Retirement: Thoughts on Asset Allocation [trigger warning--alternatives mentioned]

[JamesDean44]

Hi All,

For those who slice and dice, and particularly those that are not abhorrent to the concept of alternatives, I'd be curious for your thoughts on the below asset allocation and any concerns regarding fund selection. 33 years old. Funds are through 401(k), 401(k) sdba, wife's 403(b), Roth IRAs, and a small taxable account. The DFA, AQR, and TIAA funds are not through an advisor; they are available through employer retirement accounts.

-60/40 US/Int'l split.
-Emerging markets is over-weighted relative to int'l but is roughly global market cap relative to total equities (about 12.5% of equities).
-I have a strong risk tolerance (at least for retirement assets) and don't care much about "tracking error" relative to other people's portfolios or the S&P 500.
-I am aware of the simplicity, past results, and other potential benefits of a 3 or 4 fund portfolio. But feel free to remind me as you may desire.
-Glide path would be to continue increasing fixed income and decreasing equities. I may eventually allocate slightly more to my existing alternatives or additional alternatives over time.

-Thanks for the comment about the three-fund portfolio comparison as a reference point. That was the starting point for the development of my portfolio. My allocation in a 3 fund would be about 80/20 or 77.5/22.5, with a US/int'l split of 60/40. I think of the alternatives as 50/50 equities/bonds, which puts me at a hypothetical 80/20. My actual portfolio's focus on safer fixed income (relative to total bond, which includes exposure to credit risk), limited allocation to alternatives (hopefully providing a less correlated asset class and returns), and emphasis on exposure to value is to provide a similar expected return to an 80/20 3-fund but with reduced left tail risk and somewhat less correlated asset classes.

1. Equities--72.5%
a. US Equities (43.5%)
i. Small Value (20% -- DFSVX, DFA U.S. Small Cap Value Portfolio)
ii. Large Value (5% -- VTV, Vanguard Value ETF)
iii. Market (18.5% -- 80/20 split VFIAX/VEXAX -- Vanguard 500 Index Fund / Vanguard Extended Market Index)

b. Int’l Equities (29%)
i. Small Value (12% AVDV – Avantis Int’l Small Cap Value)
ii. Large Value (8% EFV -- iShares MSCI EAFE Value Index)
iii. EM Value (9% DFEVX -- DFA Emerging Markets Value Portfolio)

2. Fixed Income--12.5%
a. TIAA Traditional (7.5%)
b. Short-term Treasuries / CDs (5%)

3. Alternatives—15%
a. TIAA Real Estate (10%)
b. QRPIX (5% AQR Alternative Risk Premia Fund)

[ThereAreNoGurus]

Sorry, I have no thoughts to offer on your asset allocation. I just wanted to compliment you on a well written and humorous thread title.

[greg24]

if you want to gamble on QRPIX, it is your money.

[dbr]

My concern is that you have no analysis at all for why you would pick that funds selection, what you would expect from it, how your expectations match your objectives, and so on. How did you arrive at this allocation?

None if that is to say there has to be anything wrong with your plan on the face of it. The question is what is right about it? How would your plan differ in expected risk and expected return from possible alternatives?

[wickywack]

A quick thought - it feels redundant to have both a value tilt in your equities and QRPIX (which includes the value factor). You might consider dropping one and increasing the other to simplify.

More generally, you might also start with a three-fund portfolio as a reference point on what kind of risk adjusted return you're looking for. E.g., if you didn't have alternatives or value funds, what would your allocation be? Are alternatives coming out of stocks or bonds? What's their role in your portfolio?

[grok87]

A quick thought - it feels redundant to have both a value tilt in your equities and QRPIX (which includes the value factor). You might consider dropping one and increasing the other to simplify.

More generally, you might also start with a three-fund portfolio as a reference point on what kind of risk adjusted return you're looking for. E.g., if you didn't have alternatives or value funds, what would your allocation be? Are alternatives coming out of stocks or bonds? What's their role in your portfolio?

Yep

[snailderby]

If you think you can stay the course even if value underperforms for a decade or more, go for it.

I question whether the smaller slices are worth the hassle though. If I were you, I'd be tempted to simplify to something like this on the equity side:

S&P 500 OR U.S. total market fund
U.S. small cap value (DFSVX)
International developed small cap value (AVDV)
International emerging value (DFEVX)

[JamesDean44]

If you think you can stay the course even if value underperforms for a decade or more, go for it.

I question whether the smaller slices are worth the hassle. If I were you, I'd be tempted to simplify to something like this on the equity side:

S&P 500 OR U.S. total market
U.S. small cap value
International developed small cap value
International emerging value

Good idea re the U.S. side, thanks. I could get rid of VEXAX (i.e. extended market) and just move that portion to S&P 500. The only reason I had VEXAX was to mirror U.S. total market in combination with the S&P 500 fund, but the minor difference is probably negligible. i.e. removing VEXAX simplifies things without much impact. I'll consider and analyze that further. (I don't have access to U.S. total market in that retirement account, so I was approximating total market.) No need for unnecessary complexity, although it isn't much work to hold two funds instead of one.

I have considered removing international large value, but from a staying the course standpoint having some exposure to int'l developed large value rather than solely emerging markets value and developed small value provides me some (irrational) psychological benefit. I'll consider that further though.

[JamesDean44]

A quick thought - it feels redundant to have both a value tilt in your equities and QRPIX (which includes the value factor). You might consider dropping one and increasing the other to simplify.

More generally, you might also start with a three-fund portfolio as a reference point on what kind of risk adjusted return you're looking for. E.g., if you didn't have alternatives or value funds, what would your allocation be? Are alternatives coming out of stocks or bonds? What's their role in your portfolio?

Yep

Thanks for the responses. I don't think it is redundant, but please let me know if I'm missing something. QRPIX does include substantial value exposure on the equities side, but also uses other factors/styles across other asset classes. And QRPIX is market neutral; i.e. little to no correlation to beta. I don't think you can really equivocate QRPIX with going long on value equities.

[JamesDean44]

Sorry, I have no thoughts to offer on your asset allocation. I just wanted to compliment you on a well written and humorous thread title.

[snailderby]

If you think you can stay the course even if value underperforms for a decade or more, go for it.

I question whether the smaller slices are worth the hassle. If I were you, I'd be tempted to simplify to something like this on the equity side:

S&P 500 OR U.S. total market
U.S. small cap value
International developed small cap value
International emerging value

Good idea re the U.S. side, thanks. I could get rid of VEXAX (i.e. extended market) and just move that portion to S&P 500. The only reason I had VEXAX was to mirror U.S. total market in combination with the S&P 500 fund, but the minor difference is probably negligible. i.e. removing VEXAX simplifies things without much impact. I'll consider and analyze that further. (I don't have access to U.S. total market in that retirement account, so I was approximating total market.) No need for unnecessary complexity, although it isn't much work to hold two funds instead of one.

I have considered removing international large value, but from a staying the course standpoint having some exposure to int'l developed large value rather than solely emerging markets value and developed small value provides me some (irrational) psychological benefit. I'll consider that further though.

My impression is that international small caps (and emerging markets) have historically been less correlated to the U.S. stock market (compared to international large caps). But if having a slice of large value helps you stay the course, ignore my suggestion. You don't want to have a portfolio that you're not comfortable with.

[JamesDean44]

[...]

More generally, you might also start with a three-fund portfolio as a reference point on what kind of risk adjusted return you're looking for. E.g., if you didn't have alternatives or value funds, what would your allocation be? Are alternatives coming out of stocks or bonds? What's their role in your portfolio?

Thanks for the comment about the three-fund portfolio comparison as a reference point. That was the starting point for the development of my portfolio. My allocation in a 3 fund would be about 80/20 or 77.5/22.5, with a US/int'l split of 60/40. I think of the alternatives as 50/50 equities/bonds, which puts me at a hypothetical 80/20. My actual portfolio's focus on safer fixed income (relative to total bond, which includes exposure to credit risk), limited allocation to alternatives (hopefully providing a less correlated asset class and returns), and emphasis on exposure to value is to provide a similar expected return to an 80/20 3-fund but with reduced left tail risk and somewhat less correlated asset classes

[2commaBH]

People much smarter than me consistently tell me that liquid alts are a sucker's bet, presumably because the retail versions bear little resemblance to the true alternatives available to AIs and QPs. One person likened it to Olive Garden vs a hidden jewel family restaurant in Siena.

I haven't done the analysis myself as I have direct exposure to the asset class, just passing on in case it is helpful.

[JamesDean44]

My concern is that you have no analysis at all for why you would pick that funds selection, what you would expect from it, how your expectations match your objectives, and so on. How did you arrive at this allocation?

None if that is to say there has to be anything wrong with your plan on the face of it. The question is what is right about it? How would your plan differ in expected risk and expected return from possible alternatives?

Agreed--my original post was very light on analysis. I've now provided some further comments above. Thanks for your comment.

[JamesDean44]

People much smarter than me consistently tell me that liquid alts are a sucker's bet, presumably because the retail versions bear little resemblance to the true alternatives available to AIs and QPs. One person likened it to Olive Garden vs a hidden jewel family restaurant in Siena.

I haven't done the analysis myself as I have direct exposure to the asset class, just passing on in case it is helpful.

What asset class do you have direct exposure to? (If you don't mind me asking )

[2commaBH]

People much smarter than me consistently tell me that liquid alts are a sucker's bet, presumably because the retail versions bear little resemblance to the true alternatives available to AIs and QPs. One person likened it to Olive Garden vs a hidden jewel family restaurant in Siena.

I haven't done the analysis myself as I have direct exposure to the asset class, just passing on in case it is helpful.

What asset class do you have direct exposure to? (If you don't mind me asking )

A mix of private equity, RE, VC and some credit.

[JamesDean44]

People much smarter than me consistently tell me that liquid alts are a sucker's bet, presumably because the retail versions bear little resemblance to the true alternatives available to AIs and QPs. One person likened it to Olive Garden vs a hidden jewel family restaurant in Siena.

I haven't done the analysis myself as I have direct exposure to the asset class, just passing on in case it is helpful.

What asset class do you have direct exposure to? (If you don't mind me asking )

A mix of private equity, RE, VC and some credit.

Thanks; I think of TIAA Real Estate as being similar to direct investment in commercial RE. I'm an AI, but I don't have an inside line on the best deals and hard to vet.

[Steve Reading]

Hi All,

For those who slice and dice, and particularly those that are not abhorrent to the concept of alternatives, I'd be curious for your thoughts on the below asset allocation and any concerns regarding fund selection. 33 years old. Funds are through 401(k), 401(k) sdba, wife's 403(b), Roth IRAs, and a small taxable account. The DFA, AQR, and TIAA funds are not through an advisor; they are available through employer retirement accounts.

-60/40 US/Int'l split.
-Emerging markets is over-weighted relative to int'l but is roughly global market cap relative to total equities (about 12.5% of equities).
-I have a strong risk tolerance (at least for retirement assets) and don't care much about "tracking error" relative to other people's portfolios or the S&P 500.
-I am aware of the simplicity, past results, and other potential benefits of a 3 or 4 fund portfolio. But feel free to remind me as you may desire.
-Glide path would be to continue increasing fixed income and decreasing equities. I may eventually allocate slightly more to my existing alternatives or additional alternatives over time.

-Thanks for the comment about the three-fund portfolio comparison as a reference point. That was the starting point for the development of my portfolio. My allocation in a 3 fund would be about 80/20 or 77.5/22.5, with a US/int'l split of 60/40. I think of the alternatives as 50/50 equities/bonds, which puts me at a hypothetical 80/20. My actual portfolio's focus on safer fixed income (relative to total bond, which includes exposure to credit risk), limited allocation to alternatives (hopefully providing a less correlated asset class and returns), and emphasis on exposure to value is to provide a similar expected return to an 80/20 3-fund but with reduced left tail risk and somewhat less correlated asset classes.

1. Equities--72.5%
a. US Equities (43.5%)
i. Small Value (20% -- DFSVX, DFA U.S. Small Cap Value Portfolio)
ii. Large Value (5% -- VTV, Vanguard Value ETF)
iii. Market (18.5% -- 80/20 split VFIAX/VEXAX -- Vanguard 500 Index Fund / Vanguard Extended Market Index)

b. Int’l Equities (29%)
i. Small Value (12% AVDV – Avantis Int’l Small Cap Value)
ii. Large Value (8% EFV -- iShares MSCI EAFE Value Index)
iii. EM Value (9% DFEVX -- DFA Emerging Markets Value Portfolio)

2. Fixed Income--12.5%
a. TIAA Traditional (7.5%)
b. Short-term Treasuries / CDs (5%)

3. Alternatives—15%
a. TIAA Real Estate (10%)
b. QRPIX (5% AQR Alternative Risk Premia Fund)

1) Why was EFV your Int value choice? I’ve generally found FNDF and IVLU to be stronger contenders.

2) What is the yield on the TIAA RE? I ask because some REITs tend to be rather rich so value funds have been skewing away from real estate. It would be counterproductive if you then had an additional RE allocation undoing some of your value tilt. I like alternatives but since all the ones that interest me are so rich (RE, commodities and carry), I’ve stayed away. I’m a value investor at heart. Your portfolio tells me you are too.

3) No comment on the AQR fund. I’m going to assume you did your due diligence on it and trust the factors it uses. I also don’t know much about DFA funds so can’t comment there.

[JamesDean44]

Hi All,

For those who slice and dice, and particularly those that are not abhorrent to the concept of alternatives, I'd be curious for your thoughts on the below asset allocation and any concerns regarding fund selection. 33 years old. Funds are through 401(k), 401(k) sdba, wife's 403(b), Roth IRAs, and a small taxable account. The DFA, AQR, and TIAA funds are not through an advisor; they are available through employer retirement accounts.

-60/40 US/Int'l split.
-Emerging markets is over-weighted relative to int'l but is roughly global market cap relative to total equities (about 12.5% of equities).
-I have a strong risk tolerance (at least for retirement assets) and don't care much about "tracking error" relative to other people's portfolios or the S&P 500.
-I am aware of the simplicity, past results, and other potential benefits of a 3 or 4 fund portfolio. But feel free to remind me as you may desire.
-Glide path would be to continue increasing fixed income and decreasing equities. I may eventually allocate slightly more to my existing alternatives or additional alternatives over time.

-Thanks for the comment about the three-fund portfolio comparison as a reference point. That was the starting point for the development of my portfolio. My allocation in a 3 fund would be about 80/20 or 77.5/22.5, with a US/int'l split of 60/40. I think of the alternatives as 50/50 equities/bonds, which puts me at a hypothetical 80/20. My actual portfolio's focus on safer fixed income (relative to total bond, which includes exposure to credit risk), limited allocation to alternatives (hopefully providing a less correlated asset class and returns), and emphasis on exposure to value is to provide a similar expected return to an 80/20 3-fund but with reduced left tail risk and somewhat less correlated asset classes.

1. Equities--72.5%
a. US Equities (43.5%)
i. Small Value (20% -- DFSVX, DFA U.S. Small Cap Value Portfolio)
ii. Large Value (5% -- VTV, Vanguard Value ETF)
iii. Market (18.5% -- 80/20 split VFIAX/VEXAX -- Vanguard 500 Index Fund / Vanguard Extended Market Index)

b. Int’l Equities (29%)
i. Small Value (12% AVDV – Avantis Int’l Small Cap Value)
ii. Large Value (8% EFV -- iShares MSCI EAFE Value Index)
iii. EM Value (9% DFEVX -- DFA Emerging Markets Value Portfolio)

2. Fixed Income--12.5%
a. TIAA Traditional (7.5%)
b. Short-term Treasuries / CDs (5%)

3. Alternatives—15%
a. TIAA Real Estate (10%)
b. QRPIX (5% AQR Alternative Risk Premia Fund)

1) Why was EFV your Int value choice? I’ve generally found FNDF and IVLU to be stronger contenders.

2) What is the yield on the TIAA RE? I ask because some REITs tend to be rather rich so value funds have been skewing away from real estate. It would be counterproductive if you then had an additional RE allocation undoing some of your value tilt. I like alternatives but since all the ones that interest me are so rich (RE, commodities and carry), I’ve stayed away. I’m a value investor at heart. Your portfolio tells me you are too.

3) No comment on the AQR fund. I’m going to assume you did your due diligence on it and trust the factors it uses. I also don’t know much about DFA funds so can’t comment there.

Thanks for the thoughtful questions.

1) I didn't like IVLU's strong overweight in Japan (40%). The "tracking error" relative to a blended index doesn't bother me, and I get that IVLU is picking the best value opportunities, many of which are apparently in Japan, but the significant overweight in Japan makes me a little nervous from a geopolitical diversification standpoint.

With respect to FNDC, it didn't seem as valuey as EFV according to a look at M* and factor loads from PortfolioVisualizer (Sep 2015 -- Nov. 2019; 3 factor model):
-EFV: .37
-IVLU: .45
-FNDF: .18

IVLU provides slightly more value factor exposure at a slightly lower ER, but I couldn't get over the overweight in Japan.

But please let me know if I'm wrong or missing something. I'd also be curious if you think the overweight to Japan is not a big deal relative to the value exposure at a lower cost.

2) TIAA Real Estate is a weird fund; it is about 75% direct ownership in commercial RE and 25% marketable securities. It doesn't pay dividends; the income from the properties remains in the fund. That is a long way of saying that I don't know what the weighted average cap rate of the properties is, i.e. the yield. Your question and comments on this are good ones though--as you said, I don't want to undo a significant portion of the value tilt just to have RE exposure. Definitely something to consider further, which I hadn't before.

3) Thanks; I plan to hold the AQR fund for ten years and reevaluate at that time. I trust the factors and have done the research. But frankly, if Swedroe wasn't so pro on the fund, I don't know whether I would have invested. I plan to split evenly the portion currently allocated to the AQR fund with another fund, but I haven't finished due diligence on the other fund yet. (ESATX, Parametric Research Affiliates System, if anyone is curious or has thoughts.)

[Steve Reading]

Thanks for the thoughtful questions.

1) I didn't like IVLU's strong overweight in Japan (40%). The "tracking error" relative to a blended index doesn't bother me, and I get that IVLU is picking the best value opportunities, many of which are apparently in Japan, but the significant overweight in Japan makes me a little nervous from a geopolitical diversification standpoint.

It just depends on your portfolio. My Int LCV holding is about 12% of my overall portfolio so whether it has 20%, 25% or 40% of Japan, it turns out to be a minuscule change in my overall portfolio in terms of geopolitical tilt. It comes out to like 1-2% extra weight on Japan. I'm chill with that. I don't need every single one of my funds to be a good fund on their own right; I always mostly worried about the portfolio as a whole.

You might come to a different conclusion.

With respect to FNDC, it didn't seem as valuey as EFV according to a look at M* and factor loads from PortfolioVisualizer (Sep 2015 -- Nov. 2019; 3 factor model):
-EFV: .37
-IVLU: .45
-FNDF: .18

IVLU provides slightly more value factor exposure at a slightly lower ER, but I couldn't get over the overweight in Japan.

I'd be concerned that 4 years isn't much time at all. I generally prefer more data for regressions to see how the methodology loads over multiple cycles, recessions, etc. Four years is short to form an opinion. Here's a factor regression with index data from 1996 to 2019 (I only had data from 1998 for IVLU):

FNDF value load = 0.32
EFV value load = 0.37
IVLU value load = 0.4

So they're close in value. I wouldn't really worry about those differences. One thing to worry about is that EFV has shown a statistically significant negative alpha through the regression (probably a negative MOM loading), which neither FNDF nor IVLU showed. FNDF most likely made up for the neg MOM loading via its quality load. Either way, I opted for FNDF simply because it's got the lowest ER while still loading on value well enough in my book and avoiding (so far) negative alpha. IVLU would be next. And I'd place EFV, with the higher ER and potential for continued neg alpha last.

The above is historical. What about now? Well, FNDF has a much lower PB ratio right now and only a tiny bit higher PE than EFV. I would think it's at least as value-oriented now as EFV, if not more so. So beware of Morningstar as well and take what they say with a grain of salt. Personally, I don't even use them.

[Steve Reading]

I plan to split evenly the portion currently allocated to the AQR fund with another fund, but I haven't finished due diligence on the other fund yet. (ESATX, Parametric Research Affiliates System, if anyone is curious or has thoughts.)

Let me know when you're finished. I looked into it and found something that was really really weird and surprising (in a bad way). I'm pretty sure I won't invest there (if I'm correct in what I think it means).

Curious to see if you find any red flags. Perhaps I'm just mistaken.

[JamesDean44]

It just depends on your portfolio. My Int LCV holding is about 12% of my overall portfolio so whether it has 20%, 25% or 40% of Japan, it turns out to be a minuscule change in my overall portfolio in terms of geopolitical tilt. It comes out to like 1-2% extra weight on Japan. I'm chill with that. I don't need every single one of my funds to be a good fund on their own right; I always mostly worried about the portfolio as a whole.

I think you're right re FNDF / IVLU / EVF. I think my analysis overreacted to the Japan overweight. I'm going to take a look at the data you presented (thanks for that) and think further, but I will probably end up dumping EVF.

I plan to split evenly the portion currently allocated to the AQR fund with another fund, but I haven't finished due diligence on the other fund yet. (ESATX, Parametric Research Affiliates System, if anyone is curious or has thoughts.)

Let me know when you're finished. I looked into it and found something that was really really weird and surprising (in a bad way). I'm pretty sure I won't invest there (if I'm correct in what I think it means).

Curious to see if you find any red flags. Perhaps I'm just mistaken.

Will do.

[wickywack]

A quick thought - it feels redundant to have both a value tilt in your equities and QRPIX (which includes the value factor). You might consider dropping one and increasing the other to simplify.

More generally, you might also start with a three-fund portfolio as a reference point on what kind of risk adjusted return you're looking for. E.g., if you didn't have alternatives or value funds, what would your allocation be? Are alternatives coming out of stocks or bonds? What's their role in your portfolio?

Yep

Thanks for the responses. I don't think it is redundant, but please let me know if I'm missing something. QRPIX does include substantial value exposure on the equities side, but also uses other factors/styles across other asset classes. And QRPIX is market neutral; i.e. little to no correlation to beta. I don't think you can really equivocate QRPIX with going long on value equities.

Redundant is the wrong word. My understanding is that QRPIX / QSPIX has done poorly this past year primarily because value has done poorly. In the future, when another poor value year occurs, do you want that exposure in both equities and alternatives? I haven't really thought through the math here - perhaps you have - but I'd worried about greater correlation between equities and alternatives with the common value bet.

[Steve Reading]

A quick thought - it feels redundant to have both a value tilt in your equities and QRPIX (which includes the value factor). You might consider dropping one and increasing the other to simplify.

More generally, you might also start with a three-fund portfolio as a reference point on what kind of risk adjusted return you're looking for. E.g., if you didn't have alternatives or value funds, what would your allocation be? Are alternatives coming out of stocks or bonds? What's their role in your portfolio?

Yep

Thanks for the responses. I don't think it is redundant, but please let me know if I'm missing something. QRPIX does include substantial value exposure on the equities side, but also uses other factors/styles across other asset classes. And QRPIX is market neutral; i.e. little to no correlation to beta. I don't think you can really equivocate QRPIX with going long on value equities.

Redundant is the wrong word. My understanding is that QRPIX / QSPIX has done poorly this past year primarily because value has done poorly. In the future, when another poor value year occurs, do you want that exposure in both equities and alternatives? I haven't really thought through the math here - perhaps you have - but I'd worried about greater correlation between equities and alternatives with the common value bet.

But QRPIX invests in 5 other factors and it uses 3 asset classes. I’m not claiming they’re all equally weighted but if they were, the only overlap is like 1/15th (the equity value slice).

Certainly it would be ideal if there were no overlap (although the value tilt on currency and FI is still nice). But there aren’t really funds that I know of that have such a wide variety of exposures to alternative premia, over multiple asset classes (albeit I haven’t done too much research on this space yet). So between QRPIX and nothing at all, IF I wanted the exposure to all those factors, I might gladly use QRPIX. Again not ideal, but better than nothing.

BTW, I don’t invest nor do I want to invest in QSPIX. Just an opinion

[goodenyou]

You will be well-served to get a Nisiprius back-tested analysis of your strategy replete with colorful charts. It will be a thorough analysis with a commentary on why or why not your strategy is flawed. I don’t have that skill set or time, but I will make a prediction: your strategy won’t hold up to a rigorous analysis or you will be challenged on defending your strategy.

[2commaBH]

People much smarter than me consistently tell me that liquid alts are a sucker's bet, presumably because the retail versions bear little resemblance to the true alternatives available to AIs and QPs. One person likened it to Olive Garden vs a hidden jewel family restaurant in Siena.

I haven't done the analysis myself as I have direct exposure to the asset class, just passing on in case it is helpful.

What asset class do you have direct exposure to? (If you don't mind me asking )

A mix of private equity, RE, VC and some credit.

Thanks; I think of TIAA Real Estate as being similar to direct investment in commercial RE. I'm an AI, but I don't have an inside line on the best deals and hard to vet.

With the caveat that I haven't spent too much time analyzing this TIAA fund, I doubt it is all that similar to direct investment in CRE. The real question is how much it differs (if at all) from a traditional REIT like VNQ.

[JamesDean44]

With the caveat that I haven't spent too much time analyzing this TIAA fund, I doubt it is all that similar to direct investment in CRE. The real question is how much it differs (if at all) from a traditional REIT like VNQ.

There has been lots of debate about how close TIAA RE approximates direct investment and how closely correlated it has been to stocks and how closely correlated it likely will be in the future. The fund is basically: half direct ownership in properties, 1/4 joint venture ownership in properties, and 1/4 marketable securities. Income from the properties is invested back in the fund. Regardless, my thinking is that it is a distinct asset class with diversification benefits and a somewhat lower correlation to equities than REITs or indexes like VNQ tracking REITs.

But QRPIX invests in 5 other factors and it uses 3 asset classes. I’m not claiming they’re all equally weighted but if they were, the only overlap is like 1/15th (the equity value slice).

Certainly it would be ideal if there were no overlap (although the value tilt on currency and FI is still nice). But there aren’t really funds that I know of that have such a wide variety of exposures to alternative premia, over multiple asset classes (albeit I haven’t done too much research on this space yet). So between QRPIX and nothing at all, IF I wanted the exposure to all those factors, I might gladly use QRPIX. Again not ideal, but better than nothing.

BTW, I don’t invest nor do I want to invest in QSPIX. Just an opinion

I generally agree, but it is greater than 1/15 because value is the the largest factor/style target and equities make up about 1/2 of the fund's asset class, among other reasons. Still definitely not redundant and should be uncorrelated given the rest of the fund and that beta still dominates going long on value equities. (And 305pelusa, I fully recognize you weren't actually stating that it was 1/15th slice but that you were just using that fraction to make your larger point--and I agree with your point.)

[SandysDad]

What you outlined is quite sound.

But since you said retirement portfolio I do have to ask if there is another part of your portfolio with a different allocation such as college fund etc. ?

As far as glide path, I think from 80/20 you can start your trim of equities between 10 and 5 years out from actual retirement date.

[JamesDean44]

What you outlined is quite sound.

Thanks for the feedback.

As far as glide path, I think from 80/20 you can start your trim of equities between 10 and 5 years out from actual retirement date.

That is slightly more aggressive than I was planning on. If you don't mind sharing, what is your reasoning for departing from a more traditional glide path such as in the Vanguard target date funds?

But since you said retirement portfolio I do have to ask if there is another part of your portfolio with a different allocation such as college fund etc. ?

I have a separate tiered emergency fund, which is equal proportions (i) high yield savings, (ii) money market, and (iii) short term treasuries / equities at 60/40). And 529 accounts for my three young kids (aged 5/3/0). I realize that many advocate for thinking of all your assets in one portfolio, but I prefer thinking of them separately given different objectives and time horizons.

[retired@50]

if you want to gamble on QRPIX, it is your money.

Is it just me, or is Yahoo out of date on their financial information...??? Is the expense ratio for QRPIX really 3.36%...???

Believe it or not this is a serious question... How can anyone but AQR make any money using this fund?

Regards,

[JamesDean44]

if you want to gamble on QRPIX, it is your money.

Is it just me, or is Yahoo out of date on their financial information...??? Is the expense ratio for QRPIX really 3.36%...???

Believe it or not this is a serious question... How can anyone but AQR make any money using this fund?

Regards,

That ER figure includes some trading costs rather than just the management fee. There is a recent thread discussing QSPIX and its fees in some detail.

[greg24]

How can anyone but AQR make any money using this fund?

They don't.

[retired@50]

if you want to gamble on QRPIX, it is your money.

Is it just me, or is Yahoo out of date on their financial information...??? Is the expense ratio for QRPIX really 3.36%...???

Believe it or not this is a serious question... How can anyone but AQR make any money using this fund?

Regards,

That ER figure includes some trading costs rather than just the management fee. There is a recent thread discussing QSPIX and its fees in some detail.

I found the QSPIX thread and the article by Swedroe. It's an interesting idea in theory, trying to avoid the worst down periods of the market by sacrificing some of the highest returns during the good periods, but it seems like very expensive insurance with a very brief historical track record.

Best of luck to you. Regards,

[JamesDean44]

I found the QSPIX thread and the article by Swedroe. It's an interesting idea in theory, trying to avoid the worst down periods of the market by sacrificing some of the highest returns during the good periods, but it seems like very expensive insurance with a very brief historical track record.

Best of luck to you. Regards,

Thanks for the comment. I don't look at the fund in my portfolio precisely in the way you described, but I don't want to go into too much detail given the recent locked-thread and how that turned out. I'll provide an update in this thread down the road with how my portfolio is doing.

They don't.

I am not going to debate the merits (or perceived lack of merit) again in this thread.