The pictured list epitomizes the complexity/simplicity topic Rick Ferri presented awhile back.
Reducing the allocation down to 5% increments produces a portfolio similar to a more traditional 80/20, or 75/25, equity/fixed income portfolio with a large real estate tilt added. The portfolio should be easy enough to DIY with 3-5 funds*.
Code: Select all
Original Allocation: Reduces to: Rounded to:
26% Real Estate 52% Equities 50% Equities
25% Private Equity 26% Real Estate 25% Real Estate
22% Public Equity 21% Fixed Income/Cash 25% Fixed Income
12% Cash 1% Miscellaneous -or-
9% Fixed Income 55% Equities
5% Hedge Funds 25% Real Estate
1% Miscellaneous 20% Fixed Income
1. Private Equity - If we want to get exposure to private equity, I assume there is no way accomplish this with index funds right? But is there anything else we can buy in the real world that will give us diversified exposure to private equity?
The private equity ETFs are heavy on global financial assets and returns correlated with the global market. Check out ETF symbols PSP and PEX.
2. Hedge Funds - If we want to get exposure to hedge funds, is there an index fund that tracks this sector? If not, what is the closest thing that average investors can buy in the real world that will give them exposure to hedge funds?
With a 5% allocation, how much outperformance, after fees and taxes, is required to make a significant contribution to portfolio returns? Doesn't really seem worth the added expense without an increased allocation.
3. Real Estate - If we want to get exposure to real estate, I assume we can just buy VNQ right?
Real estate/REIT funds are generally equity investments. The target portfolio image doesn't specify equity vs direct ownership.
Main point is to avoid creating complexity and increasing cost.
* The nature/purpose of several investments from the image are unclear or undefined (Local/international equity split, fixed income duration/credit quality, direct vs equity real estate, cash deposits vs cash equivalents, etc.)