Is tilting ever a good idea?

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Apathizer
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Joined: Sun Sep 26, 2021 2:56 pm

Re: Is tilting ever a good idea?

Post by Apathizer »

JasonHutt wrote: Thu Nov 17, 2022 11:54 pm
Apathizer wrote: Thu Nov 17, 2022 11:05 pm
JasonHutt wrote: Thu Nov 17, 2022 10:27 pm
Apathizer wrote: Thu Nov 17, 2022 2:07 pm
JasonHutt wrote: Thu Nov 17, 2022 1:31 pm

But tilting can be done easily with a handful of indexes. For US equities I use Vanguard 500, Vanguard Value, Vanguard Mid Cap, Vanguard Mid Cap Value, and Vanguard Small Cap Value. I use Vanguard Real Estate as well (Swensen distinguishes REITs from equities).

There is a confusion between specially constructed "multifactor" funds and vanilla index funds that together do not mimic market cap. I tried to explain this several times but somehow the message just isn't clear.
But even that approach requires some monitoring and periodic rebalancing whereas an automatic rebalancing fund like life strategy really is just set it and forget it. Something like VSCGX which is 40% globally diversified stocks 60% globally diversified bonds is a great all-weather fund to hold if you just want something really simple.

That's what I mean by the simplicity of index funds. As I've mentioned a few times happiness research shows people less focused on money tend to be happier. With something like a life strategy fund you almost never have to think about investing.
There is no question that I have to rebalance once a year. Even worse, I have to pay $75 to buy into 5 of these funds (no charge for selling), if rebalancing requires this ($150 per year, typically). This is annoying. So if the point is to make things simple, my approach is not optimal. But I think my portfolio is vastly superior for me based on the reasoning I have already provided. Not all of us get stressed over a smidgeon of complexity. We have different utilities.
Funds like AVGE, AVUS, DFAC, and DFAX have broad factor slants. Using AVGE alone or maybe something like AVUS and DFAC (my previous portfolio) if you want to tweak the allocation more precisely would be easier than having all those funds. When I was considering my portfolio I thought about combining something like VT with AVUV and AVDV, but then I realized AVUS and DFAC have the type of broad factor exposure I want in two funds which is simpler. If your prefer all US, AVUS or DFAC are good options.
Thanks, but no ETFs are allowed in my retirement account (even with Brokeragelink).
Oh, sorry, my bad, though at least some of those funds are available as mutual funds.
ROTH: 70% AVGE, 30% BNDW. Taxable: 50% BNDW, 50% AVGE.
dkturner
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Joined: Sun Feb 25, 2007 7:58 pm

Re: Is tilting ever a good idea?

Post by dkturner »

I look at the Vanguard LifeStrategy funds as examples of untilted portfolios, in the sense that they are very broadly diversified, which is said to be a good thing. I have followed them for more than 25 years but have, fortunately, resisted the temptation to invest in any of them. I much prefer Vanguard’s actively managed balanced funds (STAR, Wellington and Wellesley) which are much more tilted towards U.S. securities.
secondopinion
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Re: Is tilting ever a good idea?

Post by secondopinion »

As to whether "tilting [is] ever a good idea", the answer is yes.

First, let us discuss bonds. It is often accepted that cash-like investments (like treasury bills) are good for those with expenses due in one year or less; however, is this not a tilt away from both credit risk and duration risk? Why not hold the bond index? Because the lowest risk option is such investments. So, tilting helps remove the risk.

But pensions would not agree; the lowest risk option is to buy long-term treasury bonds. Again, the bond index (and certainly cash-like bonds) are actually higher risk. So, tilting helps remove the risk.

Speculation takes risk in hopes for alpha against what is the "safer" option. So, does the pension put 30-year liabilities in cash? Or the investor puts next year's in a 30-year bond? Stocks? Even our split of stocks/bonds is a speculation in some ways. History might suggest something, but that is not the future.

With stocks, the risk sources are plenty. Maybe the company has no proof of handling hard times? Maybe they are priced on earning expectations rather than what the liquidation value is? Maybe they already have plenty of marketshare as to cut growth potential but has better staying power? Really, there are "factors" that are real. An investor has to decide whether risks are tolerable. Should I use leverage for safer companies or pick out riskier companies as a means to obtain my risk/return profile? All of this is non-trivial.

I can say factors can be a good idea. Just be frankly honest of the fact you are taking/reducing risks that might not turn out to realize the way you expected.

(If my post is poorly written, forgive my major headache.)
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Apathizer
Posts: 1633
Joined: Sun Sep 26, 2021 2:56 pm

Re: Is tilting ever a good idea?

Post by Apathizer »

dkturner wrote: Fri Nov 18, 2022 9:57 am I look at the Vanguard LifeStrategy funds as examples of untilted portfolios, in the sense that they are very broadly diversified, which is said to be a good thing. I have followed them for more than 25 years but have, fortunately, resisted the temptation to invest in any of them. I much prefer Vanguard’s actively managed balanced funds (STAR, Wellington and Wellesley) which are much more tilted towards U.S. securities.
That's quintessential hindsight bias. US out-performance wasn't predetermined; it just worked out that way. If ex-US out-performs, will you regret a US tilt?
ROTH: 70% AVGE, 30% BNDW. Taxable: 50% BNDW, 50% AVGE.
dkturner
Posts: 1763
Joined: Sun Feb 25, 2007 7:58 pm

Re: Is tilting ever a good idea?

Post by dkturner »

Apathizer wrote: Sat Nov 19, 2022 12:48 am
dkturner wrote: Fri Nov 18, 2022 9:57 am I look at the Vanguard LifeStrategy funds as examples of untilted portfolios, in the sense that they are very broadly diversified, which is said to be a good thing. I have followed them for more than 25 years but have, fortunately, resisted the temptation to invest in any of them. I much prefer Vanguard’s actively managed balanced funds (STAR, Wellington and Wellesley) which are much more tilted towards U.S. securities.
That's quintessential hindsight bias. US out-performance wasn't predetermined; it just worked out that way. If ex-US out-performs, will you regret a US tilt?
If I made the decision 25 years ago, and stuck with it for 25 years, was it really “hindsight bias”? I like to think about it as a smart, financially rewarding, decision.
Apathizer
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Joined: Sun Sep 26, 2021 2:56 pm

Re: Is tilting ever a good idea?

Post by Apathizer »

dkturner wrote: Sat Nov 19, 2022 7:46 am
Apathizer wrote: Sat Nov 19, 2022 12:48 am
dkturner wrote: Fri Nov 18, 2022 9:57 am I look at the Vanguard LifeStrategy funds as examples of untilted portfolios, in the sense that they are very broadly diversified, which is said to be a good thing. I have followed them for more than 25 years but have, fortunately, resisted the temptation to invest in any of them. I much prefer Vanguard’s actively managed balanced funds (STAR, Wellington and Wellesley) which are much more tilted towards U.S. securities.
That's quintessential hindsight bias. US out-performance wasn't predetermined; it just worked out that way. If ex-US out-performs, will you regret a US tilt?
If I made the decision 25 years ago, and stuck with it for 25 years, was it really “hindsight bias”? I like to think about it as a smart, financially rewarding, decision.
The Vanguard Funds you mention turned out fine, but as actively managed funds there was more risk. If someone had made the opted to invest only in Amazon 25 years ago it would've worked out well, but would've almost certainly been pure luck since the vast majority of such prospective companies failed.

I got lucky too. When I started investing also about 25 years ago, for the first 20 years I had everything in Parnassus an ESG firm. When I held them most of their funds out-performed the market. Had I known what I know now I wouldn't have invested with them used index funds instead. My point is sometimes luck plays a major role in how things transpire. But I do think there are reasonable argument for a US only allocation, or only having a light ex-US allocation.
ROTH: 70% AVGE, 30% BNDW. Taxable: 50% BNDW, 50% AVGE.
Enolacs
Posts: 38
Joined: Sat May 08, 2021 8:04 am

Re: Is tilting ever a good idea?

Post by Enolacs »

snowday2022 wrote: Mon Nov 14, 2022 11:06 pm
Enolacs wrote: Mon Nov 14, 2022 9:51 pm All in small cap value. We will see in 50 years.

Ballsy. Good for you. Very secure employment?
Medical subspecialty that hasnt changed in +70 years. Nothing known to man could stop the flow of patients.
50% IJS (Small Cap Value), 25% VSS (International Small Cap), 25% AVDV (International Small Cap Value)
dkturner
Posts: 1763
Joined: Sun Feb 25, 2007 7:58 pm

Re: Is tilting ever a good idea?

Post by dkturner »

Apathizer wrote: Sat Nov 19, 2022 11:56 am
dkturner wrote: Sat Nov 19, 2022 7:46 am
Apathizer wrote: Sat Nov 19, 2022 12:48 am
dkturner wrote: Fri Nov 18, 2022 9:57 am I look at the Vanguard LifeStrategy funds as examples of untilted portfolios, in the sense that they are very broadly diversified, which is said to be a good thing. I have followed them for more than 25 years but have, fortunately, resisted the temptation to invest in any of them. I much prefer Vanguard’s actively managed balanced funds (STAR, Wellington and Wellesley) which are much more tilted towards U.S. securities.
That's quintessential hindsight bias. US out-performance wasn't predetermined; it just worked out that way. If ex-US out-performs, will you regret a US tilt?
If I made the decision 25 years ago, and stuck with it for 25 years, was it really “hindsight bias”? I like to think about it as a smart, financially rewarding, decision.
The Vanguard Funds you mention turned out fine, but as actively managed funds there was more risk. If someone had made the opted to invest only in Amazon 25 years ago it would've worked out well, but would've almost certainly been pure luck since the vast majority of such prospective companies failed.

I got lucky too. When I started investing also about 25 years ago, for the first 20 years I had everything in Parnassus an ESG firm. When I held them most of their funds out-performed the market. Had I known what I know now I wouldn't have invested with them used index funds instead. My point is sometimes luck plays a major role in how things transpire. But I do think there are reasonable argument for a US only allocation, or only having a light ex-US allocation.
Apparently, my “lucky streak” is still working. According to Vanguard, as of October 31, LS Moderate Growth had a 1 year total return of -17.8%. My portfolio had a 1 year total return of -13.9%. Based on the dismal return of the Vanguard LifeStrategy funds since their inception one would have been an extremely UNLUCKY investor if he or she didn’t outperformed them.
Apathizer
Posts: 1633
Joined: Sun Sep 26, 2021 2:56 pm

Re: Is tilting ever a good idea?

Post by Apathizer »

dkturner wrote: Tue Nov 22, 2022 8:13 am
Apathizer wrote: Sat Nov 19, 2022 11:56 am
dkturner wrote: Sat Nov 19, 2022 7:46 am
Apathizer wrote: Sat Nov 19, 2022 12:48 am
dkturner wrote: Fri Nov 18, 2022 9:57 am I look at the Vanguard LifeStrategy funds as examples of untilted portfolios, in the sense that they are very broadly diversified, which is said to be a good thing. I have followed them for more than 25 years but have, fortunately, resisted the temptation to invest in any of them. I much prefer Vanguard’s actively managed balanced funds (STAR, Wellington and Wellesley) which are much more tilted towards U.S. securities.
That's quintessential hindsight bias. US out-performance wasn't predetermined; it just worked out that way. If ex-US out-performs, will you regret a US tilt?
If I made the decision 25 years ago, and stuck with it for 25 years, was it really “hindsight bias”? I like to think about it as a smart, financially rewarding, decision.
The Vanguard Funds you mention turned out fine, but as actively managed funds there was more risk. If someone had made the opted to invest only in Amazon 25 years ago it would've worked out well, but would've almost certainly been pure luck since the vast majority of such prospective companies failed.

I got lucky too. When I started investing also about 25 years ago, for the first 20 years I had everything in Parnassus an ESG firm. When I held them most of their funds out-performed the market. Had I known what I know now I wouldn't have invested with them used index funds instead. My point is sometimes luck plays a major role in how things transpire. But I do think there are reasonable argument for a US only allocation, or only having a light ex-US allocation.
Apparently, my “lucky streak” is still working. According to Vanguard, as of October 31, LS Moderate Growth had a 1 year total return of -17.8%. My portfolio had a 1 year total return of -13.9%. Based on the dismal return of the Vanguard LifeStrategy funds since their inception one would have been an extremely UNLUCKY investor if he or she didn’t outperformed them.
That's about how mine it performed with roughly global market cap weights in ex-US. My investments haven't depreciated as much as the overall market because I'm well diversified across the five factors and bonds. I know this won't always be the case. If large growth comes roaring back my portfolio will underperform slightly.

Vanguard life strategy funds have had average performance which is what you expect from globally diversified market cap weight funds. Over short periods of time some actively managed funds will beat them, but they're unlikely to do so consistently.
ROTH: 70% AVGE, 30% BNDW. Taxable: 50% BNDW, 50% AVGE.
Nathan Drake
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Re: Is tilting ever a good idea?

Post by Nathan Drake »

Apathizer wrote: Mon Nov 14, 2022 9:42 pm
Charles Joseph wrote: Mon Nov 14, 2022 9:19 pm It's always good idea. Tilt a tad toward blue-chip dividend-paying stocks, and avoid ex-US (tilt toward US).
While I think there's a strong us only argument, as we've discussed ad nauseam there's no reason to favor dividend stocks. Mathematically dividends must be irrelevant to total return.
There’s not a strong argument to exclude most of the world
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
jbriar
Posts: 169
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Re: Is tilting ever a good idea?

Post by jbriar »

Nathan Drake wrote: Wed Nov 23, 2022 10:11 am
Apathizer wrote: Mon Nov 14, 2022 9:42 pm
Charles Joseph wrote: Mon Nov 14, 2022 9:19 pm It's always good idea. Tilt a tad toward blue-chip dividend-paying stocks, and avoid ex-US (tilt toward US).
While I think there's a strong us only argument, as we've discussed ad nauseam there's no reason to favor dividend stocks. Mathematically dividends must be irrelevant to total return.
There’s not a strong argument to exclude most of the world
There is for those firm believers in performance chasing. Buying the best performing index funds or active funds of the recent past always works out great in the future, doesn't it?
Apathizer
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Re: Is tilting ever a good idea?

Post by Apathizer »

Nathan Drake wrote: Wed Nov 23, 2022 10:11 am
Apathizer wrote: Mon Nov 14, 2022 9:42 pm
Charles Joseph wrote: Mon Nov 14, 2022 9:19 pm It's always good idea. Tilt a tad toward blue-chip dividend-paying stocks, and avoid ex-US (tilt toward US).
While I think there's a strong us only argument, as we've discussed ad nauseam there's no reason to favor dividend stocks. Mathematically dividends must be irrelevant to total return.
There’s not a strong argument to exclude most of the world
I'm not opposed to being globally diversified, but such a portfolio has only been slightly less volatile than and is less tax-efficient than US only. While I prefer to be globally diversified, I do understand why some US investors prefer a US only allocation.
ROTH: 70% AVGE, 30% BNDW. Taxable: 50% BNDW, 50% AVGE.
Nathan Drake
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Re: Is tilting ever a good idea?

Post by Nathan Drake »

Apathizer wrote: Wed Nov 23, 2022 12:45 pm
Nathan Drake wrote: Wed Nov 23, 2022 10:11 am
Apathizer wrote: Mon Nov 14, 2022 9:42 pm
Charles Joseph wrote: Mon Nov 14, 2022 9:19 pm It's always good idea. Tilt a tad toward blue-chip dividend-paying stocks, and avoid ex-US (tilt toward US).
While I think there's a strong us only argument, as we've discussed ad nauseam there's no reason to favor dividend stocks. Mathematically dividends must be irrelevant to total return.
There’s not a strong argument to exclude most of the world
I'm not opposed to being globally diversified, but such a portfolio has only been slightly less volatile than and is less tax-efficient than US only. While I prefer to be globally diversified, I do understand why some US investors prefer a US only allocation.
I don’t invest for the future on the basis of what has successfully happened to one country in the past.

I invest assuming that the worse outcome could one day occur to the country that has seen the best possible outcomes during my investment horizon
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
dkturner
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Joined: Sun Feb 25, 2007 7:58 pm

Re: Is tilting ever a good idea?

Post by dkturner »

Nathan Drake wrote: Thu Nov 24, 2022 1:35 am
Apathizer wrote: Wed Nov 23, 2022 12:45 pm
Nathan Drake wrote: Wed Nov 23, 2022 10:11 am
Apathizer wrote: Mon Nov 14, 2022 9:42 pm
Charles Joseph wrote: Mon Nov 14, 2022 9:19 pm It's always good idea. Tilt a tad toward blue-chip dividend-paying stocks, and avoid ex-US (tilt toward US).
While I think there's a strong us only argument, as we've discussed ad nauseam there's no reason to favor dividend stocks. Mathematically dividends must be irrelevant to total return.
There’s not a strong argument to exclude most of the world
I'm not opposed to being globally diversified, but such a portfolio has only been slightly less volatile than and is less tax-efficient than US only. While I prefer to be globally diversified, I do understand why some US investors prefer a US only allocation.
I don’t invest for the future on the basis of what has successfully happened to one country in the past.

I invest assuming that the worse outcome could one day occur to the country that has seen the best possible outcomes during my investment horizon


Why not “go with the flow” until you see some evidence that the U.S. economy is slipping compared to the rest of the world? You don’t have to make the change immediately. If you had avoided non-U.S. equities for the last 30 years you would have made so much more money that you would have plenty of time to load up on non-U.S. equities and still come out ahead of the investors who had substantial non-U.S. equity exposure you many years.
Nathan Drake
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Re: Is tilting ever a good idea?

Post by Nathan Drake »

dkturner wrote: Thu Nov 24, 2022 10:03 am
Nathan Drake wrote: Thu Nov 24, 2022 1:35 am
Apathizer wrote: Wed Nov 23, 2022 12:45 pm
Nathan Drake wrote: Wed Nov 23, 2022 10:11 am
Apathizer wrote: Mon Nov 14, 2022 9:42 pm
While I think there's a strong us only argument, as we've discussed ad nauseam there's no reason to favor dividend stocks. Mathematically dividends must be irrelevant to total return.
There’s not a strong argument to exclude most of the world
I'm not opposed to being globally diversified, but such a portfolio has only been slightly less volatile than and is less tax-efficient than US only. While I prefer to be globally diversified, I do understand why some US investors prefer a US only allocation.
I don’t invest for the future on the basis of what has successfully happened to one country in the past.

I invest assuming that the worse outcome could one day occur to the country that has seen the best possible outcomes during my investment horizon


Why not “go with the flow” until you see some evidence that the U.S. economy is slipping compared to the rest of the world? You don’t have to make the change immediately. If you had avoided non-U.S. equities for the last 30 years you would have made so much more money that you would have plenty of time to load up on non-U.S. equities and still come out ahead of the investors who had substantial non-U.S. equity exposure you many years.
“Go with the flow” means investing in both exUS and US

You are never going to get a market timing signal
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
JasonHutt
Posts: 160
Joined: Wed Oct 26, 2022 1:47 pm

Re: Is tilting ever a good idea?

Post by JasonHutt »

dkturner wrote: Thu Nov 24, 2022 10:03 am
Nathan Drake wrote: Thu Nov 24, 2022 1:35 am
Apathizer wrote: Wed Nov 23, 2022 12:45 pm
Nathan Drake wrote: Wed Nov 23, 2022 10:11 am
Apathizer wrote: Mon Nov 14, 2022 9:42 pm
While I think there's a strong us only argument, as we've discussed ad nauseam there's no reason to favor dividend stocks. Mathematically dividends must be irrelevant to total return.
There’s not a strong argument to exclude most of the world
I'm not opposed to being globally diversified, but such a portfolio has only been slightly less volatile than and is less tax-efficient than US only. While I prefer to be globally diversified, I do understand why some US investors prefer a US only allocation.
I don’t invest for the future on the basis of what has successfully happened to one country in the past.

I invest assuming that the worse outcome could one day occur to the country that has seen the best possible outcomes during my investment horizon


Why not “go with the flow” until you see some evidence that the U.S. economy is slipping compared to the rest of the world? You don’t have to make the change immediately. If you had avoided non-U.S. equities for the last 30 years you would have made so much more money that you would have plenty of time to load up on non-U.S. equities and still come out ahead of the investors who had substantial non-U.S. equity exposure you many years.
I believe this is called "chasing performance." Here's the thing. I've always had at least 20% in non-US. I dollar cost averaged over the decades. So, the long period of international underperformance yielded lots of cheap fund shares. You will never be the first to notice that international is going up. You will certainly miss years of good prices. That's why it's important to establish an allocation and stick with it if you have a long time horizon. Interestingly, even if one is close to retirement, he will often have a long time horizon until death. Indeed, if one wants to leave an estate to a family member, one's time horizon extends beyond his lifetime.
Logan Roy
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Re: Is tilting ever a good idea?

Post by Logan Roy »

I don't think we need to worry too much about local economies. The S&P500 is built from global businesses, like Apple. You don't escape the effects of slowdown in other economies. If there's an advantage in adding foreigns stocks, it may be that they tend to go in and out of fashion, giving more frequent opportunities to buy at depressed prices.

Emerging Markets have done pretty well over 30 years. And when you factor in valuations, it's not that they've had erratic growth: it's that EM stocks tend to go from big premiums to big 'discounts' (relative to US). And I think that has a lot to do with macro, and the fact a lot of funds and traders are assessed on <5 year performance.

US stocks have likely(?) overtaken EM again in recent years. However, EM's on a fwd PE of about 10-11 now. So you're buying 10% earnings yields. There's a lot of room for outperformance, from higher growth and multiple expansion.

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