Is McClung "slice and dice" worth the complication?

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DebiT
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Is McClung "slice and dice" worth the complication?

Post by DebiT » Sun Apr 29, 2018 11:18 am

I have just finished, and am continuing to study, Michael McClung's excellent book, "Living Off Your Money" (which I think is well worth the investment, in large paperback format). We are less than 10 years away from retirement, invested 45/50/5, with 30-40% international

In Chapter 8, he analyzes various portfolios, with lots of backtesting, and concludes that you get the best diversification with either 8 or 10 equity funds, and 2 REITs. The logic is that to be purely in the S&P 500 creates a large exposure to US Large Cap, and even a "regular" international exposure does the same with international large cap. So in essence he recommends 3 portfolios with an equally weighted division between growth and value for US Large,Small, Intl Large, Small, and half that for Emerging Markets Large/Small. 2 of the recommended portfolios skip the US Large and Intl Large categories and add that portion to the REIT and or EM allocation

So your equity portfolio becomes the below. If you are 50/50 stocks bonds like me, you cut the percentages in half for your equity portion, obviously.

US Large 10% (potentially omit)
US Large Value 10%
US Micro, Small Blend 10%
US SMall Value 10%
Intl Large 10% (potentially omit)
Intl Large Value 10%
Intl Small 10%
Intl Small Value 10%
Emerging Small 10%
Emerging Value 10%
REIT Intl 5% (could end up as high as 10%
REIT 5% (could end up as high as 10%)

(It's interesting that this is pretty much the same as a Merriman Spreadsheet for their Ultimate Buy and Hold, Portfolio #7)

My question is, complexity aside, if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category? The theory, if I am understanding it correctly, is that removing these two categories from this well-diversified portfolio results in higher performance historically with less volatility, and especially so in bad market periods.


I believe I could handle the annual rebalancing. Once I buy into a "rule", I'm pretty good about following it. Survived 2008 without selling (although not without crying!). But I'm having trouble believing it is worth it, probably because my brain is having trouble absorbing his detailed research.

I appreciate people's time in reading this long post.

Deborah
Age 60, complete retirement not til 70, target is 50/50 -- Stock US 30, Intl 15, REIT 5. Bonds US 45, cash ~5

DaufuskieNate
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Re: Is McClung "slice and dice" worth the complication?

Post by DaufuskieNate » Sun Apr 29, 2018 11:43 am

Since you are willing to devote time and brainpower to good books, might I recommend the new 2018 version of Reducing the Risk of Black Swans by Larry Swedroe and Kevin Grogan. It is very much on point with your specific question.

3funder
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Re: Is McClung "slice and dice" worth the complication?

Post by 3funder » Sun Apr 29, 2018 11:45 am

No; way too complicated. If I had the urge to slice and dice (which I don't), I'd do the following:

US Large Value: 30%
US Mid Value: 20%
US Small Value: 10%
Intl Small Value: 25%
Emerging Value: 15%

If you're going to tilt value, you might as well really tilt value.
Last edited by 3funder on Sun Apr 29, 2018 11:57 am, edited 2 times in total.

ResearchMed
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Re: Is McClung "slice and dice" worth the complication?

Post by ResearchMed » Sun Apr 29, 2018 11:47 am

You might also want to read a bit about rebalancing, and if/how it affects returns vs. volatility.

RM
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dbr
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Re: Is McClung "slice and dice" worth the complication?

Post by dbr » Sun Apr 29, 2018 11:50 am

DebiT wrote:
Sun Apr 29, 2018 11:18 am

US Large 10% (potentially omit)
US Large Value 10%
US Micro, Small Blend 10%
US SMall Value 10%
Intl Large 10% (potentially omit)
Intl Large Value 10%
Intl Small 10%
Intl Small Value 10%
Emerging Small 10%
Emerging Value 10%
REIT Intl 5% (could end up as high as 10%
REIT 5% (could end up as high as 10%)

(It's interesting that this is pretty much the same as a Merriman Spreadsheet for their Ultimate Buy and Hold, Portfolio #7)

My question is, complexity aside, if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category? The theory, if I am understanding it correctly, is that removing these two categories from this well-diversified portfolio results in higher performance historically with less volatility, and especially so in bad market periods.

On the face of it, for you at 50/50, what you do with the odd 10% of your portfolio doesn't matter very much. Investment results are so variable and uncertain that this type of engineering is trying to resolve third order differences in a first order world, whatever the theoretical justification. In the meantime it is a lot of work, absorbs a lot of attention, and may have frictional costs you don't want to pay.

John Z
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Re: Is McClung "slice and dice" worth the complication?

Post by John Z » Sun Apr 29, 2018 11:53 am

I have always been a slice/dice investor with index funds since logic told me that when investing and taking withdrawals I wanted the control to invest/withdraw what made the most sense (performance/profits/allocation), and wanted to be diversified also. I spent a lot of time evaluating lazy portfolios and came up with the Coffeehouse suggested by Bill Schulties both because of its performance, low volatility and a manageable number of funds, 7, which covers many bases. Now in retirement I modified his recommendation to 8/8/8/8/8/8/52 to arrive at a 48/52 AA going to 45/55 eventually.

In case you haven't seen it, the White Coat Investor has a great website (an ER doctor tired of doctors getting financially ripped off) and one gem lists 150 different lazy portfolios from a simple 3 fund all the way up to 12 or so.
https://www.whitecoatinvestor.com/150-p ... han-yours/

Hope this helps.

PFInterest
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Re: Is McClung "slice and dice" worth the complication?

Post by PFInterest » Sun Apr 29, 2018 11:59 am

DebiT wrote:
Sun Apr 29, 2018 11:18 am
I have just finished, and am continuing to study, Michael McClung's excellent book, "Living Off Your Money" (which I think is well worth the investment, in large paperback format). We are less than 10 years away from retirement, invested 45/50/5, with 30-40% international

In Chapter 8, he analyzes various portfolios, with lots of backtesting, and concludes that you get the best diversification with either 8 or 10 equity funds, and 2 REITs. The logic is that to be purely in the S&P 500 creates a large exposure to US Large Cap, and even a "regular" international exposure does the same with international large cap. So in essence he recommends 3 portfolios with an equally weighted division between growth and value for US Large,Small, Intl Large, Small, and half that for Emerging Markets Large/Small. 2 of the recommended portfolios skip the US Large and Intl Large categories and add that portion to the REIT and or EM allocation

So your equity portfolio becomes the below. If you are 50/50 stocks bonds like me, you cut the percentages in half for your equity portion, obviously.

US Large 10% (potentially omit)
US Large Value 10%
US Micro, Small Blend 10%
US SMall Value 10%
Intl Large 10% (potentially omit)
Intl Large Value 10%
Intl Small 10%
Intl Small Value 10%
Emerging Small 10%
Emerging Value 10%
REIT Intl 5% (could end up as high as 10%
REIT 5% (could end up as high as 10%)

(It's interesting that this is pretty much the same as a Merriman Spreadsheet for their Ultimate Buy and Hold, Portfolio #7)

My question is, complexity aside, if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category? The theory, if I am understanding it correctly, is that removing these two categories from this well-diversified portfolio results in higher performance historically with less volatility, and especially so in bad market periods.


I believe I could handle the annual rebalancing. Once I buy into a "rule", I'm pretty good about following it. Survived 2008 without selling (although not without crying!). But I'm having trouble believing it is worth it, probably because my brain is having trouble absorbing his detailed research.

I appreciate people's time in reading this long post.

Deborah
It's just tilting. I don't believe that much work is worth it. However we won't know until the end of our lives so did better.

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midareff
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Re: Is McClung "slice and dice" worth the complication?

Post by midareff » Sun Apr 29, 2018 12:04 pm

ResearchMed wrote:
Sun Apr 29, 2018 11:47 am
You might also want to read a bit about rebalancing, and if/how it affects returns vs. volatility.

RM
+1

and how it impacts your tax bill in a taxable account. As a side effect you will always have something that is doing great :mrgreen: and a couple that are doing :oops: for you to consider. That means of course, you will always be dealing with the psychology of selling some of your winners to buy more of your loosers.

I used to slice and dice in my taxable account and my IRA. Back in 2011 I had 20 funds in a slice and dice portfolio. A little bit of this and a little bit of that gets you a little bit of average. Things look real different now with Total US, Total International and something for bonds in both taxable and IRA and I still get that average and SWAN, SWAN, SWAN.

MrPotatoHead
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Re: Is McClung "slice and dice" worth the complication?

Post by MrPotatoHead » Sun Apr 29, 2018 12:46 pm

Like many people, my views are always evolving. I use to slice and dice, in fact my 401K plan is slice and dice, except, well I sold off REITs (the one area where slice and dice seemed to make the most sense (i.e. least amount of voodoo reasoning in a portfolio))ahead of the interest rate rise (so, now I guess I market time too) and that seems to have been the correct move, except I redeployed the assets across the rest of my slice and diced portfolio and have no intention of going back. I also saw years and years of underperformance in one of my value slices (can’t remember which one, as frankly it all now bores me terribly).

But all taxable money is not in slice and dice nor are my Roth or traditional IRA. I simply am not drinking the Koolaid any longer. It seems obvious to me, this is all just so much financial porn. A bunch of academics are running around publishing studies as they are want to do, then a bunch of companies hire evangelists to work the financial press in order to promote their product laden interpretation of the academic data or to sell their book.

I mean how may of these guys write a the only guide you'll ever need book, only to follow it up with half a dozen other books on analogous topics.

The last time I seriously considered adding a slice was maybe 12-13 years ago, at that time commodities were the latest slice you just had to add. My better sense prevailed and I avoided that debacle. Since then I have seen the same evangelists promoting this one or that one depending on, I guess, if a black cat ate a piece of clover or if Jupiter was in the third house or whatever.

So right now, though I still have the classic value tilts in my slice and dice, I am fairly sure my long term future is likely the 3 fund portfolio with a bit of active management on the fixed income/cash side of the house. I also remain open to taking 5-10% of my assets and making a gambling portfolio (I call it what it is) where I can exercise those I am smarter than the market demons, but I’ll likely do it in the time honored method with a few individual stock picks if at all.

My conclusion after 37 years of investing is, that slice and dicers are the new market timers. It used to be market timers developed a system that they swore worked until it did not, and then it was because the market caught on to the indicator so now they need new indicators based on a bunch of back testing and that will work until it doesn’t and a new batch of indicators is needed. Now it seems, the once more pure slice and dice methodology folks, are chanting the same mantra. Now you need this and that and making excuses for the failure of their previous prognostications.

As I said, I simply now classify it as so much financial porn. I am sure any time now there will be a new Stormy Daniels that we all must add to our portfolios and it will prove equally reliable.

In the end, I think you are wise to spend your time on your asset allocation and budgeting and less chasing artificial enhancements to your portfolio.

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jhfenton
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Re: Is McClung "slice and dice" worth the complication?

Post by jhfenton » Sun Apr 29, 2018 12:56 pm

I have a couple related problems with the proposed portfolio:

1. There are more tiny pieces than are worth the effort. I think you can combine and simplify.

2. It's impractical (for me and most people) given the constraints of 401(k)s to manage so many small slices. A typical 401(k) might have one or two of the desired slices beyond US large.

2b. Some of the pieces have limited availability in general, particularly at a low cost. You are going to pay more for international value, international small value, emerging small, emerging value. So I compromise and just combine VSS (Vanguard FTSE All-World ex-US Small) with a couple different emerging markets funds (Vanguard's vanilla EM in our Vanguard accounts and iShares's multifactor EM in my HSA).

I do omit vanilla US large and ex-US developed large. I don't think they add much as a source of distinct returns (especially developed ex-US).

But again, with 401(k) constraints I am going to have to start adding some Vanguard Total International Admiral in my wife's new 401(k) starting with her paycheck this week. I have no acceptable international fund in my 401(k), and it would be exceedingly awkward keeping a 50/50 US/ex-US allocation with 0% of two 401(k)s going into international. So Total International is our only decent choice in either 401(k).

DebiT
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Re: Is McClung "slice and dice" worth the complication?

Post by DebiT » Sun Apr 29, 2018 1:06 pm

Thanks for all the replies. I will definitely investigate the Black Swan book. Our assets are almost all in tax-deferred, and because it's at Schwab I think it would be not to hard to find low cost possibilities.

So it comes down to whether it's worth the trouble. I'll have to keep evaluating that. It's interesting to hear the various ranges of how people are doing this.

Thanks for all input so far
Age 60, complete retirement not til 70, target is 50/50 -- Stock US 30, Intl 15, REIT 5. Bonds US 45, cash ~5

staythecourse
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Re: Is McClung "slice and dice" worth the complication?

Post by staythecourse » Sun Apr 29, 2018 1:10 pm

DebiT wrote:
Sun Apr 29, 2018 11:18 am

My question is, complexity aside, if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category? The theory, if I am understanding it correctly, is that removing these two categories from this well-diversified portfolio results in higher performance historically with less volatility, and especially so in bad market periods.


Deborah
Omitting large cap is not as crazy of an idea as it sounds. I believe Mr. Lussier excellent (but quite intense book) discusses that a lot of over performance of many portfolios is actually based decreasing the amount towards large cap which are bent toward growth.

Whatever you decide just accept that no matter WHAT portfolio you choose will not be the winner 20 years from now so don't do it based on any "extensive back testing" no matter who is doing that back testing. That is certain.

Mr. Gibson nicely stated in "Asset Allocation" being diversified means always being unhappy. Every year you will hold not enough of the winning assets and too many of the losers. This is how I feel, but I like it. Since one's weighted average is so low to any one asset class (5, 10, 20%) no matter how bad that asset does that year really does not hurt the portfolio return.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

dbr
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Re: Is McClung "slice and dice" worth the complication?

Post by dbr » Sun Apr 29, 2018 1:11 pm

DebiT wrote:
Sun Apr 29, 2018 1:06 pm
Thanks for all the replies. I will definitely investigate the Black Swan book. Our assets are almost all in tax-deferred, and because it's at Schwab I think it would be not to hard to find low cost possibilities.

So it comes down to whether it's worth the trouble. I'll have to keep evaluating that. It's interesting to hear the various ranges of how people are doing this.

Thanks for all input so far
Don't forget that the interests of authors who want to write books and blogs may only occasionally and accidentally align with the interests of investors even when said authors are well-meaning.

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Re: Is McClung "slice and dice" worth the complication?

Post by heyyou » Sun Apr 29, 2018 1:24 pm

The logic is that to be purely in the S&P 500 creates a large exposure to US Large Cap, and even a "regular" international exposure does the same with international large cap.

2 of the recommended portfolios skip the US Large and Intl Large categories
Somewhere in the book, McClung wrote that he ran each of the equity sub-asset classes separately in a retirement spending calculator. We all know that Small Growth would do the worst, but Large Growth was the second worst, so he is trying to avoid both of them. The top ten holdings of the 500 fund are 21.6% of the index, and half of those are tech stocks.

Since the 2000 Crash somewhat delayed my retirement considerations, my preference has been to have less exposure to Large Growth than is found in owning only a cap-weighted 500 or a total market fund. Thus my confirmation bias welcomes McClung's suggestions, while others may say that he tortured the data.

There will always be a historical optimal portfolio that will likely be different than the future, but there does seem to be a spectrum of good enough allocations. As usual, our saving while working, and our spending in retirement, are far more important than how sliced our equity exposures are.

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Taylor Larimore
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Re: Is McClung "slice and dice" worth the complication?

Post by Taylor Larimore » Sun Apr 29, 2018 1:45 pm

DebiT wrote:My question is, complexity aside, if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category?
DebiT:

"Lowering or even omitting" the largest and most successful companies in the United States is terrible advice.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

MrPotatoHead
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Re: Is McClung "slice and dice" worth the complication?

Post by MrPotatoHead » Sun Apr 29, 2018 2:49 pm

Taylor Larimore wrote:
Sun Apr 29, 2018 1:45 pm
DebiT wrote:My question is, complexity aside, if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category?
DebiT:

"Lowering or even omitting" the largest and most successful companies in the United States is terrible advice.

Best wishes.
Taylor
+1 - Got to love that quip.

MrPotatoHead
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Re: Is McClung "slice and dice" worth the complication?

Post by MrPotatoHead » Sun Apr 29, 2018 3:03 pm

jhfenton wrote:
Sun Apr 29, 2018 12:56 pm

2b. Some of the pieces have limited availability in general, particularly at a low cost. You are going to pay more for international value, international small value, emerging small, emerging value.
I think this is the central issue. The now, seemingly age-old idea promoted by the great Jack Bogle, that costs matter, that in the long term when accounting for costs, taxes, etc, no one reliably beats the market averages, investors were left with what, one obvious choice, use ultra low, passively managed indexes. that logic tends to mean the emergence of a handful of large power houses who use economies of scale to drive costs down and keep competition out of the market place. We see that now whit the handful of big dogs accumulating assets. The differentiation now seems to be more in regard to customer service.

So if low cost is the mecca that favors a small handful of companies is the trend, which it is, that means there are fewer lofty positions for those who want to feed off the small investors. So what to, create an endless stream of new, must have factors, tilts, slants etc, that attempt to justify higher fees so a group of parasitic croupiers can fund their desired lifestyle.

That is an armchair analysis by and old battle torn war dog who is a veteran of the battle we call life.

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Re: Is McClung "slice and dice" worth the complication?

Post by TravelGeek » Sun Apr 29, 2018 3:06 pm

I bought the book a while ago, but haven’t finished it yet. And haven’t reached Ch8 yet.

That said, I bought the book to better understand withdrawal strategies in (early) retirement. I am not looking for more complexity in my portfolio as I age and perhaps at some point have to pass on the rudder to my wife. So I will likely work towards eliminating slice and dice “sins” from my early investment days as I start withdrawing money...

Good Listener
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Re: Is McClung "slice and dice" worth the complication?

Post by Good Listener » Sun Apr 29, 2018 3:42 pm

I think there are far better uses for your time. Any increment (again, if any) will likely be very small.

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Re: Is McClung "slice and dice" worth the complication?

Post by Jags4186 » Sun Apr 29, 2018 3:46 pm

Search on the forum for TrevH’s Ultimate Buy and Hold. You can reduce all of those funds down to 4 and get essentially the same performance:

25% US Large Cap Blend
25% US Small Cap Value
25% INTL Large Cap Value
25% INTL Small Cap Blend

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Re: Is McClung "slice and dice" worth the complication?

Post by nisiprius » Sun Apr 29, 2018 3:48 pm

DebiT wrote:
Sun Apr 29, 2018 11:18 am
...The theory, if I am understanding it correctly, is that removing these two categories from this well-diversified portfolio results in higher performance historically with less volatility, and especially so in bad market periods.
The Vanguard Extended Market Index Fund, VEXMX, consists exactly of the total US stock market with the S&P 500 removed from it. That is, it pretty much eliminates the large-cap category.

During 2008-2009, plain vanilla Vanguard Total Stock Market Index Fund, VTSMX, orange, fell -52%. VEXMX fell -54%. A bit more. Certainly not any less.

Source

Image

During a nasty market correction in 2011, Total Stock fell -18%. VEXMX fell -24%. Rather more than Total Stock.

Image

Over the lifetime of VEXMX, May 1992 through March 2017, a tool called PortfolioVisualizer is showing that VEXMX was more volatile than VTSMX, with a standard deviation (a measure of volatility) of 18.02%, compared to 14.38% for Total Stock.

This data doesn't fit the idea that eliminating the large-cap category will reduce volatility, "especially in bad market periods."
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Re: Is McClung "slice and dice" worth the complication?

Post by heyyou » Sun Apr 29, 2018 4:38 pm

If you are 50/50 stocks bonds like me, you cut the percentages in half for your equity portion, obviously.
US Large 10% (potentially omit)
US Large Value 10%
US Micro, Small Blend 10%
US SMall Value 10%
Intl Large 10% (potentially omit)
Intl Large Value 10%
(plus more slices)
(1) Omitting US and foreign Large Blend, while continuing to hold Large Value foreign and domestic, is not the same as omitting all Large Caps as many of the posters have interpreted your Large Cap question. It will only seem worth the complications during the next crash, but not during the next tech boom for newer stocks like Apple, Microsoft, Alphabet, Facebook, Google, etc. some of whom were not in the S&P500 in the year 2000 crash.
(2) Note that what is being omitted and redeployed is only two 5% equity slices of your 50/50 portfolio.
(3) This is a very good alternative to the thinner slices:
by Jags4186 » Sun Apr 29, 2018 3:46 pm
Search on the forum for TrevH’s Ultimate Buy and Hold. You can reduce all of those funds down to 4 and get essentially the same performance:
25% US Large Cap Blend
25% US Small Cap Value
25% INTL Large Cap Value
25% INTL Small Cap Blend
The answer to your title question depends on what suits you. No one knows what will do best in the future, sometimes one, sometimes the other, but the best choice is what will give you the confidence to not do any panic selling at the depth of the next market crash. Due to the imprecision of the future, there is not a definite answer about if slice and dice will be more profitable. We only have history indicating it might be a little better, and personal opinions suggesting that it won't be any better.

DebiT
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Re: Is McClung "slice and dice" worth the complication?

Post by DebiT » Sun Apr 29, 2018 4:59 pm

The last couple of replies show me that I need to understand my terms better. Nisiprius' post shows me that maybe the assumption of safety didn't pan out.

While I'm here, I'll ask the question that I should know the answer to: is the S&P 500 defined as large blend or large cap?

I'm realizing that seeing the 4 fund portfolio with 50% allocated to value makes my stomach clench.

And I love the post further up that says that diversification means never being completely happy! So true.

I'm learning a lot. I hope my problem with definition of terms doesn't mean that I threw the whole thread off. I'm not home right now to go back to the book and be certain if McClung was omitting Large Blend or Large Growth. Memory says the latter, but I can't trust that!
Age 60, complete retirement not til 70, target is 50/50 -- Stock US 30, Intl 15, REIT 5. Bonds US 45, cash ~5

bigskyguy
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Re: Is McClung "slice and dice" worth the complication?

Post by bigskyguy » Sun Apr 29, 2018 5:20 pm

In answer to your initial question, for us the answer is yes. 15 years ago, we built a stock portfolio which closely mirrors your initial post stock portfolio -- we have used Steve Evanson's services for that time period, and our stock fund portfolio follows his 10 by 10 formulation (It is referenced in McClung's book). In the 15 years, other than thru additional investments, we have consciously rebalanced maybe 5 times. This has been a no brainer.

For us, our stock fund investments comprise the risk portion of our portfolio. In keeping with Bill Bernstein's mantra of allocating to stocks only that portion of our portfolio that we could truly "live without," none of this portion of our portfolio is required to cover our necessary life expenses. This is our upside portfolio.

Closely tied to this portfolio is our fixed income portfolio, which started out with international bonds, corporate bonds, and treasuries, but is now comprised of a CD/Treasury STRIPS/TIPS ladder (to my age 90, spouse's age 80), with a separate amount invested in an intermediate Treasury fund. We have purposefully invested so that our necessary living expenses will be completely covered by SS (mine to start at age 70, spouses at age 66) and our CD/STRIPS/TIPS ladder, with the Treasury fund intended to likely fund a Longevity Annuity at some future date.

For us, our fixed income portfolio, coupled with our SS payments, will cover our necessary living expenses comfortably going forward.

If this sounds like we have drunk Bill Bernstein's Kool-aid, the answer is an unequivocal yes. For informational purposes, my age is 68, spouse 59. And we both remain part-time employed, not because we have to, but because it provides us meaning and purpose.

Joe

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Re: Is McClung "slice and dice" worth the complication?

Post by MrBeaver » Sun Apr 29, 2018 6:14 pm

DebiT wrote:
Sun Apr 29, 2018 11:18 am
if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category? The theory, if I am understanding it correctly, is that removing these two categories from this well-diversified portfolio results in higher performance historically with less volatility, and especially so in bad market periods.
I feel that cherrypicking removal of one asset slice can reasonably be viewed to be contrary to the theory behind why slice and dice gives an advantage: that is, if we knew which asset class would yield the best returns going forward, we should pick it and leave all others behind. If we don't, then we should invest in all and rebalance as necessary. Eliminating large caps basically states that we know those will lag behind all other asset slices, and I don't feel I know that for certain. There is a lot of data to potentially back up a marginally lower return of large caps, but with the minimal historical difference I find it contrary to the theory of why slice and dice is beneficial, so I force myself to not act on two contrary theories. :wink: For other classes that have much lower expected returns, then it probably makes sense.

Not sure if you've read it, but the rebalancing wiki page links to this article (though the link is broken):
Opportunistic Rebalancing: A New Paradigm For Wealth Managers

I use slice & dice because I think it will eek out an additional 0.4-0.5% returns with minimal added risk, and I have enough years before retirement (~20) where that should increase my ending balance by around 10%. If I'm wrong, it will probably only cost me 0.1% per year, which would harm my ending balance by only around 2%, so I'm ok with that risk. My rules are:
  • Do not invest in any slice I cannot purchase for less than 15 basis points of expenses. Using up more than 0.1% of my expected increased returns in additional expenses above what I might pay for a total stock market fund seems risky when I'm only expecting 4-5x that in average increased returns.
  • Prefer slices that have lower correlation to each other, while still having long term historical returns near the total market (e.g., no cash or commodities).
  • Keep the number of slices manageable. Currently I have 7. I doubt I will ever increase this.
Because of this list, I would likely never eliminate large caps entirely, as their historical returns are not much lower than the broad market, they are fairly non-correlated to other asset classes, and the expenses for these funds are usually the lowest.

IMO the biggest risk to slice and dice is that it is highly dependent on me. If I die, my wife or heirs may not know what to do. This highlights the importance of having a unified understanding of finances with my spouse, and a clear instruction plan on how to simplify it going forward. This is necessary because an unmaintained (not rebalanced) slice and dice portfolio will likely do worse than a simple 1 fund set-and-forget portfolio.

I'm still searching for a better more automated way to implement rebalancing trigger notification when assets are held in multiple accounts across different custodians. This is not a problem specific to slice and dice, but is a problem for anyone who is rebalancing and houses assets in more than one account/login. I really wish there were an easy way, but I have not found one. So I manually check around once every two months, and increase frequency when one band was near the threshold in the previous manual check, or after large market moves (corrections/crashes).
Last edited by MrBeaver on Sun Apr 29, 2018 7:54 pm, edited 1 time in total.

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Re: Is McClung "slice and dice" worth the complication?

Post by 2pedals » Sun Apr 29, 2018 6:35 pm

I found McClung's book very interesting relating to the income harvesting and variable withdrawal strategies. I may even include the prime harvesting and EM withdrawal strategy in my retirement investment policy statement. Although I find McClung's methods interesting for portfolio selection, I am not planning to implement his portfolio recommendations.

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Re: Is McClung "slice and dice" worth the complication?

Post by AlohaJoe » Sun Apr 29, 2018 8:29 pm

DebiT wrote:
Sun Apr 29, 2018 11:18 am
My question is, complexity aside, if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category? The theory, if I am understanding it correctly, is that removing these two categories from this well-diversified portfolio results in higher performance historically with less volatility, and especially so in bad market periods.
I don't think that's the theory. Can you point to anything in the book that says that? As far as I can remember he doesn't give any explanation for his choices regarding small & value; he certainly didn't say anything about performance especially during bad market periods that I can recall. But maybe you can point me to some quotes to refresh my failing memory?

The portfolio chapter is probably McClung's weakest. He has several good things in it -- the Harvesting Ratio is interesting and the focus on equally-weighted portfolios is a good one, I believe -- but I think he succumbed to some implicit biases (that weren't really explained in the text). He is following, as far as I can tell, the (at least at the time of writing) Common Wisdom™ about small and value tilts but doesn't really "show his work" for how other tilts turned out to support those choices.

At the moment, tilts on Bogleheads are on the wane -- so you won't exactly find an outpouring of support for any portfolio that includes them, McClung's included. No doubt that's due to the record shattering performance over the past decade of a vanilla 60/40 portfolio. Those of us who still remember the "lost decade" of a 60/40 portfolio will recall that tilts were once extremely popular even in Bogleheads.

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Re: Is McClung "slice and dice" worth the complication?

Post by nisiprius » Sun Apr 29, 2018 8:56 pm

DebiT wrote:
Sun Apr 29, 2018 4:59 pm
...While I'm here, I'll ask the question that I should know the answer to: is the S&P 500 defined as large blend or large cap?...
It depends whether you are categorizing only by size, or both by size and value. By size alone, it is a "large cap fund." By size and value both, it is a "large cap blend fund."

By size, we can divide the stock market into "large caps," "mid-caps," and "small caps."
By value, we can divide it into "value," "blend," and "growth."

In the Morningstar style box scheme, there are nine "styles:" large cap growth, large cap blend, large cap value, mid-cap growth, mid-cap blend, mid-cal value, small cap growth, small cap blend, and small cap value.

If we go to Morningstar.com, look up any S&P 500 index fund, and choose the "portfolio" tab, it will show you what Morningstar considers the classification to be. Just so that I'm not using Vanguard all the time, I'll look up Fidelity's S&P 500 fund, FUSVX: Morningstar puts it in their "large blend" category and under the "portfolio" tab is shows us these two diagrams:

Image

So, with regard to value, it is a "blend" of growth and value because it contains almost equal amounts of growth (29 + 3 + 0 = 32%) and value (32 + 2 + 0 = 34%) stocks. On the average it is in the top center box, "large-cap blend."

It is also a "large-cap fund" because considering only size, it is 89% large cap stocks (and 11% mid-caps), and on the average is definitely up in the large-cap zone. In fact it's just over the line into "giant" territory.
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Re: Is McClung "slice and dice" worth the complication?

Post by DebiT » Sun Apr 29, 2018 9:11 pm

Thank you so much. I should have thought to look it up on Morningstar
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Re: Is McClung "slice and dice" worth the complication?

Post by Earl Lemongrab » Mon Apr 30, 2018 12:25 pm

I'm a slice and dice with tilt to small and value. My portfolio looks roughly similar to that. I don't find it particularly difficult to manage.

If I were starting over, I'd probably look hard at the "Ultimate Four Fund" approach.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Is McClung "slice and dice" worth the complication?

Post by quantAndHold » Mon Apr 30, 2018 12:35 pm

invested 45/50/5, with 30-40% international.
That allocation gives you 95% of your returns, no matter how simple or complicated the slicing and dicing is to reach that allocation. The marginal improvement you might get with a heavily researched, sliced and diced portfolio is ...well.... marginal. Some people think it worth the effort, some don’t.

Once you reach the basic allocation, the amount you’re paying in fees and taxes probably matters more than the slicing and dicing.

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Re: Is McClung "slice and dice" worth the complication?

Post by DebiT » Mon Apr 30, 2018 3:47 pm

I so appreciate all of the replies from this group. I think that I am going to continue to look into the Evanson 10x10 version of this. I'm very good with rules and numbers, and a yearly rebalancing doesn't seem that tough to me. I like the idea of exposure to all of these areas, and smaller portions make me less nervous than the larger ones in the TrevH portfolio. I do remember when value was "king", and I know that things go back and forth. This is a long-term portfolio, after all.

However, this would make sense only if in my Schwab tax-deferred portfolio, which is the bulk of our assets, I could find low-cost versions of each of the recommended Vanguard funds. So that may mean ETF equivalents from Vanguard or Schwab equivalents that track and match the Vanguard funds. So the fees need to as low or nearly as low as what I'm paying.

So that's my next step.
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Re: Is McClung "slice and dice" worth the complication?

Post by DebiT » Mon Apr 30, 2018 4:29 pm

AlohaJoe, I just now saw your questions above. I will try to look again at the book at home and see how McClung explains his rationale. There is certainly a lot to absorb in his book, and I really like the backtesting approach (or "aft-casting" as Jim Otar says). I'm pretty sure that's what drove his rationale but I'll try to find the exact reference.
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Re: Is McClung "slice and dice" worth the complication?

Post by elcadarj » Mon Apr 30, 2018 4:46 pm

To MrBeaver
MrBeaver wrote:
Sun Apr 29, 2018 6:14 pm
I'm still searching for a better more automated way to implement rebalancing trigger notification when assets are held in multiple accounts across different custodians. This is not a problem specific to slice and dice, but is a problem for anyone who is rebalancing and houses assets in more than one account/login. I really wish there were an easy way, but I have not found one. So I manually check around once every two months, and increase frequency when one band was near the threshold in the previous manual check, or after large market moves (corrections/crashes).
Are you in the Apple Universe, IOS or OSX? If so, you can use the Numbers spreadsheet app. Numbers has several symbol lookup functions. I started with their My Stocks portfolio tracking spreadsheet template, added some additional data fields for investment type, account location and category (e.g. US LCV, Int’l SCV, EM, etc.) and then built a lookup table that aggregates based on category and calculates allocations. If you don’t have and iPad or Mac you can set up a free iCloud account on a windows PC and run Numbers in the cloud.

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Re: Is McClung "slice and dice" worth the complication?

Post by Earl Lemongrab » Mon Apr 30, 2018 7:18 pm

Take a look at this thread that alluded to above:

Ultimate Buy and Hold - 8 slices vs 4
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Re: Is McClung "slice and dice" worth the complication?

Post by tennisplyr » Tue May 01, 2018 6:43 am

20/20 hindsight ??
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Re: Is McClung "slice and dice" worth the complication?

Post by MrBeaver » Tue May 01, 2018 11:31 am

elcadarj wrote:
Mon Apr 30, 2018 4:46 pm
To MrBeaver
MrBeaver wrote:
Sun Apr 29, 2018 6:14 pm
I'm still searching for a better more automated way to implement rebalancing trigger notification when assets are held in multiple accounts across different custodians. This is not a problem specific to slice and dice, but is a problem for anyone who is rebalancing and houses assets in more than one account/login. I really wish there were an easy way, but I have not found one. So I manually check around once every two months, and increase frequency when one band was near the threshold in the previous manual check, or after large market moves (corrections/crashes).
Are you in the Apple Universe, IOS or OSX? If so, you can use the Numbers spreadsheet app. Numbers has several symbol lookup functions. I started with their My Stocks portfolio tracking spreadsheet template, added some additional data fields for investment type, account location and category (e.g. US LCV, Int’l SCV, EM, etc.) and then built a lookup table that aggregates based on category and calculates allocations. If you don’t have and iPad or Mac you can set up a free iCloud account on a windows PC and run Numbers in the cloud.
Thanks for the tip! Yes, I have a Mac and iOS devices.

The challenges I would see are:
  • Dividend reinvestment
  • Unlisted tickers for 401k funds that seem private? I have good low-cost funds available, but they appear to be non-listed Fidelity institutional funds. The tickers given in our portal don't show up in a search, and their NAV are not the same as any public NAV Fidelity funds.
  • 401k investment transactions? My IRA contributions are typically handled lump-sum, so I can adjust shares owned myself. But my 401k contributions are made every pay period.
Have you experienced or solved any of these challenges? Other than that, your suggestion sounds great, and I will look into it regardless.

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Re: Is McClung "slice and dice" worth the complication?

Post by elcadarj » Tue May 01, 2018 1:08 pm

MrBeaver wrote:
Tue May 01, 2018 11:31 am

Thanks for the tip! Yes, I have a Mac and iOS devices.

The challenges I would see are:
  • Dividend reinvestment
  • Unlisted tickers for 401k funds that seem private? I have good low-cost funds available, but they appear to be non-listed Fidelity institutional funds. The tickers given in our portal don't show up in a search, and their NAV are not the same as any public NAV Fidelity funds.
  • 401k investment transactions? My IRA contributions are typically handled lump-sum, so I can adjust shares owned myself. But my 401k contributions are made every pay period.
Have you experienced or solved any of these challenges? Other than that, your suggestion sounds great, and I will look into it regardless.
My megacorp uses Fido as well for our 401k. Luckily our plan allows access to BrokerageLink so 90% of my 401k is in ETFs and the other 10% is in an unlisted FIDO institutional S&P500 fund (the 90% is a capped by the plan). I do manual workarounds twice a month: I update sharecounts for each position to capture payday contributions and dividend reinvestment and I convert the number of institutional S&P500 shares to proxy shares, i.e. IVV (iShares S&P500), using (end of day total value of position)/(same day closing price of IVV). I track IVV in the spreadsheet. I have a slice and dice portfolio of about 10 ETFs and the one unlisted fund so this is not burdensome.

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Re: Is McClung "slice and dice" worth the complication?

Post by MrBeaver » Tue May 01, 2018 2:03 pm

elcadarj wrote:
Tue May 01, 2018 1:08 pm
My megacorp uses Fido as well for our 401k. Luckily our plan allows access to BrokerageLink so 90% of my 401k is in ETFs and the other 10% is in an unlisted FIDO institutional S&P500 fund (the 90% is a capped by the plan).
Thanks again for the feedback and suggestions. I'll play around with Numbers and see what I can come up with.

I just wish the aggregators (or the actual financial institutions) would jump on this and provide an easy way to automate position balance downloads without manually logging into the website. Just give me a URL I can curl/wget via https to download a csv of my positions and balances and I'll write the script myself. From what I hear they are still fighting over the privacy and value of user data though, and I imagine they would flag my script as 'suspicious behavior' and lock down my account. :(

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Re: Is McClung "slice and dice" worth the complication?

Post by Boxtrap » Sun May 06, 2018 6:57 pm

Jags4186 wrote:
Sun Apr 29, 2018 3:46 pm
Search on the forum for TrevH’s Ultimate Buy and Hold. You can reduce all of those funds down to 4 and get essentially the same performance:

25% US Large Cap Blend
25% US Small Cap Value
25% INTL Large Cap Value
25% INTL Small Cap Blend

I think Trev H’s 4 fund simplification of the Merriman UB&H is probably a really great way to do for a slice and dice, if one wanted. My question, though - is there Vanguard International Large Cap Value fund? I can’t find it. The closest thing I found to that was VTRIX. Am I missing something?

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Re: Is McClung "slice and dice" worth the complication?

Post by Jags4186 » Sun May 06, 2018 7:31 pm

Boxtrap wrote:
Sun May 06, 2018 6:57 pm
Jags4186 wrote:
Sun Apr 29, 2018 3:46 pm
Search on the forum for TrevH’s Ultimate Buy and Hold. You can reduce all of those funds down to 4 and get essentially the same performance:

25% US Large Cap Blend
25% US Small Cap Value
25% INTL Large Cap Value
25% INTL Small Cap Blend

I think Trev H’s 4 fund simplification of the Merriman UB&H is probably a really great way to do for a slice and dice, if one wanted. My question, though - is there Vanguard International Large Cap Value fund? I can’t find it. The closest thing I found to that was VTRIX. Am I missing something?
Vanguard doesn’t have an international value index fund. They have 2 options for international Large Cap Value:

International Value, VTRIX, an actively managed fund
International High Yield Dividend Index Fund, VIHAX, a transaction fee index fund (.25% buy fee and .25% sell fee). You can use the ETF to avoid the transaction fees. It’s symbol is VYMI.

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Re: Is McClung "slice and dice" worth the complication?

Post by heyyou » Thu Jul 05, 2018 11:35 pm

My question is, complexity aside, if you tend toward a "slice and dice" what do you think of essentially drastically lowering or even omitting the Large Cap category? The theory, if I am understanding it correctly, is that removing these two categories from this well-diversified portfolio results in higher performance historically with less volatility, and especially so in bad market periods.
Please note this is where McClung expelled LG and SG, but not where he chose the funds for his allocation. The difference is between theory and application, and this is still in the theory category.
McClung's hard bound book page 184:
The results are sorted by MSWR 100%...
Maximum Safe Withdrawal Rate (MSWR) 100% means there were no failures for the 30 years.
Each US equity sub-asset class was backtested separately in a 30 year retirement calculator using SBBI historical data, but I don't know if the data wrapped from 2008 back to 1926 then forward again, for more 30 year periods starting in 1978 thru 2008, as he did later in the book.
This is the performance order:

Small Value 5.20%
Large Value 4.90%
70% TSM, 10% Small, 10% Large Value, 10% Small Value 4.40%
six equal slices of Lg, mid-cap, low cap, micro cap, large value, small value. Later modified when using VG funds. 4.30%
Mid caps 4.20%
Low Caps 4.00%
Large Caps 3.50%
Total Market 3.50%
Micro Caps 3.20%
Large Growth 3.20%
Small Growth 2.70%

McClung omitted LG and SG from further consideration due to their noticeably lower returns. He used Vanguard funds in his recommended allocations and he often showed how broad the exposure was, even without the Large Blend and Small Blend funds. He also pointed at how dilute the individual exposures were in his recommended 50/50 stock/bond allocations. The 50% in bonds, coupled with spending from bonds first, is a fine buffer for sequence risk in the first decade of retirement.
Total Market and Large Blend had identical results for the 30 year retirement periods, same as on the compounded return graphs.

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Re: Is McClung "slice and dice" worth the complication?

Post by Earl Lemongrab » Thu Jul 05, 2018 11:42 pm

Boxtrap wrote:
Sun May 06, 2018 6:57 pm
I think Trev H’s 4 fund simplification of the Merriman UB&H is probably a really great way to do for a slice and dice, if one wanted. My question, though - is there Vanguard International Large Cap Value fund? I can’t find it. The closest thing I found to that was VTRIX. Am I missing something?
I don't follow the Trev portfolio, but I use the iShares ETF for international large value, EFV.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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