David Swensen lazy portfolio critique?

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fishdrzig
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David Swensen lazy portfolio critique?

Post by fishdrzig » Sat Aug 03, 2013 6:22 pm

I am thnking about copying the David Swenson lazy portfolio found in the WIKI and would like to know pros and cons as it would apply to starting this port folio in 2013?
thanks for the comments

http://www.bogleheads.org/wiki/Lazy_Portfolios

livesoft
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Re: David Swenson lazy portfolio critique?

Post by livesoft » Sat Aug 03, 2013 6:28 pm

It does not appear to tilt to small-cap and value. It probably has too much real estate and too many TIPS for me.

Get lazier:
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JoMoney
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Re: David Swenson lazy portfolio critique?

Post by JoMoney » Sat Aug 03, 2013 6:34 pm

fishdrzig wrote:I am thnking about copying the David Swenson lazy portfolio found in the WIKI and would like to know pros and cons as it would apply to starting this port folio in 2013?
thanks for the comments

http://www.bogleheads.org/wiki/Lazy_Portfolios
What drew you to this portfolio over others?

It's very heavy in Real Estate. What is your outlook on real estate compared to the rest of the market?

Is there a reason you've decided on a slice-and-dice approach to your stock portfolio as opposed to simply using the "Total Stock Market" and possibly "Total International" ?

Are you planning on actively managing the slice-and-dice portfolio so that your percentages stay within some fixed range? Or just adding new money to different sectors as your taste for that sector changes over time?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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telemark
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Re: David Swenson lazy portfolio critique?

Post by telemark » Sat Aug 03, 2013 6:56 pm

Cons: heavy in TIPS, long term treasuries, and REIT

Pros: heavy in TIPS, long term treasuries, and REIT :happy

I've been trying this in my Roth IRA, which is about 7% of my retirement accounts. Not sure I'd trust my entire retirement to it, but it's done nicely so far. The recent losses in treasuries and REIT have been more than offset by gains in TSM.

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nedsaid
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Re: David Swenson lazy portfolio critique?

Post by nedsaid » Sun Aug 04, 2013 5:06 pm

Anyone else noticing how volatile TIPs have been recently? I am a huge believer in TIPs but I wouldn't have them as half a bond portfolio. I love REITs as an asset class but 20% seems to much. This is a very volatile asset class.

It is a good portfolio. I would construct it differently.
A fool and his money are good for business.

pop77
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Re: David Swenson lazy portfolio critique?

Post by pop77 » Sun Aug 04, 2013 5:16 pm

How about using IBonds instead of TIPS? You can also use IBonds in place of treasury bonds given the characteristics of IBonds (you cannot lose money). So IBonds would provide you deflation protection as well.

spotty_dog
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Re: David Swenson lazy portfolio critique?

Post by spotty_dog » Sun Aug 04, 2013 5:27 pm

You'll note that the pie chart says REAL ESTATE, not REIT. It's my understanding that in his book Swensen lays out his reasons for emphasizing that asset class so highly, and that he specifies either direct Real Estate holdings or TIAA-CREF Real Estate Account holdings for this portion of the portfolio.

garlandwhizzer
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Re: David Swenson lazy portfolio critique?

Post by garlandwhizzer » Sun Aug 04, 2013 5:35 pm

Too much in TIPS and too much in REITS for my taste. I sold my TIPS fund a couple of years ago and my US REIT fund last year. TIPS and REITS got so popular in the years up to 2013, driving their prices higher and their fundamental valuations lower. I believe TSM is a more solid holding at present than REITS, with better current valuations and better growth prospects going forward. I also believe the market this year has lost enthusiasm for accepting guaranteed negative real interest rates in intermediate term TIPS. Even if TIPS protect from unexpected inflation risk, they do not protect from interest rate risk. In this slow economy inflation at least as measured by the government is still low and still declining, reducing TIPS returns. The market has, however, suddenly awakened to interest rate risk in the absence of significant inflation, something that is anticipated to occur when the Fed begins tapeting QE. That, I believe, is why TIPS have suffered YTD more than any other bond categories.

Garland Whizzer

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steve roy
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Re: David Swenson lazy portfolio critique?

Post by steve roy » Sun Aug 04, 2013 5:51 pm

Following Taylor Larimore's lead, I switched to VG short-term TIPs some time ago. Happily, short-term TIPs have been less painful than their longer-term cousins. (Overall, I'm tilted to Vanguard's short-term bond funds.) I try not to over-think or over-manage my allocations, because it's mostly a fool's errand.

Unfortunately, being a fool, I tend to over-think. Last couple of years I've formulated a portfolio that leans to the eclectic side. I steal a bit from Larimore, Swedroe, Swenson, Bernstein and end up with a kind of mushy stew.
71.8% bonds and cash
35% VG Short-term TIPS
30% VG Total Bond Market
4% VG Foreign Bond
5% Municipals
26% Short-term Bonds

28.2% stocks/REITS
14.9% REITS (most tucked inside VG SCV)
60% Domestic stocks (tilted to small cap)
26.1% international (moderate tilt to small cap.)
The cost of the portfolio is 12 basis points. The question I'm turning over in the old crystal set I use for a brain is: How much more will I want to tilt to small cap? To small cap value? How much higher an allocation to international? I haven't answered these questions to my satisfaction yet (though I think I will up international to 35-40% of total equities before I'm done.) But I don't worry about these questions much, because I don't have money to add to the overall stash, and won't for a couple of years.

So I just blunder along, secure in the knowledge that there is no "perfect," but only "better" and "worse." I aspire for "better" (whatever it is.)

Beagler
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Re: David Swenson lazy portfolio critique?

Post by Beagler » Sun Aug 04, 2013 6:08 pm

spotty_dog wrote:You'll note that the pie chart says REAL ESTATE, not REIT. It's my understanding that in his book Swensen lays out his reasons for emphasizing that asset class so highly, and that he specifies either direct Real Estate holdings or TIAA-CREF Real Estate Account holdings for this portion of the portfolio.
You're right, it is important to keep in mind that the VG REIT fund owns not a single piece of real estate.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

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telemark
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Re: David Swenson lazy portfolio critique?

Post by telemark » Sun Aug 04, 2013 8:34 pm

To expand a bit on my previous comment, there are no safe asset classes in this portfolio. Every one of them has a good chance of crashing hard at least once a decade. The hope is that the correlations are sufficiently low that they won't all crash at once. That was demonstrated in the financial crisis and its aftermath, when stocks crashed but TIPS and Treasuries both shot up. Please note that savings bonds, with their fixed NAV, would not have performed the same function.

This is not an own-the-market portfolio, but rather a whole-is-greater-than-the-sum-of-its-parts portfolio. Sort of a less radical version of the Permanent Portfolio. At any time large portions will either be performing badly or will seem poised to perform badly; this is baked into the cake and you have to be willing to accept that. Saying that there's too much X or Y misses the point of how the portfolio performs as a whole.

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TheTimeLord
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Re: David Swenson lazy portfolio critique?

Post by TheTimeLord » Sun Aug 04, 2013 9:01 pm

fishdrzig wrote:I am thnking about copying the David Swenson lazy portfolio found in the WIKI and would like to know pros and cons as it would apply to starting this port folio in 2013?
thanks for the comments

http://www.bogleheads.org/wiki/Lazy_Portfolios

http://www.marketwatch.com/lazyportfoli ... -portfolio
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G-Money
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Re: David Swenson lazy portfolio critique?

Post by G-Money » Sun Aug 04, 2013 9:09 pm

I think you could do much worse than Swensen's portfolio, but you could probably also do better.

Biggest issue is real estate. Swensen is a big proponent. He was on the board of trustees of the TIAA Real Estate account. It invests directly in real estate, rather than REITs. The difference is volatility. REITs are highly leveraged; the TIAA fund is not. So REITs swing much more rapidly than a real estate fund. There is plenty of debate about whether REITs are actually a good proxy for real estate, or if they are just a stock sector. Most people don't have access to the TIAA real estate fund (or any other fund that directly holds real estate). If you want REITs, I'd recommend holding using less than 15% of portfolio (Swensen had reduced his proposed allocation to RE from 20% to 15% in a lecture a few years ago).

I don't view the allocation to TIPS to be excessive, but lots of folks have soured on them a bit of late. The bigger issue is whether you want your bond portfolio to be 100% treasuries. There were many more advocates of this approach 3+ years ago. They have low yields (they always do on a relative basis). So you need to decide if you want the safety and historical lack of correlation of Treasuries, or if you want to reach for a little more yield with investment grade corporates and/or MBS, which Swensen argues against.

He recommends separate allocations to developed and emerging markets. I think his overweight of emerging markets is mild enough that simply holding Total International would suffice.

He doesn't tilt to small cap or value. If that's something you want, then Swensen's portfolio wouldn't be for you.

I immensely enjoyed his book Unconventional Success, and applied some of what I learned from that book into creating my AA, but I did not adopt his model portfolio wholesale.
Don't assume I know what I'm talking about.

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abuss368
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Re: David Swenson lazy portfolio critique?

Post by abuss368 » Mon Aug 05, 2013 9:22 pm

spotty_dog wrote:You'll note that the pie chart says REAL ESTATE, not REIT. It's my understanding that in his book Swensen lays out his reasons for emphasizing that asset class so highly, and that he specifies either direct Real Estate holdings or TIAA-CREF Real Estate Account holdings for this portion of the portfolio.
In Unconventional Success, he directly discusses and names the Vanguard REIT Index Fund.

In addition, when I attended a lecture at my University last year, he specifically noted this fund.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

spotty_dog
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Re: David Swenson lazy portfolio critique?

Post by spotty_dog » Mon Aug 05, 2013 9:50 pm

abuss368 wrote:
spotty_dog wrote:You'll note that the pie chart says REAL ESTATE, not REIT. It's my understanding that in his book Swensen lays out his reasons for emphasizing that asset class so highly, and that he specifies either direct Real Estate holdings or TIAA-CREF Real Estate Account holdings for this portion of the portfolio.
In Unconventional Success, he directly discusses and names the Vanguard REIT Index Fund.

In addition, when I attended a lecture at my University last year, he specifically noted this fund.
Good to know, thanks! Embarrassingly, I had this book from the library for weeks and renewed it several times before acceding to the reality that I just wasn't getting around to it.

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abuss368
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Re: David Swenson lazy portfolio critique?

Post by abuss368 » Mon Aug 05, 2013 10:05 pm

I highly recommend the book. Excellent advice.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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abuss368
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Re: David Swenson lazy portfolio critique?

Post by abuss368 » Mon Aug 05, 2013 11:29 pm

Thing is regarding real estate / REITs is the book was published in 2005 when international REITs were not as available. Now I am curious of David Swensen's thoughts of this asset class combined with US REITs .

Does anyone know?
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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