Vanguard's safest all-equity fund

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brak
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Vanguard's safest all-equity fund

Post by brak » Sat May 13, 2017 1:19 pm

Does anyone know what is Vanguard's safest (losing the least amount of money in a stock downturn) all equity fund OR how would I go about figuring that out? Thank you.

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Re: Vanguard's safest all-equity fund

Post by mickeyd » Sat May 13, 2017 1:26 pm

I don't know about "safest." We all have our own definition, I think. There is always risk involved with equities. It's the nature of the beast. The Total Stock Market Index (TSM) fund includes about 4000 stocks. That's my choice for reasons too many to list here. It regularly beats 75%+ of managed funds, many of which claim to be safe.
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Re: Vanguard's safest all-equity fund

Post by Tyler Aspect » Sat May 13, 2017 1:41 pm

All equity funds are risky, but they produce higher return. Bond funds brings stability, but they have lower return.

The most important preparation step in investing is to thinking about how you will determine your asset allocation in terms of the percentages of stocks versus bonds. When we are young we can hold more stocks for a higher return. As we grow old then we should hold more bonds to have more stability.

I have presented below a typical asset allocation glide path chart, offering a range of possible allocations between aggressive, normal, and conservative.

Image
  • 80% stock / 20% bond, average annual return 2007 to 2016: 7.93%, 2008 return: -25.2%
  • 70% stock / 30% bond, average annual return 2007 to 2016: 7.56%, 2008 return: -19.6%
  • 60% stock / 40% bond, average annual return 2007 to 2016: 7.02%, 2008 return: -13.9%
  • 50% stock / 50% bond, average annual return 2007 to 2016: 6.84%, 2008 return: -8.3%
  • 40% stock / 60% bond, average annual return 2007 to 2016: 6.48%, 2008 return: -2.6%
Source: http://pages.stern.nyu.edu/~adamodar/Ne ... retSP.html

Other instances of recession could be more severe or milder compared to year 2008.

Owning some international stock is an additional form of diversification. Jack Bogle recommended a US stock to international stock ratio of 4 to 1.

Some sample Vanguard funds' allocations:
  • Vanguard Total Stock Market: 100% stock
  • Vanguard LifeStrategy Growth: 80% stock / 20% bond
  • Vanguard Balanced Index: 60% stock / 40% bond
  • Vanguard LifeStrategy Conservative Growth: 40% stock / 60% bond
  • Vanguard Total Bond Market Index: 100% bond
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: Vanguard's safest all-equity fund

Post by freebeer » Sat May 13, 2017 1:47 pm

First two replies are good info but do not at all answer OP's specific question: which all-equity fund has historically lost least in downturns?

It is an interesting question although I'm not sure it has a universal answer because I assume in some historical downturns US-only funds have lost more than international funds, etc. - vs. there being a universal rule. But maybe a large-cap value fund would lose the least in downturns, generally speaking?

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Re: Vanguard's safest all-equity fund

Post by David Jay » Sat May 13, 2017 2:02 pm

brak wrote:Does anyone know what is Vanguard's safest (losing the least amount of money in a stock downturn) all equity fund OR how would I go about figuring that out? Thank you.
Is the safest fund the fund that has had the smallest loss in the past? Or is the safest fund the fund that is most diversified such that it can best weather future unknowns?

I think maximum diversification (especially across global economies) is the "safest" all-equity fund, so I would choose "Vanguard Total World" with thousands of stocks across major economies.
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Re: Vanguard's safest all-equity fund

Post by NotWhoYouThink » Sat May 13, 2017 2:10 pm

The safest fund is the one that will lose the least money in the next downturn, and the one after that.

The answer is easy. Nobody knows. Oh, many people will guess, and some of the guesses will be correct, but there is no way to predict now which fund or whose guess is right.

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Re: Vanguard's safest all-equity fund

Post by brak » Sat May 13, 2017 2:17 pm

Forgive me if I was not clear in asking my question. What I am wanting to find out is what all-equity domestic mutual fund has historically suffered the least decline through stock market downturns. I know that diversification into such things as bonds funds and international funds provides some degree of safety through diversification, but historically I would think that different equity mutual funds have shown differing abilities to withstand market downturns, and this is what I am looking for. I am looking for a databased rather than a theoretically based answer. Thanks much.

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Re: Vanguard's safest all-equity fund

Post by grabiner » Sat May 13, 2017 2:30 pm

I would guess that the safest single all-equity fund is Total World Stock.

When stock markets fall, some segments will fall more than others. If you overweight the segment which falls more, you lose more; if you underweight the segment, you lose less. Since which segments fall more than the market is independent of when the market falls, overweighting any segment adds an additional risk. You would increase your risk by overweighting growth or value, or large or small, or real estate or technology, or US or foreign stock.

However, Total World Stock is probably not quite optimal, because it holds US and foreign stock, and the foreign stock has a slight additional risk from currency. Since Total Stock Market is slightly less risky than Total International, a better allocation might be 70% Total Stock Market and 30% Total International. This is a common Bogleheads' recommendation for simple portfolios.

(Note that I don't follow this recommendation myself; I deliberately take extra risks in my stock holdings, for the potential of extra returns. I overweight small-cap, value, and emerging markets. And I do recognize the extra risk; in 2007-2009, my 90%-stock portfolio lost as much as the 100%-stock Total Stock Market.)
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Re: Vanguard's safest all-equity fund

Post by ray333 » Sat May 13, 2017 2:32 pm

once I can covert to admiral shares, I'll be putting this into my Roth

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Re: Vanguard's safest all-equity fund

Post by dbr » Sat May 13, 2017 2:34 pm

brak wrote:Forgive me if I was not clear in asking my question. What I am wanting to find out is what all-equity domestic mutual fund has historically suffered the least decline through stock market downturns. I know that diversification into such things as bonds funds and international funds provides some degree of safety through diversification, but historically I would think that different equity mutual funds have shown differing abilities to withstand market downturns, and this is what I am looking for. I am looking for a databased rather than a theoretically based answer. Thanks much.
Some one would have to look through the historical data and try to compile this. A problem is that various funds have been in place for various lengths of time so the history would not be common. You would also have to have a methodology to define the bounds of a market downturn so you would know what date spans to examine. It would probably be more useful statistically to tabulate the standard deviation of annual returns over some common period of history.

Portfolio Visualizer has a tool that gives "max drawdown" within a period. https://www.portfoliovisualizer.com/backtest-portfolio

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Re: Vanguard's safest all-equity fund

Post by SpringMan » Sat May 13, 2017 2:35 pm

VMNVX, Vanguard's Global Minimum Volatility fund gets my vote. Its about 60% US, 40% foreign with goal of minimum volatility.
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Re: Vanguard's safest all-equity fund

Post by dbr » Sat May 13, 2017 2:38 pm

SpringMan wrote:VMNVX, Vanguard's Global Minimum Volatility fund gets my vote. Its about 60% US, 40% foreign with goal of minimum volatility.
Could be, but there is only three years and a little more data on that fund, and the OP wants a data base rather than theory. It is true that in those three years the fund looks good.

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Re: Vanguard's safest all-equity fund

Post by nisiprius » Sat May 13, 2017 3:01 pm

brak wrote:Does anyone know what is Vanguard's safest (losing the least amount of money in a stock downturn) all equity fund OR how would I go about figuring that out? Thank you.
As always, we can look at the past, but I would be very skeptical of statements about what categories of investments "tend to" do. A lot of investments that drew enthusiastic attention for going up during 2000-2002 when the stock market as a whole was going down, utterly failed to repeat that performance in 2008-2009.

I would do it in one of two ways. As far as I'm concerned, since we "conveniently" have 2008-2009 in the fairly recent past, we could chart them using Morningstar's growth charts, start the chart at 12/31/2007, and see which had the smallest decline between that at 3/6/2009. Alternatively, we could enter them in PortfolioVisualizer as "portfolios" consisting 100% of that fund, and look at the "max drawdown" number.

I think this search is not particularly worthwhile, because one can always make a portfolio safer by adding bonds, and therefore it makes little sense to compare some subcategory of stocks to, say, Total Stock, without also comparing it to a simple portfolio that includes Total Stock and some Total Bond, adjusting the bond allocation to give the same max drawdown, and then seeing whether the 100% equity portfolio actually has higher return or not.

I also believe that the differences aren't going to be huge, and that if you are seriously looking to reduce the drawdown in a stock downturn, a bond allocation is a much more powerful lever than looking at different flavors or categories of stocks.

I am going to hazard a guess that Consumer Staples might have had the lowest drawdown during 2008-2009. That's not any kind of recommendation, it's just an answer to your question. It's a sector bet, and I believe sector bets are intrinsically unsafe.

Source
Image

Total Stock dropped 52%; VCSAX, the Vanguard Consumer Staples Index Fund, dropped only 32%.

Can anyone beat that?
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Re: Vanguard's safest all-equity fund

Post by VaR » Sat May 13, 2017 3:53 pm

Old school conventional thinking also had telecom and utilities as defensive sectors along with consumer non-cyclicals.

Traditionally, high dividend yielding stocks were considered defensive. Vanguard Equity Income Fund and Vanguard High Dividend Yield Index Fund are Vanguard's offerings in this category.

Low volatility is also considered defensive. As a previous poster mentioned, Vanguard offers its Global Minimum Volatility Fund in this category.

Caveat 1: All of these sectors are considered fully valued/overcrowded today. This may only be on absolute terms because of the low interest rate environment.

Caveat 2: I don't think people actually made more money from rotating from cyclicals to noncyclicals based on the economic cycle. It was a pattern only exploitable in hindsight. I'm not even sure it's a pattern.

All of the above helps answer the OPs question, but please don't take them as recommendations.

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Re: Vanguard's safest all-equity fund

Post by nedsaid » Sat May 13, 2017 4:28 pm

VaR wrote:Old school conventional thinking also had telecom and utilities as defensive sectors along with consumer non-cyclicals.

Traditionally, high dividend yielding stocks were considered defensive. Vanguard Equity Income Fund and Vanguard High Dividend Yield Index Fund are Vanguard's offerings in this category.

Low volatility is also considered defensive. As a previous poster mentioned, Vanguard offers its Global Minimum Volatility Fund in this category.

Caveat 1: All of these sectors are considered fully valued/overcrowded today. This may only be on absolute terms because of the low interest rate environment.

Nedsaid: I agree with the above. The thing is that people have become aware of these things and not only chased dividends but have chased Low Volatility to the point where these stocks are expensive. I remember looking at consumer products stocks and seeing that they were not cheap. I have a big concern that these stocks are overbought and overvalued and thus won't provide safety during the next downturn.

Caveat 2: I don't think people actually made more money from rotating from cyclicals to noncyclicals based on the economic cycle. It was a pattern only exploitable in hindsight. I'm not even sure it's a pattern.

Nedsaid: There were a number of patterns like this that used to work or at least work to some degree. Today, in the era of big hedge funds and their Math PhDs and their fast and powerful computers, these patterns are probably no longer exploitable. There is debate on the continued persistence of factors. You wonder if the robots will take all this away.

All of the above helps answer the OPs question, but please don't take them as recommendations.
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Re: Vanguard's safest all-equity fund

Post by lack_ey » Sat May 13, 2017 4:30 pm

I would say the utilities and consumer staples, and maybe the global min vol fund as mentioned.

It really depends on the nature of the downturn, though.

Generally, the brain-dead first-level approximation/method here would be to check the market betas for all the funds and sort by the lowest coefficients. Obviously that's computed on past data, and the relationships do change over time and may especially so during times of stress, so there are a number of caveats. But okay, if you have a fund that moves less with the market (low beta), all else equal it will go down less when the market is going down and go up less when the market is going up.

The single-sector funds perhaps have wider tails as they are very meaningfully less diversified; something could go wrong and really drag down the sector. There can always be new laws, regulation, structural changes, etc. These may or may not be coincident with overall market declines. But probably these are more long-term concerns than something that would greatly impact the probability of higher declines in a bear market. I just mention this because "safest" generally may mean something different from "losing the least amount of money in a stock downturn" and the distinction matters here.

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Re: Vanguard's safest all-equity fund

Post by friar1610 » Sat May 13, 2017 4:38 pm

I haven't gone back and verified every equity fund, but this is my recollection. On the VG web site there is a graphic for each fund that shows the fund's risk on a scale from 1 to 5. If memory serves, all equity funds are listed as 4 or 5. Many balanced funds are 3, most bond funds are 2 and MM funds are 1. International funds (both equity and bond) are riskier than domestic. That might be a starting point for you because it's VG's best estimate based on their take on their funds.
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Re: Vanguard's safest all-equity fund

Post by pkcrafter » Sat May 13, 2017 4:45 pm

Regarding consumer stapes and utilities--yes, lower drop in 2008, but Vanguard rates both funds risk level higher than total stock market--5 vs 4 for TSM.

brak, I'm not sure what you would do with this information. The way to reduce risk is to add non-equity holdings. Looking at past performance is not a reliable way to forecast future performance, especially when noting that Vanguard has higher risk ratings on consumer staples and utilities than for total stock market.


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Re: Vanguard's safest all-equity fund

Post by TheTimeLord » Sat May 13, 2017 4:58 pm

brak wrote:Does anyone know what is Vanguard's safest (losing the least amount of money in a stock downturn) all equity fund OR how would I go about figuring that out? Thank you.
Which is safer a fund one that turn a $100 into $200 then drops 25% to $150 or a fund that turns $100 into $180 then drops 20% to $144?
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Re: Vanguard's safest all-equity fund

Post by nedsaid » Sat May 13, 2017 5:06 pm

lack_ey wrote:I would say the utilities and consumer staples, and maybe the global min vol fund as mentioned.

It really depends on the nature of the downturn, though.

Generally, the brain-dead first-level approximation/method here would be to check the market betas for all the funds and sort by the lowest coefficients. Obviously that's computed on past data, and the relationships do change over time and may especially so during times of stress, so there are a number of caveats. But okay, if you have a fund that moves less with the market (low beta), all else equal it will go down less when the market is going down and go up less when the market is going up.

The single-sector funds perhaps have wider tails as they are very meaningfully less diversified; something could go wrong and really drag down the sector. There can always be new laws, regulation, structural changes, etc. These may or may not be coincident with overall market declines. But probably these are more long-term concerns than something that would greatly impact the probability of higher declines in a bear market. I just mention this because "safest" generally may mean something different from "losing the least amount of money in a stock downturn" and the distinction matters here.
The problem is that each bear market is different. The 2000-2002 bear market was caused by the high tech/internet bubble bursting. The general economy wasn't affected so much. The 2008-2009 bear market was caused by a genuine economic crisis and a deep recession followed. So what worked well in 2000-2002 didn't work in 2008-2009. We would know in advance what the "safe" stocks are if we knew in advance what will cause the next bear market. Problem is that we don't.

In most cases, the utilities, consumer staples, the low volatility stocks would work. But now we have an era where all three are expensive and might actually fare worse than the broad market during the next bear market. What has been "safe" in the past may not work the next time.
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Re: Vanguard's safest all-equity fund

Post by TD2626 » Sat May 13, 2017 5:15 pm

Bonds funds are vastly safer than anything with stock. That being said, it is often said that dividend funds or utilities could be slightly safer than more general funds.

Also, it is often said that small caps have more risk/more reward. Large caps, then, could have less risk/less reward and thus be "safer". Maybe the Vanguard S&P 500 fund would fit the bill.

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Re: Vanguard's safest all-equity fund

Post by livesoft » Sat May 13, 2017 5:20 pm

brak wrote:Forgive me if I was not clear in asking my question. What I am wanting to find out is what all-equity domestic mutual fund has historically suffered the least decline through stock market downturns.
Probably an actively-managed fund with a stealth cash position of significance. Windsor?

Clearly, that's not right.
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Re: Vanguard's safest all-equity fund

Post by JoMoney » Sat May 13, 2017 5:31 pm

Large cap stocks have lower volatility/standard deviation then small cap stocks.
Stocks with with a consistent dividend policy tends to be one screen for 'Quality'... but I would be nervous with a dividend focused policy in the current environment where it seems lots of people are pouring in looking for income. There are other ways to screen for 'Quality', but they could likely run into problems too... lots of 'Smart Beta' and low-volatility funds out there. It's too easy for some narrow area to become crowded.
I'm much happier taking what the market sees as an average amount of risk for an average return in a broad stock portfolio like a Total Market or S&P 500 index. If I want to cut my risk down from there, keeping cash or bonds is the most reliable way to do it.

That being said... This is what Morningstar lists for their 'Risk' rating on 3 Vanguard funds over the last 3,5,and 10 years
Image
(which are Vanguard dividend oriented funds)
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Re: Vanguard's safest all-equity fund

Post by KeithZz » Sat May 13, 2017 5:39 pm

Actually, there is one vanguard got its fame on 2008/2009, the concept and return of that fund is solid. That fund if you check reviews is the fastest growth fund in Vanguard for single manger. Data does not lie, people voted with their feet. Well, of course, that fund got flushed with money, and closed long back and never reopened. That fund is Vanguard dividend growth fund. This is a quality focused fund not a yielder. I am waiting for next market correction, and some sell off cause that fund to reopen. :mrgreen:
Right now, I just use total market index for US portion, and waiting.

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Re: Vanguard's safest all-equity fund

Post by TropikThunder » Sat May 13, 2017 5:59 pm

ray333 wrote:
once I can covert to admiral shares, I'll be putting this into my Roth
That's an odd choice for "safest (losing the least amount of money in a stock downturn)".
VFINX Vanguard S&P500 Index Fund; Max drawdown -48.87% from 11/07 to 02/09; recovery by 01/12.
VEIPX Vanguard Equity Income Fund; Max drawdown -50.97% from 11/07 to 02/09; recovery by 08/12.

https://www.portfoliovisualizer.com/bac ... sisResults

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Re: Vanguard's safest all-equity fund

Post by TropikThunder » Sat May 13, 2017 6:42 pm

KeithZz wrote:Actually, there is one vanguard got its fame on 2008/2009, the concept and return of that fund is solid. That fund if you check reviews is the fastest growth fund in Vanguard for single manger. Data does not lie, people voted with their feet. Well, of course, that fund got flushed with money, and closed long back and never reopened. That fund is Vanguard dividend growth fund. This is a quality focused fund not a yielder. I am waiting for next market correction, and some sell off cause that fund to reopen. :mrgreen:
Right now, I just use total market index for US portion, and waiting.
VDIGX could be an interesting choice:
2005 - present
VTSMX Vanguard Total Stock: Max drawdown -50.89% from 11/07 to 02/09; recovery by 03/12.
VDIGX Vanguard Dividend Growth: Max drawdown -37.95% from 11/07 to 02/09; recovery by 01/11.
https://www.portfoliovisualizer.com/bac ... sisResults

However, the data above is a little deceptive, since the max drawdown for VDIGX wasn't during the 08 - 09 crisis, it was during the tech bubble:
2000 - 2005
VTSMX: Max drawdown -44.11% from 09/00 to 09/02.
VDIGX: Max drawdown -41.48% from 01/01 to 01/03.
https://www.portfoliovisualizer.com/bac ... sisResults

That said, none of this backtesting matters because VDIGX does not follow the same investment strategy as it did then. VDIGX used to be a utilities fund ("Prior to December 6, 2002, the comparative benchmark was known as the Utilities Composite Index"). Then it benchmarked vs the Russell 1000 from 12/2002 through 01/2010, then the NASDAQ US Dividend Achievers Select Index from 02/2010 until now. So as much as we say the past does not predict the future, that's especially true when the fund in question quite literally isn't now what it was then. Oh, and VDIGX has only been closed since last July.

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Re: Vanguard's safest all-equity fund

Post by KeithZz » Sat May 13, 2017 7:55 pm

Thanks for the added information.
TropikThunder wrote:
KeithZz wrote:Actually, there is one vanguard got its fame on 2008/2009, the concept and return of that fund is solid. That fund if you check reviews is the fastest growth fund in Vanguard for single manger. Data does not lie, people voted with their feet. Well, of course, that fund got flushed with money, and closed long back and never reopened. That fund is Vanguard dividend growth fund. This is a quality focused fund not a yielder. I am waiting for next market correction, and some sell off cause that fund to reopen. :mrgreen:
Right now, I just use total market index for US portion, and waiting.
VDIGX could be an interesting choice:
2005 - present
VTSMX Vanguard Total Stock: Max drawdown -50.89% from 11/07 to 02/09; recovery by 03/12.
VDIGX Vanguard Dividend Growth: Max drawdown -37.95% from 11/07 to 02/09; recovery by 01/11.
https://www.portfoliovisualizer.com/bac ... sisResults

However, the data above is a little deceptive, since the max drawdown for VDIGX wasn't during the 08 - 09 crisis, it was during the tech bubble:
2000 - 2005
VTSMX: Max drawdown -44.11% from 09/00 to 09/02.
VDIGX: Max drawdown -41.48% from 01/01 to 01/03.
https://www.portfoliovisualizer.com/bac ... sisResults

That said, none of this backtesting matters because VDIGX does not follow the same investment strategy as it did then. VDIGX used to be a utilities fund ("Prior to December 6, 2002, the comparative benchmark was known as the Utilities Composite Index"). Then it benchmarked vs the Russell 1000 from 12/2002 through 01/2010, then the NASDAQ US Dividend Achievers Select Index from 02/2010 until now. So as much as we say the past does not predict the future, that's especially true when the fund in question quite literally isn't now what it was then. Oh, and VDIGX has only been closed since last July.

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Re: Vanguard's safest all-equity fund

Post by brak » Sat May 13, 2017 9:04 pm

I am finding all of this extremely helpful - it is making me sharpen my thinking. Thanks to all.

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Re: Vanguard's safest all-equity fund

Post by aristotelian » Sat May 13, 2017 9:09 pm

+1 consumer staples. I have 8% of my portfolio in it for my only sector tilt.

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Re: Vanguard's safest all-equity fund

Post by VaR » Sat May 13, 2017 9:19 pm

TropikThunder wrote:That's an odd choice for "safest (losing the least amount of money in a stock downturn)".
VFINX Vanguard S&P500 Index Fund; Max drawdown -48.87% from 11/07 to 02/09; recovery by 01/12.
VEIPX Vanguard Equity Income Fund; Max drawdown -50.97% from 11/07 to 02/09; recovery by 08/12.

https://www.portfoliovisualizer.com/bac ... sisResults
As nedsaid said, every downturn is different. Banks and other financials got hit hard in 2008. From old annual reports, I think VEIPX overweighted financials back in 2007. They also overweighted consumer defensive/noncyclical/staples, which helped them.

I think we'd have to go back to 1991 to find a "normal" cyclical downturn.

Question for the OP - are you going to allocate 100% to this "safest all-equity fund" or are you just looking to moderate the volatility of a core portfolio that will be market-weighted? There is logic in finding diversification so you might think about turning "safest" on its head and look for equities that have lower correlation with the market. This will increase the Sharpe ratio of your portfolio. If you're looking for a single fund, you can look for one with a higher Sharpe ratio or Sortino ratio. By some measure this means the fund is giving you higher risk-adjusted returns - quite literally since Sharpe ratio is a measure for calculating risk-adjusted return.

This will give you a different take on risk and safety than the one this thread has focused on, which is max drawdown and stress testing.

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Re: Vanguard's safest all-equity fund

Post by brak » Sat May 13, 2017 9:32 pm

VaR - in answer to your question, I am not looking for fund in which to invest 100% of the equity position. Here is the situation. My father is 97, mother is 94, both in excellent health for their age. They need about $120,000/year (including taxes) to live on, have a $4.5 million portfolio. At this point they have about $2.5 million invested in individual taxable bonds averaging about a 4% return, have about $500,000 in various CD's at about 2% and the rest is sitting in cash. They have asked me to help them invest the cash, knowing that much of this money will go to their heirs (and therefore feeling they can take a bit more risk, i.e. put it in the market, with some of these funds), but at the same time their overall stance is rather risk averse. So my thinking was to put some of the funds in an equity fund which would not be as risky (i.e. Vanguard Equity Income as opposed to Vanguard Capital Opportunity), so that overall they would have about 20% of their total net worth in mutual equity funds. But I am certainly open to other approaches. The available money to invest is mostly in taxable accounts.Thanks.

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Re: Vanguard's safest all-equity fund

Post by VaR » Sat May 13, 2017 10:34 pm

I thought it would be helpful to post some Sharpe ratios and Sortino ratios for some of the funds under discussion

Code: Select all

Fund Name						3y Sharpe	10y Sharpe
S&P 500							0.99		0.49
Vanguard Equity Income		0.93		0.54
Vanguard Consumer Staples	1.05		0.87
From looking at the underlying data, Vanguard Consumer Staples higher 10 year Sharpe ratio is all about lower volatility.

Note though, that Sharpe ratio is not everything. It is calculated as (return - risk-free return)/standard deviation, so is backward looking, and so the caveat "past returns are not a guarantee of future performance" applies, or in this case, "past risk-adjusted returns are not a guarantee of future performance".

[having read the OP's reply to my question, I'm adding the following]
Something to think about is to put at least 50% into a core equity fund like Total Stock Market, maybe 20% into Total International Stock Market (this increases your diversification) and then use the other 30% to do something defensive since this appeals to you - maybe split it 15% Equity Income and 15% Consumer Staples. Note that this will throw off about 2% in dividends or $40,000. That plus interest on the bonds and CDs will cover their income needs and will actually build up even more cash over time.

I'll add one last thought: the option that is safest from "future regret" is a combination of Total Stock plus Total International Stock.

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Re: Vanguard's safest all-equity fund

Post by Beensabu » Sat May 13, 2017 11:01 pm

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Re: Vanguard's safest all-equity fund

Post by whodidntante » Sun May 14, 2017 12:20 am

I think large cap growth would be a bit smoother than most, but it can go down hard.

Are you looking for an alternative source of return? There are market neutral and other types of long-short equity funds that are low or zero beta. I don't think you should expect market neutral funds to return anything like the S&P 500 over the long-term, but I would guess VG's market neutral fund would look really smart well into a serious downturn. If you want 0.5 beta along with that, you can get a long-short equity fund from AQR. But that strategy will probably get kicked harder into a downturn. Min vol might be worth a look too. I personally think min vol is overvalued, but some smart people tell me I am not supposed to time factors. :)

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Re: Vanguard's safest all-equity fund

Post by edge » Sun May 14, 2017 7:07 am

There is none

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Re: Vanguard's safest all-equity fund

Post by NiceUnparticularMan » Sun May 14, 2017 7:57 am

What about something like LifeStrategy Growth? I know that is more bonds, but it is low-cost, well-diversified, and yet a bit safer than an all-equity portfolio. I'd say that is quite suitable when investing for heirs. Or you could do Moderate Growth if that was still too aggressive, which is getting very close to a sort of "endowment fund" approach.

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Re: Vanguard's safest all-equity fund

Post by TheJoker » Sun May 14, 2017 8:38 am

I agree with with what "nisiprius" posted above. I asked myself this question several years ago. My research concluded that consumer staples was the answer. I compared the various graphs during the 2008 downturn and found that VDC went down less then any other fund I could find.

I am 70% consumer staples. No bonds. And my top down logic is that the human race is very reluctant to give up tooth paste .................and toilet paper.

If you find a single better fund, please post it. I'm always willing to learn and adjust. But please ...............no opinions, just the facts directed to the specific question.

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Re: Vanguard's safest all-equity fund

Post by dbr » Sun May 14, 2017 8:44 am

TheJoker wrote:I agree with with what "nisiprius" posted above. I asked myself this question several years ago. My research concluded that consumer staples was the answer. I compared the various graphs during the 2008 downturn and found that VDC went down less then any other fund I could find.

I am 70% consumer staples. No bonds. And my top down logic is that the human race is very reluctant to give up tooth paste .................and toilet paper.

If you find a single better fund, please post it. I'm always willing to learn and adjust. But please ...............no opinions, just the facts directed to the specific question.

TheJoker
One could ask if there are portfolios that are not all equities that would be a better than "all equities" answer. Something along the direction of a "Larry" portfolio might be a consideration. The facts would be least downside risk for the same expected return.

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Re: Vanguard's safest all-equity fund

Post by knpstr » Sun May 14, 2017 9:08 am

I don't think there is one that is "safest". Besides that point one needs to define what they mean by that term "safe" too.

Almost every reply above equates "safety" with less volatility, so you can see most interpret volatility as risk.

However, the greatest investor of our time and perhaps ever, Warren Buffett, says volatility is not synonymous with risk and that for the long-term investor bonds are the riskier, or as he says "far riskier", investment. He would state that the people above have a faulty view propagated by academia.

Rather than thinking about this point, the standard reply to Buffett's comments are "well he is one of the richest men so he can afford the risk." (yes even after reading the comments they will still swap the terms volatility and risk). However, Buffett has stated multiple times that he thinks the great majority of investors (defined as those with a multi-decade investment horizon) should hold this viewpoint.

Ultimately, I think safety comes with knowing what you are doing when you make investments.
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Re: Vanguard's safest all-equity fund

Post by dbr » Sun May 14, 2017 9:12 am

knpstr wrote:I don't think there is one that is "safest". Besides that point one needs to define what they mean by that term "safe" too.

Almost every reply above equates "safety" with less volatility, so you can see most interpret volatility as risk.

However, the greatest investor of our time and perhaps ever, Warren Buffett, says volatility is not synonymous with risk and that for the long-term investor bonds are the riskier, or as he says "far riskier", investment. He would state that the people above have a faulty view propagated by academia.

Rather than thinking about this point, the standard reply to Buffett's comments are "well he is one of the richest men so he can afford the risk." (yes even after reading the comments they will still swap the terms volatility and risk). However, Buffett has stated multiple times that he thinks the great majority of investors (defined as those with a multi-decade investment horizon) should hold this viewpoint.

Ultimately, I think safety comes with knowing what you are doing when you make investments.
Indeed, but the OP is probably already aware that he didn't really mean "safe" because he made clear he just wanted to know how to avoid loss of money "during a downturn" and wanted to know how to find that out. It is probably a fair statement that there is no way to know that exactly as a future prediction, but data certainly exists on past history, as, for example, in Portfolio Visualizer.

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Re: Vanguard's safest all-equity fund

Post by knpstr » Sun May 14, 2017 9:20 am

dbr wrote:Indeed, but the OP is probably already aware that he didn't really mean "safe" because he made clear he just wanted to know how to avoid loss of money "during a downturn" and wanted to know how to find that out. It is probably a fair statement that there is no way to know that exactly as a future prediction, but data certainly exists on past history, as, for example, in Portfolio Visualizer.
Generally speaking, guarding against loss of money in a downturn equates to inflicting loss of money on an upswing.
Scanning replies, Timelord is the only other person that I saw speaking to this point. I think it is a very good point, which may make OP rethink his question.
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Re: Vanguard's safest all-equity fund

Post by nisiprius » Sun May 14, 2017 9:56 am

VaR wrote:Old school conventional thinking also had telecom and utilities as defensive sectors along with consumer non-cyclicals.

Traditionally, high dividend yielding stocks were considered defensive.
And yet these statements have always puzzled me because they simply haven't been true in the time I've been paying attention.

I think we can brush aside "Telecom" and "utilities" under the headline of "they've changed." They were traditionally thought of as safe because traditionally they were overwhelmingly regulated monopolies. For telecom, that changed with the onset of deregulation. (Utilities are more complicated and I don't know the story, but I don't think the category as a whole is the same as it used to be, I'm ready to be educated on that).

As for high dividend stocks, I've been scratching my head over that one--a while ago I found an article, specifically on "stock funds that let you sleep at night" or something, that named three ETFs by ticker symbol as offering "downside protection" even though two of them had actually declined more than Total Stock during 2008-2009, and the other hadn't declined much less. Very often when you actually look at 2008-2009 it turns out that "less risky," even if true, pans out to "fell 48% instead of 52%." That kind of thing.

I wrote that last paragraph before checking, but I've peeked before and was pretty sure about what I would find. 12/31/2007 to 3/6/2009. In order of drawdown, best (i.e. least) to worst, but notice also the actual magnitude.


Best by far: (Maroon) VBINX, Vanguard Balanced Index Fund, 60% stocks, 40% bonds, -34% decline.
Among the all-stock funds:

Best: (green) VUIAX, Vanguard Utilities Index, -44% decline.
(yellow) VTCAX, Vanguard Telecom Services Index, -49% (and notice that earlier dip where it's well below the others).
(blue) VTSMX, Vanguard Total Stock Market Index, -52%
-->(orange) VHDYX, Vanguard High Dividend Yield Index, -54%, worse than Total Stock.

Adding bonds is powerful, effective, and reliable at reducing drawdown risk.

Choosing "defensive" stock categories is weak and unreliable. If, for whatever reason, you don't want to use bonds to manage your risk, then I guess you might as well flail around trying to locate slightly-less-risky categories of stocks (and hoping that the "slightly-less-risky" characteristic persists), but don't expect it to be any kind of powerful protective shield against a downturn. It's like the car salesman who tried to convince me that a certain new car was likely to be reliable because it had a timing chain instead of a timing belt (yes, true story). In a sense it might have been true, but the effect was too small to take into consideration given all of the other factors affecting reliability.

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Re: Vanguard's safest all-equity fund

Post by stlutz » Sun May 14, 2017 10:06 am

The Global Minimum Volatility Fund is the the best answer here. All of the other funds mentioned can have lower volatility/downside risk at various times, but that behavior is somewhat incidental and time-specific. Global Min. Vol. targets exactly what the OP is looking for.

Note, that doesn't mean that the Min. Vol. fund is a better investment overall, but if you're looking for relative safety in a downturn, that's what the fund does.

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Re: Vanguard's safest all-equity fund

Post by knpstr » Sun May 14, 2017 10:09 am

nisiprius wrote:
VaR wrote:Old school conventional thinking also had telecom and utilities as defensive sectors along with consumer non-cyclicals.

Traditionally, high dividend yielding stocks were considered defensive.
And yet these statements have always puzzled me because they simply haven't been true in the time I've been paying attention.
Doesn't the traditional advice come from a "living off the dividends" aspect? Meaning not selling any shares but simply living of the income? As well as picking individual stocks not market funds?

Say picking 20 companies that in total give a 4% dividend, where you may need 3% to give yourself a margin of safety, and in doing so meets all your cash flow needs. Rendering the volatility meaningless.
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Re: Vanguard's safest all-equity fund

Post by The Wizard » Sun May 14, 2017 10:10 am

For domestic equities, either large cap value or a dividend growth fund is likely the least volatile. Don't have time to play with plots now, but if I did, I would look at both the 2008 downturn and the tech bubble crash around 2000...
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Re: Vanguard's safest all-equity fund

Post by The Wizard » Sun May 14, 2017 10:11 am

stlutz wrote:The Global Minimum Volatility Fund is the the best answer here. All of the other funds mentioned can have lower volatility/downside risk at various times, but that behavior is somewhat incidental and time-specific. Global Min. Vol. targets exactly what the OP is looking for.

Note, that doesn't mean that the Min. Vol. fund is a better investment overall, but if you're looking for relative safety in a downturn, that's what the fund does.
I own that fund and like it.
But OP asked for domestic stocks only...
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Re: Vanguard's safest all-equity fund

Post by dbr » Sun May 14, 2017 10:17 am

brak wrote:VaR - in answer to your question, I am not looking for fund in which to invest 100% of the equity position. Here is the situation. My father is 97, mother is 94, both in excellent health for their age. They need about $120,000/year (including taxes) to live on, have a $4.5 million portfolio. At this point they have about $2.5 million invested in individual taxable bonds averaging about a 4% return, have about $500,000 in various CD's at about 2% and the rest is sitting in cash. They have asked me to help them invest the cash, knowing that much of this money will go to their heirs (and therefore feeling they can take a bit more risk, i.e. put it in the market, with some of these funds), but at the same time their overall stance is rather risk averse. So my thinking was to put some of the funds in an equity fund which would not be as risky (i.e. Vanguard Equity Income as opposed to Vanguard Capital Opportunity), so that overall they would have about 20% of their total net worth in mutual equity funds. But I am certainly open to other approaches. The available money to invest is mostly in taxable accounts.Thanks.
The simple and effective answer is that you adjust risk by adjusting the allocation between low risk and high risk investments, aka bonds and stocks. How much risk is in the stock fund is an ineffective lever on the problem. 20% in stocks is very conservative and in fact near the optimum risk/return portfolio for a low risk investor. If that seems too risky, then put 15% in equities, or 10%. They are at zero risk of running out of money at any asset allocation. At this point their conservative approach is probably doing nothing more than hinder the potential growth of the inheritance, not that there is anything wrong with that if they want more certainty in outcome. Seriously, this is a non-problem.

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Re: Vanguard's safest all-equity fund

Post by TheJoker » Sun May 14, 2017 10:31 am

Nisiprius, thanks for your graph, I needed the source. Now please add VDC to to the graph to answer the original question about all equity funds. VBINX is not all equity.

Thanks again it confirms my suspicion. TheJoker

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Re: Vanguard's safest all-equity fund

Post by pkcrafter » Sun May 14, 2017 10:34 am

brak, considering this is taxable and the goal is heirs, but your parents are somewhat risk averse, I suggest Vanguard tax-managed balanced, VTMFX, which is 50/50. Loss in 2008 was 18%.

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Re: Vanguard's safest all-equity fund

Post by TheJoker » Sun May 14, 2017 10:50 am

Paul, the loss of VDC in 2008 was 10%. Please check me on this.

TheJoker

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