portfolio questions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Almond
Posts: 38
Joined: Wed May 01, 2019 3:11 pm

portfolio questions

Post by Almond » Wed May 01, 2019 3:17 pm

hello everyone,

So I have spent the last few weeks reading this forum and trying to understand as much as possible. I am looking to move to. A three fund, although seems some suggest two fund, portfolio strategy. My plan is to move everything to Merrill Edge, they were offering some big signup bonus, so everything is under one roof.

I am self employed business owner, 53 years old, not married and no kids. I was pretty sick the past few years so my salary fluctuated, wish I had known about backdoor Roth conversions, but back on my feet and my plan this year depending on my income is to take as much money as I can from my taxable accounts and move it to Roth etc.

here is my breakdown at the moment.
200k in Sep IRA
400k in taxable account a combination of mutual funds and a couple of stocks that have done well.
280k in cash. I plan to use this as my emergency fund


have not yet decided AA but understand you want taxable stuff, bonds, in Ira’s etc.

If I understand the strategy I want to hold a % of my portfolio in a US total stock fund? I saw on this site, but now can’t find it, where you can compare Vanguard to other brokerages to find a similar fund. Can someone link that? Does the US total stock market fund have a blend of large, and small caps. Or do people use a different index for small caps?

Some recommend about 20% of your total equity portfolio to be international, some don’t. Love to get some clarity as to the different school of thoughts and is your risk increased by not having international exposure? Does international exposure include emerging markets and what is the Vanguard recommendation so I can find the same at ME?

I understand you want to hold the maximum allocation in your IRA, yes I know Roth is preferable but don’t have one yet. I am confused as to what type of bonds. Seems to be discussions on total bond index or long term treasuries. Do you get both and should I be looking at Wellington and Windsor’s although not yet sure what they are.

Going to set up a HSA, I assume I do that with money in my taxable accounts and the limit is 6k

Also I read about ibonds, not sure I fully understand what they are yet. I think I can put in 20k taking the money from my taxable accounts. Where do I buy them and learn more about how they work?

The emergency fund seems lots of options and I am confused. Would I put X% in a high yield savings account, enough for six months expenses? with the rest I am guessing some kind of laddering but seems to be an argument between treasuries and cd’s. I live in NYC.

what tools do you use to see how a portfolio would have done over time?

Thank you for all your help my head is hurting trying to understand it all.

CnC
Posts: 736
Joined: Thu May 11, 2017 12:41 pm

Re: portfolio questions

Post by CnC » Wed May 01, 2019 9:28 pm

you can use morningstar to compare funds you can also use google.

I personally would stick to fidelity or vanguard funds. The total us stock market includes the total market which has small caps as well as large caps you can adjust your weighting if you want to buy extra small cap funds if you feel that small caps will outperform large cap. At your age I wouldn't personally.

International is a diversification so you are not 100% weighted in the us, but it has been a drag on returns over the last 10+- years it could either turn around or continue under performing.

There are lots of bonds out there from us government bonds to municipal bonds to company bonds basically they are loans you give out and get paid back with interest, we typically invest in bond funds where you are actually buying "stock" in various bonds of varying quality and varying time horizons.

dbr
Posts: 29798
Joined: Sun Mar 04, 2007 9:50 am

Re: portfolio questions

Post by dbr » Thu May 02, 2019 8:17 am

Almond wrote:
Wed May 01, 2019 3:17 pm


If I understand the strategy I want to hold a % of my portfolio in a US total stock fund? I saw on this site, but now can’t find it, where you can compare Vanguard to other brokerages to find a similar fund. Can someone link that? Does the US total stock market fund have a blend of large, and small caps. Or do people use a different index for small caps?

A TSM index fund hold a market cap weight of all classes of stocks. A person can build a market portfolio by assembling funds but that is usually only done if for some reason a total market fund is not available. Adding a small cap fund results in a concentration in small caps. That is called tilting or factor investing, which is much discussed with no clear recommendation or preference, depending on who is talking.

Some recommend about 20% of your total equity portfolio to be international, some don’t. Love to get some clarity as to the different school of thoughts and is your risk increased by not having international exposure? Does international exposure include emerging markets and what is the Vanguard recommendation so I can find the same at ME?

You can read here: https://investor.vanguard.com/investing ... -investing

I understand you want to hold the maximum allocation in your IRA, yes I know Roth is preferable but don’t have one yet. I am confused as to what type of bonds. Seems to be discussions on total bond index or long term treasuries. Do you get both and should I be looking at Wellington and Windsor’s although not yet sure what they are.

Bond discussion here tend to be long and don't arrive at clear conclusions. It has been said that the more something is discussed the less it matters. I think a good starting point is to own a diversified, low cost, intermediate term bond fund located for tax efficiency and do something else only for a good reason. You can read articles on bonds in the Wiki or here: https://www.amazon.com/Only-Guide-Winni ... ks&sr=1-21 There are other books as well.

Going to set up a HSA, I assume I do that with money in my taxable accounts and the limit is 6k

Also I read about ibonds, not sure I fully understand what they are yet. I think I can put in 20k taking the money from my taxable accounts. Where do I buy them and learn more about how they work?

https://www.treasurydirect.gov/indiv/re ... ibonds.htm

The emergency fund seems lots of options and I am confused. Would I put X% in a high yield savings account, enough for six months expenses? with the rest I am guessing some kind of laddering but seems to be an argument between treasuries and cd’s. I live in NYC.

If you think you need cash resources in case of job loss or some major draw on money you should have a reserve in cash. People who have significant invested wealth including in taxable accounts so that one does not need to raid a 401k may not need a separate emergency fund. Any investment in reasonably stable and liquid fixed income is fine. You can even have the fund invested in stocks and if taken rebalance in your tax deferred account to compensate. If CDs be sure you can redeem them at any time. The discussions are not arguments so much as dancing on the heads of pins.


what tools do you use to see how a portfolio would have done over time?

https://www.portfoliovisualizer.com/ and models such as https://www.firecalc.com/ and many others.

Thank you for all your help my head is hurting trying to understand it all.

It might be helpful to start here and work your way through the basics systematically: https://www.bogleheads.org/wiki/Getting_started

Topic Author
Almond
Posts: 38
Joined: Wed May 01, 2019 3:11 pm

Re: portfolio questions

Post by Almond » Thu May 02, 2019 10:56 am

thanks for your replies but still unclear when it comes to bonds.

I get bonds are a hedge against stocks and need to be a percentage of your portfolio. However, I still don’t understand the difference between VBTLX and VUSTX? when I have backtested them over multiple time periods and different percentages VUSTX does better. My questions is VBTLX a hedge against VUSTX and if so in what situation? if not it seems one can hold total bond AA in VUSTX or is it recommended to split that with something else?

If you hold tax efficient bonds such as those exempt from federal and/or state I assume you hold those in your taxable accounts?

I am thinking of keeping it simple and find the equivalent vanguard funds in Merrill Edge and just hold these two funds VUSTX and VTI. Is that a mistake?

Thank you

CnC
Posts: 736
Joined: Thu May 11, 2017 12:41 pm

Re: portfolio questions

Post by CnC » Thu May 02, 2019 11:04 am

There is nothing wrong with VUSTX and vti. Just know that VUSTX is long term treasury meaning you have a very high chance of the bonds being paid back, but the potential to lose quite a bit of money to a sharp increase in inflation & interest rates.

I personally don't think investing in long term bonds now at nearly record low interest rates is the best idea in the world. But each to their own.

Topic Author
Almond
Posts: 38
Joined: Wed May 01, 2019 3:11 pm

Re: portfolio questions

Post by Almond » Thu May 02, 2019 11:35 am

@cnc

I backtested long term treasuries against total bond market from before the crash in 2008 plus 10 years and various other dates. During this time interest rates were at an historical low and yet long term treasuries over that time period outperformed total bond market. I am new to all this so can you explain why you would not buy long term treasuries now and what bonds you would buy as part of your AA portfolio?

Thank you

Edit: Reread your answer and think I understand. Treasuries do well with low interest and inflation, but getting into them now is a risk because rates are very low and will likely go up and thus treasuries will get hit big time. Is that correct? How would you AA your bonds.

Thank you

Topic Author
Almond
Posts: 38
Joined: Wed May 01, 2019 3:11 pm

Re: portfolio questions

Post by Almond » Thu May 02, 2019 11:43 am

Here is a back test link from 2002 to 2012 which includes both high and low interest rates. Treasuries seemed to do okay and one of the worst year was 2009 when I think interest rates were severely cut. hmm now I am confused again

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

CnC
Posts: 736
Joined: Thu May 11, 2017 12:41 pm

Re: portfolio questions

Post by CnC » Thu May 02, 2019 11:49 am

Almond wrote:
Thu May 02, 2019 11:43 am
Here is a back test link from 2002 to 2012 which includes both high and low interest rates. Treasuries seemed to do okay and one of the worst year was 2009 when I think interest rates were severely cut. hmm now I am confused again

https://www.portfoliovisualizer.com/bac ... sisResults
Back test them in the late 60's going into the late 70's if you can.
https://moneyweek.com/473768/what-we-ca ... ate-1960s/

it would not be fun owning long term treasuries in the late sixties when inflation ramped up over 10% less than a decade later.

Imagine owning a 30-year treasury now in the high 2% low 3% range and then by 2025 inflation hits 12% and you can earn 11% on a CD in the bank your bonds will be worth very little. That may not ever happen but that is the risk.

Topic Author
Almond
Posts: 38
Joined: Wed May 01, 2019 3:11 pm

Re: portfolio questions

Post by Almond » Thu May 02, 2019 6:00 pm

CnC wrote:
Thu May 02, 2019 11:49 am
Almond wrote:
Thu May 02, 2019 11:43 am
Here is a back test link from 2002 to 2012 which includes both high and low interest rates. Treasuries seemed to do okay and one of the worst year was 2009 when I think interest rates were severely cut. hmm now I am confused again

https://www.portfoliovisualizer.com/bac ... sisResults
Back test them in the late 60's going into the late 70's if you can.
https://moneyweek.com/473768/what-we-ca ... ate-1960s/

it would not be fun owning long term treasuries in the late sixties when inflation ramped up over 10% less than a decade later.

Imagine owning a 30-year treasury now in the high 2% low 3% range and then by 2025 inflation hits 12% and you can earn 11% on a CD in the bank your bonds will be worth very little. That may not ever happen but that is the risk.

Hmm I see why you are saying so would you have a percentage of bond AA say 20% in TIPS to offset that. Also what happens in a deflationary market where rates go below negative? How does it perform

CnC
Posts: 736
Joined: Thu May 11, 2017 12:41 pm

Re: portfolio questions

Post by CnC » Thu May 02, 2019 7:00 pm

Almond wrote:
Thu May 02, 2019 6:00 pm
CnC wrote:
Thu May 02, 2019 11:49 am
Almond wrote:
Thu May 02, 2019 11:43 am
Here is a back test link from 2002 to 2012 which includes both high and low interest rates. Treasuries seemed to do okay and one of the worst year was 2009 when I think interest rates were severely cut. hmm now I am confused again

https://www.portfoliovisualizer.com/bac ... sisResults
Back test them in the late 60's going into the late 70's if you can.
https://moneyweek.com/473768/what-we-ca ... ate-1960s/

it would not be fun owning long term treasuries in the late sixties when inflation ramped up over 10% less than a decade later.

Imagine owning a 30-year treasury now in the high 2% low 3% range and then by 2025 inflation hits 12% and you can earn 11% on a CD in the bank your bonds will be worth very little. That may not ever happen but that is the risk.

Hmm I see why you are saying so would you have a percentage of bond AA say 20% in TIPS to offset that. Also what happens in a deflationary market where rates go below negative? How does it perform
Either tips or medium term high grade corporate bonds.
Long term treasuries are by no means bad, but I think long term bonds have slightly more risk than their reward at the moment.

In a deflationary period long term bonds will likely do very well since 30 years at 30% looks much better if current rates are -.5%.

Topic Author
Almond
Posts: 38
Joined: Wed May 01, 2019 3:11 pm

Re: portfolio questions

Post by Almond » Thu May 02, 2019 7:15 pm

Either tips or medium term high grade corporate bonds.
Long term treasuries are by no means bad, but I think long term bonds have slightly more risk than their reward at the moment.

In a deflationary period long term bonds will likely do very well since 30 years at 30% looks much better if current rates are -.5%.

For the medium term high grade corporate bonds can you tell me what the vanguard ticker symbol is?. If I just wanted to AA into one fund would the total bond market make more sense at the moment.

Thank you fo all your help understanding bonds is really tricky and just trying to put together a two or three fund portfolio.

haven’t yet began to figure out how and what bonds to use in my emergency fund.

Post Reply