Considering Larry portfolio for a portion of portfolio

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Considering Larry portfolio for a portion of portfolio

Post by letsgobobby » Mon Jun 19, 2017 10:52 am

I am considering using a version of the Larry Portfolio for a discrete part of my portfolio. Why this portion is discrete and why I want to be conservative with it are immaterial, however it may be important to know this portfolio has absolutely no need for liquidity.

I am thinking of replacing treasuries with TIAA Traditional which yields 3%, as that is higher than the current 30 year treasury yield without any interest rate risk. Let me know if this is way off base.

What are currently the best widely available options for US SCV and international small? Assume I don't want to use DFA funds, however if those are clearly superior in this space by enough to justify both the advisor fee and the higher ER then I would consider.

The default would be the Vanguard options, which I use in my primary portfolio because they are 'good enough'.

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Re: Considering Larry portfolio for a portion of portfolio

Post by livesoft » Mon Jun 19, 2017 10:54 am

I think the Larry portfolio probably depends a lot on rebalancing. Are you prepared to do that with your TIAA holdings?

In any event, if I have sub-portfolios of V and L, then my total overall portfolio will be V + L or the weighted average of them. So with my Trev H, simplified+ultimate small-cap and value tilted slice-and-dice portfolio, I can always say I have a V + L portfolio. That is, if I put some of my SCV and all of my TIAA Traditional annuity in a pile over there, I can call it the Larry Subportfolio. Then I can call my Total Stock Market Index, Total Bond Market Index, and International funds my V (3-fund) Subportfolio.

I can then speak to both sides of the 3-fund vs small-cap and value tilted argument.
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Re: Considering Larry portfolio for a portion of portfolio

Post by grap0013 » Mon Jun 19, 2017 11:40 am

I suggest:

50:50 FNDE:DGS

Tilts abound. Pretty darn liquid and fees are reasonable. Gives you a bunch of different sources of return.
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Re: Considering Larry portfolio for a portion of portfolio

Post by ofckrupke » Mon Jun 19, 2017 12:31 pm

Treasuries will be the hottest currency in town in all but US sovereign debt crises. You only need ~11.5% to cover a simultaneous downdraft of 50% in both equity asset classes, and that neglects the flight-to-quality bump expected after 2008. And absent such crisis. with this you still get 5/6 of the difference in lift that wasn't really supposed to be coming from this part of the portfolio anyway.

I can't help you with the TIAA single party risk thing. You're either sure enough for the purpose that you can get out before they announce that the general fund is not able to pay 100c on the dollar, or you aren't.

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Re: Considering Larry portfolio for a portion of portfolio

Post by Aptenodytes » Mon Jun 19, 2017 12:46 pm

You may want to consider rephrasing your question and giving it a new title. It really doesn't concern the Larry Portfolio at all, so it takes a while to figure what you are seeking. Is this close to what you are asking:

1) For a portfolio that will not be having withdrawals for a very long time and will be rebalanced regularly, is it worth replacing my Treasury holdings with TIAA Traditional? My current Treasury holdings are __% very short term, __% short term, __% medium term, and __% long term. The guaranteed TIAA Traditional rate I have access to is 3%, and recent total rates in my account have been around __%.

2) Which alternatives to the Vanguard small-value and small-international funds are worth considering for a tax-advantaged account in a portfolio that will be rebalanced regularly?

The second question comes up very frequently and you can probably pull together many answers by searching the forum. The first question also comes up, less often I believe. The TIAA forum at Morningstar has good treatment of this matter.

I can't think of any way in which the answers to these questions would be different knowing that the funds are going to be part of a virtual Larry Portfolio.

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Re: Considering Larry portfolio for a portion of portfolio

Post by ofckrupke » Mon Jun 19, 2017 2:31 pm

Some additional remarks based on an inference from one of your posts today in the inherited IRA topic.

TIAA made a big change in Traditional Annuity within IRAs effective 10/10/2010. Premiums paid in after that date get applied to a new, cr@ppier Trad contract that does not guarantee 3% in accumulation or 2.5% while in payout annuity.
"Old-IRA" accumulations (from before 10/10/2010) grow at exactly 3% (t)hereafter. That seems competitive now, but to the extent that the US yield curve rises generally and crediting rates increase on other flavors of Trad, it won't always.

It sounds as though you have a bolus of this old-contract Trad in the Inherited IRA.

If you were thinking about using the inherited IRA with the grandfathered Trad in this Larry sub-Portfolio, another implication of the pre/post-2010 divide is as follows: old-contract IRA Trad has a one-way door on it: money that leaves such a Trad contract, as for instance to rebalance stock funds in a stock bear market, can't come back in later to the old 3% guaranteed contract; it will be treated as a new premium under the cr@ppier post-2010 Trad contract.

So, while this Trad might be suitable as the bulk of a LP's fixed income, it will have some limitations not present for liquid Trad held in a company/governmental retirement plan (which is what most people think of when they see "TIAA Traditional Annuity"). The workaround might simply be a plan to decant to another form of fixed income (including the post-2010 Trad contract) within the IRA when US interest rates normalize and the crediting rate for its pre-2010 Trad, pinned at 3%, becomes markedly less attractive (this may or may not coincide with a convergence of the crediting rates on pre and post 2010 IRA Trad; right now the gap is 1.0%).

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