Why is this portfolio wrong?

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gf30269
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Why is this portfolio wrong?

Post by gf30269 »

2 1/2 years from retirement. Basically am where I want to be in terms of investments right now...future contributions are gravy.

I've had the same portfolio for years. 50% SPY, 50% QQQ. May occasionally go 10% cash.

No international, no emerging markets, no bonds.

Should I change and why???

Thanks,
George
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

gf30269 wrote: Tue Sep 22, 2020 9:42 am 2 1/2 years from retirement. Basically am where I want to be in terms of investments right now...future contributions are gravy.

I've had the same portfolio for years. 50% SPY, 50% QQQ. May occasionally go 10% cash.

No international, no emerging markets, no bonds.

Should I change and why???

Thanks,
George
How far is "had the same portfolio for years" ? QQQ goes only as far as 2000, and this graph shows how 50/50 SPY/QQQ compared to Vanguard Balanced Index, a portfolio of 60/40 Stocks/Bonds that has much less risk:

Red line is Vanguard Balanced Index
Blue line is 50/50 SPY/QQQ

Image

Max drawdown for SPY/QQQ combination is -66% vs. -32% for Balanced Index. That's a whopping two third of your portfolio value lost in a drawndown we just had 12 years back, sure you want this in retirement?

If you would change nothing, then I would ask why not?

Source
Last edited by Elysium on Tue Sep 22, 2020 10:08 am, edited 1 time in total.
Robot Monster
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Re: Why is this portfolio wrong?

Post by Robot Monster »

It's atypical not to have bonds in retirement. Do you require so much stock/risk in order to meet your financial goals? That's a lot of QQQ, a lot of risk.
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JoeRetire
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Re: Why is this portfolio wrong?

Post by JoeRetire »

gf30269 wrote: Tue Sep 22, 2020 9:42 am 2 1/2 years from retirement. Basically am where I want to be in terms of investments right now...future contributions are gravy.

I've had the same portfolio for years. 50% SPY, 50% QQQ. May occasionally go 10% cash.

No international, no emerging markets, no bonds.

Should I change and why???
This is a curious question. If you are happy with your portfolio, there is absolutely no reason to change anything.

It's not like any portfolio I would have. But you aren't me, so my preferences should affect yours.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Beehave
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Re: Why is this portfolio wrong?

Post by Beehave »

My answer is it depends on overall assets. To the degree that there's an emergency fund (cash) and expected pension/annuity/Soc'l Security that cover expected monthly expenses, or to the degree that the stock holdings are very great in value so that a somewhat prolonged bear market early in retirement would not affect quality of life over time, it's fine. Otherwise, for me it's too risky to be 100% in stocks near retirement.

I doubt any of what I wrote is news, so maybe there's more to the question?
MotoTrojan
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Re: Why is this portfolio wrong?

Post by MotoTrojan »

Leaving aside the lack of ex-US and higher risk via no bonds, QQQ is just performance chasing at this point with no academic reason to expect it to outperform or compensate you for the extra risk. In fact, academics say in the long-run that growth will underperform the market (and QQQ is certainly growth). I would sleep much better at night with that half being in small-value myself, but if you can sleep well at night then go for it.

If you really want a heavy tilt to growth, I would consider replacing it with VUG or something else a bit more diversified, but I think you'd be better served moving it all into SPY. Even SPY is a poor ETF as there are much lower expense ratio funds tracking the same index such as VOO; SPY is highly liquid so it is great for people trading derivatives on it but is not the optimal buy&hold S&P500 ETF.

You can see how much more dramatic the early 2000's were for QQQ compared to VUG (and S&P500) here:

https://www.portfoliovisualizer.com/bac ... ion2_2=100
Last edited by MotoTrojan on Tue Sep 22, 2020 10:07 am, edited 1 time in total.
alex_686
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Re: Why is this portfolio wrong?

Post by alex_686 »

Welcome to the forum!

There is nothing inherently wrong with your portfolio, but you should be aware of its weaknesses.

1. When you say that you go to 10% cash occasionally, that sound like market timing. For most people that is a losing game.

2. QQQ is problematic. I know it is "sexy" but the index construction is horrid. It is a semi-random collection of vaguely tech companies.

3. You are 2.5 years towards retirement and 100% equites. S&P skews towards US large cap. You then have double-down and skewed towards high risk stocks in a single sector. There are 2 problems here. It is not a efficient portfolio. That is, you should be able to get better returns or less risk. Next, do you have the capacity of taking that level or risk? Could you handle a 70% drop in your portfolio in retirement?
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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vineviz
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Re: Why is this portfolio wrong?

Post by vineviz »

gf30269 wrote: Tue Sep 22, 2020 9:42 am 2 1/2 years from retirement. Basically am where I want to be in terms of investments right now...future contributions are gravy.

I've had the same portfolio for years. 50% SPY, 50% QQQ. May occasionally go 10% cash.

No international, no emerging markets, no bonds.

Should I change and why???

Thanks,
George

This portfolio is not likely to produce the most retirement income for you, but if you’re planning to withdraw and spend 2% or less each year it probably would be sufficient.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
alex_686
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Re: Why is this portfolio wrong?

Post by alex_686 »

Elysium wrote: Tue Sep 22, 2020 9:55 am How far is "had the same portfolio for years" ? QQQ goes only as far as 2000...
The NASDAQ 100 index goes back to 1985, and that is good enough for this type of analysis. The ETF goes back to the 90s, but traded under QQQQ.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
dbr
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Re: Why is this portfolio wrong?

Post by dbr »

You should change or not change according to your need, ability, and willingness to take risk. That decision is a matter of personal preference and judgement. It is a matter of determining how well your asset allocation fits your objectives and manages possible ways in which you might fail to meet your objectives.

Most people assessing their ability to take risk would not conclude that entering retirement they could manage the possible large losses that could occur in a portfolio like yours. But you may have enough money and enough sources of income that a large, long lasting downturn in stocks would not be a problem. You may also be motivated to die taking a chance to have accumulated as much wealth as possible. Only you can say.

Basing your prospects on holding 100% stocks for the last twenty years may be misleading regarding prospects for the next twenty years.
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

alex_686 wrote: Tue Sep 22, 2020 10:10 am
Elysium wrote: Tue Sep 22, 2020 9:55 am How far is "had the same portfolio for years" ? QQQ goes only as far as 2000...
The NASDAQ 100 index goes back to 1985, and that is good enough for this type of analysis. The ETF goes back to the 90s, but traded under QQQQ.
Good point, but don't think that matters for this context, as I doubt OP held it even back to 2000. Nearly impossible for anyone to have held QQQQ/QQQ through the dark days after Tech crash and then the recovery that look 12+ years.
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Re: Why is this portfolio wrong?

Post by pkcrafter »

gf30269 wrote: Tue Sep 22, 2020 9:42 am 2 1/2 years from retirement. Basically am where I want to be in terms of investments right now...future contributions are gravy.

I've had the same portfolio for years. 50% SPY, 50% QQQ. May occasionally go 10% cash.

No international, no emerging markets, no bonds.

Should I change and why???

Thanks,
George
Well, it's all about risk and how you can ride out a potential loss of 50% or more.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

MotoTrojan wrote: Tue Sep 22, 2020 10:06 am In fact, academics say in the long-run that growth will underperform the market
Which academic said that? Can you provide source where a notable academic said Growth will underperform the market. There is a difference between saying risk adjusted expected returns are likely to be lower vs something will have lower returns. The first is a reasonable assumption based on models they can back up, of course with caveats. Second is speculation or forecasting returns which every analyst on Wall St does, not just academics. I don't want another SV discussion here, but thought should point out this small difference.
MotoTrojan
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Re: Why is this portfolio wrong?

Post by MotoTrojan »

Elysium wrote: Tue Sep 22, 2020 10:20 am
MotoTrojan wrote: Tue Sep 22, 2020 10:06 am In fact, academics say in the long-run that growth will underperform the market
Which academic said that? Can you provide source where a notable academic said Growth will underperform the market. There is a difference between saying risk adjusted expected returns are likely to be lower vs something will have lower returns. The first is a reasonable assumption based on models they can back up, of course with caveats. Second is speculation or forecasting returns which every analyst on Wall St does, not just academics. I don't want another SV discussion here, but thought should point out this small difference.
If we don't want to discuss SV that is fine, not much to say. It was my understanding that most academics said risk-adjusted returns should be equal among all assets, so thus because SV outperforms LG, LG is in fact lower risk (just also lower return). I have never heard a sound rationale for SV having higher risk-adjusted returns, just higher returns (and higher risk, even if that risk doesn't show up in volatility).

So I don't have a handy academic source, other than to say that for the last two centuries growth has underperformed: https://www.twocenturies.com/blog/2020/ ... er-history
bei22000
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Re: Why is this portfolio wrong?

Post by bei22000 »

Without knowing much of your personal information, it is hard to tell you one way or the other. The basic principle is that more risk, greater returns. Certainly, your assets allocation is not seen very often in a typical retirement portfolio. However, as long you have enough incomes covering the basic need and stable (such as having a good pension), I don’t see any reason not to take more risk.
dbr
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Re: Why is this portfolio wrong?

Post by dbr »

Elysium wrote: Tue Sep 22, 2020 10:20 am
MotoTrojan wrote: Tue Sep 22, 2020 10:06 am In fact, academics say in the long-run that growth will underperform the market
Which academic said that? Can you provide source where a notable academic said Growth will underperform the market. There is a difference between saying risk adjusted expected returns are likely to be lower vs something will have lower returns. The first is a reasonable assumption based on models they can back up, of course with caveats. Second is speculation or forecasting returns which every analyst on Wall St does, not just academics. I don't want another SV discussion here, but thought should point out this small difference.
The specific academic model would be the Fama-French model for investment returns. I guess if you don't want an SV discussion, then you can't get an answer to your question either because the Fama-French model is about the dependence of investment returns of a portfolio according to the loading of the portfolio on size and value statistics. In that model the total market is a zero reference point for computations. It is a fair question to ask how well established that model is and how reliable it might be for the prediction of future stock returns, but Fama and French are certainly notable academics. Also, F-E is about returns and not risk adjusted returns.
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ruralavalon
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Re: Why is this portfolio wrong?

Post by ruralavalon »

Welcome to the forum :) .

gf30269 wrote: Tue Sep 22, 2020 9:42 am 2 1/2 years from retirement. Basically am where I want to be in terms of investments right now...future contributions are gravy.

I've had the same portfolio for years. 50% SPY, 50% QQQ. May occasionally go 10% cash.

No international, no emerging markets, no bonds.

Should I change and why???

Thanks,
George
Why do you "occasionally go 10% cash"? How often is "occasionally"?

In my opinion 100% stocks is a bad idea at any age, because of high volatility.

Vanguard Balanced Index Fund (VBINX) with 60% stocks and 40% bonds has had similar performance to 50% S&P 500 + 50% QQQ, with much less volatility. Portfolio Visualizer, 2000-2020.
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alex_686
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Re: Why is this portfolio wrong?

Post by alex_686 »

To the OP, you may want to ignore the Farma French comments as they deal with Growth vs Value, Large verse Small, etc. This is a intermediate topic that you will want to tackle at some point, but maybe not today.

Just note, everybody thinks you have the accelerator mashed on your portfolio pretty hard.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
dbr
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Re: Why is this portfolio wrong?

Post by dbr »

alex_686 wrote: Tue Sep 22, 2020 11:25 am To the OP, you may want to ignore the Farma French comments as they deal with Growth vs Value, Large verse Small, etc. This is a intermediate topic that you will want to tackle at some point, but maybe not today.

Just note, everybody thinks you have the accelerator mashed on your portfolio pretty hard.
Without a doubt the basics of matching what return you want to try for at what amount of uncertainty in getting that return is far, far more important than the quirks of exactly what arrays of stocks to own.

It is also not often that a person in retirement would want a portfolio as risky as that one but without knowing more one can hardly say.
retiredjg
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Re: Why is this portfolio wrong?

Post by retiredjg »

gf30269 wrote: Tue Sep 22, 2020 9:42 am Should I change and why???
There is a difference between accumulating your fortune and preserving your fortune (so that you can spend it). You've done the first part. Retirement is the second part for most people.

You cannot preserve a fortune that is invested in 100% stocks. Every once in awhile, the market is going to take a dive and stay there awhile. If you have way more money than you'll ever need, it probably does not matter - the market can dip 35% or 50% and stay there 18 months and you will still have plenty of money.

If you do not have way more money than you will ever need, you need to think some about preservation - and that means bonds or other fixed income assets. If you do not have way more money than you need but stay 100% in stocks, when the market drops and you keep spending...your portfolio may never recover and could run dry under some circumstances.
drk
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Re: Why is this portfolio wrong?

Post by drk »

In what sense of the word 'wrong' are you asking your question? It has an interesting premise buried somewhere in there.
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1789
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Re: Why is this portfolio wrong?

Post by 1789 »

gf30269 wrote: Tue Sep 22, 2020 9:42 am 2 1/2 years from retirement. Basically am where I want to be in terms of investments right now...future contributions are gravy.

I've had the same portfolio for years. 50% SPY, 50% QQQ. May occasionally go 10% cash.

No international, no emerging markets, no bonds.

Should I change and why???

Thanks,
George
How much do you want in bonds and/or CASH? First you can try to decide this. Since you are 100% stocks, you can start with 80/20 and change later on. This is just an example starting point. For fund selection: If these two ETFs are in tax advantaged accounts i would sell both and do 80% VTI and 20% BND. But if i were at your age and a few years away from retirement i would dump all money into 60/40 balanced index fund.
Last edited by 1789 on Tue Sep 22, 2020 12:12 pm, edited 1 time in total.
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aristotelian
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Re: Why is this portfolio wrong?

Post by aristotelian »

It's fine if you have a high risk tolerance and wish to make a large speculative bet on tech. Expense ratio of VGT is about half of QQQ. Something like SCHG is even lower.
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

MotoTrojan wrote: Tue Sep 22, 2020 10:23 am
Elysium wrote: Tue Sep 22, 2020 10:20 am
MotoTrojan wrote: Tue Sep 22, 2020 10:06 am In fact, academics say in the long-run that growth will underperform the market
Which academic said that? Can you provide source where a notable academic said Growth will underperform the market. There is a difference between saying risk adjusted expected returns are likely to be lower vs something will have lower returns. The first is a reasonable assumption based on models they can back up, of course with caveats. Second is speculation or forecasting returns which every analyst on Wall St does, not just academics. I don't want another SV discussion here, but thought should point out this small difference.
If we don't want to discuss SV that is fine, not much to say. It was my understanding that most academics said risk-adjusted returns should be equal among all assets, so thus because SV outperforms LG, LG is in fact lower risk (just also lower return). I have never heard a sound rationale for SV having higher risk-adjusted returns, just higher returns (and higher risk, even if that risk doesn't show up in volatility).

So I don't have a handy academic source, other than to say that for the last two centuries growth has underperformed: https://www.twocenturies.com/blog/2020/ ... er-history
I don't' want a SV discussion because that will be off topic and derail the OP. We can talk all we want to end of the world on the SCV factorheads thread. That said, Fama-French never said Growth has lower returns, they said that based on their findings SCV had higher risk than LCG and hence expecting a higher reward for the higher risk is a logical conclusion. They also said while you can expect a higher return there is no certainty you will get it within a reasonable period of time, or your will ever get it, therefore there is no reason to argue Growth will return less. Let's just say it is unknown. As for my take on Growth vs Value, I think they will both return same but depending on the specific timeframe selected, one will do better than other over long cycles, say 15-20 years. Jack Bogle showed this in the Telltale Chart which I have linked many times. There is no reason to dispute this finding in my mind based on the evidence we have seen from real life funds. I don't find FF research better than Jack Bogle's findings. FF is an pure academic exercise, even DFA funds where they are advisors cannot replicate FF portfolios which are long-short, Jack Bogle's findings are based on practical real life fund data everyone can invest in.
Last edited by Elysium on Tue Sep 22, 2020 12:50 pm, edited 1 time in total.
raiderjkwong
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Re: Why is this portfolio wrong?

Post by raiderjkwong »

As is often quoted around here “If you’ve won the game, stop playing”
https://esimoney.com/youve-won-game-stop-playing/

Another good quote: You invest in stocks to grow your wealth; you invest in bonds to preserve it or in other words
You take risks to become rich; you limit risks to stay rich!
raiderjkwong
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Re: Why is this portfolio wrong?

Post by raiderjkwong »

Forgot to mention, I also invest in QQQ and S&P as well as tech-growth stocks but have all of my retirement monies (2 M) safely secured in US treasuries and bonds (AGG/BND). I plan to retire in a couple of years. Having been through the 2000-2002 and 2008-2009 stock market collapses I don't have 10+ years for the market to recover.
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

dbr wrote: Tue Sep 22, 2020 10:30 am The specific academic model would be the Fama-French model for investment returns. I guess if you don't want an SV discussion, then you can't get an answer to your question either because the Fama-French model is about the dependence of investment returns of a portfolio according to the loading of the portfolio on size and value statistics. In that model the total market is a zero reference point for computations. It is a fair question to ask how well established that model is and how reliable it might be for the prediction of future stock returns, but Fama and French are certainly notable academics. Also, F-E is about returns and not risk adjusted returns.
As I said above, I don't' want a SV discussion here because that will be off topic and derail the OP. I have heard FF discussion ad-nauseum since 2000 on these forums, even before Larry Swedroe came down to talk there was Frank Armstrong on the old Morningstar forums talking about it. That said, I think Growth and Value will both return same but depending on the specific timeframe selected, one will do better than other over long cycles, say 15-20 years. Jack Bogle showed this in the Telltale Chart which I have linked many times before. There is no reason to dispute this finding based on the evidence we have seen from real life fund data. I don't find FF research better than Jack Bogle's findings. One is a pure theoretic exercise with no real implementation of FF portfolio which are long-short, even DFA doesn't, the only long-short multi-factor portfolios I know are AQR based on their factors and everyone can see how horrendous they have been. Jack Bogle's findings are based on real life fund data, and it shows Value/Growth even for long periods. When in doubt always trust Jack Bogle.
zorgs10
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Re: Why is this portfolio wrong?

Post by zorgs10 »

gf30269 wrote: Tue Sep 22, 2020 9:42 am
Should I change and why???
A short answer: no, because you're happy with where you are.

More information is needed to answer your question fully. For instance, are the investments earmarked for retirement? How long do you expect your retirement to last? Do you have other sources of income (e.g. pension, rental income) for your retirement? What is the portion of your retirement expenses that is not covered by the other sources of income? What percentage of your portfolio do you plan to withdraw each year?

All the best with your investments!
MotoTrojan
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Re: Why is this portfolio wrong?

Post by MotoTrojan »

Elysium wrote: Tue Sep 22, 2020 12:57 pm Jack Bogle showed this in the Telltale Chart which I have linked many times before.
We must have been looking at different ones. The only one I have ever seen shows DFSVX pulling past the US market until 2018, where it has suffered a large relative drawdown that has roughly equated the total returns since inception.

I could show you a similar Telltale chart of US equities vs. bonds where equities spend most of the time ahead, but dip down to the bond return during the GFC; would that prove that bonds are the superior asset with higher expected returns? Of course not.

How about International value, where the telltale since inception just shows steady persistent outperformance?

Anyways, we are never going to agree here (just as we didn't in the other thread) and that's okay. Conviction is the key to success with a plan.
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vineviz
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Re: Why is this portfolio wrong?

Post by vineviz »

Elysium wrote: Tue Sep 22, 2020 12:57 pm Jack Bogle's findings are based on real life fund data, and it shows Value/Growth even for long periods. When in doubt always trust Jack Bogle.
Bogle provided us with a great example of how you can confirm even your least justified biases through the a combination of cherry-picking data misdirection. It’s the triumph of anecdotes over data.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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goingup
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Re: Why is this portfolio wrong?

Post by goingup »

Not many have the stomach to be 100% equity going into retirement. Perhaps you have a pension, annuities, anticipate an inheritance, or feel SS will cover the majority of expenses.

If you're comfortable with it, do it. :beer
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gf30269
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Re: Why is this portfolio wrong?

Post by gf30269 »

Wow...a lot of great responses. My question was truly a question, not a cocky challenge.

I'll give a lot of thought to the the idea of de-risking and generating income.

Thanks to all and keep those responses coming!!

George
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

vineviz wrote: Tue Sep 22, 2020 1:11 pm
Elysium wrote: Tue Sep 22, 2020 12:57 pm Jack Bogle's findings are based on real life fund data, and it shows Value/Growth even for long periods. When in doubt always trust Jack Bogle.
Bogle provided us with a great example of how you can confirm even your least justified biases through the a combination of cherry-picking data misdirection. It’s the triumph of anecdotes over data.
"When you disagree with Jack Bogle you end up with egg on your face more often than not" - paraphrasing Dr. Bill Bernstein, one of the smartest individuals I have ever known on this forum who knows all about Fama-French research, DFA, and Small Value.

It is not by coincidence the most successful financial forum on the planet is named after him.
Last edited by Elysium on Tue Sep 22, 2020 6:25 pm, edited 1 time in total.
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

MotoTrojan wrote: Tue Sep 22, 2020 1:08 pm
Elysium wrote: Tue Sep 22, 2020 12:57 pm Jack Bogle showed this in the Telltale Chart which I have linked many times before.
We must have been looking at different ones. The only one I have ever seen shows DFSVX pulling past the US market until 2018, where it has suffered a large relative drawdown that has roughly equated the total returns since inception.

I could show you a similar Telltale chart of US equities vs. bonds where equities spend most of the time ahead, but dip down to the bond return during the GFC; would that prove that bonds are the superior asset with higher expected returns? Of course not.

How about International value, where the telltale since inception just shows steady persistent outperformance?

Anyways, we are never going to agree here (just as we didn't in the other thread) and that's okay. Conviction is the key to success with a plan.
It takes time to learn the value of simplicity. You will get there eventually, it may take another 20 years. But I do not doubt that you will get there.
000
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Re: Why is this portfolio wrong?

Post by 000 »

Unless I was extremely wealthy (100x annual expenses), I would want less QQQ and more cash and maybe bonds.
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vineviz
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Re: Why is this portfolio wrong?

Post by vineviz »

Elysium wrote: Tue Sep 22, 2020 6:22 pm
It is not by coincidence the most successful financial forum on the planet is named after him.
We honor him for his role in the creation and advocacy of low-cost index funds, not for his intellectual leadership in capital asset pricing models.

"A man's got to know his limitations." ~ Harry Callahan
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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gf30269
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Re: Why is this portfolio wrong?

Post by gf30269 »

This portfolio is not likely to produce the most retirement income for you, but if you’re planning to withdraw and spend 2% or less each year it probably would be sufficient.
[/quote]

What do you use for retirement income?
MotoTrojan
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Re: Why is this portfolio wrong?

Post by MotoTrojan »

Elysium wrote: Tue Sep 22, 2020 6:23 pm
MotoTrojan wrote: Tue Sep 22, 2020 1:08 pm
Elysium wrote: Tue Sep 22, 2020 12:57 pm Jack Bogle showed this in the Telltale Chart which I have linked many times before.
We must have been looking at different ones. The only one I have ever seen shows DFSVX pulling past the US market until 2018, where it has suffered a large relative drawdown that has roughly equated the total returns since inception.

I could show you a similar Telltale chart of US equities vs. bonds where equities spend most of the time ahead, but dip down to the bond return during the GFC; would that prove that bonds are the superior asset with higher expected returns? Of course not.

How about International value, where the telltale since inception just shows steady persistent outperformance?

Anyways, we are never going to agree here (just as we didn't in the other thread) and that's okay. Conviction is the key to success with a plan.
It takes time to learn the value of simplicity. You will get there eventually, it may take another 20 years. But I do not doubt that you will get there.
Strange response. Maybe the extra return I get can pay for some simplicity elsewhere in life.
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vineviz
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Re: Why is this portfolio wrong?

Post by vineviz »

gf30269 wrote: Tue Sep 22, 2020 9:25 pm What do you use for retirement income?
Using a portfolio for retirement income is entirely reasonable, but the portfolio which does that best will be well diversified.

That means including a variety of stocks (US and non-US, small and large, etc.) as well at least some bonds.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

MotoTrojan wrote: Tue Sep 22, 2020 9:27 pm Strange response. Maybe the extra return I get can pay for some simplicity elsewhere in life.
If you get extra return. Hope springs are eternal. You sound like you've found an easy way to beat the market.
Last edited by Elysium on Wed Sep 23, 2020 7:10 am, edited 1 time in total.
RickyAZ
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Re: Why is this portfolio wrong?

Post by RickyAZ »

Why do you always use 2000 as the start year for the Portfolio Visualizer? If you start in 2010 a 50/50 QQQ/VFINX doubles the balanced fund. Indeed if you pick 2001 it's 50% higher. The only year it's lower is if you start in 2000 and that assumes absolutely no course correction.
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Stef
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Re: Why is this portfolio wrong?

Post by Stef »

RickyAZ wrote: Tue Sep 22, 2020 11:33 pm Why do you always use 2000 as the start year for the Portfolio Visualizer? If you start in 2010 a 50/50 QQQ/VFINX doubles the balanced fund. Indeed if you pick 2001 it's 50% higher. The only year it's lower is if you start in 2000 and that assumes absolutely no course correction.
This. It's cherrypicking to make it look worse than it actually was. Plus nobody made a lumpsum in 2000 in tech and never invested again, this isn't a real world scenario.
000
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Re: Why is this portfolio wrong?

Post by 000 »

Stef wrote: Wed Sep 23, 2020 12:40 am
RickyAZ wrote: Tue Sep 22, 2020 11:33 pm Why do you always use 2000 as the start year for the Portfolio Visualizer? If you start in 2010 a 50/50 QQQ/VFINX doubles the balanced fund. Indeed if you pick 2001 it's 50% higher. The only year it's lower is if you start in 2000 and that assumes absolutely no course correction.
This. It's cherrypicking to make it look worse than it actually was. Plus nobody made a lumpsum in 2000 in tech and never invested again, this isn't a real world scenario.
Some people are making lump sums into tech right now after its huge run up.

Which year in the past is most similar to the current one?

Hmm..

Hmmm....

Does anyone know?
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

vineviz wrote: Tue Sep 22, 2020 6:41 pm
Elysium wrote: Tue Sep 22, 2020 6:22 pm
It is not by coincidence the most successful financial forum on the planet is named after him.
We honor him for his role in the creation and advocacy of low-cost index funds, not for his intellectual leadership in capital asset pricing models.
Jack Bogle is revered for many things, including his intellectual leadership. There are no capital asset pricing models that Jack Bogle couldn't master.
MotoTrojan
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Re: Why is this portfolio wrong?

Post by MotoTrojan »

Elysium wrote: Tue Sep 22, 2020 11:06 pm
MotoTrojan wrote: Tue Sep 22, 2020 9:27 pm Strange response. Maybe the extra return I get can pay for some simplicity elsewhere in life.
If you get extra return. Hope springs are eternal. You sound like you've found an easy way to beat the market.
Do you hold your equity at global market cap (close to 40% equity, 60% bonds) or do you hold more equity? Yes...? If you get extra return, hope springs are eternal. You sound like you've found an easy way to beat the market.

I never said I would beat it on a risk-adjusted basis, but I expect to beat it on an absolute return basis, just as someone who holds more equity hopes to beat a benchmark of more bonds. Historically the value premium has been more persistent through time than the equity premium.
alex_686
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Re: Why is this portfolio wrong?

Post by alex_686 »

vineviz wrote: Tue Sep 22, 2020 9:35 pm
gf30269 wrote: Tue Sep 22, 2020 9:25 pm What do you use for retirement income?
Using a portfolio for retirement income is entirely reasonable, but the portfolio which does that best will be well diversified.

That means including a variety of stocks (US and non-US, small and large, etc.) as well at least some bonds.
To extend, retirement goals are often stated as a "Safe Withdrawal Rate". That is, some minimum cashflow amount. For example, $50,000 per year for 30 years adjusted for inflation from my investment portfolio. In this context, the goal of the portfolio is not to maximize return but rather minimize the chance of failure.

This leads us to "Sequence of Returns" risk. As a hypothetical, run your portfolio through the dot.com bust. I am going to make the educational guess that if you assume a 3% withdrawal rate your portfolio would have been busted in 10 years.

That being said it is really hard to know how your portfolio is wrong. That being said, the standard answer is to use the 3 fund portfolio to get the best risk-adjusted returns.

Have you written up an Investment policy statement (IPS)? This helps you define your goals. Maybe you have the ability and willingness to take on such risk.
https://www.bogleheads.org/wiki/Investm ... _statement

Why did you select QQQ? You are not exactly picking 2 different funds, but rather doubling down in a single sector. See the dot.com bubble as to how things can go wrong. Many people I know buy it because it is "sexy" and has recently had very good returns. These are bad reasons, as neither gives you any reason to think it will have good risk-adjusted returns in the future. Or maybe you do have a good reason.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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ruralavalon
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Re: Why is this portfolio wrong?

Post by ruralavalon »

gf30269 wrote: Tue Sep 22, 2020 9:42 am 2 1/2 years from retirement. Basically am where I want to be in terms of investments right now...future contributions are gravy.

I've had the same portfolio for years. 50% SPY, 50% QQQ. May occasionally go 10% cash.

No international, no emerging markets, no bonds.

Should I change and why???

Thanks,
George
gf30269 wrote: Tue Sep 22, 2020 6:10 pm Wow...a lot of great responses. My question was truly a question, not a cocky challenge.

I'll give a lot of thought to the the idea of de-risking and generating income.

Thanks to all and keep those responses coming!!

George
To give specific suggestions we need more information about you and your investments. Such as: whether you will have both Social Security and a pension; your age; your tax bracket, both federal and state; your tax filing status; what tax-advantaged accounts and other accounts you have; and the investments in each account. Please see this for information needed and format: "Asking Portfolio Questions".

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

gf30269 wrote: Tue Sep 22, 2020 9:25 pm
vineviz wrote: Tue Sep 22, 2020 10:08 amThis portfolio is not likely to produce the most retirement income for you, but if you’re planning to withdraw and spend 2% or less each year it probably would be sufficient.
What do you use for retirement income?
Age 75, retired almost 10 years, no pension or annuity. We have a joint taxable account, 2 Roth IRAs, and my rollover IRA.

Our retirement spending is covered by a combination of Social Security and Required Minimum Distributions (RMDs) taken automatically every month proportionally from each fund in my rollover IRA, with direct deposit to our joint checking account.

Before starting RMDs at age 70.5 we relied on Social Security plus sales of shares of stock index funds in our joint taxable account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

MotoTrojan wrote: Wed Sep 23, 2020 7:35 am I never said I would beat it on a risk-adjusted basis, but I expect to beat it on an absolute return basis, just as someone who holds more equity hopes to beat a benchmark of more bonds. Historically the value premium has been more persistent through time than the equity premium.
No issues with that, but just don't say someone following QQQ then is not a good idea. They are both trying to outperform the market, no reason to claim one is superior to other. Before you go off on the academic research backing, that in itself is not justification to claim the approach is superior. I believe if someone wanted to try and beat the market, they can follow value tilt, growth tilt, or sector tilt, they are all strategies intended to outpeform with no reliable outcomes. Even trend followers have made claim technical analysis such as 200 DMA has academic backing for beating the market. So, if that's the intent then any number of ideas are as good as the other, IMO.
Last edited by Elysium on Wed Sep 23, 2020 11:32 am, edited 1 time in total.
MotoTrojan
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Re: Why is this portfolio wrong?

Post by MotoTrojan »

Elysium wrote: Wed Sep 23, 2020 11:29 am
MotoTrojan wrote: Wed Sep 23, 2020 7:35 am I never said I would beat it on a risk-adjusted basis, but I expect to beat it on an absolute return basis, just as someone who holds more equity hopes to beat a benchmark of more bonds. Historically the value premium has been more persistent through time than the equity premium.
No issues with that, but just don't say someone following QQQ then is not a good idea. They are both trying to outperform the market, no reason to claim one is superior to other. Before you go off on the academic research backing, that in itself is not justification to claim the approach is superior.
Okay. If you think there is equal evidence that QQQ & SCV have a higher expected-return (risk is a given) than the market, then there is just no more to be said between us.

Risk does not have to be compensated. Holding your entire portfolio in one stock has much higher risk than putting it in the S&P500, but does not necessarily increase your expected return. Same applies to the QQQ. IMHO the same does not apply to SCV.
Elysium
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Re: Why is this portfolio wrong?

Post by Elysium »

MotoTrojan wrote: Wed Sep 23, 2020 11:31 am Risk does not have to be compensated. Holding your entire portfolio in one stock has much higher risk than putting it in the S&P500, but does not necessarily increase your expected return. Same applies to the QQQ. IMHO the same does not apply to SCV.
There is nothing that proves SCV is different, other than some explanation of cost of capital as risk, which does make sense to me, as I have said before you can also then invest in Junk bonds and try to beat the market. Just as good. May be someone wants less risk than SCV, then in theory they could hold the bonds of SCV companies for overall less risk than the market, for lower overall returns for lower overall risk. If cost of capital (debt) is the reason then this is just as good as holding stocks of SV companies. Therefore, nothing that makes special to hold stocks of small distressed companies.
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