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anaelmasri
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Re: High Dividend for diversification

Post by anaelmasri »

tibbitts wrote: Tue Sep 22, 2020 8:49 pm
anaelmasri wrote: Tue Sep 22, 2020 6:27 pm what is a good portfolio of dividend assets that one can start buying shares in at a young age and build it over the course of 30 years without having to sell or substitute with time? like a solid 10 to 15 stocks or etfs or whatever to hold on to and keep DCA and DRIP approach to so that when one hits retirement they can just live off those dividends? talking- LONG TERM in addition to VTI and VXUS and small BND for example (total stock market and total International ). would going with a VYM better than lets say a reputable long term dividend company a KO? I know the risk is higher with a singular stock.

would it be more effective for more income to hold high dividend individual stocks vs high dividend etfs long term? would love to know your experience.
You apparently don't realize how much any selection of 10 or 15 "solid" stocks is likely to change over a period of 30+ years. But you're also misguided regarding the value of a dividend strategy. You aren't even seeking a somewhat hybrid strategy like dividend growth; you're specifying pure high-dividend.
I feel bnd I can bring in five to ten years from now. I am trying to simply add to my portfolio besides vti and vxus a jnj or vnq which still would diversify
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anaelmasri
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Re: High Dividend for diversification

Post by anaelmasri »

tibbitts wrote: Thu Sep 24, 2020 1:47 pm
anaelmasri wrote: Thu Sep 24, 2020 12:50 pm My strategy moving forward is to buy only quality companies usually of the dividend aristocrat types and plan on buying and holding forever. Then I can start using the dividends later on to supplement my retirement. While there are no guarantees that any company may cut or suspend dividends, it’s quite rare in the Aristocrats.
Based on the turnover rate of the Dividend Aristocrats, how many of the 10-15 stocks do you think you'll be able to hold for 30 years? Or are you going to hold even if a stock gets booted from the Aristocrats?
I would reasses when booting but I am planning more to hold and buy when market is low
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anaelmasri
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Re: High Dividend for diversification

Post by anaelmasri »

Jack FFR1846 wrote: Thu Sep 24, 2020 12:57 pm
CyclingDuo wrote: Wed Sep 23, 2020 9:54 am
There are many folks here on Bogleheads and in other message forums that are in the "sweet spot" of household income and household expenses that can use the tax code to mitigate their taxable income and pay $0 on qualified dividend income in a taxable account. Pre-tax deductions into retirement accounts and the standard deduction being the most commonly used methods to lower one's taxable income so that qualified dividends (or long term capital gains) in a taxable account receive the favorable tax treatment of $0.
Is that referring to ira or tax advantage accounts ?

Thanks for pointing that out. I was too focused on my own present situation where any added dividends is taxed both federal and state where my "hold" shares of BRK/b pay none, so I pay nothing now. But indeed, for those who can get into the 0% bracket for LTCG and qualified dividends, dividend paying stocks or funds may be used to take some income without paying tax on it.
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Re: High Dividend for diversification

Post by surfstar »

If you want to add to your portfolio, just buy more VTI.

As for The Aristocrats, I think Gilbert Gottfried's version is quite hilarious.
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anaelmasri
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three fund vs four funds and bonds

Post by anaelmasri »

[Thread merged into here, see below. --admin LadyGeek]

Hello everyone.

I have been leaning towards pursuing my IRA in a 3 fund portfolio , but vanguard also recommends a 4 fund portfolio- for LONG TERM. Do you prefer the three fund or 4 fund approach? and WHY?

also, BONDS have had a mixed reaction due to its low return in recent history. is it still valuable to hold BONDs (I.e. BND etf) in a 3 fund portfolio long term? (my AA 90% stocks 10% bonds) . what are your thoughts on BONDs?

thank you all
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Re: three fund vs four funds and bonds

Post by arcticpineapplecorp. »

anaelmasri wrote: Sat Sep 26, 2020 1:30 pm Hello everyone.

I have been leaning towards pursuing my IRA in a 3 fund portfolio , but vanguard also recommends a 4 fund portfolio- for LONG TERM. Do you prefer the three fund or 4 fund approach? and WHY?

also, BONDS have had a mixed reaction due to its low return in recent history. is it still valuable to hold BONDs (I.e. BND etf) in a 3 fund portfolio long term? (my AA 90% stocks 10% bonds) . what are your thoughts on BONDs?

thank you all
you should specify what you mean. there are four fund portfolios that include reits (like Core-4).

by three fund do you mean:
total U.S. Stock market index fund
total international stock market index fund
total U.S. bond market index fund?

and by four fund do you mean:
total U.S. Stock market index fund
total international stock market index fund
total U.S. bond market index fund
total international bond market index fund?

if so, either's fine, but I don't think international bonds are needed since they're hedged to U.S. so the return is going to be close to U.S. bonds but you're paying more for the hedging and international bonds may be slightly riskier than U.S. bonds.

A target date retirement fund would work fine in your IRA (not for taxable accounts) and that is the four fund I wrote above. Nothing wrong with that. A little more expensive but saves you time having to rebalance and reduce risk (decrease stocks/increase bonds) as you get older.

good default option.

bonds aren't for making you money, they're for reducing volatility and keeping the money you've made in stocks safe (if you sell stocks and buy bonds with the proceeds which is what the target date retirement fund will do over time).

bond's haven't had low returns in recent history. they've done well since interest rates have dropped. in fact U.S. and international bonds have handily beaten both U.S. stocks and international stocks this year:

Image

that despite all the experts saying since 2009 that rates can't go any lower. and yet they did. granted they went higher a year or so ago before they decreased during the latest crisis. you just don't know what's going to happen despite the fed saying rates will stay low til 2023. that may or may not happen. if it does your bonds won't make you much but they'll dampen any future volatility. if it doesn't and rates need to go a little higher because inflation becomes higher than desired, then your bonds' values will drop initially, but then make that back over time with the higher interest rates received.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: three fund vs four funds and bonds

Post by FiveK »

1. Three, for simplicity. I'm assuming foreign bonds is your fourth?

2. Asset allocation is a personal thing. "Appropriate" allocations depend on various things, with age only one of them. You might consider what Asset allocation suggestion calculator suggests for you. On the face of it, 90/10 is not unreasonable - but details matter.
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Re: three fund vs four funds and bonds

Post by 1789 »

anaelmasri wrote: Sat Sep 26, 2020 1:30 pm Hello everyone.

I have been leaning towards pursuing my IRA in a 3 fund portfolio , but vanguard also recommends a 4 fund portfolio- for LONG TERM. Do you prefer the three fund or 4 fund approach? and WHY?

also, BONDS have had a mixed reaction due to its low return in recent history. is it still valuable to hold BONDs (I.e. BND etf) in a 3 fund portfolio long term? (my AA 90% stocks 10% bonds) . what are your thoughts on BONDs?

thank you all
You can also look into choosing one of the “life strategy funds” (4 fund portfoio in one fund). They have fixed allocations for each funds that Vanguard recommends. I believe the returns between 3 vs 4 funds should be more or less close enough. The important thing is your AA and how you split that between each.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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anaelmasri
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VHT And VNQ

Post by anaelmasri »

[Thread merged into here, see below. --admin LadyGeek]

VHT (vanguard health care etf) or VNQ (vanguard real estate etf)?
Vnq is really popular amongst posters or four fund portfolios - yet vht has 400 holdings which is higher than vnq, less expense ratio . Also MSCI rates vht at 5.94/10 while vnq at 4.31/10. Furthermore their performance over 10 years shows vht being more superior.
Why aren’t more people investing in the health care etf as opposed to real estate etf?
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Re: VHT And VNQ

Post by abuss368 »

anaelmasri wrote: Sat Sep 26, 2020 3:00 pm VHT (vanguard health care etf) or VNQ (vanguard real estate etf)?
Vnq is really popular amongst posters or four fund portfolios - yet vht has 400 holdings which is higher than vnq, less expense ratio . Also MSCI rates vht at 5.94/10 while vnq at 4.31/10. Furthermore their performance over 10 years shows vht being more superior.
Why aren’t more people investing in the health care etf as opposed to real estate etf?
Your post speaks to me as I fell into the sector trap years ago. Metals, Healthcare, Energy, Real Estate, Technology!

Wait that is practically a closet index fund at much higher cost and complexity.

I soon realized Total Market index funds like Total Stock and Total International Stock were all that was needed.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: VHT And VNQ

Post by abuss368 »

As a follow up, don’t forget that Jack Bogle’s said “most investors could go their lifetime without the need for a sector fund.”

For ever sector fund you buy for possible outperformance there is someone on the other end of the trade (Gordon Gekko) who thinks it will underperform.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: VHT And VNQ

Post by Boglelicious123 »

abuss368 wrote: Sat Sep 26, 2020 3:07 pm
anaelmasri wrote: Sat Sep 26, 2020 3:00 pm VHT (vanguard health care etf) or VNQ (vanguard real estate etf)?
Vnq is really popular amongst posters or four fund portfolios - yet vht has 400 holdings which is higher than vnq, less expense ratio . Also MSCI rates vht at 5.94/10 while vnq at 4.31/10. Furthermore their performance over 10 years shows vht being more superior.
Why aren’t more people investing in the health care etf as opposed to real estate etf?
Your post speaks to me as I fell into the sector trap years ago. Metals, Healthcare, Energy, Real Estate, Technology!

Wait that is practically a closet index fund at much higher cost and complexity.

I soon realized Total Market index funds like Total Stock and Total International Stock were all that was needed.
+1 on this. It really is a trap...it seems counter-intuitive but trying less is actually the way to achieve more in this game

I tried the sector game for awhile because I thought it would be fun and I could create some alpha along the way. All it does it add stress and needlessly over complicate your investing process
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Re: VHT And VNQ

Post by Johm221122 »

A higher return over 10 years? Don't chase performance
REITs are popular because there suppose to kind of be another asset class(more diversification). Pick an asset allocation that fits your needs \wants and then stick with it. I personally don't tilt any sectors but do tilt small \mid cap.
There will always be something that outperforms your choices. Looking at 10 year comparisons isn't going to tell you anything.
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Re: VHT And VNQ

Post by rkhusky »

anaelmasri wrote: Sat Sep 26, 2020 3:00 pm VHT (vanguard health care etf) or VNQ (vanguard real estate etf)?
Vnq is really popular amongst posters or four fund portfolios - yet vht has 400 holdings which is higher than vnq, less expense ratio . Also MSCI rates vht at 5.94/10 while vnq at 4.31/10. Furthermore their performance over 10 years shows vht being more superior.
Why aren’t more people investing in the health care etf as opposed to real estate etf?
10 years performance doesn't include the the 2008 recession. When comparing fund performance, you should at least check back to the earliest common date. And also a variety of starting and ending periods. Looking at a graph provides the best view of past performance.

People tilt to the real estate fund because they feel that there is a lot of real estate that is not captured by the real estate fund, which is mainly real estate investment trusts (REIT's). So, they double up on the real estate fund in hopes of capture some of the other real estate in the economy. But there is a lot of the economy, not just real estate, that is not reflected in the stock market - basically all the private businesses. I don't get just the focus on real estate. Admittedly, REIT's do operate under different rules than other stocks, so there might be an argument that they are sufficiently different as to label them a different asset class and one could add more REIT as a diversifier.
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Re: VHT And VNQ

Post by Elysium »

anaelmasri wrote: Sat Sep 26, 2020 3:00 pm VHT (vanguard health care etf) or VNQ (vanguard real estate etf)?
Vnq is really popular amongst posters or four fund portfolios - yet vht has 400 holdings which is higher than vnq, less expense ratio . Also MSCI rates vht at 5.94/10 while vnq at 4.31/10. Furthermore their performance over 10 years shows vht being more superior.
Why aren’t more people investing in the health care etf as opposed to real estate etf?
If you follow Jack Bogle, then you should know that he did not consider any sector funds to be special, including REITs. In fact, he thought REITs especially is a poor choice for a sector fund. In his words from Commonsense on Mutual Funds. "REITs are a sector subject to the vagaries of the market". What vagaries? this is something he hasn't explained, based on my understanding they are complex instruments with hybrid structure and differential tax treatments that makes it harder to value than other stocks. He did not trust them, I do not either to include as a separate allocation.

He also allowed 5% in any sector if one is so inclined. From this perspective, Healthcare is as good as any other, and I have observed it to be more defensive than some of the more volatile sectors like Energy, Technology, REITs. I would follow this if you must invest in a sector, make it 5% and limit to just one sector fund. But you have to consider your overall portfolio, because 5% in this and then another 5% that soon you have a very inefficient allocation. If you have a 3-fund portfolio and then wish to throw in a sector, then make sure you can hold it forever, pick one that is less volatile than market, and limit it to 5%.
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Re: three fund vs four funds and bonds

Post by snailderby »

1. I'm assuming that the three-fund portfolio you're referring to is this (https://www.bogleheads.org/blog/2020/01 ... 19-update/), and the four-fund portfolio you're referring to is this (https://www.bogleheads.org/wiki/Vanguar ... _portfolio). Vanguard explained its rationale for adding international bonds in this whitepaper (https://personal.vanguard.com/pdf/ISGGLBD.pdf). However, if your bond allocation is a relatively small portion of your portfolio, including or excluding international bonds is unlikely to make a significant impact on your returns.

2. High-quality bonds help decrease volatility and provide ballast in times of stability.
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Re: VHT And VNQ

Post by snailderby »

anaelmasri wrote: Sat Sep 26, 2020 3:00 pm VHT (vanguard health care etf) or VNQ (vanguard real estate etf)?
Vnq is really popular amongst posters or four fund portfolios - yet vht has 400 holdings which is higher than vnq, less expense ratio . Also MSCI rates vht at 5.94/10 while vnq at 4.31/10. Furthermore their performance over 10 years shows vht being more superior.
Why aren’t more people investing in the health care etf as opposed to real estate etf?
Past returns are not particularly predictive of future returns. Investing based on past returns is like driving by looking in the rearview mirror.
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Re: three fund vs four funds and bonds

Post by BolderBoy »

anaelmasri wrote: Sat Sep 26, 2020 1:30 pmDo you prefer the three fund or 4 fund approach? and WHY?
3. Not a fan of foreign bonds (don't understand them).
what are your thoughts on BONDs?
Bonds (actually 'fixed-income investments') help mitigate portfolio volatility. So they are an important component of a portfolio.

Your selected AA of 90/10 is very aggressive (high risk).
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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Re: three fund vs four funds and bonds

Post by dknightd »

anaelmasri wrote: Sat Sep 26, 2020 1:30 pm Hello everyone.

I have been leaning towards pursuing my IRA in a 3 fund portfolio , but vanguard also recommends a 4 fund portfolio- for LONG TERM. Do you prefer the three fund or 4 fund approach? and WHY?

also, BONDS have had a mixed reaction due to its low return in recent history. is it still valuable to hold BONDs (I.e. BND etf) in a 3 fund portfolio long term? (my AA 90% stocks 10% bonds) . what are your thoughts on BONDs?

thank you all
I have no idea what Vanguard recommends. I use 4 assets classes, for reasons beyond my control they live in more than 4 funds.
1) Stock index from the country I live in.
2) Stock index from the rest of the world.
3) Bond index from the country I live in.
4) Cash like things.

You are 90% stocks. I would not go over that. You might want to split your remaining 10% between bonds and cash, but it probably is not worth the effort. Your 90% in stocks makes the rest almost ignore-able.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.
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anaelmasri
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Re: three fund vs four funds and bonds

Post by anaelmasri »

FiveK wrote: Sat Sep 26, 2020 1:44 pm 1. Three, for simplicity. I'm assuming foreign bonds is your fourth?

2. Asset allocation is a personal thing. "Appropriate" allocations depend on various things, with age only one of them. You might consider what Asset allocation suggestion calculator suggests for you. On the face of it, 90/10 is not unreasonable - but details matter.
I’m trying to figure out if my fourth should be vnq or stick to three
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Re: VHT And VNQ

Post by anaelmasri »

Then is adding individual stocks as jnj or ko for example instead of the sector etf at 5% for long term is a better choice ?
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FiveK
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Re: three fund vs four funds and bonds

Post by FiveK »

anaelmasri wrote: Tue Sep 29, 2020 12:33 am
FiveK wrote: Sat Sep 26, 2020 1:44 pm 1. Three, for simplicity. I'm assuming foreign bonds is your fourth?

2. Asset allocation is a personal thing. "Appropriate" allocations depend on various things, with age only one of them. You might consider what Asset allocation suggestion calculator suggests for you. On the face of it, 90/10 is not unreasonable - but details matter.
I’m trying to figure out if my fourth should be vnq or stick to three
If I knew the answer to that.... ;)
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Re: VHT And VNQ

Post by Johm221122 »

anaelmasri wrote: Tue Sep 29, 2020 12:37 am Then is adding individual stocks as jnj or ko for example instead of the sector etf at 5% for long term is a better choice ?
We don't know the future performance of any investment. Nobody does and your basically trying to gamble is my guess. You may want to read this
https://www.bogleheads.org/wiki/Boglehe ... philosophy
In summary, a Bogleheads investor tends to (1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.
The best and lowest cost way to buy the whole stock market is with index funds (either through traditional mutual funds or ETFs).
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Re: three fund vs four funds and bonds

Post by Johm221122 »

Nobody knows what is best in future. Don't waist your time worrying about it. Stick with 3 fund portfolio or use a Vanguard fund like one of the target date funds.
My thoughts on bonds use as much as lets you sleep at night and use Total bond market index
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Re: VHT And VNQ

Post by tigerdoc93 »

JNJ is AAA rated stock and is my only individual stock in healthcare sector at this time. I believe it is fairly valued currently and poised for a bounce due to their Covid-19 vaccine. Of course you can get exposure to JNJ by purchasing VTSAX .
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Re: VHT And VNQ

Post by alex_686 »

The justification for a overweight of REITs is that it has a unique persistence low correlation with the overall market and is thus a diversifier. I hold this belief.

In part because I believe one should hold the total market basket. However most commercial real estate is held directly. So we use REITs as a proxy.

In part because REITs is a unique class. IBM and Alphabet are trying to break into health care. However due to tax treatment they are not trying to break into real estate. The tax code is structured to favor pure real estate companies. Hence like bonds they should not be held at market weight.

There are flaws and nuances with the above arguments but that is the high level view.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: VHT And VNQ

Post by alex_686 »

rkhusky wrote: Sun Sep 27, 2020 6:41 am 10 years performance doesn't include the the 2008 recession. When comparing fund performance, you should at least check back to the earliest common date. And also a variety of starting and ending periods. Looking at a graph provides the best view of past performance.
I disagree.

The problem with charts is that humans are pattern recognition machines. Give people charts generated by random data and they will find correlations and draw conc.

Go back from inception? Why? The world has changed, thus the economy, thus the stock market. Throwing more data often makes things worse.

As for 2008 - why does that matter? The reason why you hold REITs is for a diversiver for future returns, not past ones. In 2008 real estate was the bubble that popped taking down the teal economy. It is also the exception to the rule. REITs did nicely during the dot.com bust. Real estate did nice during the energy crisis. Can’t comment on REITs since they were not really around.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: VHT And VNQ

Post by rkhusky »

alex_686 wrote: Tue Sep 29, 2020 6:08 am
rkhusky wrote: Sun Sep 27, 2020 6:41 am 10 years performance doesn't include the the 2008 recession. When comparing fund performance, you should at least check back to the earliest common date. And also a variety of starting and ending periods. Looking at a graph provides the best view of past performance.
I disagree.

The problem with charts is that humans are pattern recognition machines. Give people charts generated by random data and they will find correlations and draw conc.

Go back from inception? Why? The world has changed, thus the economy, thus the stock market. Throwing more data often makes things worse.

As for 2008 - why does that matter? The reason why you hold REITs is for a diversiver for future returns, not past ones. In 2008 real estate was the bubble that popped taking down the teal economy. It is also the exception to the rule. REITs did nicely during the dot.com bust. Real estate did nice during the energy crisis. Can’t comment on REITs since they were not really around.
So, less data is better? That holds for factor investing too?

Sure, the world has changed. But it could always change back. I see no reason why the last 3 years or 5 years or 10 years is a better predictor of future returns than is the last 20 years. Perhaps data from 100 years ago has less relevance, but 20 or 30 years ago is still part of the age of computers and the Internet.

And if one is looking at low correlations, than Utilities should also be held at higher than market cap.
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Re: VHT And VNQ

Post by alex_686 »

rkhusky wrote: Tue Sep 29, 2020 6:37 am So, less data is better? That holds for factor investing too?

Sure, the world has changed. But it could always change back. I see no reason why the last 3 years or 5 years or 10 years is a better predictor of future returns than is the last 20 years. Perhaps data from 100 years ago has less relevance, but 20 or 30 years ago is still part of the age of computers and the Internet.

And if one is looking at low correlations, than Utilities should also be held at higher than market cap.
You want to use the right amount of data. Casually, I would be skeptical of using anything longer than 10 years.

As you say, 30 years ago is still part of the age of computers and the internet. During that time the mean return, variance, and correlation of the various sectors has had a statistical significant change. Factors are a harder nut to crack. Which one are you referring to? Some factors, like Value and Size have seen changes. However they operate on a long time horizon of 10 years so it is hard to tell. Others, like Regional (a.k.a.) have seen a statistical significant fall in value.

On Utilities, where are you getting your data. I am less familiar with Utilities then REITs., I believe this was true mid-century due to heavy regulation. However, I had though it had fallen away. To extend a bit, Real Estate's correlation, and to a lesser extent REITs, has varied over time but has always been low. I didn't think that Utilities had that pattern.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: three fund vs four funds and bonds

Post by dbr »

anaelmasri wrote: Tue Sep 29, 2020 12:33 am
FiveK wrote: Sat Sep 26, 2020 1:44 pm 1. Three, for simplicity. I'm assuming foreign bonds is your fourth?

2. Asset allocation is a personal thing. "Appropriate" allocations depend on various things, with age only one of them. You might consider what Asset allocation suggestion calculator suggests for you. On the face of it, 90/10 is not unreasonable - but details matter.
I’m trying to figure out if my fourth should be vnq or stick to three
VNQ is not what is added in the Vanguard 4 fund portfolio, in which the added asset is international bonds.

I have no enthusiasm for adding tilts to REITS but you can read previous discussion here: https://www.google.com/search?sitesearc ... allocation

The answer is some people do, including some of the gurus, and other people don't, including some of the gurus, and that nobody knowns, and that you should not expect to get expected returns because the future is variable and uncertain. What causes you to ask?

At 10% bonds a total bond market fund like BND is fine and so is a long term bond fund. If you do invest in long term bonds you have to promise not to complain later if things go badly for that bond investment. If you invest in BND you have to promise not to complain if yields are low for a long time. If you invest in 90% stocks, you could just as well invest in 100% stocks with the advantage that you don't have to spend time and energy worrying about bonds, but you still have to promise not to worry about lots of volatility that comes with stock investing.

I think the basic three fund portfolio with BND is fine for anyone until there is a really good reason to change and I think there are really only three asset allocations: 75/25, 50/50, and 25/75. If someone really insists I won't say they can't hold 100/0 or 0/100.
alex_686
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Re: VHT And VNQ

Post by alex_686 »

anaelmasri wrote: Tue Sep 29, 2020 12:37 am Then is adding individual stocks as jnj or ko for example instead of the sector etf at 5% for long term is a better choice ?
Maybe. There are 2 answers to your question.

First, your asset allocation should maximize your chance of meeting your goals. How does adding JNJ or KO add value to your portfolio? I can't think of anyway it would. For myself, I have added REITs because I believe it to be a diversifier. I would love to short the industry that I work in because I already way overweighed in that assets - but that is impractical.

Second, you may want to buy these stocks tactically because you feel that the market has underpriced these. This is active management. This can work, given skill and luck. It is hard work. It is risky. I have the skills to do this and I don't. If you go down this path you are going to want to sharpen your skills and be discipline.
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Re: VHT And VNQ

Post by rkhusky »

alex_686 wrote: Tue Sep 29, 2020 8:04 am On Utilities, where are you getting your data. I am less familiar with Utilities then REITs., I believe this was true mid-century due to heavy regulation. However, I had though it had fallen away. To extend a bit, Real Estate's correlation, and to a lesser extent REITs, has varied over time but has always been low. I didn't think that Utilities had that pattern.
Over the last 15 years, the correlation of VNQ (Vanguard Real Estate) with VTSAX (Vanguard Total Stock) was 0.73. The correlation of VPU (Vanguard Utilites) with VTSAX was 0.51. The annualized return of VPU was 8.01% vs. 6.66% for VNQ vs. 9.57% for VTSAX.

Over the last 10 years, the correlation of VNQ (Vanguard Real Estate) with VTSAX (Vanguard Total Stock) was 0.66. The correlation of VPU (Vanguard Utilites) with VTSAX was 0.36. The annualized return of VPU was 10.88% vs. 9.25% for VNQ vs. 14.93% for VTSAX.

Over the last 5 years, the correlation of VNQ (Vanguard Real Estate) with VTSAX (Vanguard Total Stock) was 0.71. The correlation of VPU (Vanguard Utilites) with VTSAX was 0.40. The annualized return of VPU was 10.65% vs. 6.40% for VNQ vs. 13.82% for VTSAX.

Using PortfolioVisualizer.com.

Edit: Over the last 15 years a 50/50 mix of VTSAX/VPU has had about the same CAGR as VTSAX (9.31% vs 9.34%), but lower SD (12.35% vs 15.15%). If you use VNQ instead of VPU, the CAGR goes down to 8.52% and the SD goes up to 17.55%.

I need to watch out or I might be tempted to get me some VPU.
Last edited by rkhusky on Tue Sep 29, 2020 8:28 am, edited 3 times in total.
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Re: VHT And VNQ

Post by Impatience »

abuss368 wrote: Sat Sep 26, 2020 3:09 pmFor ever sector fund you buy for possible outperformance there is someone on the other end of the trade (Gordon Gekko) who thinks it will underperform.
Most counterparties in financial markets are hedged, they’re not taking a position on whatever product they’re dealing you.
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Re: VHT And VNQ

Post by alex_686 »

rkhusky wrote: Tue Sep 29, 2020 8:19 am Over the last 15 years, the correlation of VNQ (Vanguard Real Estate) with VTSAX (Vanguard Total Stock) was 0.73. The correlation of VPU (Vanguard Utilites) with VTSAX was 0.51. The annualized return of VPU was 8.01% vs. 6.66% for VNQ vs. 9.57% for VTSAX.

...

Using PortfolioVisualizer.com.
We have 2 issues here, both coming from using too much data.

The first is that correlations assume constant volatility. If volatility has changed in the past 15 years, looking specifically at 2008, you are going to get junk data. The differences you are seeing in your correlation values are due to volatility.

The second is that you are assuming that there is a constant correlation over the past 15 years. This is not true. REITs' correlation was statically lower in the 10 years prior to 2008 than after 2008. If you try to join to different secular eras in data you are going to get garbage results.

Note, I am not saying that your results are false. Just that you have not proved your point. This is how statistics work. You can't prove anything, all you can do is show that the null hypothesis is improbable.
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Re: starting out intelligently.

Post by LadyGeek »

anaelmasri - In order to provide appropriate advice, it's best to keep all the information in one spot. You have many questions, and have started a new thread for each question. I have merged several of your threads into here because it was becoming difficult to follow your situation.

Questions are encouraged, but please don't start a new thread for each one. They are all related to your portfolio and it's important to see everything in context.

May I suggest you post your portfolio information in this thread using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask them here.
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rkhusky
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Re: VHT And VNQ

Post by rkhusky »

alex_686 wrote: Tue Sep 29, 2020 8:32 am.
The second is that you are assuming that there is a constant correlation over the past 15 years. This is not true. REITs' correlation was statically lower in the 10 years prior to 2008 than after 2008. If you try to join to different secular eras in data you are going to get garbage results.
Did you miss the data for the last 5 and 10 years?
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Re: VHT And VNQ

Post by ruralavalon »

anaelmasri wrote: Thu Sep 10, 2020 6:29 pm Hello All,
I am new to investing and this forum has been very instrumental for me to learn alot about trading. As I have been consuming lots of information one cant help but feel lost.

Now I am a freelance artist with no pension or retirement and I am very keen now to start investing as much as I can towards a LONG TERM investment.
with that said, Index funds and ETFs seem to be the best two entities one should consider given my situation.

Now I am very drawn to vanguard, specially index funds and s&p500 stock - but ofcourse the minimum of $3000 can be hard.
I have a couple of questions and hope you can help me.

1- if I cant afford to open an index fund, if I invest in the same alternative ETF of the index fund, would more likely my return outcome in 10 to 20 years be similar? if thats the case am I better off investing in an index fund va fidelity or schwab as opposed to focusing on vanguard etfs?

2- If I open a VSTAX at 3000$ minimum, if I want to open another index fund - do I need to have another seperate $3000 for another index fund?
3- I dont have a 401k or roth ira - would it be better for long term to invest via a Roth IRa or a regular brokerage account?

thank you so much.
anaelmasri wrote: Tue Sep 29, 2020 12:37 am Then is adding individual stocks as jnj or ko for example instead of the sector etf at 5% for long term is a better choice ?
You are wasting your time worrying about the funds or stocks to use, you need to find a way to increase your contributions. My suggestion is simply use a single target date fund or Vanguard LifeStrategy fund in your IRA, and contribute the maximum allowed every year.

When just starting the most important investing decision you can make is to establish a high rate of contributions. "Savings rate is the most important retirement savings decision, not only because of the math but because of the way it drives your financial mindset and habits. The basic raw stock/bond risk decision comes second. And the finer details--index or active, factors or total market, alts or no alts--are a distant third." Forum discussion on Jonathan Clements’ article "Show me the Money".
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Re: VHT And VNQ

Post by abuss368 »

Impatience wrote: Tue Sep 29, 2020 8:20 am
abuss368 wrote: Sat Sep 26, 2020 3:09 pmFor ever sector fund you buy for possible outperformance there is someone on the other end of the trade (Gordon Gekko) who thinks it will underperform.
Most counterparties in financial markets are hedged, they’re not taking a position on whatever product they’re dealing you.
Would you be able to expand in detail?
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Re: VHT And VNQ

Post by alex_686 »

rkhusky wrote: Tue Sep 29, 2020 9:01 am
alex_686 wrote: Tue Sep 29, 2020 8:32 am.
The second is that you are assuming that there is a constant correlation over the past 15 years. This is not true. REITs' correlation was statically lower in the 10 years prior to 2008 than after 2008. If you try to join to different secular eras in data you are going to get garbage results.
Did you miss the data for the last 5 and 10 years?
I am trying to figure out how much I should write.

Correlations are a mathematical tool. It is a simple powerful tool. It is also a misunderstood to abused tool. Few people bother with the underlying assumptions of how it works. They enter in garbage data, get garbage results, and run with it. However, you need to think if you are getting good data, a random result, or a statistical artifact. Just because we have a past correlation does mean we will have a future one.

What we want to focus on is the diversification benefit of a particular asset class to our portfolio. As such we always consider the underlying causal factors. These change over time. We want to divide our analysis into "secular periods". These are periods with stable and continent real world factors that drive returns. These should also generate stable mean reverting returns, volatility, and correlations. These tend to last between 5 to 20 years.

First, try to figure out what you are seeing. What is driving the return. Or are you just getting something random.

Second, you want to keep you analysis within a secular period. 2 assets may have a low correlation under secular period #1 and have low correlation under secular period #2. We would consider this a excellent diversifying asset. Combine the 2 periods and we get a high correlation. Why? In reality the asset is a excellent diversifying asset. Or there are fact cases where the assets has a high correlation in period 1, a low correlation for period 2, but has a statistical artifact of a high correlation for the combined periods.

Third, you want to excluded crisis. During crisis volatility increases, increased volatility increase correlations results in a high correlations. REITs correlation increased during the dot.com bust but was a good diversifier. It also increased during the real estate crisis. You can't ignore it, but you can't use correlations.

Fourth, you want to excluded periods of low correlations. Correlations once again increases.

Fifth. Correlations vary from secular period to secular period. Whatever drove certain sectors together in one period might be different in the next.

At this point you may be asking what is left.

To your point on Utilities, I find the data points interesting and worthy of study. It is why I was asking for more information. However, at this point it is just interesting - not statistically significant. No causal links suggested.

One of the reasons why I overweight REITs is that over multiple secular periods real estate (1950s on) and REITs (1970s on) have had consistently low correlations when ranked by sector. Other sectors bounced around. IIRC Utilities lost their low correlations sometime around the 90s during deregulation. But it has been 10 years since I have closely looked at the data.

But let me give you 2 counter-arguments on why you should not overweight REITs.

The pro-REIT camp rests on diversification. However the real estate data is second rate. Limited reporting, survivorship bias, self reporting, data is infrequent and tends to lag. Also, poorly integrated markets lends itself to low correlations. REITs have become more popular since 00', people have been piling in, and generally better integrated. Back in the 80s REITs were more correlated with direct holdings of real estate, now with stocks.

The other is structural. I fear that the returns on equites are going to be driven by changes in interest rate. That in the zero rate environment, small changes in bonds yields with exert a huge dominating forces on equites, pushing the sector factor down.

Anyways, I hope you have a good day. Alex
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: My four plan vanguard portfolio !

Post by dogagility »

anaelmasri wrote: Tue Sep 22, 2020 6:24 pm I am not trying to predict nor beat the market. By default investing in VTI and VXUS makes it seem pointless to invest in anything else cause everything will overlap to some degree.
Bingo! It is pointless.
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Re: VHT And VNQ

Post by snailderby »

ruralavalon wrote: Tue Sep 29, 2020 9:48 amYou are wasting your time worrying about the funds or stocks to use, you need to find a way to increase your contributions. My suggestion is simply use a single target date fund or Vanguard LifeStrategy fund in your IRA, and contribute the maximum allowed every year.

When just starting the most important investing decision you can make is to establish a high rate of contributions. "Savings rate is the most important retirement savings decision, not only because of the math but because of the way it drives your financial mindset and habits. The basic raw stock/bond risk decision comes second. And the finer details--index or active, factors or total market, alts or no alts--are a distant third." Forum discussion on Jonathan Clements’ article "Show me the Money".
+1000. This is great advice. First things first.
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