Interesting Take on the 3 Fund Model

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centennialstate
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Interesting Take on the 3 Fund Model

Post by centennialstate » Wed Jul 25, 2018 12:28 am

1/3 in REIT index, 1/3 in Utilities Index, 1/3 in Blue Chips. A dividend-heavy long term plan for tax free accounts. Thoughts?
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2

tigerdoc93
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Re: Interesting Take on the 3 Fund Model

Post by tigerdoc93 » Wed Jul 25, 2018 6:40 am

I don’t think you’re proposed stock allocations will be well received by majority of posters on this board. Total return approach favored over focus on dividends. Typical recommendations are total US stock market, total international market, and total bond market. YMMV

TwstdSista
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Re: Interesting Take on the 3 Fund Model

Post by TwstdSista » Wed Jul 25, 2018 6:42 am

No thank you!

Is it three funds? Yes.

Is it the three fund portfolio? No.

RadAudit
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Re: Interesting Take on the 3 Fund Model

Post by RadAudit » Wed Jul 25, 2018 6:46 am

Welcome to the forum.
centennialstate wrote:
Wed Jul 25, 2018 12:28 am
Thoughts?
You might want to do a little more reading before you implement your plan. https://www.bogleheads.org/wiki/Getting_started

But, if not, best of luck. Let us know how it works out.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The calvary isn't coming, kids. You are on your own.

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Re: Interesting Take on the 3 Fund Model

Post by niceguy7376 » Wed Jul 25, 2018 7:21 am

centennialstate wrote:
Wed Jul 25, 2018 12:28 am
1/3 in REIT index, 1/3 in Utilities Index, 1/3 in Blue Chips. A dividend-heavy long term plan for tax free accounts. Thoughts?
List some examples of above funds.

UpperNwGuy
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Re: Interesting Take on the 3 Fund Model

Post by UpperNwGuy » Wed Jul 25, 2018 7:38 am

I wouldn't invest in any of these three funds!

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vineviz
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Re: Interesting Take on the 3 Fund Model

Post by vineviz » Wed Jul 25, 2018 7:50 am

centennialstate wrote:
Wed Jul 25, 2018 12:28 am
1/3 in REIT index, 1/3 in Utilities Index, 1/3 in Blue Chips. A dividend-heavy long term plan for tax free accounts. Thoughts?
I think this all-stock all-U.S. portfolio is likely to provided you with more volatility, less diversification, and lower total returns than an "uninteresting" three fund portfolio (us stock, intl stock, total bond).

If you are seeking regular income, a combination of 60% Vanguard Managed Payout Fund (VPGDX) and 40% Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) would provide similar income with less risk and better diversification.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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bengal22
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Re: Interesting Take on the 3 Fund Model

Post by bengal22 » Wed Jul 25, 2018 7:55 am

The purpose of the 3 fund portfolio is to represent the total U.S stock market, the total U.S. Bond market, and the international market. Thus you get diversity, low cost, and minimize the risk of poorly performing sectors of the market. The key is not the number 3.
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cfs
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Re: Interesting Take on the 3 Fund Model

Post by cfs » Wed Jul 25, 2018 8:19 am

centennialstate wrote:
Wed Jul 25, 2018 12:28 am
1/3 in REIT index, 1/3 in Utilities Index, 1/3 in Blue Chips. A dividend-heavy long term plan for tax free accounts. Thoughts?
Welcome to the forum, your first post! Your three fund model is already included in one of the now famous three fund portfolio funds (total stock market index). Keep investing simple. When dealing with the three funder new inventions and new discoveries are not needed--this is a good example of simplicity. Good luck y gracias por leer / cfs
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rgs92
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Re: Interesting Take on the 3 Fund Model

Post by rgs92 » Wed Jul 25, 2018 8:23 am

This is extremely interest-rate sensitive and vulnerable to inflation and an associated hike in rates.
A robust portfolio is supposed to be able to cope with all sorts of environments.
This portfolio is not adequately diversified.
It would probably fail in many cycles in a Firecalc-like simulation.

Rus In Urbe
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Re: Interesting Take on the 3 Fund Model

Post by Rus In Urbe » Wed Jul 25, 2018 8:34 am

Real Estate, Utilities & Blue Chips----and that's it?

1/3 in real estate gives me the willies. Most Americans hold most of their net worth in their primary residence. So, adding that in, the total holdings would be so very heavily R.E. slanted. Properties do not always appreciate; real estate goes through bubbles.

Blue Chips by their very name sound solid to beginning investors, but there are cycles when they plummet---restricting oneself to only those companies is the opposite of diversification.

Utilities also have cyclical ups and down----pinning 1/3 of all investments to this one sector is unwise.

I don't see any sense in this plan. I echo what others have said: read about the classic 3-fund portfolio that gives you broad diversification.

And good luck in learning more and making wise decisions that, over time, will bring you wealth....

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Re: Interesting Take on the 3 Fund Model

Post by nisiprius » Wed Jul 25, 2018 8:43 am

This is not what is meant by the three-fund portfolio. The three-fund portfolio is not 100% stocks and it is not US-only.
niceguy7376 wrote:
Wed Jul 25, 2018 7:21 am
centennialstate wrote:
Wed Jul 25, 2018 12:28 am
1/3 in REIT index, 1/3 in Utilities Index, 1/3 in Blue Chips. A dividend-heavy long term plan for tax free accounts. Thoughts?
List some examples of above funds.
Just in case the original poster doesn't get around to it, obvious possibilities:
  • the Vanguard Real Estate Index Fund, VGSIX, would do for REITs, or the same fund as an ETF, VNQ.
  • The Vanguard Utilities Index ETF (VUI), or mutual fund (VUIAX but it has a $100,000 minimum!)
  • "Blue chips" are not really well defined, but I am thinking personally that the "purest" realization of "blue chips" would probably be DIA (an ETF that actually tracks the Dow). Another possibility is the Vanguard Mega Cap ETF (MGC).
There's no way in the world I'd do this myself, not even for the "US stocks" part of a portfolio (i.e. a five-fund portfolio with these three funds taking the place of a Total Stock Market index Fund). It's not a crazy gamble but you are exposing yourself to sector risk, which I personally am not interested in doing. Eh, it's a gamble. It might pay off, it might not.

You'll notice that Vanguard itself makes a rather unusual kind of presentation for a mutual fund company, on its web page for Sector and Specialty funds. Look at the points they make and the paragraphs they want you to read before they finally give you a link to their list of sector funds. It seems clear to me that are actually trying to discourage you from using their sector funds.
A narrower focus brings higher risk

Sector and specialty mutual funds give you access to a very small part of the overall market, like health care, energy, or telecommunications.

Though many of these narrowly focused funds have the potential to grow, you should be equally prepared to experience wide swings in the value of your investments—including potentially large losses.

Get access to specific sectors without the additional risk

If you're not comfortable with the increased risk and volatility that sector and specialty funds present, consider Vanguard Total Stock Market Index Fund for broad coverage of the major industries in one fully diversified fund.

For similar exposure to non-U.S. stocks, consider Vanguard Total International Stock Index Fund.
Get details on Vanguard Total Stock Market Index Fund
Get details on Vanguard Total International Stock Index Fund

Choose a specific sector or specialty fund

If your current portfolio is broadly diversified, you may already have the exposure to the sector you're interested in. Only consider increasing your exposure to narrowly focused funds if you're comfortable with—and can afford—the added risk.

See a complete list of Vanguard sector & specialty funds
Last edited by nisiprius on Wed Jul 25, 2018 8:45 am, edited 2 times in total.
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parsi1
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Re: Interesting Take on the 3 Fund Model

Post by parsi1 » Wed Jul 25, 2018 8:44 am

If you replace the 1/3 Reit with 1/3 total stock market index and the 1/3 utility with 1/3 international and 1/3 blue with 1/3 bond, I am in.

sreynard
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Re: Interesting Take on the 3 Fund Model

Post by sreynard » Wed Jul 25, 2018 9:18 am

centennialstate wrote:
Wed Jul 25, 2018 12:28 am
1/3 in REIT index, 1/3 in Utilities Index, 1/3 in Blue Chips. A dividend-heavy long term plan for tax free accounts. Thoughts?
It's not a crazy idea. Looks like the kind of portfolio my grandfather would have had. He was born in 1900, so was heavily influenced by the Great Depression. Probably better than most portfolios out there. It has a high risk of under performing the market, but who knows? Depending on how things go, it could be genius. As others have said, I would want to look at how it would perform over a wide variety of environments.

My guess is that it will never do great, but it shouldn't do terrible either. If your portfolio is large enough not to require a lot of growth, you would be pretty much bulletproof. Personally, I'll never have a portfolio that large, so I'm pretty much forced to take a total returns approach. I have a colleague that puts 100% of his money in our 401K stable value fund, CDs, and savings accounts. Since he has always saved around 2/3 of his income, he'll do just fine, even with the low yields over the last ten years.

So, save around 50%, or more, of your income for 30 or 40 years and that portfolio should do just fine. :)

ivk5
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Re: Interesting Take on the 3 Fund Model

Post by ivk5 » Wed Jul 25, 2018 9:27 am

OP: I don't think it means what you think it means.

centennialstate
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Re: Interesting Take on the 3 Fund Model

Post by centennialstate » Wed Jul 25, 2018 10:43 am

Thanks sreynard! I'll post my reasons for this approach for those interested.

1. I like dividends over growth. It's real money.
2. I like real estate in general. Plus the Vanguard REIT fund has a good track record.
3. For philosophical reasons, I don't care for FAANG and many of the industries in the larger market.
4. I'm young and don't care for bonds.
5. In the interest of "being fearful when others are greedy" (and I guess whatever the healthy reciprocal of that is) I like having a portfolio that doesn't necessarily do what the market does. So whatever.

I understand that this isn't THE three fund model. But when I started reading about it, I noticed that it had thirds like my model, is passive like my model, and that my model is potentially more aggressive. Thanks for your thoughts, y'all.
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2

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vineviz
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Re: Interesting Take on the 3 Fund Model

Post by vineviz » Wed Jul 25, 2018 10:55 am

centennialstate wrote:
Wed Jul 25, 2018 10:43 am
Thanks sreynard! I'll post my reasons for this approach for those interested.

1. I like dividends over growth. It's real money.
This belief is counter to your long-term financial interests. "Growth" and "dividends" are both equally real money.
centennialstate wrote:
Wed Jul 25, 2018 10:43 am
2. I like real estate in general. Plus the Vanguard REIT fund has a good track record.
This belief is counter to your long-term financial interests. Looking at past returns is a sure fire way to lose your shirt.

centennialstate wrote:
Wed Jul 25, 2018 10:43 am
3. For philosophical reasons, I don't care for FAANG and many of the industries in the larger market.
No comment.
centennialstate wrote:
Wed Jul 25, 2018 10:43 am
4. I'm young and don't care for bonds.
That's fine as far as it goes, but then why build a portfolio engineered to provided current income?
centennialstate wrote:
Wed Jul 25, 2018 10:43 am
5. In the interest of "being fearful when others are greedy" (and I guess whatever the healthy reciprocal of that is) I like having a portfolio that doesn't necessarily do what the market does.
This one makes no sense to me: it's fine as a mantra, but nonsensical as an investment policy especially in the context of the portfolio you proposed.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

centennialstate
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The Guy with the Weird Portfolio

Post by centennialstate » Mon Jul 30, 2018 9:12 pm

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

Hey guys,

I'm the new guy who asked you all what you thought of my 1/3 REIT, 1/3 Utilities, and 1/3 Blue Chip model. After contemplating your replies and following up with a couple of specific responders, I'd love to know what you think about this proposed portfolio. Specifically, whether it is more reasonable and Boglehead-esque. Keep in mind this is long-term, non-tax.

Ballast Portion (20%)

USA REIT (VNQ) 15%
INT REIT (VNQI) 5%

Sail Portion (80%)

Industrials ETF (VIS) 40%
Utilities ETF (VPU) 10%
Materials ETF (VAW) 10%
My 2 Favorite Blue Chips 20%

Don't ask me why I'm so complicated.
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2

youngpleb
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Re: The Guy with the Weird Portfolio

Post by youngpleb » Mon Jul 30, 2018 9:16 pm

No. Less diversification is not better and also not the Boglehead way.
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123
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Re: The Guy with the Weird Portfolio

Post by 123 » Mon Jul 30, 2018 9:23 pm

A slicer-and-dicer can come up with thousands of strategys. Your slicing seems to ignore technology and healthcare and probably a lot of other areas. For me it's just a whole lot simpler, and likely cheaper, to go with a total stock market index fund/etf. If you focus on market segments you have no certainty that you are picking correctly. If an investor goes with a total stock market index fund/etf they will basically never get more (or less) than the market performance (of course minus the expense ratio). To me that's the winning option, but we can all pick and play our cards differently.
The closest helping hand is at the end of your own arm.

BogleMelon
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Re: The Guy with the Weird Portfolio

Post by BogleMelon » Mon Jul 30, 2018 9:27 pm

Why these specific sectors with those specific ratios?
My 2 Favorite Blue Chips 20%

So just 2 companies = 20% of your portfolio because you like the companies? Hopefully the companies are not the upcoming Kodak and Nokia.

You are missing dozens of other sections (Automotive, Finance, Healthcare,..etc) why you don't want to hold these profitable sectors?

Why you don't want to hold the entire market?

Have you read this https://www.etf.com/docs/IfYouCan.pdf ?
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: The Guy with the Weird Portfolio

Post by White Coat Investor » Mon Jul 30, 2018 9:42 pm

Why are you making so many big bets? You must be much more confident in your crystal ball than I am in mine. Why not share the reasoning behind each piece of your portfolio and see if we can help you shoot some holes in your reasoning. If we can't, you'll be much more confident in your plan. If we can, you'll be glad we did.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Pajamas
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Re: The Guy with the Weird Portfolio

Post by Pajamas » Mon Jul 30, 2018 9:46 pm

centennialstate wrote:
Mon Jul 30, 2018 9:12 pm
Ballast Portion (20%)

USA REIT (VNQ) 15%
INT REIT (VNQI) 5%

Sail Portion (80%)

Industrials ETF (VIS) 40%
Utilities ETF (VPU) 10%
Materials ETF (VAW) 10%
My 2 Favorite Blue Chips 20%
I'm concerned by your "Ballast" and "Sail" designations. Are you sure you don't have them backwards? If not, how did you go about classifying the individual items? All of that stuff is pretty stodgy (ballast?) but REITs in particular didn't do well at all during the 2008-2009 financial crisis. They are highly dependent on credit and of course the entire real estate industry was under duress, a real double-whammy for REITs. Industrials seem like an . . . interesting choice for the largest slice, not sure why you chose that. What's the reasoning that leads you to concentrate so much risk in two blue chips?

I guess I just don't understand what you are trying to accomplish overall or any of the reasons behind the individual selections. Looking at your other posts, you seem to be focused on dividends, but that's not the best way to maximize your returns; there are plenty of discussions about that on Bogleheads.

Maybe take a couple of steps back to look at the bigger picture, starting with your purpose for investing, goals, etc.

https://www.bogleheads.org/wiki/Investm ... _statement

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Re: The Guy with the Weird Portfolio

Post by mcraepat9 » Mon Jul 30, 2018 10:34 pm

centennialstate wrote:
Mon Jul 30, 2018 9:12 pm
Hey guys,

I'm the new guy who asked you all what you thought of my 1/3 REIT, 1/3 Utilities, and 1/3 Blue Chip model. After contemplating your replies and following up with a couple of specific responders, I'd love to know what you think about this proposed portfolio. Specifically, whether it is more reasonable and Boglehead-esque. Keep in mind this is long-term, non-tax.

Ballast Portion (20%)

USA REIT (VNQ) 15%
INT REIT (VNQI) 5%

Sail Portion (80%)

Industrials ETF (VIS) 40%
Utilities ETF (VPU) 10%
Materials ETF (VAW) 10%
My 2 Favorite Blue Chips 20%

Don't ask me why I'm so complicated.
Why are you so complicated?
Amateur investors are not cool-headed logicians.

JBTX
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Re: The Guy with the Weird Portfolio

Post by JBTX » Mon Jul 30, 2018 10:48 pm

You seem to be betting on the old economy and shunning the new economy. Also a heavy cyclical tilt.

typical.investor
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Re: The Guy with the Weird Portfolio

Post by typical.investor » Mon Jul 30, 2018 10:53 pm

centennialstate wrote:
Mon Jul 30, 2018 9:12 pm
Hey guys,

I'm the new guy who asked you all what you thought of my 1/3 REIT, 1/3 Utilities, and 1/3 Blue Chip model. After contemplating your replies and following up with a couple of specific responders, I'd love to know what you think about this proposed portfolio. Specifically, whether it is more reasonable and Boglehead-esque. Keep in mind this is long-term, non-tax.

Ballast Portion (20%)

USA REIT (VNQ) 15%
INT REIT (VNQI) 5%

Sail Portion (80%)

Industrials ETF (VIS) 40%
Utilities ETF (VPU) 10%
Materials ETF (VAW) 10%
My 2 Favorite Blue Chips 20%

Don't ask me why I'm so complicated.
Nobody can actually know what the best portfolio will be.

So sure, yours is fine. I’d be more comfortable diversifying the blue chips into international equities.

Anyway, I bet within five years time you are back at it with a new theory to test.

It’s interesting for a while to see how your pet idea plays out, and then you’ll think what if I ...

That doesn’t really work out though because you’ll be too tempted to sell VAW or whatever if it’s been lousy and seems it will stay that way. And you’ll increase your allocation to some new blue chip or whatever because it’s done well or looks promising or whatever.

Seems reasonable right! Well I don’t think that’ll work out as well as you hope.

Pick an allocation you’ll have solid ground to stick with even in the face of doubt.

MotoTrojan
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Re: The Guy with the Weird Portfolio

Post by MotoTrojan » Tue Jul 31, 2018 2:03 am

One of the stranger portfolios I’ve seen. Best of luck not only with the portfolio, but your ability to not change the strategy.

TwstdSista
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Re: The Guy with the Weird Portfolio

Post by TwstdSista » Tue Jul 31, 2018 4:23 am

Since you like "complicated", maybe try a hybrid of sorts?

30% US Total Stock Market Index Fund
20% Total International Index Fund
20% Total Bond Market Index Fund

and 30% "complicated" (in no more than 5% chunks -- allows for 6 "complications")

Just a thought!

denovo
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Re: The Guy with the Weird Portfolio

Post by denovo » Tue Jul 31, 2018 4:43 am

centennialstate wrote:
Mon Jul 30, 2018 9:12 pm
I'd love to know what you think about this proposed portfolio. Specifically, whether it is more reasonable and Boglehead-esque.


Bogleheads Investment Philisophy

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Rather than trying to pick the specific securities or sectors of the market (US stocks, international stocks, and US bonds) that will outperform in the future, Bogleheads buy funds that are widely diversified, or even approximate the whole market.
80 percent of your portfolio is in 3 specific sectors and 2 stocks. That is not Boglehead-ish or even Boglehead-adjacent.

Industrials, Utilities, and Materials are only 20 percent of the US total market. You completely ignore international equities which are about half the market. So you're making a huge gamble on 10 percent of the global stock market.

Your portfolio isn't complicated and being complicated isn't a virtue.

It's a simple portfolio of 6 funds that is a bad idea.
"Don't trust everything you read on the Internet"- Abraham Lincoln

chevca
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Re: The Guy with the Weird Portfolio

Post by chevca » Tue Jul 31, 2018 7:02 am

centennialstate wrote:
Mon Jul 30, 2018 9:12 pm
Don't ask me why I'm so complicated.
We won't... as long as you don't ask us to call you reasonable or like a Boglehead. :wink: :happy

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vineviz
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Re: The Guy with the Weird Portfolio

Post by vineviz » Tue Jul 31, 2018 7:15 am

denovo wrote:
Tue Jul 31, 2018 4:43 am
80 percent of your portfolio is in 3 specific sectors and 2 stocks. That is not Boglehead-ish or even Boglehead-adjacent.

Industrials, Utilities, and Materials are only 20 percent of the US total market. You completely ignore international equities which are about half the market. So you're making a huge gamble on 10 percent of the global stock market.

Your portfolio isn't complicated and being complicated isn't a virtue.

It's a simple portfolio of 6 funds that is a bad idea.
This nails the issue.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

VinhoVerde
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Re: The Guy with the Weird Portfolio

Post by VinhoVerde » Tue Jul 31, 2018 7:32 am

I can see the extra asset allocation to US and International REIT's as I believe real estate investments are underrepresented in public equity. However, why don't you put the rest in Vanguard FTSE All World and call it a day?
No bonds? Why?
VinhoVerde

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Re: The Guy with the Weird Portfolio

Post by Jack FFR1846 » Tue Jul 31, 2018 7:34 am

It's not at all complicated. It's a simple, concentrated portfolio of poor choices. Sorry.

See that haystack:?
US Total Stock Market Index Fund
Total International Index Fund
Total Bond Market Index Fund
By buying these in allocation percentages that match your risk tolerance, you cover the entire market.

Any stock, fund, bond, note that says "REIT", you should really delve into what it is. Many have zero real estate component and when you go under the hood, you might find that they simply deal with credit default swaps (watch the movie The Big Short, or remember why 2008 happened).

If you want to "do something", maybe find a hobby. Buy a racecar and head to the track. It'll be less expensive and the downturns are caused either by your mistake or by a mistake of a fellow driver.
Bogle: Smart Beta is stupid

Valuethinker
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Re: The Guy with the Weird Portfolio

Post by Valuethinker » Tue Jul 31, 2018 7:37 am

centennialstate wrote:
Mon Jul 30, 2018 9:12 pm
Hey guys,

I'm the new guy who asked you all what you thought of my 1/3 REIT, 1/3 Utilities, and 1/3 Blue Chip model. After contemplating your replies and following up with a couple of specific responders, I'd love to know what you think about this proposed portfolio. Specifically, whether it is more reasonable and Boglehead-esque. Keep in mind this is long-term, non-tax.

Ballast Portion (20%)

USA REIT (VNQ) 15%
INT REIT (VNQI) 5%

Sail Portion (80%)

Industrials ETF (VIS) 40%
Utilities ETF (VPU) 10%
Materials ETF (VAW) 10%
My 2 Favorite Blue Chips 20%

Don't ask me why I'm so complicated.
Are you comfortable that you would have underperformed, at a guess 20%, in the last year?

You have industrials which means you have taken full force of GE downgrade.

And you don't have the FAANGs so you have missed the upside.

You are basically throwing away diversification benefits (higher volatility and lower returns). One has to ask: why?

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Re: The Guy with the Weird Portfolio

Post by niceguy7376 » Tue Jul 31, 2018 8:01 am

OP,
I am getting bored of the message that I and other bogleheads have been dishing out here for a long time (KISS - Keep it Simple, Three fund portfolio etc). It is getting stale for me to preach as well.

PLEASE PLEASE do bring in a new scent into the forum and go ahead and invest as per your plan and update us simple folks on yearly basis how you are doing and if you had any change of heart.

Valuethinker
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Re: The Guy with the Weird Portfolio

Post by Valuethinker » Tue Jul 31, 2018 8:30 am

niceguy7376 wrote:
Tue Jul 31, 2018 8:01 am
OP,
I am getting bored of the message that I and other bogleheads have been dishing out here for a long time (KISS - Keep it Simple, Three fund portfolio etc). It is getting stale for me to preach as well.

PLEASE PLEASE do bring in a new scent into the forum and go ahead and invest as per your plan and update us simple folks on yearly basis how you are doing and if you had any change of heart.
Other than the market timer saga, where he bravely took us through his efforts and struggles, generally I think that posters either decide they were mistaken, or they disappear from here.

I am thinking of the various crypto-currency zealots. You do get waves of (personal) real estate investing -- where more experienced posters here then contribute their own sufferings and triumphs in this area. I think you'd have to say that the latter is perfectly legit albeit peripheral to the messages of this Forum.

But when the strategy goes wrong, unless your name is market timer, you usually go off and nurse your wounds. Warnings here are not usually paid attention to.

It's more rewarding to try to help people whose investment strategies have gone wrong (usually due to bad "advisors") and help them sort themselves out, or those just beginning their investment careers and need to understand asset allocation etc*. I do cringe though when we hit another Private Label REIT fiasco - there really are parts of the financial services industry that are just geared to rip off.

* the older and wiser a head you have around here, the more you believe in a bond weighting. I think that is an observable truth.

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jimb_fromATL
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Re: The Guy with the Weird Portfolio

Post by jimb_fromATL » Tue Jul 31, 2018 10:15 am

The great recovery since the second worst crash in history in 2008 makes it hard to evaluate any portfolio during that time alone, since you'd have to work pretty hard to NOT do extremely well. However, the crash of 2008 does give us a chance to see how various balances of funds might perform next time around.

I thought it might be interesting to use PortfolioVisualizer to compare your portfolio to the bogleheads 3 fund portfolio, the total stock market (VTSMX), the S&P 500 (VFINX), and Vanguard's Wellington balanced fund VWELX.

I don’t see where you listed specifically which blue chips you like, so I substituted DIA (the Spyder Dow index ETF). The limited time frame for VNQI data does not include the big crash. VNQI did not do as well a VNQ anyway, so I substituted VNQ for the whole 20% in real estate in order to include the crash of 2008
  • Incidentally, a great feature of PortfolioVisualizer is that it allows you to compare the results for periodic contributions –- Dollar Cost Averaging -- with monthly or annual contributions more like you’d invest in an IRA or 401(k) instead of a single lump sum. (Other than IRA rollovers, most people do not invest a single lump sum and never add anything else. And the results for a single lump can be very misleading depending on whether the deposit was made near the top or bottom of a good or bad year in the market.)

    You can also download Portfolio's very comprehensive analysis of fund performance to a spreadsheet, and it includes among other things the worst drawdown periods and time to recover.
Over the term VNQ has existed, your portfolio has actually done somewhat better than the Bogleheads 3 fund portfolio and Wellington. That should be expected after a long bull market since you have no bond or stable value funds to hedge against future crashes. That may not be a terrible problem provided your age allows you enough time to wait for the recovery before you stop contributing and start withdrawing.

Also as might be expected,your portfolio had substantially worse drawdown in bad years. That would be bad if you needed to retire at a time your portfolio is down a lot more than others.

And as with most portfolios I've seen that have narrow focus and choices made with either technical indicators or dartboard technology, it has not done as well as just buying the S&P 500 or the total stock market and leaving them alone.

Code: Select all

Portfolio Analysis Results (Jan 2005 - Jun 2018) 
$400 per month contributions

Portfolio	Balance	       TWRR	  MWRR	Best Yr	Worst Yr	Max. Drawdown
Weird        	$11,911 	8.73%	10.19%	27.13%	-37.19%	     -55.16%
Bogleheads       $9,903 	6.99%	7.79%	26.55%	-30.74%	     -43.83%
VWELX       	$10,296 	7.67%	8.30%	22.20%	-22.30%	     -32.53%
VTSMX           $12,453 	8.59%	10.77%	33.35%	-37.04%	     -50.89%
VFINX	        $12,283 	8.28%	10.59%	32.18%	-37.02%	     -50.97%

  
It would be mildly interesting (though not really proof of anything) to plug in your specific blue chip stocks in Portfolio Visualizer to see if your crystal ball for picking 2 stocks worked better than the index for the Dow or better than the 500 or total market.

jimb

pkcrafter
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Re: The Guy with the Weird Portfolio

Post by pkcrafter » Tue Jul 31, 2018 10:32 am

Well, centennialstate, you asked. :happy

How did you come up with those sectors? Do you have some special information? Gut feeling? Past returns? If your goal is to beat the market, perhaps you have a chance, but you will also have 4 chances of underperforming a Boglehead portfolio.

REITs certainly cannot be considered "ballast." They can be 50% more volatile than total market.

In the end, if that's what you want, then be tough and hold it--at all times. :sharebeer

Paul
Last edited by pkcrafter on Thu Aug 02, 2018 12:02 am, edited 3 times in total.
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.

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Sandtrap
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Re: The Guy with the Weird Portfolio

Post by Sandtrap » Tue Jul 31, 2018 10:35 am

centennialstate wrote:
Mon Jul 30, 2018 9:12 pm
Hey guys,

I'm the new guy who asked you all what you thought of my 1/3 REIT, 1/3 Utilities, and 1/3 Blue Chip model. After contemplating your replies and following up with a couple of specific responders, I'd love to know what you think about this proposed portfolio. Specifically, whether it is more reasonable and Boglehead-esque. Keep in mind this is long-term, non-tax.

Ballast Portion (20%)

USA REIT (VNQ) 15%
INT REIT (VNQI) 5%

Sail Portion (80%)

Industrials ETF (VIS) 40%
Utilities ETF (VPU) 10%
Materials ETF (VAW) 10%
My 2 Favorite Blue Chips 20%

Don't ask me why I'm so complicated.
I don't understand your choices and reasoning behind this long term? strategy.
Would you care to explain?

Somewhat along the lines of "pkcrafter". I'd like to understand your approach.

Also, what is "Sail Portion", "Ballast Portion"???
What are your 2 favorite blue chips specifically?

Thanks for the help.
j :D

Nate79
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Re: The Guy with the Weird Portfolio

Post by Nate79 » Tue Jul 31, 2018 12:07 pm

Perhaps you could call this the Dartboard Portfolio. It seems that is how the selections were chosen.

Snowjob
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Re: The Guy with the Weird Portfolio

Post by Snowjob » Tue Jul 31, 2018 12:21 pm

Sounds like someone who likes real assets and real products who doesn't much care for tech an services. Not sure your preferences should bleed that far into your portfolio. Also I wouldn't marry myself to any individual stock. A trade? sure. But an allocation -- that's dangerous.

Why not something like this

20% Reits
20% Industrials
60% Total Stock

That gets some heavy Industrial and Real Estate exposure without going all in on crazy :D

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prudent
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Re: The Guy with the Weird Portfolio

Post by prudent » Tue Jul 31, 2018 1:04 pm

Topic moved to Investing - Help with Personal Investments.

centennialstate
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Weird Portfolio Guy Returns

Post by centennialstate » Wed Aug 01, 2018 11:31 pm

[Thread merged into here, see below (next page). --admin LadyGeek]

I appreciate everybody's input from my last two posts...

Post #1 (theme: new guy, not from around here)
viewtopic.php?f=10&t=254777&p=4035699#p4035699

Post #2 (theme: guess I'm not a Boglehead after all)
viewtopic.php?f=1&t=255248&p=4044746#p4044746

After contemplating replies and doing some reading, I've concluded that I'm not exactly a Boglehead after all. Having said that, I think my approach meets 9.5 out of the 10 points of the Bogleheads philosophy. The main thing that I've gleaned from you guys is the reality that I can easily have a more aggressive and more diversified portfolio at the same time. I think what I'm figuring out is that my approach to investing is the way I've lived my economic life...find a deal! This way of thinking, with the added input of Bogle thinking has led me to the idea of ETF rotation (although I don't think I see myself as a timer or regular trader). A last point to the repeated question of "why" from my last post...suffice it to say that there are major sectors and companies that I simply don't want to invest in.

The reason I say 9.5 of 10 is because #4 is "never try to time the market." While I don't want to spend my life in a perpetual cycle of "buying low and selling high," I think I also have a heightened awareness of the value of things. Guess I'll finish this post with a third portfolio proposition for y'all to either rip apart or praise. Dividing my portion to 8 (as would King Solomon), rather than 3 (as would Jack Bogle) or 4 (as would Dave Ramsey).

Sector Funds: 80%

USA Real Estate ETF (VNQ) 20%
Utilities ETF (VPU) 20%
Industrials ETF (VIS) 20%
Materials ETF (VAW) 20%

Blue Chips: 20%

Lockheed Martin (LMT) 5%
Caterpillar Incorporated (CAT) 5%
3M Corporation (MMM) 5%
Union Pacific Corporation (UNP) 5%
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2

centennialstate
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Re: The Guy with the Weird Portfolio

Post by centennialstate » Wed Aug 01, 2018 11:32 pm

"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2

centennialstate
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Re: Interesting Take on the 3 Fund Model

Post by centennialstate » Wed Aug 01, 2018 11:33 pm

"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2

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Pajamas
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Re: Weird Portfolio Guy Returns

Post by Pajamas » Thu Aug 02, 2018 12:03 am

Here, take this quiz from memory only without looking up any answers:
Name three of the top ten holdings of each of the following four ETFs:

USA Real Estate ETF (VNQ)
Utilities ETF (VPU)
Industrials ETF (VIS)
Materials ETF (VAW)

Name three specific pieces of military equipment made by Lockheed Martin (LMT).

Name three brands (other than Caterpillar) that Caterpillar Incorporated (CAT) owns.

Name three subsidiaries of 3M Corporation (MMM).

Name the major competitor of Union Pacific Corporation (UNP) west of the Mississippi.
If you can't answer these basic questions about your potential investments, stick to broad index funds.

mhalley
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Re: Weird Portfolio Guy Returns

Post by mhalley » Thu Aug 02, 2018 2:13 am

I don’t think you will get any praise for these sector portfolios here. You might get a better reception over at the Morningstar forums.
http://socialize.morningstar.com/NewSoc ... fault.aspx

typical.investor
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Re: Weird Portfolio Guy Returns

Post by typical.investor » Thu Aug 02, 2018 2:49 am

centennialstate wrote:
Wed Aug 01, 2018 11:31 pm
I appreciate everybody's input from my last two posts...

Post #1 (theme: new guy, not from around here)
viewtopic.php?f=10&t=254777&p=4035699#p4035699

Post #2 (theme: guess I'm not a Boglehead after all)
viewtopic.php?f=1&t=255248&p=4044746#p4044746

After contemplating replies and doing some reading, I've concluded that I'm not exactly a Boglehead after all. Having said that, I think my approach meets 9.5 out of the 10 points of the Bogleheads philosophy. The main thing that I've gleaned from you guys is the reality that I can easily have a more aggressive and more diversified portfolio at the same time. I think what I'm figuring out is that my approach to investing is the way I've lived my economic life...find a deal! This way of thinking, with the added input of Bogle thinking has led me to the idea of ETF rotation (although I don't think I see myself as a timer or regular trader). A last point to the repeated question of "why" from my last post...suffice it to say that there are major sectors and companies that I simply don't want to invest in.

The reason I say 9.5 of 10 is because #4 is "never try to time the market." While I don't want to spend my life in a perpetual cycle of "buying low and selling high," I think I also have a heightened awareness of the value of things. Guess I'll finish this post with a third portfolio proposition for y'all to either rip apart or praise. Dividing my portion to 8 (as would King Solomon), rather than 3 (as would Jack Bogle) or 4 (as would Dave Ramsey).

Sector Funds: 80%

USA Real Estate ETF (VNQ) 20%
Utilities ETF (VPU) 20%
Industrials ETF (VIS) 20%
Materials ETF (VAW) 20%

Blue Chips: 20%

Lockheed Martin (LMT) 5%
Caterpillar Incorporated (CAT) 5%
3M Corporation (MMM) 5%
Union Pacific Corporation (UNP) 5%
That's better than not investing in anything.

It's probably safer than bitcoins.

It's outperformed total market over the past 14 years or so. (as far back as I can see). Anyone can look at past results and find something that did that though. Doing so doesn't give you a leg up heading into the future though.

The road here is littered with many great ideas that people regretted. It's why we target broader market diversification.

Alls I know is that CAT will not be seeing the 75% returns it did in 2017 anytime soon. Of that much I am sure.

student
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Re: Weird Portfolio Guy Returns

Post by student » Thu Aug 02, 2018 4:56 am

Pajamas wrote:
Thu Aug 02, 2018 12:03 am
Here, take this quiz from memory only without looking up any answers:
Name three of the top ten holdings of each of the following four ETFs:

USA Real Estate ETF (VNQ)
Utilities ETF (VPU)
Industrials ETF (VIS)
Materials ETF (VAW)

Name three specific pieces of military equipment made by Lockheed Martin (LMT).

Name three brands (other than Caterpillar) that Caterpillar Incorporated (CAT) owns.

Name three subsidiaries of 3M Corporation (MMM).

Name the major competitor of Union Pacific Corporation (UNP) west of the Mississippi.
If you can't answer these basic questions about your potential investments, stick to broad index funds.
That's great thinking.

NJ-Irish
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Re: Weird Portfolio Guy Returns

Post by NJ-Irish » Thu Aug 02, 2018 5:51 am

I read through your other portfolios and I notice a theme, with aversions to certain asset classes & market sectors, and concentrations in specific stocks.

With regards to stock picking, just know that your competition isn’t a bunch of dudes reading the Sunday paper and calling their broker, it’s a combination of economists, statisticians using some of the most powerful technology in the world. You don’t have to play that game.

Why are you averse to bonds, technology, international stocks? In an average bogleheads portfolio this could be 50% or more of the overall composition.

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