitigate the impact of one firm's ideas leading multiple funds astray.


I don't know much about the Vanguard fund. Would it be redundant given I already have QSPIX?

I wonder if all these small slices seem worth it for you. Maybe not.
Good question. At this point I'm just weighing options. It's possible I'll do nothing .
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nisiprius
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by nisiprius »

Boricua, I think you should take a step back and ask yourself three things.

1) Do Larry's articles, which talk about innovative new funds--not actually mutual funds in the case of LENDX and SRRIX--actually amount to how-to instructions, or suggestions that these are appropriate for most portfolios?

In some of his books, he actually spells out some complete sample portfolios. I would suggest that until you see a book or article from him that shows complete sample portfolios that include LENDX, SRRIX, and QSPIX, you do not have actionable information from him. Saying in an aside that his firm uses certain funds in some portfolios for some clients, or that he bought some of the fund himself, is not really guidance.

2) As best you can tell from his article, for what kind of investor does he think these funds are suitable? I read him as saying that in the "alternatives" space, they are better than hedge funds and private equity. In other words, it seems to me that he is saying that if hedge funds and private equity are suitable for you, then you should consider these as superior ways of achieving the same thing. Are hedge funds and private equity suitable for you?

3) In the case of SRRIX, are you completely sure you understand and are on board with the section of his article, New Sources of Risk and Return Build Better Portfolios, headed "Must Accept Negative Skewness?" Do you truly accept negative skewness, which describes investments with limited possible upside and large possible downside? He is saying that investments of this kind can, overall, on balance be better than others. In fact, the source of the extra premium comes from most investors having a strong dislike of negative skewness. I personally am one of those investors myself. If you are happy with it, then in a teeny tiny way my rejection of it is my loss and your gain. But, are you confident that you are one of the relatively few investors who can tolerate it?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by wije »

Boricua wrote:Our advisor is one of the low cost advisors. They offer various levels of service. We go with their bare bones service which is low cost but it doesn't provide a lot of extra hand holding. It's probably not for everyone but it works for us.
Actually that sounds right up my alley. If you don't mind answering, how did you find your advisor, and what are the advisor's fees? How did you find an advisor with access to Stone Ridge funds? (you can PM me if you'd rather not share with everyone)

I've never been to keen on having an advisor, but Larry's recent posts have led me to reconsider if I can find someone who doesn't charge very much. I looked at some advisors' websites, but they usually don't advertise their fees and describe their services in bland and useless terms.
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Boricua
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

How did you find an advisor with access to Stone Ridge funds? (you can PM me if you'd rather not share with everyone)
Sent PM.
stlutz
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by stlutz »

That's an excellent point. I have some direct experience with this sort of thing. I used to have a small portion of my overall portfolio in the Permanent Portfolio. I remember reading an article by William Bernstein in which he argued that (a) the PP was a fine portfolio and (b) most investors wouldn't be able to stick with it in the long run. "But I will", I thought at the time. Eventually I lost my conviction, in part because some of the leading advocates for the approach became less vocal in their support. Given this past experience, I fully acknowledge your point as a legitimate concern with respect to alternatives.

Also, I've been trying to simplify and tinker less over the last few years. Adding more funds runs counter to that. That said, I'm swayed by Larry Swedroe's enthusiasm for some of these alternatives.
You're starting out with a sensible portfolio now. As such, changing 20% of it all at once is probably not a good idea.

Most people make some type of change to their portfolio every few years. The key is to do that in a way that is consistent with staying the course with a good plan through good and bad times.

As such, I would suggest picking one of the three (perhaps the one you've been interested in the longest) and making a 5% allocation now. Then re-evalulate in 6 months to see if you are still as enthusiastic. If so, add 5% to another option and so forth.

A few years back I became quite interested by the low-volatility anomaly. Still am. Back then I put what was actually about 1% of my portfolio into USMV. Has performed very well--better than I expected, actually. I never added to my allocation any further however. I determined that my interest was more in an academic sense than a taking action one. At the time I was thinking of moving most of my US equity allocation in a low vol direction. I didn't because I believe in staying the course over creating the perfect portfolio. Doing so meant that I didn't make a big move then only to undo it as I lost excitement a few years later.
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Boricua
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

Nispirius,

Thanks so much for taking the time to share your thoughts.

With respect to PE and hedge funds, I read him as saying that they mostly provide exposure to sources of risk that (a) I already own (beta, size, value, momentum, carry trade, etc.) and (b) are highly correlated with stocks. Further, they do it at a high cost such that the benefits acrrue to the providers not the investors.

Although I have great respect for your many contributions and insights to this forum over the years, I'm not sure I agree that "he is saying that if hedge funds and private equity are suitable for you, then you should consider these as superior ways of achieving the same thing." I think his argument goes something like this:

- In the past some investors flocked to hedge funds and private equity because they were seeking equity-like returns with low correlation to equities
- In fact, it turns out the returns were highly correlated with equities and the fees were very high. Providers won. Investors didn't.
- Therefore, hedge funds and private equity are not good choices. As far as I know, Larry was never an advocate of PE and hedge funds.
- However, due to financial innovation, "normal investors" can now access new sources of risk (private lending and reinsurance) that (a) have equity-like returns with lower volatility and (b) are not correlated with with the stock market. Finally, the fees, while high, shouldn't be compared directly with the fees one would pay for an index fund: the fees pay for a professional management team to run a business. The business is not new (large financial institutions have been doing it for years) but it was out of reach for normal investors until recently. These newer options are not risk free. One must accept negative skewness (which is already a given if invested in equities).
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Boricua
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Boricua »

slutz,

Thanks for taking the time to post.
You're starting out with a sensible portfolio now. As such, changing 20% of it all at once is probably not a good idea.

Most people make some type of change to their portfolio every few years. The key is to do that in a way that is consistent with staying the course with a good plan through good and bad times.

As such, I would suggest picking one of the three (perhaps the one you've been interested in the longest) and making a 5% allocation now. Then re-evalulate in 6 months to see if you are still as enthusiastic. If so, add 5% to another option and so forth.
I appreciate your perspective. I already have 6% in QSPIX, so the max change would be closer to 14%. Even so, based on feedback from you and others I'm thinking of dialing back to 10% or 15% total in alternatives for now....assuming I do anything at all.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Robert T »

.
FWIW - some due diligence on LENDX (just my take)
  • Credit risk (the same or different?): LENDX is essentially exposure to credit risk (plus leverage). Its not exactly the same credit risk as corporate bonds, and may provide added diversification if using corporate bonds i.e. instead of investing in the same companies on the stock and bond side of a portfolio (which is essentially what you are doing with stocks and corporate bonds), including “consumer loans” and “non-listed company” loans provides, on average, somewhat different credit exposure. I would note however, that most ‘alternative lending’ (or ‘peer-to-peer’ lending) is for debt reconsolidation (taking out one loan to pay-off all the others https://www.lendingclub.com/info/statistics.action ) – so these borrowers were the same people making payments to public companies (e.g. visa, mastercard, american express), so perhaps not a completely different credit risk profile (as they are essentially the same people making payments on loans). As a result, factors that contribute to negative tail risk of corporate bonds also contribute to negative tail risk of alternative-lending (ie. hard economic times, higher unemployment etc … e.g. 2008). LENDX adds leverage, which amplifies the negative tail risk (than the same investments without leverage.) LENDX uses a variety of platforms to access these investments - primarily Lending Club, but also through Sofi, Upstart, Funding Circle, Square, and Common Bond. Here is the current composition of the LENDX portfolio – from the latest semi-annual report.
    • +85.3% = Consumer loans
      +9.9% = Small business loans
      +7.3% = Student loans
      +7.5% = Short-term investments
      +8.0% = Asset-backed securities
      -18.0% = Liabilities in excess of other assets (borrowings to invest i.e. leverage)*

      *“The Fund or a Subsidiary has obtained and may in the future obtain financing to make investments in alternative lending-related securities”
    Credit quality (lower or higher credit quality than investment grade corporate bonds?): As far as I can tell, LENDX parameters on credit quality are the same as the platforms they use (i.e. Its doesn’t further limit selection to higher credit quality). The platforms themselves try to strive for relatively higher credit quality. For example, to have a loan application approved at Lending Club you need a FICO score of 600 (used to be 660 as I understand), and can’t have a late payment on a credit report for the last year. As a result only about 10 percent of people who apply get funded. Default rates on loans within Lending Club vary from about 1-2% for highest grade to over 10% for lowest grade. These seem to be somewhat higher than the default rates on investment grade bonds (AAA to B rated e.g. see table 3 in the following link http://www.spratings.com/documents/2018 ... 3615a6493b ). i.e. higher risk/lower credit quality.

    Lower cost: These alternative lending platforms offer lower interest rates than other sources such as credit cards (not higher), implying lower return to lenders. But the direct nature of lending (peer-to-peer) rather than through visa, mastercard etc leads to less cost being subtracted and potentially higher net returns to lenders. Need to also consider the management fee of LENDX.

    Early repayment reinvestment risk and early payoff fees: Early loan payoff through platforms such as Lending Club seem common (perhaps more common than corporate bonds). This adds some, perhaps small, reinvestment risk i.e. if a borrower pays off a loan, and there are no immediate similar replacement opportunities for the investor then s/he may lose out (than if no repayment had taken place). However, there appears to be a large enough pool of potential borrowers that seems to make this risk fairly small. A greater concern, at least at Lending Club is the 1% service fee to the investor for any loans paid off early https://help.lendingclub.com/hc/en-us/a ... aid-early- I don’t think LENDX can avoid this either.

    Expected return: Given the apparent lower credit quality relative to investment grade corporate bonds, you would expect higher returns. Here are Lending Club's performance statistics of investors https://www.lendingclub.com/info/statis ... nce.action . The additional leverage of LENDX would lead to higher expected return and higher risk. From the higher expected return, you would need to subtract the LENDX management fee.

    Alternative to LENDX. If you really wanted exposure to ‘peer-to-peer’ credit risk, you could simply do it yourself. Here’s a good example with fairly impressive results. http://whitecoatinvestor.com/4-years-of ... relations/ . This skips the LENDX management fee, reduces some diversification (although 85% of LENDX is in similar types of loans that can be accessed through Lending Club), and avoids leverage. It does however increase the personal management costs, and is less convenient than LENDX.

    Allocation from stocks or bonds. Following the above, if true, LENDX has higher credit risk than investment grade corporate bonds, amplified by leverage, and as a result should take more of the allocation from stocks than bonds, than you would for corporate bonds.
If you want more information on peer-to-peer lending. Just do a search on bogleheads for “P2P”.

Robert
.
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matjen
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by matjen »

Robert T.
Thank you for your take on LENDX Robert T. I think it is way too valuable to be buried solely within this thread where others will likely not see it. Would you be willing to start a new thread with the analysis? I was going to do it but figured I would ask first.

Lack_ey
Regarding your earlier question to OP regarding belief in factor investing and using QSPIX along with DFA core funds, I personally would like (if I was starting from scratch) a similar portfolio to OP's but with more tilt. Something like intermediate bonds then DFVEX (US Vector) for US, DWUSX (ex US Targeted Value) for Int'l/EM and 5%-10% QSPIX (and perhaps LENDX/SRRIX) for the non-equity parts and the low correlation. Knowing myself, I choose to pay up for DFA to handle the factors (which will drift a bit I assume), etc. and I no longer have to worry about rebalancing across the various small cap value funds or value international funds or emerging market funds. In essence a pretty highly tilted 3-Fund portfolio with the addition of QSPIX/alternatives for a little eye candy. ;-) I call it the Larry Larimore Portfolio or the Taylor Swedroe Portfolio. :D Perhaps the "Non-Snore Four" in honor of Rick Ferri.

Does my above portfolio make sense to you as one of certainly many portfolios that make sense or am I missing something in my analysis?
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by SpaceCowboy »

I think that your allocation should also reflect the relative illiquidity of LENDX and SRRIX. They both are interval funds that only allow quarterly withdrawals that are potentially capped. Thtat is one of the main reasons I'm not interested in them in addition, I think LENDX's fees are high to access an asset class, P2P, that is at least partially accessible at much lower cost directly.
QSPIX on the other hand, is a mutual fund that provides daily liquidity and pricing. I do own QSPIX ad have also been happy with it. What I like is that it is a true zero beta product with positive expected return.
I also have more faith in AQR who like DFA are essentially Fama-French disciples and quant jocks, than Stoneridge.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by betablocker »

I believe Larry wrote somewhere that he's think about moving up to 20% of his bond allocation to Lendx. Someone double check my figure though as it is from very faulty memory. Lendx is riskier credit wise but has much short duration under 2 year I believe so low inflation risk. Do it yourself is not a great option. Most of the good loans are now picked off by institutional money i.e. Lendx and you are paying for their access, expertise and diversification. I also believe Larry talked about having about half of what he has in Lendx in ssrix as it is riskier. additionally he has mentioned having a bit in qspix and aqmix or similar. I'd live to see more model portfolios on these lines and more expected return information. I'm running some factor analysis in portfolio visualizer.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by muppalas »

Boricua wrote:
How did you find an advisor with access to Stone Ridge funds? (you can PM me if you'd rather not share with everyone)
Sent PM.
Boricua,
If you don't mind, can you also send me the PM with same details. Thanks.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by plainoldjohn »

I'd appreciate the same info, if it's not too much trouble. PM is fine. Thank you.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by rebebm »

wije wrote:
Boricua wrote:Our advisor is one of the low cost advisors. They offer various levels of service. We go with their bare bones service which is low cost but it doesn't provide a lot of extra hand holding. It's probably not for everyone but it works for us.
Actually that sounds right up my alley. If you don't mind answering, how did you find your advisor, and what are the advisor's fees? How did you find an advisor with access to Stone Ridge funds? (you can PM me if you'd rather not share with everyone)

I've never been to keen on having an advisor, but Larry's recent posts have led me to reconsider if I can find someone who doesn't charge very much. I looked at some advisors' websites, but they usually don't advertise their fees and describe their services in bland and useless terms.
Just read this thread and I'd be interested in this low cost advisor as well. Can you PM me? Thanks, Evan
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by nedsaid »

This brings back memories, Larry didn't like the skepticism that many of us had about direct lending and reinsurance. My concerns about these are the same that I have about other alternative investments, the two biggest concerns being the financialization of these types of investments and the "late to the party" problem. My guess is that hedge funds are committing substantial funds to direct lending and reinsurance and that they are getting the best deals that are out there. Retail investors often wind up getting the scraps. I also recall David Swenson's success with alternatives with the Yale Endowment, he was the early bird and others who tried copying his strategies didn't enjoy his success. It is the late to the party problem, the early bird gets the worm or the alpha, by the time products for retail investors are developed, the folks like Swenson and the hedge funds have scooped up the alpha. In fact retail investors might get stuck with subpar performance as they might be buying while Swenson, the hedge funds, and the institutions are selling.

A third concern that I have is that the argument is that since you are investing directly in the business in illiquid form that you are avoiding market exposure or beta. According to the narrative, you are exposed only to the risk of the business itself. Pretty much, if you invest in the stock of a company that does consumer lending or reinsurance that since the stocks trade, you have beta risk as well as business risk. Larry may as well be telling us to buy a local dry cleaning business or non-traded REITs or private equity. The thing is the value of a business fluctuates even though the business itself doesn't trade on an exchange. It is like me saying that since my condominium wasn't on the market that my condo value didn't fluctuate. Well in fact, it fluctuated pretty wildly during the 2008-2009 financial crisis and real estate crash and during the subsequent real estate recovery. I was still taking risk in the real estate market even though I chose to ignore it. I think this is a specious argument.

Another reaction that I have is that there are publicly traded companies that deal in consumer lending and others that deal with reinsurance. What expertise does Stone Ridge have in these areas that similar public companies do not? I know that Larry got really ticked off when a couple of posters wondered if even Larry understood all the risks involved. As great as Larry is and as knowledgeable as he is, none of us knows everything about everything.

Finally, I have concerns about making substantial commitments to investment products that are new and relatively untested. Have these been through a crisis? Do we know how these will act during a genuine crisis like 2008-2009?

I think Larry acts in the best interest of his clients and the Alternative Lending and the Reinsurance funds that Larry recommended are probably pretty decent investments. Larry had no ulterior motives for recommending these, he is looking for alternative sources of return and is doing his very best to be up to date and cutting edge.

My best guess is that having 15-20% of a portfolio in these alternative investments is probably okay. Larry and his firm put an awful lot of thought into these recommendations and I am sure they did their very best due diligence. These might help a portfolio a bit or might hurt it a bit. The thing is that market crisis have a way of finding that Achilles heel in people's portfolio, the best laid plans of the smartest people are often foiled in a crisis. In a crisis, these alternative investments might get hit particularly hard and one would have to have extreme patience for them to rebound. Plus the Alternative Lending and Reinsurance Funds are probably not liquid and you probably couldn't get out even if you wanted to. Be cautious about illiquid or low liquidity products. The key is that you are making a long term commitment. It seems that efforts to reduce volatility unwittingly exacerbate volatility in a crisis.

I think you will be okay with 15-20% but have a long term perspective.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by nedsaid »

As I was doing housework, a couple other thoughts came to my mind.

First, many of us here on the forum believe that investment returns from the stock and bond markets here in the U.S. will likely be subdued in the future. So it is rational for Larry Swedroe and others to look for other sources of return. Of course, we want good return with low correlation to the stock market.

Second, the reinsurance and lending businesses are not new types of businesses. The way this all works is well understood. What is new is the semi-liquid direct investments into these businesses, we will have to see how these newer vehicles will perform over time.

Third, almost every form of investment was new or cutting edge at one time. International investing was little practiced until John Templeton popularized it. Other popular asset classes like REITs, TIPS, Emerging Markets were only really available in recent years. It seemed like REITs and TIPS came available during the 1990's and Emerging Markets during the 1980's. Certainly, just because something is new doesn't mean that it is bad.

Fourth, investment in these products depends on your belief in these products and in the people who recommend them. I always liked Larry Swedroe and his very clear writings. His advice is as good as anything else out there. So really, if you are with an Advisor and a firm that likes these products, it really comes down to whether you want to "get with the program" or not. Putting 15-20% of a portfolio in these products isn't the end of the world. Hopefully, they will perform as expected. I guess somebody has to be the guinea pig.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by grap0013 »

I feel like getting access to LENDX or SRRIX you need to be part of some secret society or something. What gives?

If I go to my local fee based hourly financial can she get me access to these funds if I pay her $200 for 1 hour? Or do I have to do a secret knock, look to the east, cluck 3 times like a chicken, and voila!! Access to LENDX and SRRIX has been granted!
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Taylor Larimore »

Allocation Decisions: LENDX, SRRIX and QSPIX
Bogleheads:

Before investing in alternate funds, it is helpful to look at the downside as well as the upside.

LENDX and SRRIX are not in Morningstar's database. QSPIX has a 10-year cost of $2,695 for a $10,000 investment.
The enemy of a good plan is the dream of a perfect plan. -- Jack Bogle
Best wishes.
Taylor
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by pkcrafter »

Lack_ey:
You can do the analysis about potential portfolio benefit, risk/return, mixing assets, reducing reliance on the equity risk premium, etc. but when it comes down to the grind of living through the results, there's nothing like losing money in an unconventional strategy that is costing a lot while everybody else doing something simpler is doing better. Wrong and with company (e.g. stock market crash, everybody is sad) is bad enough; wrong and alone is worse.
+1

Boricua wrote:
. Do you think any of the proposed options #1, #2 or #3 would be *significantly* more risky than my current allocation?
On the behavioral level, yes.
Also, I've been trying to simplify and tinker less over the last few years.
Then, it's best to follow Taylor's simplicity advice.
Adding more funds runs counter to that.
That right!
That said, I'm swayed by Larry Swedroe's enthusiasm for some of these alternatives.
Are you positive Larry wasn't being compensated to promote those funds/companies?

Paul
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by nedsaid »

pkcrafter wrote:
That said, I'm swayed by Larry Swedroe's enthusiasm for some of these alternatives.
Are you positive Larry wasn't being compensated to promote those funds/companies?

Paul
I tend to give people the benefit of the doubt. As Larry is pretty well known, at least in investment circles, his credibility, reputation, and frankly honor is on the line. He is getting fairly close to retirement and presumably is well off, it is hard to see why he would risk his reputation hawking questionable products near the end of his career. He seems like a pretty straight up guy, I don't believe he would be advocating such products if he personally didn't believe in them. He wrote articles and posted a lot here, I don't think Bogleheads made him rich. A few clients might have come in to Buckingham from Bogleheads and maybe he sold some books but I don't think we made much of a difference in his compensation, if any. In addition, his firm are fiduciaries.

That being said, that doesn't mean one should rush out and buy something because someone you respect recommends it. I expressed some skepticism about the alternative investments but that doesn't mean that I don't respect Larry or his opinions. Even expert opinion can be wrong.

Were I one of Buckingham's clients, I would probably buy smaller amounts of these funds to watch them and to see how they would actually perform. It is part of "getting with the program." This is why one needs to examine an investment firm carefully to make sure that there is a good match. If they consistently recommended things I didn't believe in, then it would be time to move on.

I give general advice here though I don't work in the financial industry. I post the 15 largest holdings in my retirement portfolio, my top 10 individual stocks, and how my investments have performed. People can see if I really eat my own cooking and can check my results to see if I am worth listening to. Nothing spectacular but hopefully people can learn from my experiences.

I think Larry Swedroe is open and honest.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by pkcrafter »

Ned, you are probably right, but Larry did seem to push certain products a little too hard and a little too often. Of course, he had to write about something. But that raises the question, did he have to write about something? Larry has been a very prolific writer, especially in the past 4-5 years.

Larry's book, The only Guide to a Winning Investment Strategy You'll Ever Need is one of the best books I've read. Lots of good investment advice in there like "utilize only passively managed mutual funds."


Paul
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Angst »

I'm happy that I'm able to own QSPIX and QSMLX (SC multi-style). BOTSX too (tax mgd. version of BOSVX). If I had access to Stoneridge's products I'd be thinking about them as well. I do respect and value Larry's insight, and of course I miss his posts. I also remember the days when recommendations about the benefits of including the likes of PCRIX (commodities futures) in one's portfolio were routine; they're not anymore. I'm probably doing just fine as I am without access to Stoneridge. Anyone can put together an excellent portfolio simply by using Vanguard funds and ETFs and other widely available index-oriented products, without having to worry much about the latest and greatest things that are coming out. The hardest part is leaving well-enough alone, and rebalancing per your IPS.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by pkcrafter »

Angst wrote:I'm happy that I'm able to own QSPIX and QSMLX (SC multi-style). BOTSX too (tax mgd. version of BOSVX). If I had access to Stoneridge's products I'd be thinking about them as well. I do respect and value Larry's insight, and of course I miss his posts. I also remember the days when recommendations about the benefits of including the likes of PCRIX (commodities futures) in one's portfolio were routine; they're not anymore. I'm probably doing just fine as I am without access to Stoneridge. Anyone can put together an excellent portfolio simply by using Vanguard funds and ETFs and other widely available index-oriented products, without having to worry much about the latest and greatest things that are coming out. The hardest part is leaving well-enough alone, and rebalancing per your IPS.
+1 :thumbsup Very good advice, even though you don't follow it. +1

Paul
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Angst »

pkcrafter wrote:
Angst wrote:I'm happy that I'm able to own QSPIX and QSMLX (SC multi-style). BOTSX too (tax mgd. version of BOSVX). If I had access to Stoneridge's products I'd be thinking about them as well. I do respect and value Larry's insight, and of course I miss his posts. I also remember the days when recommendations about the benefits of including the likes of PCRIX (commodities futures) in one's portfolio were routine; they're not anymore. I'm probably doing just fine as I am without access to Stoneridge. Anyone can put together an excellent portfolio simply by using Vanguard funds and ETFs and other widely available index-oriented products, without having to worry much about the latest and greatest things that are coming out. The hardest part is leaving well-enough alone, and rebalancing per your IPS.
+1 :thumbsup Very good advice, even though you don't follow it. +1

Paul
I suppose you're correct Paul, although I really meant it more as an observation than an instruction. I might well be my own worst enemy but actually I generally think I'm a pretty good ally. Except for my little AQR foray, nothing much has changed for me in a good while, besides of course the occasional rebalancing and TLH and future 401k to Roth conversions. You see, I think I do follow "it" fairly well. :happy
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Avo »

QSPIX has been essentially flat since the end of 2015. Does this worry anyone?
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by matjen »

nedsaid wrote: I give general advice here though I don't work in the financial industry. I post the 15 largest holdings in my retirement portfolio, my top 10 individual stocks, and how my investments have performed. People can see if I really eat my own cooking and can check my results to see if I am worth listening to. Nothing spectacular but hopefully people can learn from my experiences.

I think Larry Swedroe is open and honest.
100% agree. It should be noted that Larry also put just about the entirety of his tax-sheltered space into the Stone Ridge investments and perhaps a variation of QSPIX. 10-15% of his portfolio but he has a large portfolio.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by matjen »

Avo wrote:QSPIX has been essentially flat since the end of 2015. Does this worry anyone?
Nope. FWIW, which is very little, it has done better than Vanguard's Market Neutral fund VMNFX since 1/1/16.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by nedsaid »

pkcrafter wrote:Ned, you are probably right, but Larry did seem to push certain products a little too hard and a little too often. Of course, he had to write about something. But that raises the question, did he have to write about something? Larry has been a very prolific writer, especially in the past 4-5 years.

Larry's book, The only Guide to a Winning Investment Strategy You'll Ever Need is one of the best books I've read. Lots of good investment advice in there like "utilize only passively managed mutual funds."


Paul
Paul, you are right to have a bit of skepticism even towards people you like and trust. No one is 100% objective. We all have to make a living.

I am skeptical when it comes to illiquid or low-liquidity products. I know what Larry says about beta and all of that but things fluctuate in value whether they actively trade or not. In that infamous thread, I did bring up the issue that Larry had once recommended Collateralized Commodity Futures funds but no longer did. I was trying to point out that alternative investments often don't work out as well as more traditional investments. He should not have been surprised at forum members skepticism.

We did hit a nerve and I was surprised that Larry suddenly left the forum. The question is why he was so sensitive on this issue, to me it clearly was a triggering point for him. I think the alternative lending and reinsurance was a bridge too far for many Bogleheads and Larry didn't like being challenged. To me, it is okay to have a difference of opinion but I didn't think he had ulterior motives. He sincerely believed in those products.

The thing is, if you throw sharp elbows under the basket, you should be surprised when play gets rougher than you like. Larry wasn't always diplomatic and that sort of set the rules of engagement. I know that several times that I probably should have been nicer to other posters here but on the other hand, you don't want to get pushed around. Sometimes just agreeing to disagree helps things out a lot. Or maybe saying, well you might have a point there goes a long way too.

As for me, probably most everything I post here is wrong but every once in a while, maybe every six months, I get something right. If I post enough, sooner or later I will say something worthwhile. Even a broken clock is right twice a day. :happy
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by grap0013 »

matjen wrote:
Avo wrote:QSPIX has been essentially flat since the end of 2015. Does this worry anyone?
Nope. FWIW, which is very little, it has done better than Vanguard's Market Neutral fund VMNFX since 1/1/16.
Me either. Not at all. It's not much different than EM being flat the past 10 years. Although I do expect QSPIX to have less flat periods due to the multifactor sort. Watch out, QSPIX is starting to make a run again...

If you are gonna invest in ALTs gotta understand the strategy and be patient just like with any investment.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by Avo »

I do have a modest amount in QSPNX (can't get the I version); I decided to get in before the close, just in case this was something worthwhile long term (I'm still undecided).

The fund "seeks to earn a positive total return over a reasonable period of time regardless of market conditions or general market direction."

But I could not find a definition of "reasonable period of time" in the prospectus. Is it one year? Five? Ten?
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by grap0013 »

What's the easiest way to view the returns of LENDX and SRRIX? I'm having a hard time finding this.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by matjen »

grap0013 wrote:What's the easiest way to view the returns of LENDX and SRRIX? I'm having a hard time finding this.
Bloomberg has them. Unfortunately, Morningstar doesn't. I made a request for them to be added but they have not as of yet. Would be nice to have for Portfolio X-Ray purposes more than anything.

https://www.bloomberg.com/quote/LENDX:US

https://www.bloomberg.com/quote/SRRIX:US
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by grap0013 »

matjen wrote:
grap0013 wrote:What's the easiest way to view the returns of LENDX and SRRIX? I'm having a hard time finding this.
Bloomberg has them. Unfortunately, Morningstar doesn't. I made a request for them to be added but they have not as of yet. Would be nice to have for Portfolio X-Ray purposes more than anything.

https://www.bloomberg.com/quote/LENDX:US

https://www.bloomberg.com/quote/SRRIX:US
SRRIX has been around 3+ years. How do you get 3 year trailing returns? Take the portfoliovisualizer data which does not appear to include dividends, try to find previous dividends (also hard to find), and add them up by year?
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by grap0013 »

Uuuuummmmm....... this is one the most ridiculous correlation matrixes I have ever seen: https://www.portfoliovisualizer.com/ass ... ingDays=60

It's hard not to like these new ALTs...
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by matjen »

grap0013 wrote:Uuuuummmmm....... this is one the most ridiculous correlation matrixes I have ever seen: https://www.portfoliovisualizer.com/ass ... ingDays=60

It's hard not to like these new ALTs...

Super short time period though Grap. I would expect LENDX to be more correlated with equities in a bear market since unemployment would rise and more defaults on consumer loans, etc. Not saying it would crash though.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by in_reality »

grap0013 wrote: Fri Jun 23, 2017 10:59 am
matjen wrote:
grap0013 wrote:What's the easiest way to view the returns of LENDX and SRRIX? I'm having a hard time finding this.
Bloomberg has them. Unfortunately, Morningstar doesn't. I made a request for them to be added but they have not as of yet. Would be nice to have for Portfolio X-Ray purposes more than anything.

https://www.bloomberg.com/quote/LENDX:US

https://www.bloomberg.com/quote/SRRIX:US
SRRIX has been around 3+ years. How do you get 3 year trailing returns? Take the portfoliovisualizer data which does not appear to include dividends, try to find previous dividends (also hard to find), and add them up by year?
SRRIX Total return (per prospectus):
Year Ended October 31, 2016 7.83%
Year Ended October 31, 2015 8.33%
Year Ended October 31, 2014 8.40%

As of 9:29 AM EDT 9/8/2017
1 YR RETURN -7.80%
YTD RETURN -10.16%

How do these returns look? As expected given the weather? A good time to buy or outstanding liabilities could make it worse? Not sure I'd buy a reinsurer just after or in a storm, but people do buy stocks on drops.
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Re: Allocation Decisions: LENDX, SRRIX and QSPIX

Post by mcgarrett »

I had hesitated purchasing SSRIX despite the recommendation of my financial advisor at the beginning of 2017 because of my concern about the lack of liquidity. My advisor was making this recommendation based on the presumed low correlation with equities, and suggested ~5% of our portfolio allocated to this fund, in addition to the 5% currently invested in QSPIX. I had decided against LENDX. We are currently approximately 50-50 EQ/FI at age 60.

While SRRIX is still illiquid, I was wondering if other Bogleheads might be giving this fund some recent consideration given the (unfortunate) recent drop in price, although I suppose the liabilities of the insurers may still be a bit unclear after the recent hurricanes.

Thanks,

McGarrett
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