Your Favorite Portfolio Tilts

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PrettyCoolWorkshop
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Your Favorite Portfolio Tilts

Post by PrettyCoolWorkshop »

Hey Bogleheads!

I've got an idea for a thread that I think would be interesting, so I will go ahead and start it off.

What are your favorite portfolio tilts?

These can be a tilt toward a particular sector, toward a particular factor, anything. They should hopefully be backed up by evidence that the tilt would enhance your portfolio- reducing volatility or improving returns.

My current tilts:
-Small Cap Value (VBR).
-Consumer Staples (VDC). I think this one is a particularly good hedge to be in while valuations are as high as they currently are, in case of an imminent crash. This gets me the returns I want without waiting on the sidelines like a silly market timer!

I am also considering tilting toward the technology sector (VGT). The performance of this sector has been impressive and I think that this outperformance can continue in the long run. There isn't a lot of historical data to back this up though...
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tennisplyr
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Re: Your Favorite Portfolio Tilts

Post by tennisplyr »

I have a slight technology tilt in my Fidelity account. I did it largely for fun, and for me it seems like an obvious choice if I am going to make a selective decision. After 10 years, I am thrilled, up double digits :moneybag
Last edited by tennisplyr on Fri Jun 16, 2017 11:02 am, edited 1 time in total.
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asif408
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Re: Your Favorite Portfolio Tilts

Post by asif408 »

I am tilt agnostic in the sense that I don't believe any one tilt will work for any extended period of time. So I'm not currently on board with the small cap value tilt that is so popular among Bogleheads, though maybe one day I will be if it has a long period of underperformance, like it did back in the late 1990s.

I only tilt to things that have underperformed for many years. If something has done very well the last 5-7 years compared to another investment I tilt away from it. So right now I tilt towards any stock market other than the US, and the energy and precious metals equities sectors. These have all had low single digit to negative returns the last 5-10 years. If you asked me the same question back in 2010 I would have been tilting away from these areas because they had dramatically outperformed US stocks for the previous 10 years. So I am not loyal to any particular tilt.

I do make heavier tilts as things diverge more dramatically, but I typically keep it at a high level (US, Developed Ex-US, and Emerging Markets, along with a few smaller sector positions). I'm not smart enough or interested enough to mess with all the different sectors, or try this with individual countries.
bikechuck
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Re: Your Favorite Portfolio Tilts

Post by bikechuck »

I'll play, I try to follow Taylor's advice re the three fund portfolio with two exceptions.

1) I have some money in a VG small cap value fund in my Roth
2) I have some money in TIAA Real Estate in my 403B with my current employer

For now I am keeping both and I will not let either grow to more than 5% of my total portfolio but I sometimes wonder if the additional complexity is worth it.
John Laurens
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Re: Your Favorite Portfolio Tilts

Post by John Laurens »

Assuming world market cap weighted equities is the benchmark for comaparison, I am tilted to small value and US stocks.

All of my bonds are US dollar denominated investment grade.

If one considers personal finance a tilt, zero debt. Own home.

Regards,
John
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David Jay
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Re: Your Favorite Portfolio Tilts

Post by David Jay »

Factor tilts can have many years of underperformance, it is important to only tilt if you believe in the thesis. You have to believe enough to convince yourself to stay the course if the tilt under-performs for - say - 10 years. Selling out when a tilt is underperforming is expensive (I know, I did this with EM about 20 years ago), per this Bernstein quote from "Deep Risk": "...mistiming the market is probably the most frequent and severe form of permanent capital loss"

I do not favor sector tilts, sectors tend to be cyclical (in favor, then out of favor). There is little theoretical support for sector investing.

[edit] Full disclosure, I have a minor tilt to small cap value. But I intend to convert to a single LifeStrategy fund in retirement for simplicity, especially for my spouse.
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surgeondryhog
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Re: Your Favorite Portfolio Tilts

Post by surgeondryhog »

I'm tilting towards tech (not really a tilt, more of a long term choice) and towards small cap. Also tilting away from treasuries towards equities given the divergence in relative value.
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Taylor Larimore
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Portfolio Tilts?

Post by Taylor Larimore »

Bogleheads:

Many of us think we know what asset-class is going to do well in the future (usually based on past performance or industry marketing). I suggest that before adding small, costly, and tax-inefficient funds requiring increased maintenance that you consider the many advantages of Simplicity in the link below.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Miriam2
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Re: Your Favorite Portfolio Tilts

Post by Miriam2 »

David Jay wrote:Full disclosure, I have a minor tilt to small cap value. But I intend to convert to a single LifeStrategy fund in retirement for simplicity, especially for my spouse.
David Jay, which LifeStrategy fund do you intend to use in retirement?
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David Jay
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Re: Your Favorite Portfolio Tilts

Post by David Jay »

Miriam2 wrote:
David Jay wrote:Full disclosure, I have a minor tilt to small cap value. But I intend to convert to a single LifeStrategy fund in retirement for simplicity, especially for my spouse.
David Jay, which LifeStrategy fund do you intend to use in retirement?
LS Moderate (60/40), but understand that SS meets our needs while both spouses are alive. These funds are to provide for the surviving spouse and our kids' estate. There will be no regular withdrawals from those funds after start of SS, so there is no sequence of return risk for these funds.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
John Laurens
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Re: Your Favorite Portfolio Tilts

Post by John Laurens »

I believe Taylor has tilted his equity portfolio in favor of US equities throughout the years. (assuming the benchmark is a world market cap weighted neutral portfolio).

Regards,
John
dbr
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Re: Your Favorite Portfolio Tilts

Post by dbr »

I am tilted toward US market and essentially absent alternative investments such as gold, timber, rental real estate, and the like. I once held some "Shares of Beneficent Interest" in a gas trust. That particular gas field is pumped out and the shares no longer exist.

I am tilted toward US Treasuries and TIPS and away from other forms of debt including international debt.

There are large amounts of capital in forms not easily accessible in the market and I own none of those.

Oh, I do own my own home.

I do not apply the term "favorite" to this sort of thing.
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Phineas J. Whoopee
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Re: Your Favorite Portfolio Tilts

Post by Phineas J. Whoopee »

I hold US stocks at higher than market cap vs. international because I expect my future expenses to be denominated in US dollars, so I take account of currency risk by mildly reducing international.

I hold inflation-protected fixed income at far more than market weight because, by my own analysis, I face very considerable inflation risk. That doesn't mean I predict high inflation. Instead, it means if high inflation occurs it could hurt me very badly.

With respect to my portfolio I regard myself as a risk manager, rather than as a return maximizer.

25% total US stock, 15% total international stock, 40% inflation-protected fixed income, 20% nominal fixed income because inflation is not the only risk I face.

PJW
Last edited by Phineas J. Whoopee on Sat Jun 17, 2017 12:49 pm, edited 1 time in total.
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siamond
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Re: Your Favorite Portfolio Tilts

Post by siamond »

Neutral when it comes to US vs International (50/50).

5% to 10% tilts towards EM, Int'l Small, US SCV, US MCV and Global REITs.
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SimpleGift
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Re: Your Favorite Portfolio Tilts

Post by SimpleGift »

Phineas J. Whoopee wrote:With respect to my portfolio I regard myself as a risk manager, rather than as a return maximizer.
In retirement now, this is my stance as well. In fact, this quote from Benjamin Graham is framed above my desk: "The defensive investor is content to forego the highest possible rate of return in exchange for safety of principal and freedom from concern." (The Intelligent Investor, 1973.)

In a 50% bond/50% stock portfolio, my current tilt is only on the bond side, to intermediate TIPS bonds.
Dirghatamas
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Re: Your Favorite Portfolio Tilts

Post by Dirghatamas »

My favorite tilt is no tilt: always just invest with World Market capitalization. OK that is not quite accurate. If one takes the world market portfolio as representing the weighted sum of all invested assets, then it has a lot of bonds and real estate too, beyond stocks. I fully own my house but no hard real estate beyond that. I am a perma bear about Govt bonds (due to demographics and unfunded liabilities in developed countries) so never hold any bonds of any kind. For stocks, 100% world stocks.
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Re: Your Favorite Portfolio Tilts

Post by saltycaper »

If by favorite you mean the decision thus far has not been seriously doubted, U.S. small-cap value and int'l small.
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zaboomafoozarg
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Re: Your Favorite Portfolio Tilts

Post by zaboomafoozarg »

70% total market, 20% small value and 10% REITs.

There are many tilts like it, but this one is mine.
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Re: Your Favorite Portfolio Tilts

Post by MotoTrojan »

bikechuck wrote:I'll play, I try to follow Taylor's advice re the three fund portfolio with two exceptions.

1) I have some money in a VG small cap value fund in my Roth
2) I have some money in TIAA Real Estate in my 403B with my current employer

For now I am keeping both and I will not let either grow to more than 5% of my total portfolio but I sometimes wonder if the additional complexity is worth it.
5% seems too low IMHO to be worth it. Let's assume you expect to get a 1% premium on the VG small-cap longterm (I think this is a reasonable number). Is the complexity worth a 0.05% increase? Especially when you have a 3-fund (so I assume have bonds) and could just increase your allocation to stocks a smidge to get the same thing.

FWIW, I tilt 20% to S&P600 SCV (VIOV). To me, a lifetime assumed CAGR increase of 0.2% is worth the complexity, and perhaps I'll get closer to the previous Small & Value premiums, and get a bit more.
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Index Fan
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Re: Your Favorite Portfolio Tilts

Post by Index Fan »

I'm essentially a lumper (TSM, TISM, TBM, a bit in TIPS) with 10% of my portfolio in VG REIT Index. It's added spice- diversification and higher positive returns- to my portfolio over the years. It's worked out for me so far in the 21st century.
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Re: Your Favorite Portfolio Tilts

Post by Dottie57 »

I have a very small tilt in my 401k to small caps And mid caps. My total stock fund is vanguards S&p fund, small cap and mid cap. In ira's and individual accounts it is fidely indexs.
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Re: Your Favorite Portfolio Tilts

Post by Dottie57 »

I have a very small tilt in my 401k to small caps And mid caps. My total stock fund is vanguards S&p 500 fund, small cap and mid cap. In ira's and individual accounts it is fidelity indexs.
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Re: Your Favorite Portfolio Tilts

Post by snarlyjack »

I invest in large value stocks.
Blue chip, large value companies that
pay dividends. Vanguard High Dividend Yield
Index Fund invest in approximately 420 large value companies.
(Think Coke-Cola, J & J, Boeing, Microsoft) etc...
99.9% USA Stock Market Fund.
It's a excellent fund...
Last edited by snarlyjack on Sat Jun 17, 2017 6:10 pm, edited 1 time in total.
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Re: Your Favorite Portfolio Tilts

Post by nisiprius »

I have a strong tilt toward inflation-protected assets in fixed income. If I recall correctly, TIPS represent about 3% of all Treasury debt, and savings bonds represent about 1%. My fixed income allocation is about 40% Total Bond, 40% Vanguard Inflation-Protected Securities Fund, 20% series I savings bonds.

I'm tilted toward the U.S. for no good reason. (77% U.S., 23% international). My bad reasons are: inertia; lack of enough evidence to create any strong conviction on my part; and sales resistance. (My perception is that international stocks have been pushed, and pushed hard, for the last fifteen years or so; I'm not sure why and of course I might be utterly wrong, but that's my perception. I've seen no compelling evidence that international would have mattered one way or the other since inception of the EAFE index in 1970, and I have no strong convictions about the future.

I'm not sure if this counts as a portfolio tilt, but around 2007 I used about 1/4th of my retirement portfolio to buy income annuities--some inflation-linked SPIAs from AIG Life Insurance Company, and a "graded payout" (unpredictably increasing) lifetime contract from TIAA-CREF.
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nedsaid
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Re: Your Favorite Portfolio Tilts

Post by nedsaid »

Like with many things, my enthusiasm for tilting has cooled a bit over the years. My portfolio still has a small-cap tilt and a value tilt. My enthusiasm cooled because when good strategies get to be too popular they tend to stop working. I also don't believe in extreme tilting. My feeling is that Large Value will be the place to be, I thought we were going to experience a multi-year value trend after Value's fantastic 2016 but so far 2017 sees the market reverting to the previous growth trend. Large Value has lagged the market since the 2008-2009 financial crisis and seems like a good bet.

In case you haven't noticed, consumer staples stocks are pretty expensive now. I was going to buy shares of Proctor and Gamble but I noticed future P/E was at 21. Market forward P/E is almost 20. I just checked the Vanguard Consumer Staples ETF and its forward P/E is 21.14. I would not pile into such stocks now. Ditto for those chasing Low Volatility now of which Consumer Staples is an important component. I held my nose and purchased Coke in early January, it now sports a forward P/E of almost 23 and a trailing P/E of almost 32. I bought a smaller position in Coke and have no plans to buy more. The "safe" stocks are not so safe as they are more expensive than the stock market itself. Don't pile into these.
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grap0013
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Re: Your Favorite Portfolio Tilts

Post by grap0013 »

I'm a tilting junkie. I have tilts to the following:

Value
Small
TS MOM
CS MOM
Carry
Defensive (similar to low volatility)
There are no guarantees, only probabilities.
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Re: Your Favorite Portfolio Tilts

Post by jmk »

Small tilt to USA since I don't need currency risk, I know the US economy is less corrupt than elsewhere and "works" for investment returns with less disruption than EU and Asia.
Slight tilt to RE (TIAA) investing in coastal commercial real estate since I own only one residential house not on the coast.
Big tilt toward bonds over equity since I come from modest wealth and cannot afford to lose the money it's taken me so long to save.
Big tilt toward TSM since I work in non-profit human services, and my income is is not stable nor is it tied generally to the overall US economy.
Slight tilt to value since the behavioral resilience seems the most established.
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Re: Your Favorite Portfolio Tilts

Post by 123 »

In our "big" traditional IRA accounts we use a mix of Total Stock Market, Total International, and short-term CDs/bonds (we're not comfortable with interest rate risk in bond funds at present). In some much smaller accounts (Roth IRAs) we use Vanguard Extended Market (VXF) to add a small cap tilt to our total portfolio. We just simplify and use as few securities as reasonable in each account.
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Re: Your Favorite Portfolio Tilts

Post by jebmke »

MotoTrojan wrote:5% seems too low IMHO to be worth it.
I agree, not worth the trouble. 5% won't move the needle and has the potential to be a distraction. I think we are somewhere around 20-25% SV - haven't looked lately. Down from 75% when we were accumulating. I'm tempted to go back up to around 50% or get rid of it entirely. If there isn't enough to create some interesting tracking error in your total, it isn't working.
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jginseattle
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Re: Your Favorite Portfolio Tilts

Post by jginseattle »

Small.
Value.
I'm also at 50% international equities, but I don't know if that qualifies as a tilt.
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racy
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Re: Your Favorite Portfolio Tilts

Post by racy »

Wellesley for some value stocks and Sm Cap Index: my idea of implementing the Fama French study. Also, a bit in REITS, as an arguably different asset class. And, a few percent in Health Care sector...if you can't beat the high, and ever increasing costs, then join 'em.
danaht
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Re: Your Favorite Portfolio Tilts

Post by danaht »

zaboomafoozarg wrote:70% total market, 20% small value and 10% REITs.

There are many tilts like it, but this one is mine.
I think your combination is the best one in this thread.
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racy
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Re: Portfolio Tilts?

Post by racy »

Taylor Larimore wrote:Bogleheads:

Many of us think we know what asset-class is going to do well in the future (usually based on past performance or industry marketing). I suggest that before adding small, costly, and tax-inefficient funds requiring increased maintenance that you consider the many advantages of Simplicity in the link below.

Best wishes.
Taylor
With all due respect Mr. Larimore, would you prefer a dish of vanilla ice cream or one with nuts, cherries and chocolate :wink: Yeah, plain vanilla has fewer calories and is better for ya, but I like a little fun, too.
KlangFool
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Re: Your Favorite Portfolio Tilts

Post by KlangFool »

Folks,

1) I am tilting to Large cap value due to my 40% holding in Wellington fund.

2) I am tilting to Larry portfolio, 9% small cap value and 9% Intermediate-term Treasuries.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
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Re: Your Favorite Portfolio Tilts

Post by JonnyDVM »

My favorite tilt is towards microcap- BRSIX
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Miriam2
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Re: Your Favorite Portfolio Tilts

Post by Miriam2 »

David Jay wrote:
Miriam2 wrote:
David Jay wrote:Full disclosure, I have a minor tilt to small cap value. But I intend to convert to a single LifeStrategy fund in retirement for simplicity, especially for my spouse.
David Jay, which LifeStrategy fund do you intend to use in retirement?
LS Moderate (60/40), but understand that SS meets our needs while both spouses are alive. These funds are to provide for the surviving spouse and our kids' estate. There will be no regular withdrawals from those funds after start of SS, so there is no sequence of return risk for these funds.
Thank you! I value your opinion :happy
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Taylor Larimore
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Re: Portfolio Tilts?

Post by Taylor Larimore »

racy wrote:
Taylor Larimore wrote:Bogleheads:

Many of us think we know what asset-class is going to do well in the future (usually based on past performance or industry marketing). I suggest that before adding small, costly, and tax-inefficient funds requiring increased maintenance that you consider the many advantages of Simplicity in the link below.

Best wishes.
Taylor
With all due respect Mr. Larimore, would you prefer a dish of vanilla ice cream or one with nuts, cherries and chocolate :wink: Yeah, plain vanilla has fewer calories and is better for ya, but I like a little fun, too.
racy:

I'm not sure the comparison is valid, but I must admit that I can't resist vanilla ice cream with toppings.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
BanditKing
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Re: Your Favorite Portfolio Tilts

Post by BanditKing »

I have a few small tilts.

In Bonds, I recently added a 10% tilt towards Emerging Market International bonds
In Equities, I have a 10% REIT tilt and the remainder tilts towards US (80/20 US/International)
My US itself has a 20% tilt towards consumer goods (Vanguard's VDC ETF)
My International has a 20% Emerging Markets Tilt

I'm probably performance chasing and mucking around the edges too much, but there's not a lot at risk there in the grand scheme. Probably at some point I'll get tired of fiddling and go three or four fund; maybe some Wellington or Wellesley as appropriate in tax-advantaged space.
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in_reality
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Re: Portfolio Tilts?

Post by in_reality »

Taylor Larimore wrote:
racy wrote:
Taylor Larimore wrote:Bogleheads:

Many of us think we know what asset-class is going to do well in the future (usually based on past performance or industry marketing). I suggest that before adding small, costly, and tax-inefficient funds requiring increased maintenance that you consider the many advantages of Simplicity in the link below.

Best wishes.
Taylor
With all due respect Mr. Larimore, would you prefer a dish of vanilla ice cream or one with nuts, cherries and chocolate :wink: Yeah, plain vanilla has fewer calories and is better for ya, but I like a little fun, too.
racy:

I'm not sure the comparison is valid, but I must admit that I can't resist vanilla ice cream with toppings.

Best wishes.
Taylor
TSM is most like vanilla ice cream with nuts, cherries and chocolate. You get a special price with it because of efficiencies.

Tilting is like removing (or reducing) the nuts and adding more chocolate - and paying for extra chocolate sauce.

Then many tilters will try to claim you don't have any chocolate in your cheap and all-inclusive house special because you don't have extra chocolate. And they will insist that this is the proper way to measure, that it's by definition, that you aren't willing to learn what the best desert is because you are set in your house-special-ways.

Anyway, my goal on this forum is not to get the best returns, but rather to become more like Taylor in his graciousness. I rather suspect I am doomed to failure, but it's a good aim in any case and will surely leave me better off for having tried.
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Re: Your Favorite Portfolio Tilts

Post by indexonlyplease »

I think when we talk tilting, the real answer is we just like to play. As Bogleheads on this site we go for simpicity in a good diversified portfolio. So, somtehing as simple as the 3 fund portfolio works really well. But we like to play.

Also, how can we say any of us knows more than the pros. Like Vanguard ect. They use simplicity in their Lifestyle Funds, Target dated Funds, how can we say we know more then the pros. Should we tilt here tilt there??

Using Vanguard for example, the Target Dated Funds are the AA for your age and reduce stock expoure over the years. The funds use the 3 fund portfolio that they believe is correct for your age. Then they added the internatioal bond fund and made it a 4 fund portfolio. So, the Pros. at Vanguard decided this would be the follow correct AA, and diversification you need at your age. But you can also pick a more consevative or more aggressive Target Fund acting older or younger.

How can it get better than this. But again, maybe we just like to play. Because it will be only at retirement age that we will find out if you/we were correct.

I use the 3 fund portfolio now but I can see joining the Pros. at Vanguard one day for complete simplicity and no playing.
heyyou
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Re: Your Favorite Portfolio Tilts

Post by heyyou »

In retirement, my equity portfolio has equal slices. I'm trying to tilt away from the cap weighted exposure of Large Growth stocks. Having not forgotten the 2000 Crash, I'm allocated to what suits me. Others are welcome to do whatever suits them.

With my confirmation bias, I prefer authors who tell me what I want to hear. Michael McClung ran each equity sub-asset class as the sole portfolio in a retirement calculator. We all know that Small Growth would do poorly, but Large Growth was second worst, so I am considering spending more of those first.
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Miriam2
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Re: Portfolio Tilts?

Post by Miriam2 »

in_reality wrote:
Taylor Larimore wrote:
racy wrote:
Taylor Larimore wrote:Bogleheads:
Many of us think we know what asset-class is going to do well in the future (usually based on past performance or industry marketing). I suggest that before adding small, costly, and tax-inefficient funds requiring increased maintenance that you consider the many advantages of Simplicity in the link below.
Best wishes.
Taylor
With all due respect Mr. Larimore, would you prefer a dish of vanilla ice cream or one with nuts, cherries and chocolate :wink: Yeah, plain vanilla has fewer calories and is better for ya, but I like a little fun, too.
racy:
I'm not sure the comparison is valid, but I must admit that I can't resist vanilla ice cream with toppings.
Best wishes.
Taylor
Tilting is like removing (or reducing) the nuts and adding more chocolate - and paying for extra chocolate sauce. . . . Anyway, my goal on this forum is not to get the best returns, but rather to become more like Taylor in his graciousness. I rather suspect I am doomed to failure, but it's a good aim in any case and will surely leave me better off for having tried.
In_reality - nice heart-felt and very gracious comment! I had also noticed Taylor's gracious response to the ice cream poster, and I also enjoy Taylor's delightful sense of whimsical humor :D
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nedsaid
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Re: Portfolio Tilts?

Post by nedsaid »

racy wrote:With all due respect Mr. Larimore, would you prefer a dish of vanilla ice cream or one with nuts, cherries and chocolate :wink: Yeah, plain vanilla has fewer calories and is better for ya, but I like a little fun, too.
When faced with a choice, the best, or at least the most fun answer is YES!! I would probably have the dish of vanilla ice cream and then regret not having had the toppings. So I would then have a second dish with all the toppings that I missed the first time.

In my own portfolio, I have said YES! to a lot of things. Earnings and Price momentum? Yes! Individual stocks? Yes! Value? Yes! Mid-Cap and Small-Cap tilt? Yes! My returns haven't suffered, fortunately, but it has been a lot of fun and I have learned a lot.
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Re: Your Favorite Portfolio Tilts

Post by Portfolio7 »

Tilting is something I've always done in one respect or another. Currently:

10% of total portfolio in REITs
20% in Vanguard minimum volatility global fund.
over-weighted Emerging Markets, with a value component
over-weighted international small and mid-cap, with a value component
over-weighted US small/mid caps vs Lg Cap, with a value component
30% Fixed Income is 100% Stable Value at roughly 3% per year.

My conceit is that at worst, this portfolio will not lag much, and at best it could outperform handsomely over time in terms of both volatility and return.

However, the most important thing is that it fits my personality. I'm an optimizer, and I'd be unhappy if I didn't feel I could add potential outperformance to the process, regardless of how unrealistic that thought process may be. Shakespeare said 'know thyself'. I have not felt panicky in any of the downturns of the past 20 plus years - but I hate missing out on opportunity.
"An investment in knowledge pays the best interest" - Benjamin Franklin
TomCat96
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Re: Your Favorite Portfolio Tilts

Post by TomCat96 »

PrettyCoolWorkshop wrote:Hey Bogleheads!

I've got an idea for a thread that I think would be interesting, so I will go ahead and start it off.

What are your favorite portfolio tilts?

These can be a tilt toward a particular sector, toward a particular factor, anything. They should hopefully be backed up by evidence that the tilt would enhance your portfolio- reducing volatility or improving returns.

My current tilts:
-Small Cap Value (VBR).
-Consumer Staples (VDC). I think this one is a particularly good hedge to be in while valuations are as high as they currently are, in case of an imminent crash. This gets me the returns I want without waiting on the sidelines like a silly market timer!

I am also considering tilting toward the technology sector (VGT). The performance of this sector has been impressive and I think that this outperformance can continue in the long run. There isn't a lot of historical data to back this up though...

I tilt a whopping ~81% of my entire portfolio in diversified small and midcaps.
In my opinion, tilting in any one sector exposes you to the risks of that sector underperforming. Of course if the rest of your portfolio is structured to compensate for that, then no problem. But I personally don't like tilts as they are effectively be sector bets with a small part of your portfolio.

To me that's like, instead of betting on 25 at the roulette table, you're betting on black.

Tilting based on market capitalization is in my opinion different. You're still buying up the entire market, you're just buying the smaller companies of the entire market. The correlation between say the dow tsm and the S&P is a whopping .96. So it looks like a duck, quacks like a duck, it's just a smaller duck.

The dow TSM is expected to outperform the S&P 500 ever so slightly because of the larger risk assumed. The difference with my tilt and a sector tilt is this: should the dow TSM underperform the S&P 500 for too long, eventually it will catch up. It will catch up because the bigger guys will buy out the smaller guys when its cheap. Same thing the other way around. If the dow TSM outperforms the S&P, the successful members of the dow TSM will actually become the new S&P 500 members.

Their fates are inextricably linked. Furthermore, there's no trade barriers between them. No international laws or tariffs (again we are talking about tilts, not diversification)

To me what this means is that a diversified small or midcap tilt is a cheap way to get a little more performance out of your portfolio if you can stomach the risk, and have the horizon to bear it.


Edit: The dow TSM, aka the Extended market is VXF.
Let's take an example of how would I do against people who did tilt tech.

My portfolio is 19% SP500
81% Small and Midcap diversified via VXF.

According to vanguard 17.6% of my VXF is in Information Technology, whereas for the S&P 500, its a whopping 23.2% Thank you FANG.
So, my actual exposure to tech is in reality:

14.26% + 4.41% = 18.67%

So, 18.67% of my money is in the IT Tech sector itself. Nearly a 5th of everything I've got. That's enough for me.
I can assure you when I was putting my money into the total market, it wasn't my intention to put a fifth of my money in tech.
But that's how the market has allocated it, so here I am. I am pretty heavily "tilted" tech, without actually being tilted tech.

It tech continues to go nuts in outperforming, it means I probably won't be too far behind in actual performance.
It's one of the nice things about being in the entire market is that the market tilts for you.
honduranhurricane
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Re: Your Favorite Portfolio Tilts

Post by honduranhurricane »

I tilt toward small and mid cap indexes (no value or growth tilt), about 50% of my equity exposure in my 401k and wife's 457, rest of equity exposure is total stock market. Bond allocation in 401k is all LSFYX, a bank loan fund with a small amount of cash available as well. 457 bond allocation is a Tips fund.
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abuss368
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Re: Your Favorite Portfolio Tilts

Post by abuss368 »

We have tilted to U.S. & International REITs for a long time.
John C. Bogle: “Simplicity is the master key to financial success."
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zaboomafoozarg
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Re: Your Favorite Portfolio Tilts

Post by zaboomafoozarg »

danaht wrote:
zaboomafoozarg wrote:70% total market, 20% small value and 10% REITs.

There are many tilts like it, but this one is mine.
I think your combination is the best one in this thread.
Haha, thanks. The asset allocation I got from Rick Ferri, with the small value as a substitute for small business and REITs as a substitute for real estate. I think he did 65% total market, 25% SCV and 10% REITs.
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fire5soon
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Re: Your Favorite Portfolio Tilts

Post by fire5soon »

I tilt 1/3 of domestic to SV via VSIAX and 1/3 of foreign to small via VFSVX. I'd love to just stick 100% to Lifestrategy Moderate VSMGX and, based on my spouse's lack of interest, I may ultimately do just that. For now I like the smallish bet that small/value will do better in the long run.
A man is a success if he gets up in the morning and gets to bed at night, and in between he does what he wants to do. - Bob Dylan
james22
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Re: Your Favorite Portfolio Tilts

Post by james22 »

I tilt to undervalued/highest expected return.

Or cash, if I cannot.
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