First post; allocation guidance

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Topic Author
admiralty
Posts: 2
Joined: Thu Oct 31, 2019 1:14 pm

First post; allocation guidance

Post by admiralty » Thu Oct 31, 2019 10:38 pm

This is my first post and I am somewhat new to Vanguard and index investing. First, thank you for providing such a vibrant intellectual community, for passionately crusading for greater sanity and humility from the financial services industry, and for so generously providing your advice and perspective to investors of all stripes.

I am helping some friends move away from banks and RIAs, and wondered if I could leverage the wisdom of the Boglecrowd to provide any suggestions for improvements on their asset allocation, beyond what they are already receiving from a plethora of advisors. There are a few peculiarities about their situation:
  1. 20% of their assets are locked in their employer's pension plan, all tax-deferred or tax-free but illiquid. This plan has consistent 60/40-like returns over time. It is allocated like an All-Weather portfolio, at least in spirit: investments "uncorrelated" to the market (like relative value alts), inflation-sensitive investments (TIPS, RE), deflation-sensitive investments (government bonds), and prosperity investments (equities).
  2. Assume they can generate a 3.5% after-tax yield in international 1-year CDs, without incurring currency, institutional, or sovereign risk. Assume no break fee and that this rate will continue for the next ~5-10y.
  3. Assume a blended pool managed for 3 people with 2 time horizons.
  4. IRAs and Roth IRAs only contain VNQ/VNQI or VT/VTI but that can be changed.
The profile is:

Tax status: 1x head of household, 1x single
Tax rate: highest, California
Age: 2 people 5 years from retirement, 1 person 10-20 years from retirement
Desired asset allocation: 75/25
Desired international allocation: 60 US / 40 international
Portfolio size: Large (50m+)

Here's what I know for asset allocation by asset class:

Risk-off assets
  • 8% in US cash and money market
  • 8% in 3.5% aftertax 1-year CDs
  • ~5% in synthetic TIPS, Treasuries through pension
  • 2% in VCADX (Vanguard California Intermediate-Term Tax-Exempt Fund Admiral)
  • 2% in SMA managed CA intermediate muni bond fund (<20bps expenses)
Risk-on assets

Equities
  • 10% in equities SMA (<20bps expenses) tracking ACWI, generating losses to offset the next line items
  • 15% in low-basis concentrated equity (4 positions), moving to SMA over time
  • 5% in assorted low-basis Vanguard funds (VSMAX, VEMAX, VEXAX, etc.)
  • 5% in assorted non-Vanguard mutual funds and equity positions, moving to SMA over time
  • ~5% in synthetic equity through pension
Alternatives
  • ~10% in synthetic hedge / relative value through pension
  • 5% in PE/VC funds and fund-of-funds, illiquid
  • 5% in private shares, also illiquid
Real Estate
  • 2% in VNQ (Real Estate ETF)
  • 1% in VNQI (Global ex-U.S. Real Estate ETF)
  • 3% in private RE funds, illiquid
  • 3% in direct RE, illiquid
Other
  • ~2% in synthetic commodities through pension
  • 1% in DCMSX (Dimensional Commodity Strategy Portfolio)
  • 1% in oil
  • 1% in gold
Thanks!
Last edited by admiralty on Fri Nov 08, 2019 3:51 pm, edited 1 time in total.

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TomatoTomahto
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Re: First post; allocation guidance

Post by TomatoTomahto » Mon Nov 04, 2019 10:31 am

Smarter forum members will be along shortly, but I wanted to welcome you to the forum. :D
Okay, I get it; I won't be political or controversial. The Earth is flat.

retired@50
Posts: 394
Joined: Tue Oct 01, 2019 2:36 pm

Re: First post; allocation guidance

Post by retired@50 » Mon Nov 04, 2019 10:44 am

TomatoTomahto wrote:
Mon Nov 04, 2019 10:31 am
Smarter forum members will be along shortly, but I wanted to welcome you to the forum. :D
+1 Welcome.

OP,
As a helpful note, you may want to expand on abbreviations and ticker symbols so as not to force multiple lookups and searches for Bogleheads.

Regards,

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goodenyou
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Joined: Sun Jan 31, 2010 11:57 pm
Location: Skating to Where the Puck is Going to Be..or on the golf course

Re: First post; allocation guidance

Post by goodenyou » Mon Nov 04, 2019 11:09 am

The general rule of thumb here is that there is majesty in simplicity. Most would argue that to the extent that you can pear down to a 3-4 fund portfolio the better off you will be, To unwind these positions would need a good tax professional. Has the owner looked at the tax efficiency of this portfolio? The costs associated with the portfolio? I would imagine they are huge.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

Topic Author
admiralty
Posts: 2
Joined: Thu Oct 31, 2019 1:14 pm

Re: First post; allocation guidance

Post by admiralty » Fri Nov 08, 2019 3:59 pm

Thank you all! I updated the post with links and (metatext) to identify each fund.

I think the general questions for them are:
  • Risk-off: Does the plan for the risk-off assets make sense? (i.e. not much in bonds, stay in international CDs)
  • Equities: Assuming the 15% in low-basis equity can't be moved, is it advisable to roll over the 5% of mutual funds (or even the 5% of Vanguard funds) into an SMA tracking ACWI (at low fees)?
  • Alts: Assuming the pension portion of hedge-fund like "alternatives" can't be moved, would you keep a further 10% in good PE or just stick to public equity?
  • RE: Is the 3-5% allocation to private RE reasonable or just stick with VNQ/VNQI?
  • Diversifiers: Do diversifiers (DCMSX, oil, gold) matter? (<5%)
In terms of tax-consequences it's not so bad, other than the low-basis equity and mutual funds.

Thanks for the help!

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