My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

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dbr
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by dbr » Mon Apr 17, 2017 9:14 am

Christian NY wrote:
dbr wrote:
Christian NY wrote:Ok! I have decided to do this myself, no advisors/no fees.
I know the advantages of 401k and IRA but the fact is that the money is sitting on a bank account. My question is about an individual taxable brokerage account.

My biggest question is, does the portfolio above look ok? What would you change, if anything?
Thank you and happy Easter!
I think it is unnecessary to invest in so many funds though the issue does not rise to being "wrong." I suppose you are saying you don't have a total stock fund and therefore want to construct a proxy. That is ok but in my opinion not required. REITs, EM are probably also unneeded, but not a mistake.

If you are happy with it then why not? I get a sense that you are trying too hard to find a perfect portfolio rather than one that is good enough, but that is also not really for me to say.
dbr, yes, you are absolutely right! I am trying too hard to find a perfect portfolio because while I have the money I won't be able to back it back again due to personal circumstances. However, once I decide on the funds, I will relax as suggested on this forum and leave it alone for at least one year when it's time to rebalance. I am also learning a lot while trying too hard to find that perfect portfolio so for me it's time well spent :greedy
I forgot one important comment about taxable investing. Because there can be tax consequences to selling later, it is important to make a good decision now rather than try to unwind it later. I would actually not invest in those choices you are making rather than a much simpler broad index portfolio.

Christian NY
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Christian NY » Mon Apr 17, 2017 9:23 am

dbr wrote:
Christian NY wrote:
dbr wrote:
Christian NY wrote:Ok! I have decided to do this myself, no advisors/no fees.
I know the advantages of 401k and IRA but the fact is that the money is sitting on a bank account. My question is about an individual taxable brokerage account.

My biggest question is, does the portfolio above look ok? What would you change, if anything?
Thank you and happy Easter!
I think it is unnecessary to invest in so many funds though the issue does not rise to being "wrong." I suppose you are saying you don't have a total stock fund and therefore want to construct a proxy. That is ok but in my opinion not required. REITs, EM are probably also unneeded, but not a mistake.

If you are happy with it then why not? I get a sense that you are trying too hard to find a perfect portfolio rather than one that is good enough, but that is also not really for me to say.
dbr, yes, you are absolutely right! I am trying too hard to find a perfect portfolio because while I have the money I won't be able to back it back again due to personal circumstances. However, once I decide on the funds, I will relax as suggested on this forum and leave it alone for at least one year when it's time to rebalance. I am also learning a lot while trying too hard to find that perfect portfolio so for me it's time well spent :greedy
I forgot one important comment about taxable investing. Because there can be tax consequences to selling later, it is important to make a good decision now rather than try to unwind it later. I would actually not invest in those choices you are making rather than a much simpler broad index portfolio.
Yes, that's exactly what I am trying to do, make the right decisions now and make very little changes later. I also want to get enough education to be able to make my own decisions and become less confused. For example, you say EM is unnecessary which I understand as 'eliminate from the portfolio' but another poster above(Patrick013) recommends increasing that from 5% to 10%... completely opposite recommendations-why? Or, someone is suggesting that I add VYM to my portfolio. This is because that person knows my situation at work and says I should skew it more towards income. But VYM duplicates some stocks in VOO, right? or has the potential to do so? I need to learn enough to be able to make this kind of analysis and determine if VYM is a good choice.

an_asker
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by an_asker » Mon Apr 17, 2017 9:29 am

aristotelian wrote:[...]Vanguard has better low expense fund selection, [...]
That is not really true. Schwab's basic index funds have lower expense ratios than corresponding Vanguard funds.

I would suggest that OP figure out an asset allocation, go with Schwab, put half the funds right now per asset allocation; then dollar cost average the rest in such that he/she is all in within a year.

dbr
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by dbr » Mon Apr 17, 2017 9:32 am

Christian NY wrote:
Yes, that's exactly what I am trying to do, make the right decisions now and make very little changes later. I also want to get enough education to be able to make my own decisions and become less confused. For example, you say EM is unnecessary which I understand as 'eliminate from the portfolio' but another poster above(Patrick013) recommends increasing that from 5% to 10%... completely opposite recommendations-why? Or, someone is suggesting that I add VYM to my portfolio. This is because that person knows my situation at work and says I should skew it more towards income. But VYM duplicates some stocks in VOO, right? or has the potential to do so? I need to learn enough to be able to make this kind of analysis and determine if VYM is a good choice.
You get different recommendations because people are taking different opinions for your benefit. Adding EM is a tilt to a more risky, higher prospective return portfolio. It is the judgment and preference of some people to do that and of other people not to. The point is that it should be your judgment and preference and not someone else's. To do that you are going to have to learn why there might or might not be an advantage to holding certain assets. I recommend that a good approach to this process is that a basic three fund portfolio, across all accounts, is a neutral starting point that does no harm. Departures from that plan are justified when the investor understands what they are doing well enough to not have to ask.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by an_asker » Mon Apr 17, 2017 9:34 am

retiredjg wrote:[...]Schwab's mutual fund lineup is weak. Their strength lies in ETFs.
Why do you say that?

Schwab S&P 500 Index SWPPX 0.03%
Schwab Total Stock Market Index SWTSX 0.03%
Schwab Small Cap Index Fund SWSSX 0.05%
Schwab International Index SWISX 0.06%

aristotelian
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by aristotelian » Mon Apr 17, 2017 9:40 am

an_asker wrote:
aristotelian wrote:[...]Vanguard has better low expense fund selection, [...]
That is not really true. Schwab's basic index funds have lower expense ratios than corresponding Vanguard funds.

I would suggest that OP figure out an asset allocation, go with Schwab, put half the funds right now per asset allocation; then dollar cost average the rest in such that he/she is all in within a year.
I did not mean that VG has lower expenses, just that they have better selection with low expenses. For basic indexes (broad market, etc) Schwab's options are absolutely as cheap as VG. The problem is they do not have as many options. They only have about 20 index ETFs while VG has over 50, and similar with mutual funds.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by onourway » Mon Apr 17, 2017 9:41 am

an_asker wrote:
aristotelian wrote:[...]Vanguard has better low expense fund selection, [...]
That is not really true. Schwab's basic index funds have lower expense ratios than corresponding Vanguard funds.

I would suggest that OP figure out an asset allocation, go with Schwab, put half the funds right now per asset allocation; then dollar cost average the rest in such that he/she is all in within a year.
I think you misunderstood what was being said. Schwab does have inexpensive basic index funds, but Vanguard undoubtedly has a better 'low expense fund selection.' Schwab does not, for merely one example, have much of any selection of bond funds; certainly nothing I'd be comfortable investing in. Whereas Vanguard has a wide selection of quality bond funds, taxable and non-taxable, as well as a wide variety of other balanced index funds, etc. It is for this reason I would be inclined to choose Vanguard unless my needs were simply a total market index fund; otherwise Schwab has very few funds that interest me.

Christian NY
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Christian NY » Mon Apr 17, 2017 9:50 am

So I guess right now most of where my confusion lies is in the bond portion and international. I am pretty much in consensus on the stock portion (I chose large-cap, mid-cap and small-cap separately rather than total stock index but this is ok with most people). And that's half of the portfolio, so for now I'll concentrate on bonds and international.
From what I have seen, the recommendation here for the bond portion of the portfolio is BND or BIV. However, I am using the Charles Schwab tool to look side-by-side at three funds: MWTRX, PDBZX and VBMFX(which is BND)
PDBZX produced a return of 3.97% over 5 years vs. 2.16% for BND
PDBZX produced a return of 5.92% over 10 years vs. 4.12% for BND
I understand the expense ratio is 0.51 vs. "almost nothing" for BND but given that 1/2 percent PDBZX still outperformed over long time periods. The return over 5 years for PDBZX is almost double that of BND... So why is the recommendation here not to add things like PDBZX to the portfolio? I am not arguing BTW, just asking a question :beer Thank you!
Last edited by Christian NY on Mon Apr 17, 2017 9:58 am, edited 3 times in total.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by WallyBird » Mon Apr 17, 2017 9:51 am

Christian NY wrote: I know the advantages of 401k and IRA but the fact is that the money is sitting on a bank account. My question is about an individual taxable brokerage account.
You have today and tomorrow to stick $5500 of that money into a Roth or traditional IRA for 2016. While you're at it, you can do the same with another $5500 for 2017, though there's somewhat less urgency there.

That's $11,000 of your windfall that could be growing tax free for the next two decades or more.

If you don't do this, you'll pay taxes every year on the cap gains, interest and dividends from whatever taxable investments you put that $11k in.

I can imagine a few reasons you might not want to take advantage of tax deferred IRA space-- if, for example, you know you'll need that $11k in the next few years. And maybe you described such a situation and I missed it.

But outside of that, I can't think of a reason to pass up the tax deferral opportunity.
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by rustymutt » Mon Apr 17, 2017 10:23 am

Find a balanced fund at Vanguard, or Fidelity that in that 75/25 range and place inside that fund, or ETF. I use VBIAX which is 60/40. Keeps your cost low and that does it. Cost is ER without any front end loads.
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by an_asker » Mon Apr 17, 2017 10:36 am

aristotelian wrote:
an_asker wrote:
aristotelian wrote:[...]Vanguard has better low expense fund selection, [...]
That is not really true. Schwab's basic index funds have lower expense ratios than corresponding Vanguard funds.

I would suggest that OP figure out an asset allocation, go with Schwab, put half the funds right now per asset allocation; then dollar cost average the rest in such that he/she is all in within a year.
I did not mean that VG has lower expenses, just that they have better selection with low expenses. For basic indexes (broad market, etc) Schwab's options are absolutely as cheap as VG. The problem is they do not have as many options. They only have about 20 index ETFs while VG has over 50, and similar with mutual funds.
Got it! :-)

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by GLState » Mon Apr 17, 2017 11:11 am

PDBZX, Prudential Total Return Bond Fund, is a class Z fund. It is likely only available in 401K. You would have to buy the A shares or other class (B,C,?) of the fund outside of a 401k. A shares have a 4.5% front end load. I owned PDBZX for a many years in my 401k. It was the best choice, but I would have chosen a low-cost bond index if available. If you compare your PDBZX and MWTRX with VBIIX (Vanguard Intermediate Term Bond Index, you find much more similar performance. I've preferred VBIIX over Total Bond, but it is just my preference. Note: Bond funds do not necessarily have to be "indexed" to be good funds...many Treasury Bond Funds or TIPS funds aren't index funds.

In general, if you see a money market or bond fund that is beating their index, be wary. They are taking on additional risk somewhere. For example, according to the prospectus, PDBZX can invest up to 30% of its assets in Junk Bonds and 30% in foreign bonds, use derivatives, etc.

Investors, bogleheads or not, have our own personal preferences and bias. Our advice many not always suit your personality, risk tolerance, or preference. You have to continue to read and study and make your own choices....you have to be convinced that the choices you make are "good enough" to hold and continue to invest in good times and bad. In general, index investors are content with buying low-cost, broad-based, market indexes. This path has been proven to beat the majority of active fund manages over both short and long time periods. It is "good enough"! Making investment choices based only on past performance, is a perilous path to follow. The advice given by other posters is all "good enough" ...they get you on the right track. None of us know if 0%, 20%, or 50% is the "correct" choice for international stocks.

Christian NY
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Christian NY » Mon Apr 17, 2017 12:54 pm

GLState wrote:PDBZX, Prudential Total Return Bond Fund, is a class Z fund. It is likely only available in 401K. You would have to buy the A shares or other class (B,C,?) of the fund outside of a 401k. A shares have a 4.5% front end load. I owned PDBZX for a many years in my 401k. It was the best choice, but I would have chosen a low-cost bond index if available. If you compare your PDBZX and MWTRX with VBIIX (Vanguard Intermediate Term Bond Index, you find much more similar performance. I've preferred VBIIX over Total Bond, but it is just my preference. Note: Bond funds do not necessarily have to be "indexed" to be good funds...many Treasury Bond Funds or TIPS funds aren't index funds.

In general, if you see a money market or bond fund that is beating their index, be wary. They are taking on additional risk somewhere. For example, according to the prospectus, PDBZX can invest up to 30% of its assets in Junk Bonds and 30% in foreign bonds, use derivatives, etc.

Investors, bogleheads or not, have our own personal preferences and bias. Our advice many not always suit your personality, risk tolerance, or preference. You have to continue to read and study and make your own choices....you have to be convinced that the choices you make are "good enough" to hold and continue to invest in good times and bad. In general, index investors are content with buying low-cost, broad-based, market indexes. This path has been proven to beat the majority of active fund manages over both short and long time periods. It is "good enough"! Making investment choices based only on past performance, is a perilous path to follow. The advice given by other posters is all "good enough" ...they get you on the right track. None of us know if 0%, 20%, or 50% is the "correct" choice for international stocks.
GLState, thank you, great post!
You mentioned VBIIX(equivalent of BIV)
In the portfolio I posted, I have 8% allocated to BND (which is similar to BIV) and then I have 7% allocated to the Prudential fund.
I put BND and not BIV because it encapsulates more of the market but I can change it to BIV.
My question is, assuming PDBZX was available in a regular taxable account no-load would you hold some of it for your bond portion knowing that it outperformed BIV? or would you still go all-BIV? If you notice I split between BND and PDBZX (8 percent and 7 percent), logic was that returns are too low from BND by itself. Thanks!
Last edited by Christian NY on Mon Apr 17, 2017 1:05 pm, edited 2 times in total.

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Tyler Aspect
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Tyler Aspect » Mon Apr 17, 2017 12:57 pm

Christian NY wrote:So I guess right now most of where my confusion lies is in the bond portion and international. I am pretty much in consensus on the stock portion (I chose large-cap, mid-cap and small-cap separately rather than total stock index but this is ok with most people). And that's half of the portfolio, so for now I'll concentrate on bonds and international.
From what I have seen, the recommendation here for the bond portion of the portfolio is BND or BIV. However, I am using the Charles Schwab tool to look side-by-side at three funds: MWTRX, PDBZX and VBMFX(which is BND)
PDBZX produced a return of 3.97% over 5 years vs. 2.16% for BND
PDBZX produced a return of 5.92% over 10 years vs. 4.12% for BND
I understand the expense ratio is 0.51 vs. "almost nothing" for BND but given that 1/2 percent PDBZX still outperformed over long time periods. The return over 5 years for PDBZX is almost double that of BND... So why is the recommendation here not to add things like PDBZX to the portfolio? I am not arguing BTW, just asking a question :beer Thank you!
The precise ratio of large-cap, mid-cap, small-cap that goes into total stock can shift each year. It would be simpler to own a total market fund instead of three separate funds.

If an actively managed fund obtained higher return compared to an index fund despite the actively managed fund's high cost, then we can conclude the active fund held riskier assets. We can't say if that fund's riskier disposition will do well or backfire in the future. That is why Bogleheads do not pick funds by looking at past returns.
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Christian NY
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Christian NY » Mon Apr 17, 2017 1:04 pm

Christian NY wrote:
GLState wrote:PDBZX, Prudential Total Return Bond Fund, is a class Z fund. It is likely only available in 401K. You would have to buy the A shares or other class (B,C,?) of the fund outside of a 401k. A shares have a 4.5% front end load. I owned PDBZX for a many years in my 401k. It was the best choice, but I would have chosen a low-cost bond index if available. If you compare your PDBZX and MWTRX with VBIIX (Vanguard Intermediate Term Bond Index, you find much more similar performance. I've preferred VBIIX over Total Bond, but it is just my preference. Note: Bond funds do not necessarily have to be "indexed" to be good funds...many Treasury Bond Funds or TIPS funds aren't index funds.

In general, if you see a money market or bond fund that is beating their index, be wary. They are taking on additional risk somewhere. For example, according to the prospectus, PDBZX can invest up to 30% of its assets in Junk Bonds and 30% in foreign bonds, use derivatives, etc.

Investors, bogleheads or not, have our own personal preferences and bias. Our advice many not always suit your personality, risk tolerance, or preference. You have to continue to read and study and make your own choices....you have to be convinced that the choices you make are "good enough" to hold and continue to invest in good times and bad. In general, index investors are content with buying low-cost, broad-based, market indexes. This path has been proven to beat the majority of active fund manages over both short and long time periods. It is "good enough"! Making investment choices based only on past performance, is a perilous path to follow. The advice given by other posters is all "good enough" ...they get you on the right track. None of us know if 0%, 20%, or 50% is the "correct" choice for international stocks.
GLState, thank you, great post!
You mentioned VBIIX(equivalent of BIV)
In the portfolio I posted, I have 8% allocated to BND (which is similar to BIV) and then I have 7% allocated to the Prudential fund.
I put BND and not BIV because it encapsulates more of the market but I can change it to BIV.
My question is, assuming PDBZX was available in a regular taxable account no-load would you hold some of it for your bond portion knowing that it outperformed BIV? or would you still go all-BIV? If you notice I split between BND and PDBZX (8 percent and 7 percent), logic was that returns are too low from BND by itself. Thanks!

Christian NY
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Christian NY » Mon Apr 17, 2017 1:18 pm

Tyler Aspect wrote:
Christian NY wrote:So I guess right now most of where my confusion lies is in the bond portion and international. I am pretty much in consensus on the stock portion (I chose large-cap, mid-cap and small-cap separately rather than total stock index but this is ok with most people). And that's half of the portfolio, so for now I'll concentrate on bonds and international.
From what I have seen, the recommendation here for the bond portion of the portfolio is BND or BIV. However, I am using the Charles Schwab tool to look side-by-side at three funds: MWTRX, PDBZX and VBMFX(which is BND)
PDBZX produced a return of 3.97% over 5 years vs. 2.16% for BND
PDBZX produced a return of 5.92% over 10 years vs. 4.12% for BND
I understand the expense ratio is 0.51 vs. "almost nothing" for BND but given that 1/2 percent PDBZX still outperformed over long time periods. The return over 5 years for PDBZX is almost double that of BND... So why is the recommendation here not to add things like PDBZX to the portfolio? I am not arguing BTW, just asking a question :beer Thank you!
The precise ratio of large-cap, mid-cap, small-cap that goes into total stock can shift each year. It would be simpler to own a total market fund instead of three separate funds.

If an actively managed fund obtained higher return compared to an index fund despite the actively managed fund's high cost, then we can conclude the active fund held riskier assets. We can't say if that fund's riskier disposition will do well or backfire in the future. That is why Bogleheads do not pick funds by looking at past returns.
Hi Tyler Aspect,
Where can I see the actual percentage of large-cap, mid-cap and small-cap within VTI?
I looked through here but didn't see that information...
https://personal.vanguard.com/us/funds/ ... IntExt=INT
I do see the sector composition but that is actually something I would want the fund manager to decide. I would not do a good job picking sectors. However, I would like to have an ability to increase or decrease the allocation to large-cap, mid-cap and small-cap.
For example, let's say I survive in this job for another two years and manage to save another $100k as a result...I would then consider changing small-cap from 10% to 12% but only until I reach 50 and then decrease small-cap gradually (reallocating into mid-cap and large-cap). And vice-versa, if I lose this job tomorrow, I would then decrease the small-cap portion to reduce overall risk to the portfolio. Do you disagree with this approach?

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by afan » Mon Apr 17, 2017 1:22 pm

PDBZX is a riskier fund than BAND. It has a lower credit quality and somewhat longer duration. It has a higher standard deviation over time, reflecting the higher risk.

If you buy a higher risk actively managed fund you create the opportunity to beat the index. But the LIKELY outcome will be underperforming compared to the market. There are ample studies demonstrating that you cannot predict which funds will outperform in the future. A record of beating the market in the past does not imply a better than random chance of doing so going forward.

That is the reason for ignoring the active side of management. Essentially all they returns are determined by
1. Market returns
2. Expenses
3. Random deviations from the pattern of market returns- I.e. "luck" "chance" or "noise"

It does not make sense to pay someone to get lucky on your behalf.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by retiredjg » Mon Apr 17, 2017 1:47 pm

an_asker wrote:
retiredjg wrote:[...]Schwab's mutual fund lineup is weak. Their strength lies in ETFs.
Why do you say that?

Schwab S&P 500 Index SWPPX 0.03%
Schwab Total Stock Market Index SWTSX 0.03%
Schwab Small Cap Index Fund SWSSX 0.05%
Schwab International Index SWISX 0.06%
You can put together most of a "3 fund portfolio" now that they have added an actual Total Bond Index this last year. But that's about all you can do there if you want to use mutual funds. If that is all a person wants, it's fine. But many people want to add REIT or a tilts to value or a complete international fund. Those people will not be well served by Schwab's mutual fund lineup. They will have to use ETFs or have accounts at another brokerage.

I say "most" of a 3 fund portfolio because the International Index does not contain small caps, emerging markets or Canada. It will work in a pinch, but I'd rather have a "real" total market fund now that they are so easily available.

The Schwab index mutual fund lineup is certainly not useless by any means, but I think they have decided their place in the sun will be in their ETF lineup, not mutual funds.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by retiredjg » Mon Apr 17, 2017 1:52 pm

onourway wrote:Schwab does not, for merely one example, have much of any selection of bond funds; certainly nothing I'd be comfortable investing in.
They now have a Total Bond Index mutual fund, added recently. So they do have at least one decent choice. But not much else for bonds that I'm aware of. Maybe over in their ETF selection.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by onourway » Mon Apr 17, 2017 1:59 pm

retiredjg wrote: They now have a Total Bond Index mutual fund, added recently. So they do have at least one decent choice. But not much else for bonds that I'm aware of. Maybe over in their ETF selection.
I did see that, and despite me having a checking account with Schwab (a great one!) their Total Bond Index fund is too new for me to be comfortable with it. In theory there should be nothing wrong with it - but bond indexing appears to be a more difficult cat to skin than stock market indexing - I'd still choose Vanguard even so.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by GLState » Mon Apr 17, 2017 3:02 pm

I wouldn't buy PDBZX (Prudential Total Return Bond) when there are so many other better choices. Past bond returns are not what you'll get in the future. Bond funds have benefited from the decline of interest rates since the 1980s. Interest rates are currently rising. An AAA rated corporate bond today pays 2.68%. If a fund is composed of AAA rated corporate bonds, 2.68% is a pretty good estimate of what you may get in the future. Of that 2.68%,the Prudential fund would take 0.79% in expenses every year leaving you with 1.89%...your return is 29% lower. A fund with the expenses of BND would return 2.62% or only 2.2% lower. This is a very simplified example, but whatever the return, I would rather keep the money than have it go to the fund company. Expenses are a sure thing that is within the investor's can control.

IMO, your portfolio is too complicated for where you are at in your investing knowledge. Unless you have a good reason (other that past performance) to buy POGRX PRIMECAP Odyssey Growth Fund, FMI International Fund, Baron Emerging Markets Fund .... ditch them. You have 3 bond funds which is 2 too many, IMO. As someone else posted....complexity does not make a better portfolio. You have the basics of a good portfolio, but the tweaks are adding unnecessary expenses and complexity that very likely will not pay off.

VTI alone or the combination of VOO, VOE, VBR (if you think you want a size and value tilt) are good choices for US. For international, why not VXUS or a combination of VEA & VWO? For bonds, either BND or BIV would be fine. My choice would be VTI, VXUS, BND(or BIV) for low expenses and low complexity...the good ole 3 fund portfolio is hard to beat.

It is hard to stay with a complex portfolio. If one stock or bond fund does a bit better, you'll wish you bought more and you'll kick yourself for buying the one that does the worst. Investors are their own worst enemy.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by dratkinson » Mon Apr 17, 2017 3:17 pm

+1. Believe you should take advantage of the annual tIRA contribution limit. Why? (1) More tax-advantaged space is better than less. You have until next April to decide whether you contributed to a deductible/non-deductible tIRA. (2) An IRA is a tax-efficient way to own REIT.



I notice you are considering taxable bonds. They may be the wrong option for you. Why? Your bond selection(s) depends up your tax brackets (fed, state, city). I have not seen where you have told us this. But...
Christian NY wrote:... let's say I survive in this job for another two years and manage to save another $100k as a result...
This implies you are in high tax brackets. Which means it would be more tax-efficient (more after-tax income) to focus your attention on municipal bond funds. Why? In your case (NY resident), they may be triple tax exempt.

Bond funds, yes. ETFs, maybe no. Why? A "daily accrual" muni fund (not an ETF) lets you withdraw money sooner without losing the tax-preferential treatment of tax-exempt dividends. Therefore some muni funds provide this added flexibility which would be a benefit should you lose* your job and need to withdraw money to live. *And in that case, they will also make doing tax reporting easier.

It would be most helpful if you would provide a complete description of your financial situation. With a complete description, we don't have to guess about what might be appropriate options for your core investments.


dbr wrote:... I recommend that a good approach to this process is that a basic three fund portfolio, across all accounts, is a neutral starting point that does no harm. Departures from that plan are justified when the investor understands what they are doing well enough to not have to ask.
+1. You may deviate from (relatively safe) core investments, after you are comfortable managing your investments, and learn enough that you don't need to ask for advice. (It required ~5 years for me to reach that point.)
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Christian NY » Mon Apr 17, 2017 3:21 pm

GLState wrote:I wouldn't buy PDBZX (Prudential Total Return Bond) when there are so many other better choices. Past bond returns are not what you'll get in the future. Bond funds have benefited from the decline of interest rates since the 1980s. Interest rates are currently rising. An AAA rated corporate bond today pays 2.68%. If a fund is composed of AAA rated corporate bonds, 2.68% is a pretty good estimate of what you may get in the future. Of that 2.68%,the Prudential fund would take 0.79% in expenses every year leaving you with 1.89%...your return is 29% lower. A fund with the expenses of BND would return 2.62% or only 2.2% lower. This is a very simplified example, but whatever the return, I would rather keep the money than have it go to the fund company. Expenses are a sure thing that is within the investor's can control.

IMO, your portfolio is too complicated for where you are at in your investing knowledge. Unless you have a good reason (other that past performance) to buy POGRX PRIMECAP Odyssey Growth Fund, FMI International Fund, Baron Emerging Markets Fund .... ditch them. You have 3 bond funds which is 2 too many, IMO. As someone else posted....complexity does not make a better portfolio. You have the basics of a good portfolio, but the tweaks are adding unnecessary expenses and complexity that very likely will not pay off.

VTI alone or the combination of VOO, VOE, VBR (if you think you want a size and value tilt) are good choices for US. For international, why not VXUS or a combination of VEA & VWO? For bonds, either BND or BIV would be fine. My choice would be VTI, VXUS, BND(or BIV) for low expenses and low complexity...the good ole 3 fund portfolio is hard to beat.

It is hard to stay with a complex portfolio. If one stock or bond fund does a bit better, you'll wish you bought more and you'll kick yourself for buying the one that does the worst. Investors are their own worst enemy.
GLState, thank you, this is VERY helpful, I am slowly turning into a true Boglehead with your help. :P
Yes, I am looking at performance because as you pointed out I don't have enough experience to analyze other metrics.
On the Prudential fund, if I understand you correctly you are saying that as interest rates rise, returns from PDBZX could go down and become similar to those of BND/BIV. So because of the expense ratio of 0.51% on PDBZX I may actually get worse net returns than BND. It's hard to fully grasp while looking at my example above (~4% annual return on PDBZX vs. ~2% annual return on BND) but I understand in theory.
To put it another way, BND cannot go lower than the corresponding index but PDBZX can.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by canbonbon » Mon Apr 17, 2017 3:33 pm

Its unclear to me why bother with so much confusion? What's stopping you from having a 4 ETF portfolio? If you go Index funds route vs ETF, please be mindful of the fact that you'd have to do capital gains taxes every year (besides the dividends). One additional thing to worry about which you can avoid going the ETF route. I sold all my mutual funds (active or passive) and converted to a 4 ETF portfolio. Life has been good since. Its diversified, Less complicated and easy to understand. We had over 20 mutual funds in every category. One person whom I keenly follow on this board (livesoft) once made a comment that if you put all the categories in your portfolio, then congratulations, you just created a VTI of your own with a very high expense ratio. You will also have the additional workload of balancing them when they go out of sync.

There is no need to squeeze more juice out of this lemon, just enjoy the lemonade. I am still with Merrill because they provide great service and I trade ETFs for free. I see no reason to go to Vanguard even though I have all their ETFs.

Taxable
VTI
VXUS
Tax sheltered if possible,
BND
VNQ

VNQ is controversial here on this board because VTI already contains about 3.75% of real estate. http://portfolios.morningstar.com/fund/ ... ture=en-US

Also, if you are not satisfied with Emerging % of VXUS, you could add VWO. But not necessary.

Now, based on your age you can assign %ages to these and you are all set.

John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!"

Hope this helps because I know its not easy.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by GLState » Mon Apr 17, 2017 4:25 pm

Christian NY wrote: On the Prudential fund, if I understand you correctly you are saying that as interest rates rise, returns from PDBZX could go down and become similar to those of BND/BIV. So because of the expense ratio of 0.51% on PDBZX I may actually get worse net returns than BND.
It is very possible that all bond funds will not see the returns that they have over the last 10 to 20 years. If the current yield on a 10 year corporate bond is 2.68%, where would the extra 2 or 3% in return come from? An expense ratio of .54% on a bond fund returning 5% is easier to take than .54% on a fund returning only 3%. PDBZX can invest in a lot of areas that I don't want to invest in. PDBZX, according to Morningstar, is currently short 35% bonds and long 130% bonds....they are shorting bonds they think will do poorly. On the other hand, BND is 97.98% long bonds with 2% cash. Monkeying around generates expenses for the investor than sometimes results in better returns, but often not enough to cover the increased costs. IMO, they bet the investor's money to increase the returns to woo more customers. I want safety in a bond fund. BND owns 62% government bonds. It has bonds that are short-term, intermediate term, and long term. There are always going to be other bond funds that beat it in the short-term sprint, but due to its low cost , it is hard to beat on risk-adjusted returns over an investing life time.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by rustymutt » Mon Apr 17, 2017 6:56 pm

Ignore all the investment porn slashing around out here. LOL Learn for yourself, and you'll understand how investing works. A low cost fund that is balanced with bonds, and equities.
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Christian NY » Mon Apr 17, 2017 9:18 pm

GLState wrote:
Christian NY wrote: On the Prudential fund, if I understand you correctly you are saying that as interest rates rise, returns from PDBZX could go down and become similar to those of BND/BIV. So because of the expense ratio of 0.51% on PDBZX I may actually get worse net returns than BND.
It is very possible that all bond funds will not see the returns that they have over the last 10 to 20 years. If the current yield on a 10 year corporate bond is 2.68%, where would the extra 2 or 3% in return come from? An expense ratio of .54% on a bond fund returning 5% is easier to take than .54% on a fund returning only 3%. PDBZX can invest in a lot of areas that I don't want to invest in. PDBZX, according to Morningstar, is currently short 35% bonds and long 130% bonds....they are shorting bonds they think will do poorly. On the other hand, BND is 97.98% long bonds with 2% cash. Monkeying around generates expenses for the investor than sometimes results in better returns, but often not enough to cover the increased costs. IMO, they bet the investor's money to increase the returns to woo more customers. I want safety in a bond fund. BND owns 62% government bonds. It has bonds that are short-term, intermediate term, and long term. There are always going to be other bond funds that beat it in the short-term sprint, but due to its low cost , it is hard to beat on risk-adjusted returns over an investing life time.
Ok, I definitely see your point and will forget about PDBZX then.
However, BIV invests in baa+ quality bonds. Can I add a "junk bond" fund to cover the lower quality bonds and also attempt to increase overall long-term returns of the bond portion of the portfolio? How about VWEHX? It is a old Vanguard fund with strong returns

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Tyler Aspect » Mon Apr 17, 2017 9:55 pm

Christian NY wrote: Hi Tyler Aspect,
Where can I see the actual percentage of large-cap, mid-cap and small-cap within VTI?
I looked through here but didn't see that information...
https://personal.vanguard.com/us/funds/ ... IntExt=INT
I do see the sector composition but that is actually something I would want the fund manager to decide. I would not do a good job picking sectors. However, I would like to have an ability to increase or decrease the allocation to large-cap, mid-cap and small-cap.
For example, let's say I survive in this job for another two years and manage to save another $100k as a result...I would then consider changing small-cap from 10% to 12% but only until I reach 50 and then decrease small-cap gradually (reallocating into mid-cap and large-cap). And vice-versa, if I lose this job tomorrow, I would then decrease the small-cap portion to reduce overall risk to the portfolio. Do you disagree with this approach?
You would need to look up the name of the index that a particular ETF tracks, then google that index name. Visit the index supplier's web site, and look up the market capitalization information of that index. Repeat for each ETF.

I did this exercise for you to look up how to emulate a total stock market index. As of March 2017, you need 85% of the "W" ETF, and 15% of the "VB" ETF. Surprisingly, the "W" ETF (large cap) and "VO" ETF (mid-cap) do have overlaps, so that you should not own "W" and "VO" at the same time.

I suppose you can approximate the total stock market with "VOO" and "VXF" as well. In this case the ratios are 80% of "VOO", and 20% of "VXF".

The return difference between small companies and large companies depends on characters of the current economy. The result of any under-weighting or over-weighting of small cap is unpredictable, but moving off the neutral weighting reduces diversification. So this is a setting that is usually best left alone.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by GLState » Tue Apr 18, 2017 8:04 am

[quote="Christian NY" Can I add a "junk bond" fund to cover the lower quality bonds and also attempt to increase overall long-term returns of the bond portion of the portfolio? [/quote]
You don't need to "cover" low quality bonds or gamble on riskier bonds in an "attempt to increase the overall long-term returns of the bond portion of the portfolio". Nor do you need to cover every nook and cranny of the investing universe. You have had many good portfolio suggestions, but you seem to have pushed them aside to try to add funds based only on their past performance. Owning only the Total Stock Market Fund and the Total Bond Market Fund is very bogleheadish.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by dbr » Tue Apr 18, 2017 8:30 am

Tyler Aspect wrote:
Christian NY wrote: Hi Tyler Aspect,
Where can I see the actual percentage of large-cap, mid-cap and small-cap within VTI?
I looked through here but didn't see that information...
https://personal.vanguard.com/us/funds/ ... IntExt=INT
I do see the sector composition but that is actually something I would want the fund manager to decide. I would not do a good job picking sectors. However, I would like to have an ability to increase or decrease the allocation to large-cap, mid-cap and small-cap.
For example, let's say I survive in this job for another two years and manage to save another $100k as a result...I would then consider changing small-cap from 10% to 12% but only until I reach 50 and then decrease small-cap gradually (reallocating into mid-cap and large-cap). And vice-versa, if I lose this job tomorrow, I would then decrease the small-cap portion to reduce overall risk to the portfolio. Do you disagree with this approach?
You would need to look up the name of the index that a particular ETF tracks, then google that index name. Visit the index supplier's web site, and look up the market capitalization information of that index. Repeat for each ETF.

I did this exercise for you to look up how to emulate a total stock market index. As of March 2017, you need 85% of the "W" ETF, and 15% of the "VB" ETF. Surprisingly, the "W" ETF (large cap) and "VO" ETF (mid-cap) do have overlaps, so that you should not own "W" and "VO" at the same time.

I suppose you can approximate the total stock market with "VOO" and "VXF" as well. In this case the ratios are 80% of "VOO", and 20% of "VXF".

The return difference between small companies and large companies depends on characters of the current economy. The result of any under-weighting or over-weighting of small cap is unpredictable, but moving off the neutral weighting reduces diversification. So this is a setting that is usually best left alone.
Christian, your question is wrong in the first place. I think if you really want to contemplate tilting to small and value factors you should start by learning more about what a factor is. You could start by reading Larry Swedroe's book on the subject. Factor loading which predicts (in theory that can be discussed) returns and affects risk is not the same thing as what percent is in some asset class. Also, you can look at the portfolio x-ray tool at Morningstar.com if you want to know how much is in what. A better tool to output all these statistics would be portfolioanalyzer.com. But I still say this stuff is a bit premature.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by midareff » Tue Apr 18, 2017 8:49 am

Christian NY wrote:
dbr wrote:
Christian NY wrote:Ok! I have decided to do this myself, no advisors/no fees.
I know the advantages of 401k and IRA but the fact is that the money is sitting on a bank account. My question is about an individual taxable brokerage account.

My biggest question is, does the portfolio above look ok? What would you change, if anything?
Thank you and happy Easter!
I think it is unnecessary to invest in so many funds though the issue does not rise to being "wrong." I suppose you are saying you don't have a total stock fund and therefore want to construct a proxy. That is ok but in my opinion not required. REITs, EM are probably also unneeded, but not a mistake.

If you are happy with it then why not? I get a sense that you are trying too hard to find a perfect portfolio rather than one that is good enough, but that is also not really for me to say.
dbr, yes, you are absolutely right! I am trying hard to find a perfect portfolio because while I have the money I won't be able to back it back again due to personal circumstances. However, once I decide on the funds, I will relax as suggested on this forum and leave it alone for at least one year when it's time to rebalance. I am also learning a lot while trying to find that perfect portfolio so for me it's time well spent :greedy

Christian... the perfect portfolio only exists as a momentary (in time) happening in the rear view mirror. In any time period certain asset classes will always outperform or under perform each other and there is no way to know which until after the fact, so diversification is inherently helpful. That the various sources have managed to confuse you is to their benefit so they can sell you their services for a fee. That fee is a return on investment you don't get, but they do, regardless of the actual performance of your investments. Keep things simple, set an asset allocation that is risk appropriate for your age such as age = % in bonds or age -10 = % in bonds. Establish a three fund portfolio of Total US/Total International and Total Bond Market and forgetaboutit.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Christian NY » Tue Apr 18, 2017 9:46 am

dbr wrote:
Tyler Aspect wrote:
Christian NY wrote: Hi Tyler Aspect,
Where can I see the actual percentage of large-cap, mid-cap and small-cap within VTI?
I looked through here but didn't see that information...
https://personal.vanguard.com/us/funds/ ... IntExt=INT
I do see the sector composition but that is actually something I would want the fund manager to decide. I would not do a good job picking sectors. However, I would like to have an ability to increase or decrease the allocation to large-cap, mid-cap and small-cap.
For example, let's say I survive in this job for another two years and manage to save another $100k as a result...I would then consider changing small-cap from 10% to 12% but only until I reach 50 and then decrease small-cap gradually (reallocating into mid-cap and large-cap). And vice-versa, if I lose this job tomorrow, I would then decrease the small-cap portion to reduce overall risk to the portfolio. Do you disagree with this approach?
You would need to look up the name of the index that a particular ETF tracks, then google that index name. Visit the index supplier's web site, and look up the market capitalization information of that index. Repeat for each ETF.

I did this exercise for you to look up how to emulate a total stock market index. As of March 2017, you need 85% of the "W" ETF, and 15% of the "VB" ETF. Surprisingly, the "W" ETF (large cap) and "VO" ETF (mid-cap) do have overlaps, so that you should not own "W" and "VO" at the same time.

I suppose you can approximate the total stock market with "VOO" and "VXF" as well. In this case the ratios are 80% of "VOO", and 20% of "VXF".

The return difference between small companies and large companies depends on characters of the current economy. The result of any under-weighting or over-weighting of small cap is unpredictable, but moving off the neutral weighting reduces diversification. So this is a setting that is usually best left alone.
Christian, your question is wrong in the first place. I think if you really want to contemplate tilting to small and value factors you should start by learning more about what a factor is. You could start by reading Larry Swedroe's book on the subject. Factor loading which predicts (in theory that can be discussed) returns and affects risk is not the same thing as what percent is in some asset class. Also, you can look at the portfolio x-ray tool at Morningstar.com if you want to know how much is in what. A better tool to output all these statistics would be portfolioanalyzer.com. But I still say this stuff is a bit premature.
Yes, I am over-analyzing it a bit but it's only because I just funded the account and I need to make the purchases. I will leave it alone for at least one year when I do make the buys and just participate in the forum for my own education.
I do want to get into the stuff you mentioned and understand it.
On this topic, let's suppose I determined that my portfolio will have 60% U.S. stock.
Is there any significant difference between the following allocations for the equities portion:
1) VOO 40%, VOE 10%, VBR 10%
2) VOO 40%, VOE 8%, VBR 12%
3) VOO 48%, VXF 12%
4) VV 50%, VB 10%
The biggest I can see is that #4 is missing some mid-cap. But then there are *some* mid-cap stocks in VV.
Which of the four examples would you choose and why?
P.S. Before anybody gets mad at me, I understand VTI is the easiest but for the purposes of this post I am trying to ask which is the next best thing if the investor wants to have control of allocation into each market capitalization category.
Even if I do just end up buying VTI I have a strong interest and want to understand it.
Thank you!

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by dbr » Tue Apr 18, 2017 10:02 am

Christian NY wrote: Is there any significant difference between the following allocations for the equities portion:
1) VOO 40%, VOE 10%, VBR 10%
2) VOO 40%, VOE 8%, VBR 12%
3) VOO 48%, VXF 12%
4) VV 50%, VB 10%
The recommended exercise is for you to figure out the answer for yourself. After you think you have an answer the forum would be an excellent place to test your result.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by jrbdmb » Tue Apr 18, 2017 10:08 am

Katietsu wrote:You said you were still working. Are you maxing out all available retirement plan options?

If not, your first priority quite likely should be to move as much of this money into tax advantaged plans as possible. The easiest move to understand would be make an IRA contribution. The second step is to max out all workplace plans and use the inheritance for living expenses if needed. You would need to post more information to know whether this plan is relevant.

As far as your meeting with the advisors, they are being paid to "manage" your investments. You should not expect them to educate you on how to DIY. To me, this would be like asking an auto mechanic to spend an hour teaching me to change my brakes while I paid the mechanic nothing for his time.
Bingo. If there is anything you *should* rush it is to move $5500 of your windfall into an IRA for the 2016 tax year before the deadline (today) if you have not already done so. You don't have to invest it immediately, but at least get it into the IRA. (This is assuming you haven't maxed out your 2016 contribution already.)

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by pkcrafter » Tue Apr 18, 2017 10:58 am

Christian wrote:
Where can I see the actual percentage of large-cap, mid-cap and small-cap within VTI?
You can use Morningstar. Put a ticker into the quote box at the top of the page and click on portfolio. Scroll down to view information. You can also put your bond fund in there to see rating, holdings, etc.

http://portfolios.morningstar.com/fund/summary?t=VTI


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by Cuzz35 » Tue Apr 18, 2017 11:26 am

Christian NY wrote:
dbr wrote:
Tyler Aspect wrote:
Christian NY wrote: Hi Tyler Aspect,
Where can I see the actual percentage of large-cap, mid-cap and small-cap within VTI?
I looked through here but didn't see that information...
https://personal.vanguard.com/us/funds/ ... IntExt=INT
I do see the sector composition but that is actually something I would want the fund manager to decide. I would not do a good job picking sectors. However, I would like to have an ability to increase or decrease the allocation to large-cap, mid-cap and small-cap.
For example, let's say I survive in this job for another two years and manage to save another $100k as a result...I would then consider changing small-cap from 10% to 12% but only until I reach 50 and then decrease small-cap gradually (reallocating into mid-cap and large-cap). And vice-versa, if I lose this job tomorrow, I would then decrease the small-cap portion to reduce overall risk to the portfolio. Do you disagree with this approach?
You would need to look up the name of the index that a particular ETF tracks, then google that index name. Visit the index supplier's web site, and look up the market capitalization information of that index. Repeat for each ETF.

I did this exercise for you to look up how to emulate a total stock market index. As of March 2017, you need 85% of the "W" ETF, and 15% of the "VB" ETF. Surprisingly, the "W" ETF (large cap) and "VO" ETF (mid-cap) do have overlaps, so that you should not own "W" and "VO" at the same time.

I suppose you can approximate the total stock market with "VOO" and "VXF" as well. In this case the ratios are 80% of "VOO", and 20% of "VXF".

The return difference between small companies and large companies depends on characters of the current economy. The result of any under-weighting or over-weighting of small cap is unpredictable, but moving off the neutral weighting reduces diversification. So this is a setting that is usually best left alone.
Christian, your question is wrong in the first place. I think if you really want to contemplate tilting to small and value factors you should start by learning more about what a factor is. You could start by reading Larry Swedroe's book on the subject. Factor loading which predicts (in theory that can be discussed) returns and affects risk is not the same thing as what percent is in some asset class. Also, you can look at the portfolio x-ray tool at Morningstar.com if you want to know how much is in what. A better tool to output all these statistics would be portfolioanalyzer.com. But I still say this stuff is a bit premature.
Yes, I am over-analyzing it a bit but it's only because I just funded the account and I need to make the purchases. I will leave it alone for at least one year when I do make the buys and just participate in the forum for my own education.
I do want to get into the stuff you mentioned and understand it.
On this topic, let's suppose I determined that my portfolio will have 60% U.S. stock.
Is there any significant difference between the following allocations for the equities portion:
1) VOO 40%, VOE 10%, VBR 10%
2) VOO 40%, VOE 8%, VBR 12%
3) VOO 48%, VXF 12%
4) VV 50%, VB 10%
The biggest I can see is that #4 is missing some mid-cap. But then there are *some* mid-cap stocks in VV.
Which of the four examples would you choose and why?
P.S. Before anybody gets mad at me, I understand VTI is the easiest but for the purposes of this post I am trying to ask which is the next best thing if the investor wants to have control of allocation into each market capitalization category.
Even if I do just end up buying VTI I have a strong interest and want to understand it.
Thank you!
I think a better approach would be to start super simple and get into a target retirement or similar all in one fund. Then you can read through many of the books on the recommended reading list and learn more about investing and all the things you don't fully understand now.

If you choose one of the 4 equity portfolios above, you are going to be looking at the funds you didn't invest in and comparing them to the ones you did. Next thing you know, when your fund isn't doing as well, you're going to tweak the portfolio and start the process all over.

Been there, done it, I keep it simple now.

Goodluck!

Difference between #1 and #2 is immaterial and you're not going to notice a big difference between the two over a long stretch.

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dratkinson
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Re: My Story so far. Totally confused! Vanguard, Charles Schwab, Merrill Edge. Managing own portfolio... or NOT?

Post by dratkinson » Thu Apr 20, 2017 1:18 am

Junk bonds.

Simplicity. Junk bond funds have an equity-like risk exposure---they crash when stocks crash. If you want more return/risk, most recommend using safe bonds but skew your AA toward equities. Meaning: get your return/risk from pure equities, and your safety from pure bonds.

Expense. Junk bond funds have an AMT tax exposure. The AMT exposure ranges from ~20% to unlimited. Meaning: while the junk bond SEC yield giveth, the AMT tax exposure taketh.

So depending upon your tax brackets (AMT susceptibility), and your desire for simplicity, and lower expenses, you may want to avoid junk bonds.

On the other hand, the minority opinion is that a small exposure to junk bonds can be beneficial.
See "junk bonds": https://www.bogleheads.org/wiki/Junk_bonds
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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