Portfolio Watch Concerns

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townboglehead
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Portfolio Watch Concerns

Post by townboglehead » Sun Jan 29, 2017 1:33 pm

I was curious to know if other users have been using Vanguard's Portfolio Watch Tool?
In particular, when determining interest rate sensitivity or long/intermediate/short term bond types
I was told by my Vanguard Advisor I could use this as a surrogate for determining how to split my bonds
between short/interm/long when rebalancing.
My example is the total bond portfolio, Admiral (VBTLX). It contains bonds of multiple duration risks
but when Portfolio Watch is determining the short/intermed/long splits, all is lumped into "intermediate" only
Confirmed when I looked at the holdings in the link below the portfolio watch determination
I swear just last month this was split out among the duration risk so I could adjust if needed but have checked several times in the last
month and all is still lumped into intermediate.
Any other recommendations out there to accurately determine asset allocation besides Vanguard?

livesoft
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Re: Portfolio Watch Concerns

Post by livesoft » Sun Jan 29, 2017 1:41 pm

Here is a discussion of PortWatch and other tools: viewtopic.php?t=150267

Caveat emptor.
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Angst
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Re: Portfolio Watch Concerns

Post by Angst » Mon Jan 30, 2017 12:55 am

^ +1 Watch out! I do not rely on Vanguard's portfolio analysis tools. Certain funds are poorly matched to their actual international holdings. I've read a variety other complaints as well. I believe M* is a better place to go.

RoboFan
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Re: Portfolio Watch Concerns

Post by RoboFan » Sat May 06, 2017 1:49 pm

I use the iPad "Portfolio Analysis" tool, which gives the same analysis for stocks and bonds (including interest rate sensitivity). I have multiple portfolios related to prior employer 401k plans but the majority of the finds I hold are Vanguard funds. I also have a brokerage account limited to Vanguard funds.

VBTLX is in my Portfolio and is listed as being 100% intermediate. In fact, I have a total of 5 different bond funds and in each case they are classified as being 100% long, 100% intermediate, or 100% short term. This observation also holds for all of 12 different stock funds I own - each is listed as 100% large, 100% intermediate, or 100% small cap.

I know too many funds but this happens when you have had multiple employers with each plan offering different options for creating a balanced portfolio. Acoung aggragation keeps everything simple but getting an accurate analysis depends on two factors - the ability to get correct data into the analysis, and havimg the analysis be reasonable correct. My combined Portfolio has, at least by Vanguards analysis and guidelines, everything in order. That said, it worries me a bit to note that the analysis does not break up the individual funds.

Does anyone have good estimate of how serious this problem is?

retire57
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Re: Portfolio Watch Concerns

Post by retire57 » Sat May 06, 2017 2:04 pm

I was just over at the Portfolio Watch myself and it led me to compare our VBTLX with our VFIDX and the 2 seem to overlap.

Then I went to M-star and the picture is now much clearer.

retire57
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Re: Portfolio Watch Concerns

Post by retire57 » Sat May 06, 2017 2:10 pm

retire57 wrote:I was just over at the Portfolio Watch myself and it led me to compare our VBTLX with our VFIDX and the 2 seem to overlap. As they do when you use the fund comparison tool.

Then I went to M-star and the picture is now much clearer.

friar1610
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Re: Portfolio Watch Concerns

Post by friar1610 » Sat May 06, 2017 2:20 pm

When people refer to "Morningstar" are they referring to the Portfolio X-Ray tool which requires a Premium (paid) membership? Or does one of their free tools give you the same sort of info as VG's Portfolio Watch? If so, which specific tool?

Thank you.
Friar1610

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ruralavalon
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Re: Portfolio Watch Concerns

Post by ruralavalon » Sat May 06, 2017 2:24 pm

friar1610 wrote:When people refer to "Morningstar" are they referring to the Portfolio X-Ray tool which requires a Premium (paid) membership? Or does one of their free tools give you the same sort of info as VG's Portfolio Watch? If so, which specific tool?

Thank you.
I use the free "instant X-Ray" tool at Morningstar. That does give you details on the actual content of your funds.
Last edited by ruralavalon on Sat May 06, 2017 2:25 pm, edited 1 time in total.
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livesoft
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Re: Portfolio Watch Concerns

Post by livesoft » Sat May 06, 2017 2:25 pm

I've never paid M* anything and never even registered there. When I refer to M*, I am usually writing about Portfolio X-ray and not Instant X-ray.
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RoboFan
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Re: Portfolio Watch Concerns

Post by RoboFan » Sat May 06, 2017 3:05 pm

I did a bit more digging into VBTLX. In the written description, Vanguard describes the fund as holding all types of maturities, but in the 9-box style depiction they show average as intermediate. Curious to know how a fund comprised of all intermediate bonds compares with a fund with short, intermediate, and long term with the same average duration. If they behave substantially the same then the portfolio analysis assuming the fund is comprised of 100% intermediate would seem to be ok.

I have no idea if this is true - but I'm sure someone must have figured this out. Same question for stocks - does a fund with with 33.3 small cap, 33.3 intermediate, and 33.3 large cap, behave substantially the same as one with 100% intermediate?

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Phineas J. Whoopee
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Re: Portfolio Watch Concerns

Post by Phineas J. Whoopee » Sat May 06, 2017 3:21 pm

RoboFan wrote:... Curious to know how a fund comprised of all intermediate bonds compares with a fund with short, intermediate, and long term with the same average duration. If they behave substantially the same then the portfolio analysis assuming the fund is comprised of 100% intermediate would seem to be ok.
The fund with more maturities should be expected to be more stable in the face of changes in the shape of the yield curve. Expected return over time won't be much different.
RoboFan wrote:I have no idea if this is true - but I'm sure someone must have figured this out. Same question for stocks - does a fund with with 33.3 small cap, 33.3 intermediate, and 33.3 large cap, behave substantially the same as one with 100% intermediate?
The problem is unlike the concept of bond duration there is no industry consensus on what constitutes small, medium, or large. Furthermore, stocks are fundamentally different from bonds. If you want to focus on midcap stocks, pick a vendor's definition and go ahead, as long as you understand what you're doing and have concluded it's better than doing something else.

PJW

RoboFan
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Re: Portfolio Watch Concerns

Post by RoboFan » Sat May 06, 2017 5:19 pm

PJW. Thanks for the quick explaination and links.

My questions were more of a theoretical nature as I made a decision to follow the guidance provided in the Vanguard Portfolio Analysis tool some some time back. In keeping with this decision, my distribution of small medium and large cap funds with all my portfolios included matches the market - assuming of course Vanguard's analysis is correct. That said, various individuals including some on this thread have suggested the Vanguard analysis is flawed as it often lumps all the holdings in any one fund as equally; i.e., classifies the all the bonds in VBTLX as intermediate despite the fund holding some long and short term. In short, the question is not whether I know what I'm doing (typically no) but whether Vanguard does.

For what it's worth, in my case, Financial Engines gives my final allocation a green light (suggesting a bunch if increase this 1%, decrease something else 1%). Personal Capital also more or less thinks I'm in the right track albeit it wants me to decrease foreign equities and bonds a bit and buy alternatives. PC has beings giving that advice every since I started using it - sometimes concurrent with Vanguards analysis chastising me for have too little foreign investments. Still, my real interest is in figuring out whether humans can really do better than RoboInvestors, and figuring out how different the various RoboInvestors are. Obviously I would like Vanguard's recommendations to be reasonable as those are the recommendations I'm following.

So - 2 questions.

1. Is Vanguard's Portfolio Analysis technically correct?
2. Should I care?

livesoft
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Re: Portfolio Watch Concerns

Post by livesoft » Sat May 06, 2017 5:33 pm

1. No.
2. Yes.

I'll add that you should not believe me, but do enough research on your own to reach your own defendable conclusion.
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livesoft
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Re: Portfolio Watch Concerns

Post by livesoft » Sat May 06, 2017 5:41 pm

There are investors who set their asset allocation as percentages of funds. This might be something like 40% VTSAX, 20% VTIAX, and 40% VBTLX. These investors do not care too much about what asset classes these funds actually hold and do not need to know the compositions of the funds.

There are investors who set their asset allocation as percentages of asset classes. Since most funds are not a pure asset class, these investors should care somewhat about what asset classes their funds actually hold and do need to know the compositions of the funds.
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RoboFan
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Re: Portfolio Watch Concerns

Post by RoboFan » Sun May 07, 2017 9:48 am

I do not really get all the negative comments about Vanguards Portfolio Analysis tool being inaccurate that are frequently posted. When I manually enter my holdings into Morningstar's Instant X-ray I get virtually the same answer for stocks v bond allocation, international v domestic allocation, and large, medium, small cap alloacation. By "virtually the same" I mean within a percent or two - nothing that would prompt me to buy or sell anything (I also rounded some of my holdings to the nearest $1000, so the differences I did get might be related to small errors in data entry).

I could not get the Morningstar's free Instant X-Ray tool to report bond analysis as the link for that analysis brought up the "Portfolio X-ray" page which they want $200 per year to access. Does anyone one know if Morningstar provides account aggragation as part of the 200 bucks? I would be happy to pay $200 bucks a year to avoid spending endless hours manually entering data. Given all the reports about how inaccurate Vanguards analysis is, and how important the correct answer is, I would have more piece of mind if I could at least confirm Vanguard's analysis is consistent with a second source. Does not mean either source is correct, but it would be an unlikely coincidence if they both have the same wrong answer.

Topic Author
townboglehead
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Re: Portfolio Watch Concerns

Post by townboglehead » Sun May 07, 2017 12:56 pm

I would not call these negative comments about the portfolio watch. My observation is it does not give you enough information, eg
VBTLX bond fund is lumped as intermediate, and is unable to break down the bond fund information into short, intermed, long maturities
Vanguard advisers can easily access this information when creating/revising portfolios. Critical information, in my opinion, to managing
risk. So, it would be nice for Vanguard to update this tool. They certainly have the capability.

RoboFan
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Re: Portfolio Watch Concerns

Post by RoboFan » Mon May 08, 2017 9:12 pm

Could not agree more. Thanks for the comment.

RoboFan
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Re: Portfolio Watch Concerns

Post by RoboFan » Tue May 09, 2017 8:33 am

I'm still struggling with this one. What I'm getting from this thread so far is that:

1. An analysis tool should, on principle, be correct
2. Vanguard's Portfolio Analysis is making inappropriate assumptions - treating all the stocks or bonds within a mutual fund the same (e.g. Considering VBTLX as all intermediate term when it has short an long term holdings)

So, what am I struggling with? I signed up for the free 2 week trial version of Morningstar's Premier service - the one that costs $200 a year. It gives a different answers for the duration and quality the bond my bonds mutual funds. Morningstar lists 40, 54, and 0 for ltd, mod, ext (analogous to short intermediate and long - not sure why the numbers don not add to 100) versus Vanguards analysis indicating 21.7, 78.3, 0. (Long, intermediate, short). Morningstar has 7% of holdings as low quality; Vanguard has 9.4%.

So, is this due to lumping of all bonds within a mutual fund as the same? I checked a sample portfolio consisting of 100 VBTLX using Morningstar's tool and it reported the "portfolio" as 100% intermediate (mod); 100% High quality. Same problem as Vanguard is being critiqued for. I'm not defending one analysis over the other and given enough time I could probably figure out where the two different analysis differ in definitions or calculations - but where would this get me? Strictly speaking Morningstar reports my biggest bond holding as 49.03 high quality intermediate term - meaning they think 49.92 or 49.04. Sorry for the high school math but carrying this calculation to two decimal places seems absurd.

I'm still sticking with Vanguard's Portfolio Analysis tool for guidance.

That said, neither Vanguard or Morningstar provide account aggragation. I'm cancelling the Morningstar Premium service as I'm unwilling to update my holdings manually each month. No analysis tool can provide accurate answers with incorrect input data. No aggragation is like checking into a hotel with no WiFi when the intention to have a business meeting.

Hogan773
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Re: Portfolio Watch Concerns

Post by Hogan773 » Tue May 09, 2017 10:02 am

Is the inaccuracy of Portfolio Watch mainly in the Bonds area?

Generally I just eyeball the portfolio watch for a Stocks/Bonds/Short Term Reserves dashboard and haven't gotten too micro-managey about using Portfolio Watch to fine tune my bond holdings. I've generally skewed to Tax Free bond funds, with a mix of Short Term, Limited Term, Intermediate Term and High Yield.

RoboFan
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Re: Portfolio Watch Concerns

Post by RoboFan » Tue May 09, 2017 9:53 pm

Now that I have all my holdings in I'm getting larger differences in market cap - Morningstar has me at 66, 27, 4 and Vanguard at has the totals as 58, 33, 9 (large, intermediate, small). I don't see this as a big deal. I think Vanguard flags a "caution" if any of the three values differed from the market by more than 10 (market being 66, 27, 7). Both estimates would be get a green light (arrow) from Vanguard. As one of the other posters noted - the definitions of large, medium, small might be different.

On the bond analysis my understanding is credit rating is less subjective - junk should be junk and the two analysis should agree. Less sure about Morningstar's duration estimate as they don't use Long, Intermediate, and short; rather, LTD, MOD, and
EXT which I took as analogous to short, intermediate and long.

I think your eyeball approach to mixing the bonds is more than reasonable. Vanguards guidance on the ratios for these is quite broad - it flags a caution if the high yield rises above 20% of total bonds but only a caution (they are riskier). I have Internation bonds in my portfolio as well, but am well aware the Vanguard is recommending higher international exposure on everything (higher than Person Capital, Wealthfront, or Betterment).

Still, there are 2 separate questions here:

1. Is the Portfolio Analysis tool in need of repairs (does if generate correct analysis)
2. Is the guidance is generates based on that analysis reasonable

I've made adjustment in my portfolio to get rid of cations and warnings but have no idea if this will ultimately help or hurt. I suspect I would say the same thing if I gave a human advisor 0.2 or 0.3 percent to tell me something different, or if I tried to make changes without machine or human helping. I like the Portfolio Analysis tool because it's 1. Free, and 2. Provides at least some rational for what it's recommending. However, I would hope Vanguard did at least some software testing.

livesoft
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Re: Portfolio Watch Concerns

Post by livesoft » Tue May 09, 2017 10:04 pm

Vanguard Portfolio Watch does not include any of one's pure international equity holdings in its report of market cap*. And it clearly states that it doesn't. Morningstar will include international equity holdings in its report of market cap (the 9-box style grid).

*I don't know what it does with a fund that has both US and foreign equity holdings.
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RoboFan
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Re: Portfolio Watch Concerns

Post by RoboFan » Wed May 10, 2017 7:08 am

Thanks - that fact alone could explain the differences in market cap estimates. I have over 38% of my equity holdings in foreign mutual funds (Vanguard recommends 30 to 50%).

Aside - the foreign allocation has not helped my portfolio much over the last 10 years but I'm sticking with the guidance and waiting it out. Maybe the next 10 years will be better.

renue74
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Re: Portfolio Watch Concerns

Post by renue74 » Wed May 10, 2017 9:00 am

I use the M* X-ray tool w/o paying the annual fee.

All you have to do is sign up for an account with T. Rowe Price. I don't even think you have to have funds in TRP. I have 2 Roth IRAs there for my kids.

Anyways....once you have a TRP account, go to:

Planning & Research-->Asset Allocation

In the bottom left, there's a link to M* full portfolio services including the X-Ray tool.

#free

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