Ultimate Buy and Hold - 8 slices vs 4

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LittleD
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Re: Re:

Post by LittleD »

MichaelRpdx wrote:
Triple digit golfer wrote:This is all fine and dandy, but good luck to the average investor in having access to these funds in their 401(k)s.

Like me. 50% of my retirement money is in my 401(k), the other half an IRA at Vanguard.
You need to switch employers more often. :D
I know your pain. Fortunately, my employer offers VG Target retirement and VG International funds in the 401(k). As it is, only 25% of my savings are there. Lobbying with HR to get a change in the 401(k) plan sounds like your only real option.

He might want to check closely with his 401K materials. Our 401k isn't great like most in the industry but
we have a provision that allows us to move our money to Schwab through a PCRA (Personal Choice
Retirement Account) and I move all my allocations to Schwab each month and don't invest in any of the
401K choices... This PCRA was not well known to most of our employees and was not publicized
during 401k meetings. Several of us had to discover how it worked and get all the paperwork
done to move the money. Now the TREVH portfolio is easy to set up and easy to maintain.
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MichaelRpdx
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Re: Re:

Post by MichaelRpdx »

LittleD wrote:He might want to check closely with his 401K materials. Our 401k isn't great like most in the industry but
we have a provision that allows us to move our money to Schwab through a PCRA (Personal Choice
Retirement Account) and I move all my allocations to Schwab each month and don't invest in any of the
401K choices... This PCRA was not well known to most of our employees and was not publicized
during 401k meetings.
Do you work for a Fortune 500 company? I've never heard of this option for any 401(k).
Be Appropriate && Follow Your Curiosity
LittleD
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Re: Re:

Post by LittleD »

MichaelRpdx wrote:
LittleD wrote:He might want to check closely with his 401K materials. Our 401k isn't great like most in the industry but
we have a provision that allows us to move our money to Schwab through a PCRA (Personal Choice
Retirement Account) and I move all my allocations to Schwab each month and don't invest in any of the
401K choices... This PCRA was not well known to most of our employees and was not publicized
during 401k meetings.
Do you work for a Fortune 500 company? I've never heard of this option for any 401(k).
Nope. I work for a small Electric Cooperative with 127 employees. You need to look deep into your 401k manuals and
materials to find a reference. There were only a couple of us at first that discovered the option in our paperwork. See if
you have an option on your Internet account screen for Personal Choice... If you do, then you most likely have that option
to move to a brokerage all your money and invest in most anything you wish.
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retiredjg
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Re: Re:

Post by retiredjg »

MichaelRpdx wrote:Do you work for a Fortune 500 company? I've never heard of this option for any 401(k).
A number of people have mentioned having this - more often called a "brokerage window" or something along that line. I know some of the Fidelity 401k's have it. Don't remember where the others might have been. If you go to the google search box at the top of this page and type in brokerage window you can see some earlier conversations.

Sometimes there's a fee to use it. Sometimes you have to pay a transaction fee for each transaction.
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Kevin M
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Kevin M »

rca1824 wrote: The argument that the small and value tilts multiply and make SV better than combinations of LV and SB does not mean you should put everything in SV. It just means you bias SV. For the same reason that stocks outperform bonds does not make 100% stocks optimal, nor does the reason that SV outperforms TSM mean you should hold 100% SV.

So something like 35/15/15/35 LB/LV/SB/SV might be a better approach. You still bias SV, but you're still diversifying across all 4 corners and getting that proper hedge. And the value and small factors still sum 50 each.
The problem is that LV doesn't give you near as much exposure to the value factor, especially if you use Vanguard funds. If I use PorfolioVisualizer to look at factor loading for the longest time period available for both funds (6/1/98-6/30/14), loading on the value factor for large value (VIVAX) is 0.33, while for the small-value fund (VISVX) it's 0.64. So the SCV fund has provided almost twice as much exposure to the value factor.

Bill Bernstein has been critical of the Vanguard Value fund for not providing enough exposure to the value factor, and recommends using VG mid-cap value instead. My problem with that is that Vanguard mid-cap is much closer to small-cap than to large-cap if you look at historical performance. Also, if you look at factor loadings using PV since 9/1/2006 (earliest available data for MCV), there is lower loading on value for the MCV fund (VMVIX) (0.25) than for the LCV fund (0.31). It has been pointed out that Vanguard has changed to the CRSP indexes not too long ago, so the historical factor loadings may not be very relevant.

I know Robert T has an argument for separating the exposures, but I'm too lazy to look it up now. He probably uses non-Vanguard funds to get higher loading on value with large-caps.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
LittleD
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Re: Re:

Post by LittleD »

retiredjg wrote:
MichaelRpdx wrote:Do you work for a Fortune 500 company? I've never heard of this option for any 401(k).
A number of people have mentioned having this - more often called a "brokerage window" or something along that line. I know some of the Fidelity 401k's have it. Don't remember where the others might have been. If you go to the google search box at the top of this page and type in brokerage window you can see some earlier conversations.

Sometimes there's a fee to use it. Sometimes you have to pay a transaction fee for each transaction.

I suspect you are correct. I have to pay a $50 fee each January in order to use the PCRA at Schwab.
That allows me access to their ETF no transaction service and their no fee mutual fund list.
For $50 that is a steal and has made me lots of money.
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grap0013
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by grap0013 »

rca1824 wrote:The argument that the small and value tilts multiply and make SV better than combinations of LV and SB does not mean you should put everything in SV. It just means you bias SV. For the same reason that stocks outperform bonds does not make 100% stocks optimal, nor does the reason that SV outperforms TSM mean you should hold 100% SV.

You still bias SV, but you're still diversifying across all 4 corners and getting that proper hedge. And the value and small factors still sum 50 each.
I don't think there are unique risk factors for each of the 4 corners. :wink: I guess there's the "tracking error" risk factor for large growth that could cause one to abandon an otherwise well thought out plan.

The corollaries between TSM vs. total bond and SCV vs. TSM are very interesting. Both in the magnitude/consistency of premiums and concerning underperformance. Even when TSM underperforms total bond over long periods, it ain't by much. Same goes for SCV underperforming TSM. So tilting to TSM over bonds or SCV over TSM is riskier but not really. It all comes down to discipline. The last ~10% or so of investors that actually stick with the strategy through tough times get the premiums for doing so.

I've become a believer in the 10% rule. 10% of people earn 90% of the profits on Wallstreet. 10% don't take loans out for cars. 10% max out 401Ks. 10% of people actually complete P90X from start to finish. What do these 10% have in common? Discipline. The minority is a good place to be.
There are no guarantees, only probabilities.
rca1824
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by rca1824 »

Kevin M wrote:
rca1824 wrote: The argument that the small and value tilts multiply and make SV better than combinations of LV and SB does not mean you should put everything in SV. It just means you bias SV. For the same reason that stocks outperform bonds does not make 100% stocks optimal, nor does the reason that SV outperforms TSM mean you should hold 100% SV.

So something like 35/15/15/35 LB/LV/SB/SV might be a better approach. You still bias SV, but you're still diversifying across all 4 corners and getting that proper hedge. And the value and small factors still sum 50 each.
The problem is that LV doesn't give you near as much exposure to the value factor, especially if you use Vanguard funds. If I use PorfolioVisualizer to look at factor loading for the longest time period available for both funds (6/1/98-6/30/14), loading on the value factor for large value (VIVAX) is 0.33, while for the small-value fund (VISVX) it's 0.64. So the SCV fund has provided almost twice as much exposure to the value factor.

Bill Bernstein has been critical of the Vanguard Value fund for not providing enough exposure to the value factor, and recommends using VG mid-cap value instead. My problem with that is that Vanguard mid-cap is much closer to small-cap than to large-cap if you look at historical performance. Also, if you look at factor loadings using PV since 9/1/2006 (earliest available data for MCV), there is lower loading on value for the MCV fund (VMVIX) (0.25) than for the LCV fund (0.31). It has been pointed out that Vanguard has changed to the CRSP indexes not too long ago, so the historical factor loadings may not be very relevant.

I know Robert T has an argument for separating the exposures, but I'm too lazy to look it up now. He probably uses non-Vanguard funds to get higher loading on value with large-caps.

Kevin
Hey I used that tool PortfolioVisualizer to analyze my ILV fund, IDV. According to the tool, it has:

market = 1.36
size = -0.33
value = 0.03
alpha = -0.37
R2 = 0.80

Questions:
(1) How can market exposure be greater than 1?
(2) Why is the value load only 0.03 when this is a value oriented fund?
(3) Is alpha=-0.37 a red flag? Should I get out of this fund? E/R is 0.50%.

I use fidelity so I'm having trouble finding low-cost funds for my international small and value tilt. I'm doing 20/10/10 IXUS/IDV/SCZ (TISM/ILV/ISB)

I also analyzed SCZ (ISB) and was surprised to find out that it's factor loads are market=1.26, size=-0.15, value=-0.20. How is this possible when it's a small cap fund? Size should be positive, right?
Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge. ~ WB
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Kevin M
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Kevin M »

rca1824 wrote: Hey I used that tool PortfolioVisualizer to analyze my ILV fund, IDV. According to the tool, it has:
I'm no expert, but I think the problem may be that you're using a model based on US stock returns to try and explain international stock returns. The tool allows you to select Global Developed Market instead of US-based returns to perform the regression, but I still don't know that that will generate very meaningful results. I tried it with IDV and the t-stats were so low as to make the size and value loading factors statistically insignificant (as I understand it).

Regarding a market loading factor greater than 1, I think this is similar to a stock having a beta greater than one in the CAPM model. Do a regression of AAPL on the US research returns and market loading factor is 1.2.

There are research papers on the applicability of multifactor models to international stocks you might want to look at. Here is one: faculty.chicagobooth.edu/john.cochrane/teaching/35150_advanced_investments/Fama_French_size_value_momentum_JFE.pdf.

Perhaps others who are more knowledgeable about international stocks that tilt to small and value can comment. My only international "tilt" fund is VSS, and it comes up with loadings of 1.26, 0.52, -0.26 with R^2 of 0.93 and t-stats that are OK I think--better for size than value (regressed on the Global Developed Market factor returns).

Kevin
If I make a calculation error, #Cruncher probably will let me know.
JustinR
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by JustinR »

Trader Joe wrote:This is an excellent thread and very informative. Merriman now recommends 10 funds (adding domestic and international REIT). I wonder how the 4 fund approach recommended by Trev performs vs. the 10 fund recommendation. Perhaps there is little material difference.

http://paulmerriman.com/pauls-mutual-fu ... /#vanguard
Interesting... is anyone else thinking about adding international REITs?

(VGXRX)
LittleD
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by LittleD »

JustinR wrote:
Trader Joe wrote:This is an excellent thread and very informative. Merriman now recommends 10 funds (adding domestic and international REIT). I wonder how the 4 fund approach recommended by Trev performs vs. the 10 fund recommendation. Perhaps there is little material difference.

http://paulmerriman.com/pauls-mutual-fu ... /#vanguard
Interesting... is anyone else thinking about adding international REITs?

(VGXRX)

Since most Total Market Index funds whether U.S. or Intl have some reits at market weights, if you just want to have
a larger slice then look at a small slice of RWO which is a global reit ETF at 50 basis points. Actually, most small cap
international funds have a pretty good slice of reits as a part of their portfolios. Check Morningstar.
JohnnyFive
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by JohnnyFive »

This is a truly fascinating thread. One that I've now read twice, at the expense of my eyesight. Wow.

Anyway, I had a question for Trev H, or for anyone with enough knowledge to chime in. Trev, you advocated the use of the International Explorer fund as the ISB option, and on page 10 of this thread, you indicated that you have gone to FTSE X-US Intl Small Market exclusively. Is there a reason for this? Is International Explorer still adequate for this purpose? Is it still considered an ISB fund, or is it tilting even MORE towards value? I'm wondering if you, or anyone else, could weigh in on this, and, I thank you in advance.

Sincerely,

Johnny
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retiredjg
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by retiredjg »

Trev H doesn't spend as much time with us as he used to, so you may be waiting for an answer for awhile.

The FTSE Small Cap fund is an index fund. Explorer is an actively managed fund. Looking at the morningstar style boxes, FTSE Small Cap is smaller and somewhat more valuey than Explorer. And it is possible that the FTSE fund didn't exist back then or was new enough that he wanted to let the fund mature.

Those would be my guesses, but only Trev H can really answer your question.

I suspect (but do not know) that most folks who use this approach are using the FTSE fund.
JohnnyFive
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by JohnnyFive »

retiredjg wrote:Looking at the morningstar style boxes, FTSE Small Cap is smaller and somewhat more valuey than Explorer.
Would you be able to provide a link to said style boxes?
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retiredjg
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by retiredjg »

Go to morningstar.com.

In the little box about center top of the page, type in the ticker symbol of the fund you want to look at (or type in name and you can often find it).

After that page opens, find and click the portfolio tab

When that page opens, look for a box with 9 boxes inside it with numbers in each box - that is the morningstar style box and it describes the size and value to growth characteristics of that fund.

If you don't know what it means, search around on the morningstar site - there's an explanation somewhere I think.

If you don't know what it means, you are probably not ready to be using Trev H's portfolio suggestion. Suggest you start with a simple 3 fund portfolio and walk before you try to run. You can always switch to Trev H's portfolio at a later date if you have the funds available to you at a reasonable cost. Don't skip filling your 401k/403b/457b and IRA/Roth IRA to get those funds.
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by placeholder »

VFSVX/VSS were created in April 2009 shortly before the thread so Trev might not have been familiar with it yet or hesitant to recommend it until it had more history.
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by JohnnyFive »

Yes, apparently FTSE All-World ex-US Small-Cap, is in fact more valuey than International Explorer. However, wouldn't that be all the more reason to go with the Explorer? Going with FTSE would mean too much value tilt, given that you already have Small Cap Value US and International Large Cap value. His intention was to have a Large Cap (500 index), Small Value (Domestic Small Cap Value Index), Large Value (International Large Value), and Small Cap (in this case Explorer). He was a proponent of essentially a 50/50 split between Blend/Value, when if you chose the FTSE all World ex-US, three of the four funds would indeed tilt towards value.
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Rosebud
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Rosebud »

This is an interesting topic and I'm replying simply because I wanted to subscribe to followup comments.
LittleD
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by LittleD »

JohnnyFive wrote:Yes, apparently FTSE All-World ex-US Small-Cap, is in fact more valuey than International Explorer. However, wouldn't that be all the more reason to go with the Explorer? Going with FTSE would mean too much value tilt, given that you already have Small Cap Value US and International Large Cap value. His intention was to have a Large Cap (500 index), Small Value (Domestic Small Cap Value Index), Large Value (International Large Value), and Small Cap (in this case Explorer). He was a proponent of essentially a 50/50 split between Blend/Value, when if you chose the FTSE all World ex-US, three of the four funds would indeed tilt towards value.

There are lots of choices today if you want small international at a low price.

Schwab has two low cost ETF's that would fit the TREVH model which I use most of the time.
SCHC and
FNDC

FNDC is more valuey than SCHC but both are diversified and should fit well into your portfolio if you have
access to Schwab. You do not have to pay a fee to buy and sell these ETF's at Schwab.
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retiredjg
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by retiredjg »

JohnnyFive wrote:Yes, apparently FTSE All-World ex-US Small-Cap, is in fact more valuey than International Explorer. However, wouldn't that be all the more reason to go with the Explorer?
The FTSE fund may be "more valuey", but it is still considered a mid cap blend fund. It is not a value fund by morningstars definition (see classification on the first morningstar page that comes up when looking at a fund).

Another reason to use the FTSE fund is that it contains over 3000 different stocks while the Explorer fund only contains about 300.

Again, only Trev can tell you his reasons, but the fact that he switched should tell you something.
JohnnyFive
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by JohnnyFive »

Given how overlooked Mid Cap is, and the sheer number of investors now tilting toward small and small value would it not be prudent to also include the very "unloved" (generally speaking) Mid Cap and Mid Cap value in a portfolio like this one?
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retiredjg
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by retiredjg »

The mid caps are not left out. The are there. There are some mid caps in a large cap fund (or the total stock market if you use that instead) and some in a small cap fund. Look at the morningstar boxes.

If you want a market weighted portfolio, you should be considering total markets, not this ultimate buy and hold portfolio.
JohnnyFive
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by JohnnyFive »

retiredjg wrote:The mid caps are not left out. The are there. There are some mid caps in a large cap fund (or the total stock market if you use that instead) and some in a small cap fund. Look at the morningstar boxes.

If you want a market weighted portfolio, you should be considering total markets, not this ultimate buy and hold portfolio.
While I appreciate the advice, that's not really what I was asking. And, I understand that mid caps are not left out, however, my question was related to the tilting of one's portfolio.
freddie
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by freddie »

JohnnyFive wrote:Given how overlooked Mid Cap is, and the sheer number of investors now tilting toward small and small value would it not be prudent to also include the very "unloved" (generally speaking) Mid Cap and Mid Cap value in a portfolio like this one?
http://www.portfoliovisualizer.com/back ... tYear=1972

Unfortunately only goes back to 85 but you can see how 2 funds (mid value or blend and international total or value) can give you almost he same chart as the 4 fund. You get some divergence (see the late 90s) but it would be the type that I could live with if I had to only have 2 funds due to something poor plan options. You could also come up with some other way slice up US to use a combo of large, mid, and small and value and blend to get pretty much the same factor loads.
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Kevin M
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Kevin M »

JohnnyFive wrote:Given how overlooked Mid Cap is, and the sheer number of investors now tilting toward small and small value would it not be prudent to also include the very "unloved" (generally speaking) Mid Cap and Mid Cap value in a portfolio like this one?
I've posted a lot about this elsewhere. If you compare a growth chart of Vanguard's small-cap and mid-cap funds over the last 10 years, you'll barely see a difference. When I looked further back, I found a short period of several months in early 2000 when mid-cap outperformed small-cap, that explained most of the apparent outperformance of mid-caps over the last 16 years or so.

Here is a link to my first post in a thread where this was discussed: Bogleheads • View topic - Mel's Unloved Mid-Caps Finally Getting Some Respect. This prompted some interesting dialog, and I did some deeper digging into the performance differences in subsequent replies. Here is one: Bogleheads • View topic - Mel's Unloved Mid-Caps Finally Getting Some Respect (2).

After seeing that Bill Bernstein recommended Vanguard Mid-Cap Value as better than their (large-cap) Value fund for getting exposure to large-value, I checked and found similar results; i.e., VG MCV performs very similarly to VG SCV, especially compared to VG LCV. Easy enough to quickly reproduce (blue is MCV, orange is SCV, green is LCV):

Image

Perhaps using non-Vanguard funds you'll find more difference between MCV and SCV, but with VG funds, they appear to be almost interchangeable.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Yesterdaysnews
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Yesterdaysnews »

This is perhaps the best thread I have ever seen on this website.

I am implementing the 4 fund portfolio but with a health care sector tilt.
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Leif
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Leif »

Yesterdaysnews wrote:This is perhaps the best thread I have ever seen on this website.

I am implementing the 4 fund portfolio but with a health care sector tilt.
Do you see a pattern for the health care sector?

Image

Image

From ifa.com
Last edited by Leif on Sat Oct 18, 2014 4:53 pm, edited 1 time in total.
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Yesterdaysnews
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Yesterdaysnews »

Negative return in only 5 of the 20 years?? Including least negative performance in 2008? Must say, I like. :shock:
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Leif
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Leif »

Yesterdaysnews wrote:Negative return in only 5 of the 20 years?? Including least negative performance in 2008? Must say, I like. :shock:
Others are similar, like Utilities, down on 5 out of 20, and up 52% in 2000!

The point is sectors, in general, have nothing to add as a source of return. Small and Value, on the other hand, have been shown by Fama and French, to provide an independent source of return from beta. The only sector I invest in is real estate. They are different in the 90% payout rule and provide good diversification.
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Yesterdaysnews
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Yesterdaysnews »

Has this been studies by the academics? I am curious if anyone has looked at health care specifically.
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Kevin M
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Kevin M »

Leif wrote: Do you see a pattern for the health care sector?
Yes.

Image

Blue line is Vanguard Healthcare, orange is healthcare sector average, and green is 500 index, chosen for longest time period comparison. But that goes back further than VG small-cap value's existence, so here's another one since VG SCV existed:

Image

Yellow is Vanguard SCV.

I'm thinking the next time the market really tanks I'll take a look at adding some VG Healthcare to my portfolio, but that's the kind of tinkering that got me to my current complex portfolio, and I've been working on gradual simplification, so I'm not sure.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Leif
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Leif »

Kevin M wrote:
I'm thinking the next time the market really tanks I'll take a look at adding some VG Healthcare to my portfolio, but that's the kind of tinkering that got me to my current complex portfolio, and I've been working on gradual simplification, so I'm not sure.

Kevin
Impressive.

Unfortunately I cannot buy past returns. I would like to see a bit more than a chart. I would like to see some academic evidence, such as is available for small and value, that gives me a feel that the out performance has some diversification or risk/return benefit, and some indication that it may persist in the future. I guess I have the same question as Yesterdaysnews. I didn't respond since I don't know of any.
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Kevin M
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Kevin M »

Leif wrote: Unfortunately I cannot buy past returns. I would like to see a bit more than a chart. I would like to see some academic evidence, such as is available for small and value, that gives me a feel that the out performance has some diversification or risk/return benefit, and some indication that it may persist in the future. I guess I have the same question as Yesterdaysnews. I didn't respond since I don't know of any.
I tilt to small and value, but I've read enough of the literature to know that whether or not the small and value premiums will persist into the future is not a settled matter. Even tilting advocates acknowledge that the premiums may not be realized over long periods of time--at least as long as my remaining lifetime. Then there's all the debate about how heavily (or not) funds load on the factors, yada yada yada.

It wouldn't be that hard to do a little analysis of the correlations and portfolio benefits that have been derived in the past. Assuming results are positive, the remaining task is to come up with a story that supports the benefit persisting into the future.

Did you notice that much of the time healthcare seemed to track SCV, unless it was doing better?

A quick check using PortfolioVisualizer shows that the Vanguard fund, VGHCX, has negligible loadings on value, small and momentum, and loading on market is only 0.75 (low beta!). R^2 is only 0.63, so the FF factor model isn't as highly explanatory for this fund as for others. Apparently most of the excess return came from the alpha of 6.22%/year.

The correlations with 500 Index (VFINX--large-cap blend) and VISVX (small-cap value) are 0.83 and 0.73 respectively, while the correlation of VFINX and VISVX is 0.89, so from a portfolio diversification effect VGHCX seems to have done quite well.

Kevin
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Re: Re:

Post by rustymutt »

MichaelRpdx wrote:
Triple digit golfer wrote:This is all fine and dandy, but good luck to the average investor in having access to these funds in their 401(k)s.

Like me. 50% of my retirement money is in my 401(k), the other half an IRA at Vanguard.
You need to switch employers more often. :D
I know your pain. Fortunately, my employer offers VG Target retirement and VG International funds in the 401(k). As it is, only 25% of my savings are there. Lobbying with HR to get a change in the 401(k) plan sounds like your only real option.
I retired early to get my hands on that money in the 401K. Five years out, it's up 80% in value. Wouldn't have been under the rules of most 401k programs. Paul has spoken hard at getting 401K administrators to change towards more better choices. I took the time to write a letter to my employers 401k program committee. It's starting to work, a little late for me, buy newer employees should receive benefits from these changes long term. Without Mr Merriman's help, I'd still be working. Cheers!
Even educators need education. And some can be hard headed to the point of needing time out.
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siamond
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by siamond »

Many thanks to Trev for his great work. Fascinating thread.
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aja8888
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by aja8888 »

*subscribed*
Beaker
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Beaker »

Much thanks to TrevH and everyone else for their work on this post!

I constructed my portfolio across my 401k, Vanguard Roth IRA/Brokerage, and wife's 403b with a preference for the lowest possible cost indexes as possible, as follows:

Stocks:
22.5% TSM: Vanguard Institutional Total Stock Market VITPX (0.02%)
22.5% SCV: Vanguard Small-Cap Value Index Admiral VSIAX (0.09%)
13.5% IDMV: iShares MSCI EAFE Value Index ETF EFV (0.40%)
9% EM: Vanguard Emerging Markets Admiral VEMAX (0.15%)
22.5% ISB: Vanguard FTSE All-World Ex-US Small Cap ETF VSS (0.20%)
10% REIT: Mix of Vanguard REIT Index Fund Institutional Shares and Spartan Real Estate Index Fund Advantage VGSNX/FSRVX (0.08%/0.09%)

Bonds:
100% TBM: Northern Trust Aggregate Bond Index (Approx = BND), (0.03%)

Pretty happy to do this portfolio at a total ER of ~0.13%!
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JDCarpenter
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Re: Re:

Post by JDCarpenter »

retiredjg wrote:
MichaelRpdx wrote:Do you work for a Fortune 500 company? I've never heard of this option for any 401(k).
A number of people have mentioned having this - more often called a "brokerage window" or something along that line. I know some of the Fidelity 401k's have it. Don't remember where the others might have been. If you go to the google search box at the top of this page and type in brokerage window you can see some earlier conversations.

Sometimes there's a fee to use it. Sometimes you have to pay a transaction fee for each transaction.
DW is in a small/medium medical group (100-150 employees?), and we are transitioning to the brokerage window now (the first in the group to do so). Given the crappy fund choices (only one fund with less than 0.75% cost), the few dollars assessed for access to TDAmeritrade will be well worth it.

P.S. I'm a slice/dice person and this is easy way to subscribe to this most excellent thread. :beer
Our personal blog (no ads) of why we saved/invested: https://www.lisajtravels.com/
LittleD
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by LittleD »

That's Great!!! Everyone needs to keep up the pressure on their Employee Personnel Departments to implement PCRA
(Personal Choice Retirement Accounts) or Brokerage Windows into their 401K programs. Yes, there will most likely be
a nominal fee each year to take advantage of it but IMVHO is money well spent. (My fee is $50 each January).

My PCRA is at Schwab but most of the brokerage houses offer this access with 401K plans. I have access to all of
Schwab's low cost ETF's and all of their no fee Mutual Funds. Low expense ratios and lots of choices...What could
be better?
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fetch5482
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by fetch5482 »

LittleD wrote:That's Great!!! Everyone needs to keep up the pressure on their Employee Personnel Departments to implement PCRA
(Personal Choice Retirement Accounts) or Brokerage Windows into their 401K programs. Yes, there will most likely be
a nominal fee each year to take advantage of it but IMVHO is money well spent. (My fee is $50 each January).

My PCRA is at Schwab but most of the brokerage houses offer this access with 401K plans. I have access to all of
Schwab's low cost ETF's and all of their no fee Mutual Funds. Low expense ratios and lots of choices...What could
be better?
I have Fidelity paired with their BrokerageLink (similar to PCRA in Schwab). The only issue is that Fidelity does not allow setting an allocation within BrokerageLink to automatically purchase certain funds. I have to manually go and buy the funds after each contribution. I could call up Fidelity and have it setup to auto-invest in some funds in a certain allocation, but there is no way to do so online.
(AGE minus 23%) Bonds | 5% REITs | Balance 80% US (75/25 TSM/SCV) + 20% International (80/20 Developed/Emerging)
LittleD
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by LittleD »

walletless wrote:
LittleD wrote:That's Great!!! Everyone needs to keep up the pressure on their Employee Personnel Departments to implement PCRA
(Personal Choice Retirement Accounts) or Brokerage Windows into their 401K programs. Yes, there will most likely be
a nominal fee each year to take advantage of it but IMVHO is money well spent. (My fee is $50 each January).

My PCRA is at Schwab but most of the brokerage houses offer this access with 401K plans. I have access to all of
Schwab's low cost ETF's and all of their no fee Mutual Funds. Low expense ratios and lots of choices...What could
be better?
I have Fidelity paired with their BrokerageLink (similar to PCRA in Schwab). The only issue is that Fidelity does not allow setting an allocation within BrokerageLink to automatically purchase certain funds. I have to manually go and buy the funds after each contribution. I could call up Fidelity and have it setup to auto-invest in some funds in a certain allocation, but there is no way to do so online.

Be patient...It may not be here today but just like Betterment and Wealthfront, these brokerage houses are not going to let a good thing get away.
It will be coming soon...
sens
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by sens »

How viable is UB&H for an American expat who can only invest in taxable accounts? I'm on the lowest US tax bracket.
LittleD
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by LittleD »

sens wrote:How viable is UB&H for an American expat who can only invest in taxable accounts? I'm on the lowest US tax bracket.
Should work just fine. Stick with ETF's in each asset class because their payouts (dividends) tend to be lower. Keep your expense ratios
as low as possible and don't let the tail (taxes) wag the dog.
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Sandi_k
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Sandi_k »

walletless wrote:
I have Fidelity paired with their BrokerageLink (similar to PCRA in Schwab). The only issue is that Fidelity does not allow setting an allocation within BrokerageLink to automatically purchase certain funds. I have to manually go and buy the funds after each contribution. I could call up Fidelity and have it setup to auto-invest in some funds in a certain allocation, but there is no way to do so online.
Thanks for this - I just established a BL account with Fidelity, and this is good to know for my monthly 403(b)/457 contributions.

Subscribed. :D
Kevin K
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Kevin K »

This is truly an epic thread. Thanks to all who've contributed and I won't even pretend that I fully understand some of the subtleties involved.

My question is this (and I hope it's the appropriate place for it): given all of the recent changes in the composition of Vanguard's international funds what are the current picks (ETFs or mutuals) for the 4 fund version of this portfolio? I'm 100% in VTI and VXUS at present and am sold on the virtues of better representation of small, value and international going forward but know myself well enough to be certain that 4 stock funds is the maximum I care to own.

Thanks for any thoughts!
cb474
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by cb474 »

Kevin K wrote:This is truly an epic thread. Thanks to all who've contributed and I won't even pretend that I fully understand some of the subtleties involved.

My question is this (and I hope it's the appropriate place for it): given all of the recent changes in the composition of Vanguard's international funds what are the current picks (ETFs or mutuals) for the 4 fund version of this portfolio? I'm 100% in VTI and VXUS at present and am sold on the virtues of better representation of small, value and international going forward but know myself well enough to be certain that 4 stock funds is the maximum I care to own.

Thanks for any thoughts!
If you search around in the forum there are a lot of threads already about options for value and small funds in international.

The truth is, there are not that many good options (unless you have access to DFA funds). I think probably the most common choices are to use EFV (which is iShares, not Vanguard, but you can buy it through a Vanguard brokerage account) for international large value (ILV) and to use VSS for international small. If you don't want to go outside Vanguard at all, then your only real option for ILV is VTRIX.

Again, I suggest spending some time reading the many already existing threads on the options in international.
livesoft
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by livesoft »

Kevin K wrote:My question is this (and I hope it's the appropriate place for it): given all of the recent changes in the composition of Vanguard's international funds what are the current picks (ETFs or mutuals) for the 4 fund version of this portfolio?
There are many current picks for 4 equity funds. That's the beauty of this kind of portfolio asset allocation: There is no one single "best" version, so one can do almost anything they want to that fits with the choices they have with their employer retirement plans, their IRAs, their brokers, their spouse's plans, and their own personal prejudices and biases.

If one wants to simply follow a recipe "verbatim", then this portfolio is probably not for you.

Picks for US small-cap value: http://www.altruistfa.com/USsmallcapvaluefunds.htm
Picks for foreign small-cap: http://www.altruistfa.com/Intlsmallcapfunds.htm
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Kevin K
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Re: Ultimate Buy and Hold - 8 slices vs 4

Post by Kevin K »

Thank you both very much!
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Taylor Larimore
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Sorry, it doesn't work.

Post by Taylor Larimore »

Bogleheads:

The easiest thing in the world is to look back and see which funds outperformed in the past and design a portfolio around them. It is how most investors pick, and most brokers sell, mutual funds. It doesn't work so the government requires mutual fund companies to print this warning (or something similar) on company literature:

"Past performance does not forecast future performance."

Believe it.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Leif
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It may or may not work.

Post by Leif »

Taylor Larimore wrote:Bogleheads:

"Past performance does not forecast future performance."

Believe it.

Best wishes.
Taylor
The actual statement is not that strong. More like " a fund's past performance does not necessarily predict future results".
U.S. Securities and Exchange Commission wrote:Mutual Funds, Past Performance
This year's top-performing mutual funds aren't necessarily going to be next year's best performers. It’s not uncommon for a fund to have better-than-average performance one year and mediocre or below-average performance the following year. That's why the SEC requires funds to tell investors that a fund's past performance does not necessarily predict future results. You can learn what factors to consider before investing in a mutual fund by reading Mutual Fund Investing: Look at More Than a Mutual Fund's Past Performance.
http://www.sec.gov/answers/mperf.htm

Factors listed by the SEC include:
  • The fund's sales charges, fees, and expenses;
    The taxes you may have to pay when you receive a distribution;
    The age and size of the fund;
    The fund's risks and volatility; and
    Recent changes in the fund's operations.
Mutual Fund Investing: Look at More Than a Fund's Past Performance
SEC wrote:You can get a better picture of a fund's performance by looking at how the fund has performed over longer periods and how it has weathered the ups and downs of the market.
Diversify to help meet your goals!
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