VG PAS Recommendations - Surprised/Disappointed?

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BigJohn
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VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

Answering questions for some friends that are considering using VG PAS. I was surprised and actually a bit disappointed at the recommendations given. Looking for other perspectives before I give them feedback.

For background, a retired mid-60's couple that has "won the game". VG asset allocation recommendation was a fairly conservative 40/60 with 35% of stocks in international and 10% bonds in international. So far, so good, this all seems appropriate and expected. The surprise was in how this allocation was implemented.

For US stocks the recommendation was a 50/50 mix of total stock and 500 index. My concern is that this adds complexity but more importantly skews their holdings significantly toward large US stocks. My advice would be to use just total stock. For international stock they used just total international index so no issue there.

For US bonds in IRAs the recommendation was a 50/50 mix of total bond and intermediate term bond index with some short term bond index sprinkle in. While not the significant skew that the US stock recommendation would give, this seems unnecessarily complex given the overlap. My advice would be to pick one of the two intermediate term bond funds and leave out the short term index. I was also surprised that for a bond heavy portfolio, no TIPS fund was included. My advice would be to consider allocating at least some portion of US bonds to TIPS. For international bonds they used just total international bond index so no issue there.

For bonds in taxable the recommendation was a 40/20/40 mix of limited term, intermediate term and long term tax exempt funds. Their tax bracket justifies munis as the right answer but I was again surprised at the complexity of using three funds. My advice would be to go with just intermediate term.

Unfortunately, these recommendations leave me with an uncomfortable feeling that VG PAS is falling into the mode of making things look more complicated than necessary to help justify and sell the need for their services. Would like to hear other perspectives on both that and the advice I plan to give. Thanks in advance for the help.
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nedsaid
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by nedsaid »

BigJohn wrote: Tue Aug 21, 2018 10:25 am Answering questions for some friends that are considering using VG PAS. I was surprised and actually a bit disappointed at the recommendations given. Looking for other perspectives before I give them feedback.

For background, a retired mid-60's couple that has "won the game". VG asset allocation recommendation was a fairly conservative 40/60 with 35% of stocks in international and 10% bonds in international. So far, so good, this all seems appropriate and expected. The surprise was in how this allocation was implemented.

For US stocks the recommendation was a 50/50 mix of total stock and 500 index. My concern is that this adds complexity but more importantly skews their holdings significantly toward large US stocks. My advice would be to use just total stock. For international stock they used just total international index so no issue there.

For US bonds in IRAs the recommendation was a 50/50 mix of total bond and intermediate term bond index with some short term bond index sprinkle in. While not the significant skew that the US stock recommendation would give, this seems unnecessarily complex given the overlap. My advice would be to pick one of the two intermediate term bond funds and leave out the short term index. I was also surprised that for a bond heavy portfolio, no TIPS fund was included. My advice would be to consider allocating at least some portion of US bonds to TIPS. For international bonds they used just total international bond index so no issue there.

For bonds in taxable the recommendation was a 40/20/40 mix of limited term, intermediate term and long term tax exempt funds. Their tax bracket justifies munis as the right answer but I was again surprised at the complexity of using three funds. My advice would be to go with just intermediate term.

Unfortunately, these recommendations leave me with an uncomfortable feeling that VG PAS is falling into the mode of making things look more complicated than necessary to help justify and sell the need for their services. Would like to hear other perspectives on both that and the advice I plan to give. Thanks in advance for the help.
My reaction is that the recommendations are sensible. I am scratching my head wondering why they are recommending a combination of Total Stock Market and the S&P 500. Sounds like they want to skew towards the largest stocks, the theory being that the mega-caps are more stable. Your friends should ask what the reasoning is behind this.

As far as the bond side, my guess is that they are aiming for a particular duration for their bonds. Again, have your friends ask them about the reasoning.

A six fund portfolio on the taxable side and a six fund portfolio on the tax deferred side shouldn't freak you out. Seen many more complex portfolios. Bottom line, they have some sort of computer screening that determines all of this based upon Vanguard's best thinking. The Advisor might be able to tweak a bit according to his judgment.

I guess it all depends upon how knowledgeable your friends are. If they are clueless about investing, just be thankful that they are at Vanguard and not Edward Jones or Ameriprise. You might just have to let this go and trust your friends to VPAS. We all have our opinions but as we know, there are many different ideas on how to build a portfolio.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by tomd37 »

BigJohn - I get the overall impression that VG PAS is just making a too complicated recommendation. We are in our early 80's and I feel "we have won the game" in our 40/60 stock/bond asset allocation. If I went to the three-fund allocation with 20% of the stock side being international, that is only an 8% overall allocation to international. I don't see that is going to be any big impact so to simplify things now and when I pass I have remained at the 40/60 allocation just using two funds; Total Stock Market Index and Total Bond Market Index. That is easy to maintain the ratio when I take the RMDs and would be easy for my 'non-financial' spouse to maintain if I pass first. Rebalancing could be done at RMD time each year if needed and I'm sure our Flagship Rep would assist her if needed on the annual distribution.

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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by House Blend »

Is it possible that they already have taxable holdings of 500 index, and the recommendation is implicitly acknowledging that there's no point in exchanging those holdings for TSM (at a potentially large cap gain)?

I agree that the bond setup is a head-scratcher but not a disaster. I especially see no point in holding all three of the Limited, Intermediate and Long Term muni funds.

I agree with your preferences, but would leave out any mention of TIPS. Best to err on the side of simplicity. (And maybe I should be charged with hypocrisy here--my fixed income allocation involves four funds, including TIPS. Five if you include some cash reserves held in a short bond fund.)

IMO this doesn't cross the line into obfuscation as a retention strategy. Even in taxable, you can typically exit bond funds with minimal gains.

In your shoes I would keep any criticism low key. "I think you could make it even simpler, but overall it looks good to me". Best not to position yourself as the all-knowing swami who is better at AA advice than PAS.
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BigJohn
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

Thanks for comments so far, a few clarifications...

Sorry if this came across as characterizing this as a big problem. Agree that there is no disaster waiting to happen here since all choices are low cost and lowest possible risk. Just surprised at what I view as unnecessary complexity.

No, they don't already own S&P 500 so this would be a new addition to their portfolio.

I totally agree with "swami" comment. The questions being asked are more in the realm of "how did you setup your retirement portfolio?" since they know I self-manage. As a result, my planned advice is really just a statement of my approach.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by GmanJeff »

You can speculate that the asset allocation model is intended to be needlessly complicated in order to convince unsophisticated potential customers that they could not possibly replicate it and achieve its benefits on their own. Or, you could recognize that PAS is a hybrid robo and that the PAS proprietary asset allocation model presumably reflects Vanguard's philosophy, research, and projections as applied to information provided by the clients regarding their risk tolerance, objectives, and other information.

Expressed differently, an assumed PAS ambition to create needless complexity for commercial advantage cannot, without more evidence, be logically inferred from the nature of the proposed portfolio since alternative, non-derogatory, explanations for such a portfolio probably exist.

It might be pointed out that a variance between your preferred asset allocation model and that proposed by Vanguard doesn't necessarily make Vanguard's recommendation inferior to yours, even if it is slightly more complex and does not include a TIPS fund. Asking PAS for the reasoning behind the recommendations might be more useful than drawing adverse conclusions apparently only because those recommendations do not coincide with yours.

PAS is also more than simply a asset allocation model, so any objective evaluation of the PAS value proposition for your friends should take into account whether they would or would not benefit from those other services and features.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by Afty »

FWIW, I use PAS and had existing taxable holdings of S&P 500. PAS balanced it out by adding Extended Market (VEXAX). My experience has been that they recommend essentially a 3 or 4 fund portfolio that Bogleheads would be comfortable with. Maybe with a higher international allocation than your average Boglehead, though.

I agree with GmanJeff that you should ask the advisor to explain why they chose that allocation. That's the best way to evaluate whether this particular advisor knows what they're doing.

Is it possible that your friends expressed a desire to hold an S&P 500 fund?
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BigJohn
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

Afty wrote: Tue Aug 21, 2018 1:51 pm Is it possible that your friends expressed a desire to hold an S&P 500 fund?
Nope, they made no specific requests and actually input a desire for simplicity which is one of the reasons I'm surprised by the results.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by Northern Flicker »

Unfortunately, these recommendations leave me with an uncomfortable feeling that VG PAS is falling into the mode of making things look more complicated than necessary to help justify and sell the need for their services.
That was my first reaction, but it would be worth your friends asking Vanguard these questions.

6-12 months ago, PAS seemed to be recommending tilts to corporate bonds in their recommended bond portfolios. It almost seems like there may be some tactical asset allocation going on with their algorithm.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by afan »

I have seen other PAS portfolios with the bond combination of short, intermediate and long term.

In a taxable account adjusting the duration using three funds would create taxable events every time something is sold. The notion of constantly adjusting the duration does not make much sense anyway.

If the goal is a duration equal to intermediate term, then just buy int term. If one wants a longer duration then blend int with long term. If one wants a shorter duration than int term, then blend with short term. But holding both short and long term cancels out the effects of both, putting one close to int term using 3 funds instead of one.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by drzzzzz »

We used PAS briefly and our advisor shared the following information when I asked similar questions - they don't typically use TIPS but rather the stock portion of the portfolio serves as the inflation hedge. Still not sure why they split bonds the way the OP mentioned, but was same for us, while total bond was a significant portion of the bond portfolio, they also included corporate bond funds of both short and intermediate terms as well (don't recall if the latter was to have available for spending or rebalancing purposes or just because was higher yield). They also based our recommendations on a variety of individual stocks we were keeping as well as some mutual fund positions with embedded gains that we did not want to sell and pay taxes on.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by olivertwist »

Regarding the stocks, I have to imagine the use of S&P and total stock is for income and dividend stability given that they're retired but still have many years in which they'll need investment growth to make the money last. They stabilize by double-weighting the large caps who typically weather the storm better, capture the dividends from mid/large caps, ad leave the small and mid caps there for possible higher growth. Perhaps they could mitigate risk and simplify by pursuing just VFIAX and VEXAX, but again, still 2 funds for US equities, and it leaves out the small caps as a whole, though that's probably not a big concern of the investors in this case. All in all it seems to be a reasonable way to have a little less volatility while also capturing growth if it continues.

For bonds, who knows. Probably a timeline issue, and returns on bonds vs TIPS are close enough that if they're looking for security, may as well have just done total US bond + TIPS.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

Thanks to all for the input. I've given them some suggested questions to ask about why some of the choices and if it can be made more simple. I'll post back if I learn anything of interest.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by pkcrafter »

Maybe Vanguard has fallen prey to the "we have to justify the cost" syndrome even though it's a very low cost. If VG recommended the 3-fund people would complain and say, gee, I could do that myself! Nope, it has to sound professional, i.e sophisticated and a bit complex. They probably think they must include the S&P500 because most everyone is familiar with it. Then add TSM so people will think it's really diversified and they are getting something more for their money.

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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by randomguy »

Got to admit I would love to know why they hold both S&P500 and TSM (TLH?) but this seems like very reasonable portfolio and that we are just debating personal preferences. 2 or 3 bond funds isn't adding noticeable complexity.

At a high level, yeah PAS is a waste. Just buy an AOI fund with your desired AA. But if you believe one size fits all isn't right for everyone, isn't matching bond durations something you would expect from an advisory? It isn't like they are adding in high yield, corporates,.... to have like a dozen funds:)
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

Update on VG PAS rationale for some of the choices....

For the S&P fund addition, it's there to balance an existing holding that is largely mid-cap stocks. The imbalance is fairly small so not sure it would be worth the added complexity to me but at least the logic seems sound.

For the 3 muni bond funds (about equal weight of each), long-term is there because it has a higher yield. But, they acknowledge that brings more risk so they add limited term to balance with a target duration of intermediate. I have to admit I see no logic here unless they are trying to time the market in some way. Since I started this discussion, I've seem a couple of others re VG PAS with this same 3 muni fund recommendation so it seems to be their standard answer for muni bonds right now. Does anyone understand the value in this approach?
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by GmanJeff »

" I have to admit I see no logic here"

It appears that if you can't yourself identify the rationale behind a recommendation, you assume it's illogical. There's no reason whatever for such an assumption. Having three different bond funds, with different characteristics, clearly has nothing to do with market timing as you suggest, since there is no indication that any buying or selling will occur in response to changes in market conditions (other than the expected and appropriate rebalancing to maintain a desired asset allocation).

VG's recommendation is almost certainly the robo algorithm design for those particular clients to achieve a certain level of volatility balanced against objectives for return. No more, no less. You can disagree with the algorithm, but it's probable that no small amount of careful testing and analysis is behind it.

I'd propose that the more reasonable and likely conclusion is that alternatives would, in Vanguard's opinion and based on their model, presumably either reduce returns or increase volatility, or both.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by livesoft »

I can think of a couple of reasons for the multiple bond funds.

1. Human psychology. Maybe Vanguard figured out that most of their clients are afraid of "all their bond eggs in one basket", so they split them up just to get over that objection. Sure, it doesn't change the long-term performance at all, but it may help the naive to "stay the course." Plus Vanguard can point to the ST bond fund whenever the others lose value: "At least we didn't have you all in those losing bond funds."

2. As for the munis, maybe it is for TLH purposes with the ability to always have Admiral status. For instance, suppose because of dividend reinvestment, only $2,000 worth of shares need to be TLH'd. Well, that $2K cannot be used to establish a new position in a Vanguard bond fund, but can be added to an existing fund. I know that if one bond fund needs TLH, the others probably do too, but that can be sorted out.

As we know, human beings are not robots even if they use a RoboAdvisor.

Maybe Vanguard figured out that they get fewer calls from clients with 3 bond funds than from clients with 1 bond fund. :twisted:
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by cody69 »

I joined my sister when she called VG PAS about taking over her portfolio. They talked X% short term, Y% intermediate and Z% long term, but when implemented used Total Bond and International Bond funds for the fixed income. Initially I was concerned they would use ST, INT and LT bond funds, and was glad to see they were just talking the portfolio composition, not the actual funds.
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BigJohn
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

GmanJeff wrote: Thu Sep 27, 2018 3:07 pm " I have to admit I see no logic here"

It appears that if you can't yourself identify the rationale behind a recommendation, you assume it's illogical. There's no reason whatever for such an assumption.
Not sure I understand your apparent hostility here. I stated my opinion and ask for others perspective, isn't that what this whole forum is supposed to be about?
GmanJeff wrote: Thu Sep 27, 2018 3:07 pm I'd propose that the more reasonable and likely conclusion is that alternatives would, in Vanguard's opinion and based on their model, presumably either reduce returns or increase volatility, or both.
You might be right but if the sum of the three averages an Intermediate duration I think those benefits will be small relative to just holding intermediate term. However, against this potential benefit you also have to also consider the additional complexity. Complexity is a tool that some advisers use to create "stickiness" in order to make their clients feel they can't do it themselves. So, as I stated in my initial post, it appears to me that recent VG PAS recommendations are moving in the direction of more complex portfolios which I perceive as a change and is surprising.
livesoft wrote: Thu Sep 27, 2018 3:27 pm As for the munis, maybe it is for TLH purposes with the ability to always have Admiral status. For instance, suppose because of dividend reinvestment, only $2,000 worth of shares need to be TLH'd. Well, that $2K cannot be used to establish a new position in a Vanguard bond fund, but can be added to an existing fund.

Maybe Vanguard figured out that they get fewer calls from clients with 3 bond funds than from clients with 1 bond fund. :twisted:

livesoft, the couple are both retired and living off investment income so no dividend reinvestment in taxable accounts are not taking place. I had not considered the fewer phone calls possibility :shock:
cody69 wrote: Thu Sep 27, 2018 6:29 pm They talked X% short term, Y% intermediate and Z% long term, but when implemented used Total Bond and International Bond funds for the fixed income. Initially I was concerned they would use ST, INT and LT bond funds, and was glad to see they were just talking the portfolio composition, not the actual funds.
cody, the recommendation my friends received included all three funds with investment amounts in each so this was not the case for them.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by GmanJeff »

Accidental duplicate post deleted
Last edited by GmanJeff on Fri Sep 28, 2018 8:34 am, edited 1 time in total.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by GmanJeff »

No hostility, just bemused that if the OP (and others, apparently) don't understand the rationale behind a recommendation your default is to assume it is supported not by a proprietary model designed to maximize returns and minimize volatility, but instead by an unethical commercial motive to lure unsophisticated investors through needless "complexity".

Asking why a portfolio is constructed in a certain way is facially neutral. Criticizing a portfolio and asserting it is what it is not because the design may advantage the client but because Vanguard is using smoke and mirrors to lure potential clients is, without some evidence, unsupported derogatory speculation. That PAS proposes 3 funds instead of 1 hardly seems to be the basis for what is, in your own words ("Complexity is a tool that some advisers use to create "stickiness" in order to make their clients feel they can't do it themselves") an allegation of unethical business practices.

My comments are not an ad hominem attack on you, but are directed at the fallacious conclusions being drawn from the facts provided:

In other words, your argument appears to be this:

1. PAS proposes 3 funds instead of 1
2. 3 funds = complexity
3. Complexity is always a bad thing
Therefore, PAS's proposal = a bad thing (and, moreover, is motivated by an unethical desire to hoodwink potential and current clients)

I'd argue that in this argument premises 2 and 3 are incorrect, and that the conclusion is therefore incorrect.

I'm not arguing that PAS proposal is necessarily optimal, since I don't pretend to know or understand the rationale behind it. Because I don't have that information, I cannot draw any conclusion, pro or con, about it. But, I could construct this argument:

1. PAS proposes 3 funds instead of 1
2. Vanguard has a valid earned reputation as a company which generally acts in the best interests of its clients
Therefore, Vanguard's proposal is likely to be in the best interests of its clients.

The validity of this argument, as with the previous argument, depends on the validity of the premises.

Just trying to bring some objectivity to the discussion by highlighting conclusions based on facts not in evidence.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by House Blend »

BigJohn wrote: Thu Sep 27, 2018 10:31 am For the 3 muni bond funds (about equal weight of each), long-term is there because it has a higher yield. But, they acknowledge that brings more risk so they add limited term to balance with a target duration of intermediate. I have to admit I see no logic here unless they are trying to time the market in some way. Since I started this discussion, I've seem a couple of others re VG PAS with this same 3 muni fund recommendation so it seems to be their standard answer for muni bonds right now. Does anyone understand the value in this approach?
I agree that it looks like a strategy of complexity just to keep the customer dazzled. It's not something I would recommend. In their defense, the rationale that makes the most sense to me is diversification. That is, own the entire muni haystack. Similar to the difference between Total Bond and Intermediate Term Index.

I do think it's a pretty weak rationale, since any advantages are likely to be very small.

You might want to take a look at the holdings in Tax-Managed Balanced and see if the bond portfolio has a wider and flatter range of maturities than Intermediate Tax Exempt. If so, then at least there's a case to be made that they are being internally consistent.

Disclosure: I have owned all three of Long Term, Intermediate Term and Limited Term at times because of tax loss harvesting. At the moment, I own shares of Long and Limited but no Intermediate.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by goingup »

BigJohn wrote: Tue Aug 21, 2018 10:25 am Answering questions for some friends that are considering using VG PAS. I was surprised and actually a bit disappointed at the recommendations given. Looking for other perspectives before I give them feedback.
The VPAS recommendation is very reasonable. Three bond funds of different duration during this time of rising interest rates is fine. They'll benefit from the increased yield of longer term, probably have opportunities to TLH, and can use the short duration for expenses. VPAS will rebalance between them.

My thought is rather than discourage or dissuade your friends, why not give VPAS your endorsement? Do you think they'll get better lower cost financial advice elsewhere?
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

GmanJeff wrote: Fri Sep 28, 2018 8:33 am ....
Just trying to bring some objectivity to the discussion by highlighting conclusions based on facts not in evidence.
Well, there are not many topics on this forum that can be "proven" with facts. That's why we have such spirited discussions on things like smart beta or the need for international stocks/bonds. I don't think I ever accused VG of doing anything unethical. I stated the facts of the recommendation and expressed an opinion/concern about the complexity. Some agree, some don't and that's fine.

Regarding complexity, there have been many discussions on this forum about advisers having people in 30+ funds with substantial overlap. The general conclusion is that this is done for the "stickiness" benefit. Where on the spectrum from 3 or 4 funds to 30+ does this become a worry? There is no provable right answer to this question but the total number of funds in my friends recommendation was 12+. To me anyway, this seems like a surprising distance along the spectrum from simple to unnecessarily complex.
House Blend wrote: Fri Sep 28, 2018 8:36 am You might want to take a look at the holdings in Tax-Managed Balanced and see if the bond portfolio has a wider and flatter range of maturities than Intermediate Tax Exempt. If so, then at least there's a case to be made that they are being internally consistent.
An interesting question, I did a quick look at the bonds in Tax Managed vs the simple choice of just Intermediate Term TE. From info on the VG site, the high level metrics of maturity and duration are nearly identical. Both use the same index as the benchmark (Bloomberg Barclays 1-15 Year Muni Bond Index). Distribution of credit ratings is also nearly identical. Unfortunately, the VG site does not include range of maturities data for Tax Managed bonds so I went to M* for that data. I've bucketed it as 0-5 year, 5-10 year, 10-20 year and 20+ year. Tax Managed is 18/28/45/8, Intermediate term TE is 18/28/47/6 (not 100 due to round off) which to my mind this is also nearly identical. This comparison would not seem to support a strategic difference in recommending equal weights of all three vs the more simple choice.
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BigJohn
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

goingup wrote: Fri Sep 28, 2018 9:18 am My thought is rather than discourage or dissuade your friends, why not give VPAS your endorsement? Do you think they'll get better lower cost financial advice elsewhere?
I've already told them that, while I might not do it the exact same way, the VPAS recommendations are prudent and reasonable for their situation. I've also emphasized that they probably won't get advice this good at a lower cost anywhere else.
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by BigJohn »

BigJohn wrote: Fri Sep 28, 2018 9:47 am
House Blend wrote: Fri Sep 28, 2018 8:36 am You might want to take a look at the holdings in Tax-Managed Balanced and see if the bond portfolio has a wider and flatter range of maturities than Intermediate Tax Exempt. If so, then at least there's a case to be made that they are being internally consistent.
.....
This comparison would not seem to support a strategic difference in recommending equal weights of all three vs the more simple choice.
As another follow-up to House Blend's question I decided to take a look at some of the characteristics of the recommended equal weight three funds (simple arithmetic average) vs just Intermediate term.

Duration - IT = 5.2 years, 3-funds = 4.9 years (essentially the same)
Credit quality (AAA/AA/A/BBB) - IT = 22/46/22/7, 3-funds = 19/47/23/9 (essentially the same)
Maturity distribution per VG (0-5, 5-10, 10-20, 20+) - IT = 29/28/43/1, 3-funds = 16/20/29/12
Maturity distribution per M* (0-5, 5-10, 10-20, 20+) - IT = 18/28/48/6, 3-funds = 23/19/34/38

I cannot account for the duration distribution difference between VG and M* but in either case the 3-funds recommendation is indeed flatter than using just IT. However, if this is some "secret sauce" from their roboadvisor algorithm, they aren't using it in the Tax Managed fund. Anyone have a rationale why, with essentially the same average duration, the flatter 3-fund solution would be preferred?
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Re: VG PAS Recommendations - Surprised/Disappointed?

Post by vineviz »

BigJohn wrote: Fri Sep 28, 2018 2:53 pm I cannot account for the duration distribution difference between VG and M* but in either case the 3-funds recommendation is indeed flatter than using just IT. However, if this is some "secret sauce" from their roboadvisor algorithm, they aren't using it in the Tax Managed fund. Anyone have a rationale why, with essentially the same average duration, the flatter 3-fund solution would be preferred?
An individual investor should - in most cases - be slowly shortening the average effective duration of their portfolio over time. That would not be true for a general-purpose balanced fund, which should have a goal of maintaining a relatively constant duration.

Maintaining separate positions in different funds makes it substantially easier to manage the investor's duration as they age.
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