LifeStrategy Lazy Portfolio?

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FBXL5
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Joined: Mon Jul 27, 2020 2:19 pm

LifeStrategy Lazy Portfolio?

Post by FBXL5 » Mon Jul 27, 2020 4:08 pm

I find the slice and dice argument interesting, but don’t like the idea of the added complication associated with rebalancing so many funds. I also like the way the Callan Periodic Table graphically demonstrates the random nature of asset returns.
Calculating the annual returns over the last 20 years from The Callan Periodic Table of Investment Returns found here: https://www.callan.com/wp-content/uploa ... -Table.pdf yields the following:

Asset Class and CAGR (2000-2019)

Emerging Market Equity 9.15%
REIT 8.66%
Small Cap Equity 7.59%
High Yield Bonds 7.14%
Large Cap Equity 6.06%
US Fixed Income 5.03%
Glbl Ex-US Fixed Income 3.96%
Dev Ex-US Equity 3.45%
Cash Equivalents 1.78%

My goal is to create a balanced “Lazy Portfolio” that covers the 8 non-cash asset classes in the Callan Table for use in Roth/IRA accounts. I’ve come up with the following 5 fund portfolios which cover 4 of the 8 classes with a Life Strategy fund, thus reducing the number of funds needed to just 5. Expense ratio for this mix of funds is under 0.13. Below are two such blends that attempt balance using round numbers. Please let me know what you think of this approach. Thanks!

Approximately 55/45 Stock/Bond:

Fund Type-----------------Symbol-------% of Port------% of Stocks--------% of Bonds
Small Cap Value------------VSIAX------------10---------------18
REIT-------------------------VGSLX-----------10---------------18
Emerging Market----------VEMAX-----------10---------------18
High Yield Bond------------VWEHX----------10---------------------------------------22
40/60 Life Strategy-------VSCGX-----------60---------27/18 US/Intl------55/23 US/Intl


Approximately 75/25 Stock/Bond:

Fund Type-----------------Symbol-------% of Port------% of Stocks--------% of Bonds
Small Cap Value -----------VSIAX-------------15---------------20
REIT-------------------------VGSLX------------15---------------20
Emerging Market----------VEMAX------------15---------------20
High Yield Bond------------VWEHX-------------5---------------------------------------20
60/40 Life Strategy------- VSMGX-----------50---------24/16 US/Intl------57/23 US/Intl

sycamore
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Re: LifeStrategy Lazy Portfolio?

Post by sycamore » Mon Jul 27, 2020 4:33 pm

No opinion on whether it's a good idea. Presumably you know what you're getting into with tilts to REIT, SCV, High Yield Bonds, and Emerging Market, so if that's what you want to do and you're willing to stick with it, then go for it.

REIT and High Yield Bond funds at the least are really only suited for tax-advantaged accounts. Some would argue even the Life Strategy with its bond allocation will not be tax-efficient (though not a problem these days).

So one practical question is do you have large enough tax-advantaged accounts to keep the REIT and HYB funds at their allocation?

pkcrafter
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Re: LifeStrategy Lazy Portfolio?

Post by pkcrafter » Tue Jul 28, 2020 9:13 am

FBXL5 wrote:
Mon Jul 27, 2020 4:08 pm
I find the slice and dice argument interesting, but don’t like the idea of the added complication associated with rebalancing so many funds. I also like the way the Callan Periodic Table graphically demonstrates the random nature of asset returns.
Calculating the annual returns over the last 20 years from The Callan Periodic Table of Investment Returns found here: https://www.callan.com/wp-content/uploa ... -Table.pdf yields the following:

Asset Class and CAGR (2000-2019)

Emerging Market Equity 9.15%
REIT 8.66%
Small Cap Equity 7.59%
High Yield Bonds 7.14%
Large Cap Equity 6.06%
US Fixed Income 5.03%
Glbl Ex-US Fixed Income 3.96%
Dev Ex-US Equity 3.45%
Cash Equivalents 1.78%

My goal is to create a balanced “Lazy Portfolio” that covers the 8 non-cash asset classes in the Callan Table for use in Roth/IRA accounts. I’ve come up with the following 5 fund portfolios which cover 4 of the 8 classes with a Life Strategy fund, thus reducing the number of funds needed to just 5. Expense ratio for this mix of funds is under 0.13. Below are two such blends that attempt balance using round numbers. Please let me know what you think of this approach. Thanks!

Approximately 55/45 Stock/Bond:

Fund Type-----------------Symbol-------% of Port------% of Stocks--------% of Bonds
Small Cap Value------------VSIAX------------10---------------18
REIT-------------------------VGSLX-----------10---------------18
Emerging Market----------VEMAX-----------10---------------18
High Yield Bond------------VWEHX----------10---------------------------------------22
40/60 Life Strategy-------VSCGX-----------60---------27/18 US/Intl------55/23 US/Intl


Approximately 75/25 Stock/Bond:

Fund Type-----------------Symbol-------% of Port------% of Stocks--------% of Bonds
Small Cap Value -----------VSIAX-------------15---------------20
REIT-------------------------VGSLX------------15---------------20
Emerging Market----------VEMAX------------15---------------20
High Yield Bond------------VWEHX-------------5---------------------------------------20
60/40 Life Strategy------- VSMGX-----------50---------24/16 US/Intl------57/23 US/Intl
Welcome,

I don't see how your proposed portfolio is going to reduce rebalancing. Also, note the performance of small caps over the last 10 years--

https://www.longtermtrends.net/large-cap-vs-small-cap/

The point is small caps are hit/miss and you can easily go 10 years of underperformance. Portfolio is also quite aggressive because of strong overweight in small and REIT.

What asset allocation have you decided on? Will RETS and bonds be in tax-advantaged accounts?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

RadAudit
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Re: LifeStrategy Lazy Portfolio?

Post by RadAudit » Wed Jul 29, 2020 7:27 am

pkcrafter wrote:
Tue Jul 28, 2020 9:13 am
Please let me know what you think of this approach.
You are a lot more energetic than I am.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

longinvest
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Re: LifeStrategy Lazy Portfolio?

Post by longinvest » Wed Jul 29, 2020 8:05 am

FBXL5, here's a much simpler solution: 100% LifeStrategy Moderate Growth Fund (VSMGX). You'll find good arguments in its favor in the One-Fund Portfolio thread. It can be considered as an all-in-one fund implementation of the Market Portfolio adapted for U.S. investors with a moderate home bias (see this post for explanations).
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

Ferdinand2014
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Re: LifeStrategy Lazy Portfolio?

Post by Ferdinand2014 » Wed Jul 29, 2020 10:26 pm

Emerging markets according to portfolio visualizer as well as MSCI emerging markets returned nothing close to 9.15 from 2000-2019. Data concerns aside, I personally put my hard earned money in the most simple portfolio possible as I believe limited choices and decision making will reduce the likelihood of behavioral mistakes. That and savings rate will likely far outweigh a vision of the most perfect (but completely unknowable portfolio). This comes from my personal experience of my own mistakes over 25 years of investing. An all in one fund portfolio is likely a better solution and will likely do as well or better for the reasons I stated above. Personally, I just hold cash and the S&P 500. I may do better or I may do worse than a more complicated portfolio, but I know I will get the returns of the S&P 500 because my costs are super low and there are no decisions to make that would likely torpedo me at the worst possible time.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Uncorrelated
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Re: LifeStrategy Lazy Portfolio?

Post by Uncorrelated » Fri Jul 31, 2020 2:37 am

"asset class" is not a valid way to slice and dice a portfolio. What you want to know is whether the different parts contain independent risk factors. Your 8 slices only contain three accepted risk factors: market, SmB (small minus big), HmL, and bonds. The effectiveness of SmB has been disputed.

There is no evidence to suggest that it is a good idea to slice within a factor. Therefore, you should toss the REIT fund and the high yield bond fund. Any portfolio that strays from market weight earns an automatic failure, therefore you should also drop the emerging market fund.

Start your portfolio with VT (Vanguard Total World Stock ETF) and some bonds (highly rated or mixed. Stay away from high yield bonds, there is no evidence that high yield bonds contains positive risk factors other than those that already exist in highly rated bonds and equities). This gives you two funds for the core of your portfolio. From there, you can tilt to alternative risk factors, such as HmL, if you want to. But don't over-weight countries or sectors unless there is a cost reason for doing so.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: LifeStrategy Lazy Portfolio?

Post by retiredjg » Fri Jul 31, 2020 6:56 am

FBXL5 wrote:
Mon Jul 27, 2020 4:08 pm
My goal is to create a balanced “Lazy Portfolio” that covers the 8 non-cash asset classes in the Callan Table for use in Roth/IRA accounts. I’ve come up with the following 5 fund portfolios which cover 4 of the 8 classes with a Life Strategy fund, thus reducing the number of funds needed to just 5. Expense ratio for this mix of funds is under 0.13. Below are two such blends that attempt balance using round numbers. Please let me know what you think of this approach. Thanks!
It sounds like you don't realize that small cap value, REIT, and emerging market are already included in the LifeStrategy fund. The only thing missing is high yield bond and that's not much of a loss.

If you want a simple portfolio, just use a LifeStrategy fund that matches your stock to bond ratio choice.

Call_Me_Op
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Re: LifeStrategy Lazy Portfolio?

Post by Call_Me_Op » Fri Jul 31, 2020 6:24 pm

Why not just one of the LifeStrategy funds by itself?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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