Portfolio Review: Adding Treasurys and Approximating International Market

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Topic Author
JMACatfish
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Joined: Mon Jul 08, 2024 4:20 pm

Portfolio Review: Adding Treasurys and Approximating International Market

Post by JMACatfish »

I've been lurking this forum for the better part of the past year and have learned lots about investing from y'all. My 1 year work anniversary is coming up and I wanted to take the opportunity to really nail down my investing plan. My investing goals are more along the lines of "do something smart with my naturally high savings rate," but a rough guidepost I'm aiming for would be something like $2.5million in real dollars once I'm about 50. The following is what I plan to do:

Emergency funds: About 3 months' worth if I change nothing with my spending, could stretch for another month or so.

Debt: Paying the minimums on these.
Direct unsubsidized student loan $7300 at 2.5%
Direct unsubsidized student loan $6400 at 3.48%

Tax Filing Status: Single

Tax Rate: 22% marginal Federal rate, 0% State, 14% overall

State of Residence: Texas

Age: 23

Desired Asset allocation: Either 80% stocks / 20% bonds or 90% stocks / 10% bonds. I want the bond portion of my portfolio to specifically be long-term Treasurys and have been looking at Vanguard Extended Duration Treasury ETF (EDV) (0.06% ER) to fulfill this
Desired International allocation: Market cap, so ~35%

Please provide an approximate size of your total portfolio: $40k

Current retirement assets:

His 401k
68% VANGUARD TOTAL STOCK MARKET INDEX FUND (VTSAX) (0.04%)
Company match: 25% of up to 6% my salary

His Roth IRA at Fidelity
32% Fidelity ZERO® International Index Fund (FZILX) (0%)

New annual Contributions
$23,000 his 401k (Plus another maybe $5k, which vests by a quarter each year and is currently 1/4 vested)
$7,000 his IRA/Roth IRA

Funds available in his 401(k):
Equities

AMERICAN NEW PERSPECTIVE R5 (RNPFX) (0.47%)
AMERICAN WASHINGTON MUTUAL INVESTORS FUND (RWMFX) (0.31%)
BNY MELLON NATURAL RESOURCES FUND (DLDRX) (0.9%)
COHEN & STEERS REAL ESTATE SECURITIES FUND (CSZIX) (0.75%)
iSHARES MSCI EAFE INTERNATIONAL INDEX FUND (MAIIX) (0.10%)
JANUS HENDERSON SMALL CAP VALUE FUND (JDSNX) (0.57%)
MAINSTAY WINSLOW LARGE CAP GROWTH FUND (MLAIX) (0.73%)
MFS INTERNATIONAL DIVERSIFICATION FUND (MDIZX) (0.74%)
MFS MID CAP GROWTH FUND (OTCKX) (0.67%)
MFS MID CAP VALUE FUND (MVCJX) (0.75%)
MFS VALUE FUND (MEIJX) (0.55%)
VANGUARD 500 INDEX FUND (VFIAX) (0.04%)
VANGUARD EMERGING MARKETS STOCK INDEX FUND (VEMAX) (0.14%)
VANGUARD FTSE SOCIAL INDEX FUND (VFTAX) (0.14%)
VANGUARD INTERNATIONAL GROWTH FUND (VWILX) (0.31%)
VANGUARD MID CAP INDEX FUND (VIMAX) (0.05%)
VANGUARD SMALL CAP INDEX (VSMAX) (0.05%)
VANGUARD TOTAL STOCK MARKET INDEX FUND (VTSAX) (0.04%)

Fixed Income
BLACKROCK INFLATION PROTECTED BOND (BPRIX) (1.00%)
DELAWARE DIVERSIFIED INCOME FUND (DPFFX) (0.62%)
PGIM HIGH YIELD FUND (PHYZX) (0.51%)


Allocation Funds
AMERICAN FUNDS 2010 TARGET DATE RETIREMENT FUND (REATX) (0.34%)
AMERICAN FUNDS 2015 TARGET DATE RETIREMENT FUND (REJTX) (0.35%)
AMERICAN FUNDS 2020 TARGET DATE RETIREMENT FUND (RECTX) (0.36%)
AMERICAN FUNDS 2025 TARGET DATE RETIREMENT FUND (REDTX) (0.37%)
AMERICAN FUNDS 2030 TARGET DATE RETIREMENT FUND (REETX) (0.38%)
AMERICAN FUNDS 2035 TARGET DATE RETIREMENT FUND (REFTX) (0.40%)
AMERICAN FUNDS 2040 TARGET DATE RETIREMENT FUND (REGTX) (0.42%)
AMERICAN FUNDS 2045 TARGET DATE RETIREMENT FUND (REHTX) (0.42%)
AMERICAN FUNDS 2050 TARGET DATE RETIREMENT FUND (REITX) (0.43%)
AMERICAN FUNDS 2055 TARGET DATE RETIREMENT FUND (REKTX) (0.43%)
BLACKROCK GLOBAL ALLOCATION FUND, INSTL (MALOX) (0.88%)
VANGUARD BALANCED INDEX FUND (VBIAX) (0.07%)

Stable Value
GALLIARD STABLE RETURN FUND (WESRT) (0.37%)

Questions:
1. With my desired asset allocation of 50% total US stock market, 30% total international stock market, and 20% long-term Treasurys (or the equivalent 90% equity allocation), I'd have to approximate the international market with some funds in my 401k since there aren't any good fixed income funds available. The best approach for this seems to be composing the international section of 25% VANGUARD EMERGING MARKETS STOCK INDEX FUND (VEMAX) and 75% iSHARES MSCI EAFE INTERNATIONAL INDEX FUND (MAIIX). However, this looks like it'd exclude Canada. Thoughts on this? Would it be worth buying a Canada-only ETF in my IRA to reintroduce it, or is this more complexity than is warranted?

2. I know this is a perennial topic, but thoughts on going 80% vs 90% equities in my case? I mostly want to add in long Treasurys since they're the least correlated with equities, which would maximize the chances that consistent rebalancing gives a premium such that portfolio yield approaches or exceeds 100% equities. Reducing drawdowns or "smoothing the ride" is a bonus I don't anticipate needing given my timeline and proclivity for optimization... but I'm sure I'd be more appreciative of having extra Treasurys in the event of a crash. And having even just 10% or so of fixed income makes me feel like I'm investing "the right way," so I'm fairly confident in adding at least this much.

3. Anything else that y'all would say I should take into consideration that it seems I'm not?

Many thanks to everyone who takes the time to read and respond, as well as to the board as a whole for all I've learned already.
Last edited by JMACatfish on Tue Jul 09, 2024 3:33 pm, edited 1 time in total.
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dogagility
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Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by dogagility »

Welcome to the forum.

It is unlikely that adding fixed income (including long-term Treasurys) will increase your portfolio growth compared to an all equity portfolio. The "rebalancing bonus" is a fallacy. https://www.kitces.com/blog/how-rebalan ... nt-anyway/

Here is another option for your portfolio that may achieve your goals.

Roth IRA:
Invest all of this account in Fidelity ZERO® International Index Fund (FZILX)

401(k):
Invest in VANGUARD TOTAL STOCK MARKET INDEX FUND (VTSAX). If you want to add fixed income to your portfolio, then invest a portion in VANGUARD BALANCED INDEX FUND (VBIAX).
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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retired@50
Posts: 13950
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Location: Living in the U.S.A.

Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by retired@50 »

JMACatfish wrote: Tue Jul 09, 2024 12:03 am I've been lurking this forum for the better part of the past year and have learned lots about investing from y'all.
...
Many thanks to everyone who takes the time to read and respond, as well as to the board as a whole for all I've learned already.
Welcome to the forum.

Funny story about "y'all" which I noticed above...

I'm at a Garth Brooks concert recently, and he asks the audience, "What's the plural form of y'all?", ... audience waits ... He responds, "All y'all". :happy

I agree with dogagility above.

I can't tell you how many times we've seen people in the forum buy into a long term bond fund and regret it within a couple of years. It's way too common. I understand the "theory" and all, but human behavior and emotion can overwhelm the Vulcan / Mr. Spock answer nearly every time.

Tossing in some VBIAX is a great, and kinda cool way, to get some fixed income in your portfolio without really having to think about it. The fund is a 60% stock / 40% bond mix that will continually re-balance for you, so all you need to do is know that 40% of your money in that fund is bonds. The remainder is US stock.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
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retired@50
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Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by retired@50 »

JMACatfish wrote: Tue Jul 09, 2024 12:03 am ... The best approach for this seems to be composing the international section of 25% VANGUARD EMERGING MARKETS STOCK INDEX FUND (VEMAX) and 75% iSHARES MSCI EAFE INTERNATIONAL INDEX FUND (MAIIX). However, this looks like it'd exclude Canada. Thoughts on this? Would it be worth buying a Canada-only ETF in my IRA to reintroduce it, or is this more complexity than is warranted?
If you go down this road, noted above, then the mix you propose is fine.

Would it be nice to have Canada, sure, but it's not worth finding a Canada only ETF just to get it. In the grand scheme of things, you'll probably never notice the tiny difference.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
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BolderBoy
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Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by BolderBoy »

At your age I'd just do VTSAX for quite a while.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Topic Author
JMACatfish
Posts: 5
Joined: Mon Jul 08, 2024 4:20 pm

Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by JMACatfish »

dogagility wrote: Tue Jul 09, 2024 6:04 am Welcome to the forum.

It is unlikely that adding fixed income (including long-term Treasurys) will increase your portfolio growth compared to an all equity portfolio. The "rebalancing bonus" is a fallacy. https://www.kitces.com/blog/how-rebalan ... nt-anyway/

Here is another option for your portfolio that may achieve your goals.

Roth IRA:
Invest all of this account in Fidelity ZERO® International Index Fund (FZILX)

401(k):
Invest in VANGUARD TOTAL STOCK MARKET INDEX FUND (VTSAX). If you want to add fixed income to your portfolio, then invest a portion in VANGUARD BALANCED INDEX FUND (VBIAX).
Thank you for the article, I've read it and the other posts it linked and see the point it's making with rebalancing. What do you make of this backtest using varying percentages of VT and ZROZ? Best yields and Sharpe ratio turned out to be with 20% long Treasurys and annual rebalancing. https://testfol.io/?d=eJy1kMFOwzAMht%2F ... BFRQ5wk%3D

Maybe just a case of "it happened to work this time," considering the returns are essentially equal until after 2000?
Topic Author
JMACatfish
Posts: 5
Joined: Mon Jul 08, 2024 4:20 pm

Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by JMACatfish »

retired@50 wrote: Tue Jul 09, 2024 8:17 am
JMACatfish wrote: Tue Jul 09, 2024 12:03 am ... The best approach for this seems to be composing the international section of 25% VANGUARD EMERGING MARKETS STOCK INDEX FUND (VEMAX) and 75% iSHARES MSCI EAFE INTERNATIONAL INDEX FUND (MAIIX). However, this looks like it'd exclude Canada. Thoughts on this? Would it be worth buying a Canada-only ETF in my IRA to reintroduce it, or is this more complexity than is warranted?
If you go down this road, noted above, then the mix you propose is fine.

Would it be nice to have Canada, sure, but it's not worth finding a Canada only ETF just to get it. In the grand scheme of things, you'll probably never notice the tiny difference.

Regards,
Thanks, I was looking for said Canada ETF before it struck me, "this probably isn't worth it." Reassuring to see that's a reasonable take.
retired@50 wrote: Tue Jul 09, 2024 8:12 am
JMACatfish wrote: Tue Jul 09, 2024 12:03 am I've been lurking this forum for the better part of the past year and have learned lots about investing from y'all.
...
Many thanks to everyone who takes the time to read and respond, as well as to the board as a whole for all I've learned already.
I agree with dogagility above.

I can't tell you how many times we've seen people in the forum buy into a long term bond fund and regret it within a couple of years. It's way too common. I understand the "theory" and all, but human behavior and emotion can overwhelm the Vulcan / Mr. Spock answer nearly every time.

Tossing in some VBIAX is a great, and kinda cool way, to get some fixed income in your portfolio without really having to think about it. The fund is a 60% stock / 40% bond mix that will continually re-balance for you, so all you need to do is know that 40% of your money in that fund is bonds. The remainder is US stock.

Regards,
Interesting point about the behavioral aspect of long bonds. I've read plenty of resources on why Treasurys, or why long term bonds, but I suppose I'd seen the sentiment that bonds are what allay portfolio anxieties so much that I hadn't considered that holding bonds with a duration longer than I've been alive might be a big decision to lock myself into. Nice suggestion from you and dogagility to use VBIAX to constitute fixed income as an alternative.
retired@50 wrote: Tue Jul 09, 2024 8:12 am
JMACatfish wrote: Tue Jul 09, 2024 12:03 am I've been lurking this forum for the better part of the past year and have learned lots about investing from y'all.
...
Many thanks to everyone who takes the time to read and respond, as well as to the board as a whole for all I've learned already.
Welcome to the forum.

Funny story about "y'all" which I noticed above...

I'm at a Garth Brooks concert recently, and he asks the audience, "What's the plural form of y'all?", ... audience waits ... He responds, "All y'all". :happy
"All y'all" and even "y'all all" are definitely phrases that have come out of my mouth. The gnarliest organic contraction I've ever used was "y'all'd've," to mean "you all would have." Language is fun :D
Topic Author
JMACatfish
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Joined: Mon Jul 08, 2024 4:20 pm

Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by JMACatfish »

BolderBoy wrote: Tue Jul 09, 2024 8:19 am At your age I'd just do VTSAX for quite a while.
I started my Boglehead experience off by reading The Simple Path to Wealth, which recommends a portfolio entirely composed of VTSAX. I followed this suggestion for a while, but find the (theoretical? Yet-to-materialize?) benefits of holding international stock compelling.

That being said, I wouldn't lose my mind deviating from perfect market cap, or even towards a US overweighing. The international approximation available to me is just messy and imperfect enough for me to consider whether it'd be better than just having VTSAX in my 401k, FZILX in my IRA, and calling it a day.
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ruralavalon
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Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by ruralavalon »

JMACatfish wrote: Tue Jul 09, 2024 12:03 amTax Filing Status: Single

Tax Rate: 22% marginal Federal rate, 0% State, 14% overall

. . . . .

New annual Contributions
$1145 his 401k (of which $187 is employer match)
$583 his IRA/Roth IRA
Is that really your annual rate of contributions? Or monthly? Or some other period? Please clarify this.

If annual then you clearly need to establish a higher rate of contributions.

What interest rate is currently being paid on "GALLIARD STABLE RETURN FUND (WESRT) (0.37%)"? And what rate if any is guaranteed?

In your employer's plan I suggest using VANGUARD TOTAL STOCK MARKET INDEX FUND (VTSAX) (0.04%) for investing in U.S. stocks.

For international stocks in your Roth IRA you could use Fidelity Total International Index Fund (FTIHX) ER 0.06% OR Fidelity ZERO International Index (FZILX).
Last edited by ruralavalon on Tue Jul 09, 2024 3:10 pm, edited 1 time in total.
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retired@50
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Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by retired@50 »

JMACatfish wrote: Tue Jul 09, 2024 2:14 pm ... The gnarliest organic contraction I've ever used was "y'all'd've," to mean "you all would have." Language is fun :D
Now I'm going to have to try and work this into my repertoire. It may take some work.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Topic Author
JMACatfish
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Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by JMACatfish »

ruralavalon wrote: Tue Jul 09, 2024 3:01 pm
JMACatfish wrote: Tue Jul 09, 2024 12:03 amTax Filing Status: Single

Tax Rate: 22% marginal Federal rate, 0% State, 14% overall

. . . . .

New annual Contributions
$1145 his 401k (of which $187 is employer match)
$583 his IRA/Roth IRA
Is that really your annual rate of contributions? Or monthly? Or some other period? Please clarify this.

If annual then you clearly need to establish a higher rate of contributions.

What interest rate is currently being paid on "GALLIARD STABLE RETURN FUND (WESRT) (0.37%)"? And what rate if any is guaranteed?
Good catch, the 401k number was a biweekly contribution and the IRA a monthly contribution. In reality, I max my end of both accounts and then get maybe a bit more than $1000 each year in vested 401k employer match. I've edited the original post to reflect this.

Attached is some info on the Galliard fund. Funnily enough, opening the fact sheet for it via my 401k portal shows it as Wells Fargo Stable Return Fund CL C. The benchmark is apparently "USTREAS T-Bill Cnst Mat Rate 3 Yr" and the performance is below. It doesn't look like any return or even NAV price is guaranteed.

Code: Select all

Trailing Returns 	YTD 	1 Year 	3 Year 	5 Year 	10 Year Since Inception
Fund Return 		% 0.69 	2.74 	2.18 	2.16 	1.88 	2.36
Benchmark Return 	% -0.03 2.69 	-0.97 	0.85 	0.79 	—
ruralavalon wrote: Tue Jul 09, 2024 3:01 pm In your employer's plan I suggest using VANGUARD TOTAL STOCK MARKET INDEX FUND (VTSAX) (0.04%) for investing in U.S. stocks.

For international stocks in your Roth IRA you could use Fidelity Total International Index Fund (FTIHX) ER 0.06% OR Fidelity ZERO International Index (FZILX).
Thank you for the suggestion, seems like a popular one by the looks of it! The idea of having opened this thread just to end up making no changes to my portfolio or allocation is funny to me :beer
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dogagility
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Re: Portfolio Review: Adding Treasurys and Approximating International Market

Post by dogagility »

JMACatfish wrote: Tue Jul 09, 2024 1:58 pm
dogagility wrote: Tue Jul 09, 2024 6:04 am Welcome to the forum.

It is unlikely that adding fixed income (including long-term Treasurys) will increase your portfolio growth compared to an all equity portfolio. The "rebalancing bonus" is a fallacy. https://www.kitces.com/blog/how-rebalan ... nt-anyway/

Here is another option for your portfolio that may achieve your goals.

Roth IRA:
Invest all of this account in Fidelity ZERO® International Index Fund (FZILX)

401(k):
Invest in VANGUARD TOTAL STOCK MARKET INDEX FUND (VTSAX). If you want to add fixed income to your portfolio, then invest a portion in VANGUARD BALANCED INDEX FUND (VBIAX).
Thank you for the article, I've read it and the other posts it linked and see the point it's making with rebalancing. What do you make of this backtest using varying percentages of VT and ZROZ? Best yields and Sharpe ratio turned out to be with 20% long Treasurys and annual rebalancing. https://testfol.io/?d=eJy1kMFOwzAMht%2F ... BFRQ5wk%3D

Maybe just a case of "it happened to work this time," considering the returns are essentially equal until after 2000?
It's an interesting analysis, but not one I've taken the time to dig into.

On Treasuries as a potentially optimal fixed income investment, here are a couple of deeper dive threads.
viewtopic.php?t=424247
viewtopic.php?t=428109
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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