first AA with index funds

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Topic Author
hohum
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Joined: Thu Jan 03, 2019 2:34 pm

first AA with index funds

Post by hohum » Tue Jan 08, 2019 4:44 pm

I spent many years as an individual stock picker with a value emphasis. Mostly I outperformed the S&P 500 from 1999 until 2008, and mostly I underperformed since then. Overall, it's a wash -- but it consumed countless hours of time that I'll never get back. Getting older here at 53, I'd really like a 3-fund set-it-and-forget-it portfolio at this point.

But I just can't do it. :)

Here's my tentative portfolio. I'd like to set it in stone and write the IPS within the next week.

44% VTI (Vanguard Total Stock Market)
12% KBWP (Invesco KBW Property & Casualty)
14% VSS (Vanguard FTSE All-World ex-US SmCp)
15% IAU (iShares Gold Trust)
10% EDV (Vanguard Extended Duration Trsy)
5% VGIT (Vanguard Intermediate Term Trsy)

Is KBWP really a bad idea? I see natural low beta, and the insurance industry has been around at least since the ancient Greeks.

Anything else I'm doing wrong? I see 70/30 stocks versus non-stocks, and if I'm a little light on foreign stocks -- well, I have that gold ... which I can't eat, I know.

It looks kind of like this.

Thanks in advance!

mhalley
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Re: first AA with index funds

Post by mhalley » Tue Jan 08, 2019 10:35 pm

I don’t see anything wrong with having 10% of equities in stocks. Not ideal, but I have a few legacy stocks myself. I personally object more to the gold than the individual stock.

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David Jay
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Location: Michigan

Re: first AA with index funds

Post by David Jay » Tue Jan 08, 2019 11:25 pm

15% is a big allocation for a commodity that generates no revenue (earnings, interest or dividends).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

sco
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Re: first AA with index funds

Post by sco » Wed Jan 09, 2019 8:54 pm

I echo the statements on the individual stock, there are for more insurance companies in TSM too.
Gold, Meh. Whatever, but expect it to underperform.

My recommendation is to round everything off to the nearest 5% :)

2015
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Re: first AA with index funds

Post by 2015 » Thu Jan 10, 2019 9:20 pm

hohum wrote:
Tue Jan 08, 2019 4:44 pm
I spent many years as an individual stock picker with a value emphasis. Mostly I outperformed the S&P 500 from 1999 until 2008, and mostly I underperformed since then.
Overall, it's a wash -- but it consumed countless hours of time that I'll never get back
.
...
Thank you for your eloquent, succinct, and honest presentation of the perfect case against active investing of any sort. What we never get back when driven by ego to defy the dismal performance history of individual active investors is much more than time. We lose countless hours we could have been devoting to learning about a universe of other things that would make us more productive, effective, efficient, and successful across a wide array of domains in life. Particularly in a time when the complex adaptive systems of life and of the individual are undergoing and will continue to undergo tectonic change, narrow focus on chasing a fistful of elusive dollars is Effectiveness Suicide. For the foreseeable future, it's imperative to see the forest for the trees.

samsdad
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Re: first AA with index funds

Post by samsdad » Thu Jan 10, 2019 10:21 pm

OP,

Many of us are here after being beat up one way or another by being stock pickers, high-fee mutual fund investors, or investors in any number of other foolish speculative products all in the hope of “beating the market.” So you’re in good company.

As for your proposed AA, may I humbly suggest an alternative: stop trying to beat the market. Invest in a one or two fund alternative and stop wasting your time with 6 funds of 12% of this, 13.675% of that, etc. Time is something that you can’t get back as you’ve said.

Look up the Wellington fund. It’s basically 67% equities/33% bonds. Ten percent or so of the equities side is international. Yes, it’s actively managed, but has been since 1929. If it doesn’t have at least one insurance company in there I’ll eat my hat. One-stop shopping along the lines of what you’re trying to do without the headache of keeping track of every fund and whether your maintaining your desired AA.

As for the gold, well, again, it’s basically a waste of your time. Read up on the shiny yellow useless mineral in other threads. Gold is jewelry. (If you think it’s going to be a currency, you’d be better off investing in another soft metal.)
______
EDIT: The eighth largest equity holding is Chubb, Ltd., a global provider of insurance products.
EDIT 2: If you had invested $10k in Wellington in January of 1997, you would have beaten a 67/33 mix of the Vanguard 500/Total Bond Market, the bogleheads 3-fund portfolio, and a 100% AA in the S&P 500. Most of them by a country mile.https://www.portfoliovisualizer.com/bac ... tion5_3=30 Future results could be different, of course.

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ruralavalon
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Location: Illinois

Re: first AA with index funds

Post by ruralavalon » Fri Jan 11, 2019 12:47 pm

Welcome to the forum :) .

What type of account will this be in (taxable brokerage account, traditional IRA, Roth IRA, 401k, etc.)?

What is your reasoning for including Invesco Property and Casualty ETF (KBWP) ER 0.35%?


hohum wrote:
Tue Jan 08, 2019 4:44 pm
I spent many years as an individual stock picker with a value emphasis. Mostly I outperformed the S&P 500 from 1999 until 2008, and mostly I underperformed since then. Overall, it's a wash -- but it consumed countless hours of time that I'll never get back. Getting older here at 53, I'd really like a 3-fund set-it-and-forget-it portfolio at this point.

But I just can't do it. :)

Here's my tentative portfolio. I'd like to set it in stone and write the IPS within the next week.

44% VTI (Vanguard Total Stock Market)
12% KBWP (Invesco KBW Property & Casualty)
14% VSS (Vanguard FTSE All-World ex-US SmCp)
15% IAU (iShares Gold Trust)
10% EDV (Vanguard Extended Duration Trsy)
5% VGIT (Vanguard Intermediate Term Trsy)

Is KBWP really a bad idea? I see natural low beta, and the insurance industry has been around at least since the ancient Greeks.

Anything else I'm doing wrong? I see 70/30 stocks versus non-stocks, and if I'm a little light on foreign stocks -- well, I have that gold ... which I can't eat, I know.

It looks kind of like this.

Thanks in advance!
I hope you can reconsider your reluctance to use a three-fund type portfolio.

In not then:

1) at age 53 I suggest a larger bond allocation (to reduce the risk) at around 35-40% of the total portfolio, in my opinion your two Treasury ETFs are reasonable choices; and

2) I suggest omitting iShares Gold Trust (IAU). Historically gold has kept pace with inflation, but has provided little if any return.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
hohum
Posts: 5
Joined: Thu Jan 03, 2019 2:34 pm

Re: first AA with index funds

Post by hohum » Fri Jan 11, 2019 7:38 pm

Thank you for the input, everyone. This is all rollover IRA money.

I got rid of the gold and the extended duration treasuries. Intermediate term treasuries all the way. I wish things were that easy on the equity side.

Letting go and being completely passive is harder for me than I thought it would be. In fact, I'm pretty sure 100% passive is impossible for me. But maybe I could be 90% passive. The perfect is the enemy of the good, etc. Still working on it ... going to try to write my IPS this weekend, then may have to fix the portfolio next week.

bluquark
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Joined: Mon Oct 22, 2018 2:30 pm

Re: first AA with index funds

Post by bluquark » Fri Jan 11, 2019 7:47 pm

hohum wrote:
Tue Jan 08, 2019 4:44 pm
Is KBWP really a bad idea? I see natural low beta, and the insurance industry has been around at least since the ancient Greeks.
It sounds to me like a variant on the REIT tilt a lot of Bogleheads do, similarly for the low correlation (and also a general sense of soundness/concreteness of the industry). I don't really buy the argument that it helps, but it's not a "really bad idea", either.

However, one problem with this specific choice is that this is a quite small fund. You'll lose a fair bit of return to the ER and the spread, and an eventual fund closure can't be ruled out. If you're not super committed to insurance in particular, you could instead go with a larger sector fund like REIT or Utilities.

samsdad
Posts: 334
Joined: Sat Jan 02, 2016 6:20 pm

Re: first AA with index funds

Post by samsdad » Fri Jan 11, 2019 10:16 pm

hohum wrote:
Fri Jan 11, 2019 7:38 pm
Thank you for the input, everyone. This is all rollover IRA money.

I got rid of the gold and the extended duration treasuries. Intermediate term treasuries all the way. I wish things were that easy on the equity side.

Letting go and being completely passive is harder for me than I thought it would be. In fact, I'm pretty sure 100% passive is impossible for me. But maybe I could be 90% passive. The perfect is the enemy of the good, etc. Still working on it ... going to try to write my IPS this weekend, then may have to fix the portfolio next week.
Look up the SPIVA scorecard this weekend. Also note that basically all the gains ever achieved in the market came from somewhere around 4% of the equities therein. The remaining 96% or so matched the 30-day T bill or worse or something like that. Picking winners is hard, just look at the SPIVA scorecards.

Topic Author
hohum
Posts: 5
Joined: Thu Jan 03, 2019 2:34 pm

Re: first AA with index funds

Post by hohum » Tue Jan 15, 2019 12:24 pm

Finished! It took a long time to let go of my delusions, and and even longer time to wade through my passive options. Portfoliocharts.com was a big help at sorting out the possibilities. I decided to keep the equal weighting of assets to avoid spending the rest of my life trying to over-optimize the percentages.

From 1995-2018, the asset classes in this portfolio did about as well as the traditional 60/40. I'm basically just quite fearful of bonds and not wanting to own them, so this was the best I could come with for a bond-free portfolio.

20% VTI (Vanguard Total Stock Market)
20% EES (WisdomTree US SmallCap Earnings)
20% VWO (Vanguard Emerging Markets)
20% IAU (iShares Gold Trust)
20% VGSH (Vanguard Short Term Treasuries)



The IPS basically just says "fear financial repression, stay the course, rebalance in October." I was a big reader of Harry Browne back when I was 13, and at the end of the day, my portfolio is certainly influenced by him. If there was ever any reason to think financial discipline was restored, and if intermediate bonds were paying a positive real return, I would swap out the VGSH for intermediate treasuries.

Thanks again, to everyone.

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