Portfolio Advice.

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isidhu
Posts: 10
Joined: Sun May 20, 2018 3:01 pm

Portfolio Advice.

Post by isidhu » Tue Jun 12, 2018 12:51 am

Hi Folk,

First of all i would like to thank every one for investing their time on the forum. This is invaluable what we got here. This is my first post (Actually my second as the first one got lost as I did not save it before submitting). Anyways, I have been looking into defining an overall strategy for our investments. Having done a lot of research I have come with the following plan.

Emergency funds: Three to six months of expenses (Separate from investments)
Debt: No Debt, everything payed off. Do not own a house
Tax Filing Status: Married Filing Jointly
State of Residence: CA (Taxed way too much)
Age: Mid 30's
Desired Asset allocation: Depends on estimated time to goal.
Desired International allocation: Depends on time to goal
We currently have low 6 figure amount including all investments but we have seriously started on a budget and at a stage were we want to ramp up our saving.
I have my assets allocated as per goals for each (time duration). The asset allocation is as per morningstar published tables. I am still in the process of adding bond funds to the allocations (3% for both Goal1 and Goal3).

Portfolio:

(Goal1- After tax saving for long term use as needed 20 yrs)
Funds Breakdown After Tax Saving Bucket % of total

Prime-cap Odyssey(POGRX)(ER-0.67)--- 28%
Tax managed Capital growth (VTCLX) (ER-0.09)--- 38%
VEMAX (Emerging Market)(ER-0.14)--- 18%
Commodities--- 16% (I know these are high for now)(Over time these should come down to 3% or so. I do not plan to rebalance these as these are not in the form of ETF. For now will not put anything in bonds to counter this.)

(Goal2- Near term savings for house downpayment - 2 to 5 yrs)
Funds Breakdown (House Down-payment) % of total

Vanguard Welleselley(VWIAX)(ER-0.15)--- 60.00%
Vanguard Short term Tips(VTAPX)(ER-0.09)--- 25.00%
Cash (One year CD at 2%)--- 15.00%

(Goal3- All retirement accounts)
Funds Breakdown (Retirement) % of total

Primecap Odessey(POGRX)(ER-0.67)--- 9.5.00%
S&P Index fund in 401k-Blackrock(ER-0.02)--- 22.00%
Dodge & Cox Stock (DODGX)(ER-0.52)--- 20.5%
Dodge & Cox International(DODFX)(ER-0.63)--- 38.00%
Vanguard Small Cap Index(VSCIX)(ER-0.04)--- 10.00%

My questions are:
1. how does the overall plan look. Am I missing something. What would you do differently?
2. Feedback on individual portfolios would be great. I know I have them designed differently.
3. Anything else that comes to mind.

Again I really appreciate your feedback and will try and keep this thread up to date.
Last edited by isidhu on Fri Jun 15, 2018 10:20 am, edited 1 time in total.

isidhu
Posts: 10
Joined: Sun May 20, 2018 3:01 pm

Re: Portfolio Advice.

Post by isidhu » Thu Jun 14, 2018 12:47 am

Added the fund Tickers. Hope this helps.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Advice.

Post by ExitStageLeft » Thu Jun 14, 2018 3:48 pm

Welcome to the forum!

Could you also add what your expenses are for those funds?

isidhu
Posts: 10
Joined: Sun May 20, 2018 3:01 pm

Re: Portfolio Advice.

Post by isidhu » Fri Jun 15, 2018 10:21 am

ExitStageLeft wrote:
Thu Jun 14, 2018 3:48 pm
Welcome to the forum!

Could you also add what your expenses are for those funds?
Added the ER's thanks for pointing it out.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Advice.

Post by ExitStageLeft » Fri Jun 15, 2018 4:22 pm

it seems that your Goal1 and Goal3 are essentially the same. I would lump them together for portfolio management purposes. Your Goal2 is for a specific purpose within a specific time frame, and should in my mind be treated as a savings account. You have the bulk of those savings in a mutual fund holding 38% equities. I'd put it in something less vulnerable to a signifcant market correction and start think of it as a savings account, not part of an investment portfolio.

For the remainder of your assets, looking at them as one portfolio should simplify the portfolio balancing and allow you to maximize tax efficienct fund placement. You state you would like to increase your bond holdings by 3% in your taxable and retirement accounts. Bonds in a taxable account are not tax efficient, and will increase your tracking and reporting burden. You could instead simply increase your bond allocation in one or more of the retirement accounts such that it represents your overall desired bond allocation.

That brings me to your bond allocation. Other than the bond portion of the Wellesley fund you have no bonds. I don't know enough about commodities to discern if your holdings represent ballast or an anchor. I would look to trim at least half the commodities out of the portfolio and replace with bond funds.

I'm guessing you weren't an investor during 2008 and 2009. If that's the case, you haven't felt what a 50% market correction does to a portfolio. The Boglehead philosophy involves buying and holding your assets, and having a portfolio designed to weather the downturns as well as capture the gains and upswings. Is your current portfolio one you would stick with in an extended bear market? If not, you should move to one that will allow you to stay the course no matter the market conditions.

isidhu
Posts: 10
Joined: Sun May 20, 2018 3:01 pm

Re: Portfolio Advice.

Post by isidhu » Fri Jun 22, 2018 4:52 pm

Thanks for all the recommendations. This is great.
Your Goal2 is for a specific purpose within a specific time frame, and should in my mind be treated as a savings account. You have the bulk of those savings in a mutual fund holding 38% equities. I'd put it in something less vulnerable to a significant market correction and start think of it as a savings account, not part of an investment portfolio.
Actually the time frame is flexible and thus I treated at more of a short - mid term investment then a saving account. I also checked the drop in value for VWIAX during 2008 - 2009 period (10%) to make sure I am comfortable with the amount of risk. So with the current allocation of 60% to this fund, I an accounting for a 6-10% dip for goal 2 portfolio. I would be ok with this. Is there more to this analysis?
For the remainder of your assets, looking at them as one portfolio should simplify the portfolio balancing and allow you to maximize tax efficienct fund placement. You state you would like to increase your bond holdings by 3% in your taxable and retirement accounts. Bonds in a taxable account are not tax efficient, and will increase your tracking and reporting burden. You could instead simply increase your bond allocation in one or more of the retirement accounts such that it represents your overall desired bond allocation.
These were kept separate as I was trying to feel taxable and retirement accounts separate. But it could make sense to bunch them up. If I combine the rest of the portfolio I get the following allocations. Now this is looking more complicated then it should be in my opinion. I basically have the following asset allocation for this
Stock, International Stock, Bonds, Cash
58%, 36%, 3%, 3%

Primecap Odessey(POGRX)(ER-0.67) 10.23%
Tax managed Capital growth(POGRX)(ER-0.67) 13.51%
VEMAX (Emerging Market)(ER-0.14) 7.55%
Various S&P 500 Index Funds+ Dodge & Cox Stock (DODGX) 20.53%
Dodge & Cox International (DODFX)(ER-0.63) 14.49%
Small Cap Vanguard(VSCIX)(ER-0.04) 3.73%
Commodity 11.04% (This is mostly bullion -cultural thing - I plan not to invest untill this drops bak down to 3% mark, which is what the portfolio allocation should be)
ESPP + Stock 18.93% (Reducing this and investing back to portfolio)- plan to have no more than 5% end of year.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Advice.

Post by ExitStageLeft » Fri Jun 22, 2018 6:43 pm

It's only got to be as complicated as you want to make it. If you were in a modified three-fund portfolio you would have great diversification with backtest showing nearly identical yield at PortfolioVisualizer.

That's with:
50% US Total stock market
20% International stock market
19% ESPP+Stock
11% Cash

Too much slicing and dicing can undo the benefits of a broadly diversified indexed portfolio. You could try simplifying to a three-fund portfolio and make things easier on yourself. What are your index fund options in the retirement plans?

isidhu
Posts: 10
Joined: Sun May 20, 2018 3:01 pm

Re: Portfolio Advice.

Post by isidhu » Sat Jun 23, 2018 12:27 pm

ExitStageLeft wrote:
Fri Jun 22, 2018 6:43 pm
It's only got to be as complicated as you want to make it. If you were in a modified three-fund portfolio you would have great diversification with backtest showing nearly identical yield at PortfolioVisualizer.

That's with:
50% US Total stock market
20% International stock market
19% ESPP+Stock
11% Cash

Too much slicing and dicing can undo the benefits of a broadly diversified indexed portfolio. You could try simplifying to a three-fund portfolio and make things easier on yourself. What are your index fund options in the retirement plans?
Not a great choice in my 401k. Its got one fund in each of the generic categories (Small Cap, Mid Cap, Bond, Cash equivalent etc) and target date funds. The one Index fund is by Blackrock which has 50% of my 401k and DODGX has the other 50. I use my wife's 401K to add the Dodge & Cox International(DODFX)(ER-0.63) and Small Cap Vanguard(VSCIX)(ER-0.04) as her 401k total is less than mine. I am still giving more thought to how to bunch up the tax deferred (401k, Roth etc) with after Tax accounts. Maybe just keep the index fund in my 401k.

The overall fund allocations I have in mind are as following

Growth leaning- Primecap Odessey(POGRX) (This will probably be better in Tax deferred) 20%

Large and Mid Cap Market Index (I am considering to bunch up Blackrock Index and VTCLX(Russell 1000) under this) 38%
I may add Vanguard Tax-Managed Small Cap (VSCIX) as 10% of the above to make it more like a total stock market. Not sure yet, it may be simpler with one less fund though.

International( Currently in DODFX and VEMAX) 36% - I still have to figure out this correctly. Maybe I can buy an index fund for international and move everything to it.

Bonds - 3% (Currently the cash is overweight so will add once the bond+Cash portion moves below 6%)
Cash/Commodities - 3% (Not investing in this unless this drops below 3%)

How does this look overall.
Any recommendations on the individual Funds for each category.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Advice.

Post by ExitStageLeft » Sun Jun 24, 2018 10:23 am

isidhu wrote:
Sat Jun 23, 2018 12:27 pm

Not a great choice in my 401k. Its got one fund in each of the generic categories (Small Cap, Mid Cap, Bond, Cash equivalent etc) and target date funds. The one Index fund is by Blackrock which has 50% of my 401k and DODGX has the other 50. I use my wife's 401K to add the Dodge & Cox International(DODFX)(ER-0.63) and Small Cap Vanguard(VSCIX)(ER-0.04) as her 401k total is less than mine. I am still giving more thought to how to bunch up the tax deferred (401k, Roth etc) with after Tax accounts. Maybe just keep the index fund in my 401k.

The overall fund allocations I have in mind are as following

Growth leaning- Primecap Odessey(POGRX) (This will probably be better in Tax deferred) 20%

Large and Mid Cap Market Index (I am considering to bunch up Blackrock Index and VTCLX(Russell 1000) under this) 38%
I may add Vanguard Tax-Managed Small Cap (VSCIX) as 10% of the above to make it more like a total stock market. Not sure yet, it may be simpler with one less fund though.

International( Currently in DODFX and VEMAX) 36% - I still have to figure out this correctly. Maybe I can buy an index fund for international and move everything to it.

Bonds - 3% (Currently the cash is overweight so will add once the bond+Cash portion moves below 6%)
Cash/Commodities - 3% (Not investing in this unless this drops below 3%)

How does this look overall.
Any recommendations on the individual Funds for each category.
As the comparison in PortfolioVisualizer showed, as long as you keep the same general allocation proportion with US stocks, international stocks and bonds you'll likely end up with the same general rate of return. Another thing to keep in mind is that you can't control or even foresee how each of those assets types will fare over the next ten or twenty years. One thing you can foresee and control is the expense ratio of the funds you choose.

I would not pick one fund over the other because of recent returns. I would pick a fund based on its expense ratio, its fidelity to the index it is based on, and the rate of turnover of assets within the fund. With that in mind I would be weighting my 401k accounts heavily toward the low-cost indexed funds, and balance out the portfolio in taxable with a low-cost total international stock fund like VTIAX.

The portfolio I am envisioning would have 10% in bonds and commodities, 35% international stocks, and 55% US stocks. The US stocks would be 35% total market and 20% growth tilt (combination of company stock and POGRX). You'll have to approximate a total market fund by having Blackrock S&P 500 and Vanguard Small Cap in a 5:1 ratio.

Taxable
20% combination of Primecap Odyssey Growth POGRX (0.67%) and Company stock ESPP
35% Vanguard Total International VTIAX (0.11%)
5% Commodities

401k accounts
29% Blackrock S&P Index fund (0.02%)
6% Vanguard Small Cap Index VSCIX (0.04%)
5% Lowest cost bond fund available

I don't know what your company stock is, and that doesn't matter for this analysis. You can change the company stock ticker in this analysis, but unless it's a skyrocketing flyer or a drooping dog it won't change things.

My thoughts:
1)You can still get about the same returns by simplifying and diversifying.
2) I would accept a low-cost approximation of a total stock market fund rather than adding in an expensive mid-cap fund.
3) And I would not hold anything that has less than a 5% position in my overall portfolio. The hassle factor approaches infinity the smaller the holding is.
4) Allocation is based on a guess of taxable account relative to 401k accounts. If taxable is much larger, make up for it by buying VTSAX in taxable so that US stock funds add up to 35% of total portfolio.

isidhu
Posts: 10
Joined: Sun May 20, 2018 3:01 pm

Re: Portfolio Advice.

Post by isidhu » Sun Jun 24, 2018 9:13 pm

As the comparison in PortfolioVisualizer showed, as long as you keep the same general allocation proportion with US stocks, international stocks and bonds you'll likely end up with the same general rate of return. Another thing to keep in mind is that you can't control or even foresee how each of those assets types will fare over the next ten or twenty years. One thing you can foresee and control is the expense ratio of the funds you choose.

I would not pick one fund over the other because of recent returns. I would pick a fund based on its expense ratio, its fidelity to the index it is based on, and the rate of turnover of assets within the fund. With that in mind I would be weighting my 401k accounts heavily toward the low-cost indexed funds, and balance out the portfolio in taxable with a low-cost total international stock fund like VTIAX.

The portfolio I am envisioning would have 10% in bonds and commodities, 35% international stocks, and 55% US stocks. The US stocks would be 35% total market and 20% growth tilt (combination of company stock and POGRX). You'll have to approximate a total market fund by having Blackrock S&P 500 and Vanguard Small Cap in a 5:1 ratio.

Taxable
20% combination of Primecap Odyssey Growth POGRX (0.67%) and Company stock ESPP
35% Vanguard Total International VTIAX (0.11%)
5% Commodities

401k accounts
29% Blackrock S&P Index fund (0.02%)
6% Vanguard Small Cap Index VSCIX (0.04%)
5% Lowest cost bond fund available

My thoughts:
1)You can still get about the same returns by simplifying and diversifying.
2) I would accept a low-cost approximation of a total stock market fund rather than adding in an expensive mid-cap fund.
3) And I would not hold anything that has less than a 5% position in my overall portfolio. The hassle factor approaches infinity the smaller the holding is.
4) Allocation is based on a guess of taxable account relative to 401k accounts. If taxable is much larger, make up for it by buying VTSAX in taxable so that US stock funds add up to 35% of total portfolio.
Thanks for the great input. I will start on the rebalancing as mentioned. The great thing about this it seems is, I should be able to find a S&P 500 in any 401k(In case of job change). I have not really relied on past performance for the current funds. I try and understand the asset allocation mix and historically look at how different market conditions effect the fund. I am although, still new to the scene and still learning.

I try to keep all the expenses low but an extra pair of eyes always helps. Just discussion this in the forum, I could see my DODGX allocations was done a while back and the expectations for the funds were different. Now when we combined the goals it is not really needed and I can save the expense it comes with. This and other changes should help me simplify as well as manage the portfolio better going forward.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Advice.

Post by ExitStageLeft » Mon Jun 25, 2018 2:44 pm

Good luck with the new allocation. You got my curiosity up a while back with your comment about holding gold. As a former geologist I'm rather partial to the stuff and confess to having a few ounces tucked away. Care to comment in broad terms what cultural influence recommends the same?

isidhu
Posts: 10
Joined: Sun May 20, 2018 3:01 pm

Re: Portfolio Advice.

Post by isidhu » Mon Jun 25, 2018 4:54 pm

ExitStageLeft wrote:
Mon Jun 25, 2018 2:44 pm
Good luck with the new allocation. You got my curiosity up a while back with your comment about holding gold. As a former geologist I'm rather partial to the stuff and confess to having a few ounces tucked away. Care to comment in broad terms what cultural influence recommends the same?
The conventional wisdom is to have 10% or more in gold and similar commodities for the any investor. Sometimes even more.

I think this stems from a few issues mostly related to the less mature financial systems and black market transactions which are cash only and not reported.
1. Stock market is mostly not understood and government regulation is lacking. This leads to most people ignoring or even actively avoiding any share ownership. Markets are also rife with insider trades and other issues. Not many public companies exist and even big name companies have duped investors and owner fled the country.
2. Mutual Funds are in their infancy and this goes back to the issue of most people not investing in the market.
3. Most common form of saving is bank CD. These dont work very well in a high inflation environment. After taxes you may or may not be able to keep your principal intact over the long term. VS gold which has a built in inflation hedge traditionally and no taxes until sold.
4. Most transactions are kept off the record and gold is a good value store and in such an economy quite liquid while still remaining off the record.
5. Political uncertainty and suspicion of fiat could also be another issue.

This is my unscientific analyses.

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