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Old 06-01-2009, 09:51 AM   #181
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Originally Posted by LOL! View Post
Several comments:

1. You have fallen into the behavioral finance trap of loss aversion. You need to get out of it. Please read "Why Smart People Make Big Money Mistakes".

Consider this:: If you sell your lower-priced Small Cap Index fund and buy a different lower-priced Small Cap Index fund have you really "lost" or "gained" any value? Same thing with Fidelity Contra: If you sell it and buy something that has also dropped in value (a REIT) have you really lost or gained any value. Read the book. (snip)
I will see if the library has it.

I see your reasoning about selling a small cap fund that is down and buying something that is also way down in value. But when I checked VTINX it appeared both to have gone down less than my other funds did and to have recovered more to date, so selling FCNTX or the other funds and buying VTINX doesn't fall into the category of selling something cheap and buying something else cheap. It is closer to "sell something that has lost half of its value and buy something that has only lost one-fourth of its value".

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4. I myself would not enter trade orders or mutual fund exchanges on a weekend while the market was closed. It is probably OK, but it would be a terrible thing to do with stocks and ETFs because of the way the stock market works (or doesn't really work) at the opening of the stock market every morning.
Weekends may not be ideal but that's when I have the time available. I don't have any individual stocks or ETFs, just mutual funds.

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5. NAV of fund shares don't matter so much because of various distributions and dividends that funds pay out. For example, suppose you bought contra at a NAV of $60 a share and the next year it was still $60, but the it paid a $15 distribution that you automatically reinvested. The NAV would go to $45 and you would have more shares, but the total value of your shares would be the same. Mutual funds are not like stocks and the NAV share price cannot be used to judge loss or gain or position much of the time.

Another instance of this is a bond fund. Many bond funds have monthly or quarterly dividends. The NAV of bond funds often does not fluctuate much away from $10 or thereabouts, so you cannot tell how much you have gained or lost by looking at the NAV: you must look at the total value of your shares (NAV X number_of_shares).
If I had meant to make a valid analysis of whether I was actually losing money on the sales all this would apply, but in that case I would still be trying to figure it out and wouldn't have sold them yet. I would also have had to take inflation into account because some of those shares were bought more than ten years ago and $47.80 was worth quite a bit more then than it is now. But when I said I was "tricking" myself, I meant that literally, and a trick doesn't have to make sense or be financially justifiable, it just has to get me to do something instead of continuing to procrastinate. From that standpoint, I consider the trick to have been pretty successful, because it got me to sell a bunch of those shares and get a lot closer to my target allocation.
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Old 06-25-2009, 05:33 PM   #182
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The Bogleheads forum has been active with managing some simple slice-and-dice asset allocations of index funds, so I thought I would put a few links here.

Basically, the idea of holding
LB (domestic large blend)
LV (domestic large value)
SC (domestic small cap)
SCV (domestic small cap value)
ILB (international large blend)
ILV (int'l large value)
ISC (int'l small cap)
ISV (int'l small cap value)
REIT (real estate investment trusts)
etc
and fixed income in various proportions is a slice-and-dice portfolio. A Boglehead forum member, Trev H, has charted some theoretical returns from backtesting and compared to a total market weighted asset allocation in this thread: Bogleheads :: View topic - Ultimate Buy and Hold - 8 slices vs 4 .

Rick Ferri has a thread on ETFs to fill some of these asset classes: Bogleheads :: View topic - ETF portfolios in Money Magazine

Here's a thread on international small cap: Bogleheads :: View topic - Is Small Cap International necessary?

I know many of you already read the Diehards/Bogleheads forum, so I am just posting this for folks who don't visit there and for future reference.


And another thought: There is quite a range of reasonable asset allocations that one could choose. You get to pick the ratio of stocks to bonds and the ratio of US to foreign investments. You get to pick how much large cap and small cap you want. You also get to pick how much to tilt to value.

However, there are some pathological asset allocations that are easy to spot. IMHO, some would be asset allocations with less small and mid cap equities than a total market weight would give you. For example, if you had a large cap tilt, that's not near the efficient frontier of best performance versus risk ratio (i.e. Sharpe ratio). Another one would be a tilt to growth instead of blend and value. Another would be a tilt to small cap growth.

So check your Morningstar portfolio X-ray and 9-box style grid every so often and see if you still match your desired asset allocation plan.
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Old 09-22-2009, 01:31 AM   #183
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Originally Posted by LOL! View Post
Several comments:
(snip)

4. I myself would not enter trade orders or mutual fund exchanges on a weekend while the market was closed. It is probably OK, but it would be a terrible thing to do with stocks and ETFs because of the way the stock market works (or doesn't really work) at the opening of the stock market every morning.
I have been keeping tabs on FCNTX and when I checked today it was at 54.66. I was planning to sell half of what I had left at 55 and I decided this was close enough, so half of the FCNTX and half of the remaining Stable Value just got swapped for more Target Retirement Income.

Please, would you say a little more about why not to send in orders for ETFs when the market is closed? I now need to buy some more bonds to get closer to my target allocation. I have been planning to include TIPs in my bond portion and my only option to do that is in my Roth; there is no TIPs fund available in my 457 plan. However, I have just gotten the prospectus for VIPSX, and it doesn't sound like it is designed to replicate the index, which is really what I am after and the other TIPs options available through my Roth custodian are TIPs ETFs (TIP and IPE), which on a quick look both say their objective is to replicate the performance of a TIPs index. So why don't I want to buy these over the weekend? Is it a major blunder or just a little faux pas to do so? Nights and weekends are the times I have available. I don't like to do retirement account transactions on my computer at work.

As an aside, this is probably a real newbie question, but when I was looking at the VPSIX info on my Roth custodian site, it was really obvious how to request a prospectus. I don't see "request prospectus" anywhere on the two ETF pages. Don't ETFs have prospectuses?
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Old 09-22-2009, 08:47 AM   #184
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Yes, ETFs do have prospectuses. My broker mails them to me whenever I make a purchase. I am sure you can find the prospectus online as well at the web site of the ETF sponsor. A google search with "prospectus TIP" turns up
http://us.ishares.com/content/stream...prospectus.pdf

As for entering market orders when the market is closed, that's dangerous because you will likely be on the opposite side of a limit order trade and lose some money. Let's take an example from just 15 minutes ago. Look at today's (9/22/2009) trading of the etf VSS. Some of first 500 shares today were traded at 3.5% over yesterday's closing price, but it is now trading at only 1% over yesterday's closing price. Somebody paid 2.5% more than they had to. There was probably a limit order to sell at 82.79 sitting there and no other lower priced orders. So if you come along and say "buy at the market", then you will pay $82.79 per share. 15 minutes later, more orders are available to sell at $81.00. Look before conducting transactions with ETFs. If you cannot look, then use mutual funds where you are guaranteed to the get the closing NAV for that day.
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Old 09-22-2009, 10:13 AM   #185
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Yes, ETFs do have prospectuses. My broker mails them to me whenever I make a purchase. I am sure you can find the prospectus online as well at the web site of the ETF sponsor. A google search with "prospectus TIP" turns up
http://us.ishares.com/content/stream...prospectus.pdf

As for entering market orders when the market is closed, that's dangerous because you will likely be on the opposite side of a limit order trade and lose some money. Let's take an example from just 15 minutes ago. Look at today's (9/22/2009) trading of the etf VSS. Some of first 500 shares today were traded at 3.5% over yesterday's closing price, but it is now trading at only 1% over yesterday's closing price. Somebody paid 2.5% more than they had to. There was probably a limit order to sell at 82.79 sitting there and no other lower priced orders. So if you come along and say "buy at the market", then you will pay $82.79 per share. 15 minutes later, more orders are available to sell at $81.00. Look before conducting transactions with ETFs. If you cannot look, then use mutual funds where you are guaranteed to the get the closing NAV for that day.
Is there a TIPs index mutual fund? I'll read the prospectus again. On a first look the description of VIPSX did not sound like an indexing approach, but maybe there is some other fund I can get through my Roth that would be. I haven't yet figured out how to ask my Roth site to show me all funds with certain characteristics. It is obvious how to ask about past performance and expense ratios and some other characteristics, but for asking "what kind of fund is it" the available choices aren't more specific than "stocks or bonds". I don't see how to ask "passive vs active management" or "index fund vs other types". More to learn, sigh.
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Old 09-22-2009, 10:20 AM   #186
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I would suggest that you do not get hung up on "index fund". What you want is "passively-managed". I think PIMCO now has TIPS index funds, but I don't know for sure.

I think Vanguard does a good job, but there are others as well. As examples, the Vanguard GNMA fund is not an index fund and neither is the Vanguard short-term investment grade bond fund.

A good place to look for investments worthy of buying is the Eric Haas's DFA vs. Vanguard where asset classes are listed and if you click on the "here" details you can see a list of funds and ETFs. A quick examination of that link shows several TIPS index funds are available.
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Old 09-22-2009, 03:03 PM   #187
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I would suggest that you do not get hung up on "index fund". What you want is "passively-managed". I think PIMCO now has TIPS index funds, but I don't know for sure.

I think Vanguard does a good job, but there are others as well. As examples, the Vanguard GNMA fund is not an index fund and neither is the Vanguard short-term investment grade bond fund.

A good place to look for investments worthy of buying is the Eric Haas's DFA vs. Vanguard where asset classes are listed and if you click on the "here" details you can see a list of funds and ETFs. A quick examination of that link shows several TIPS index funds are available.
I will check out the DFA vs Vanguard link, or go back to the library--there is a book on Asset Class investing that I had out and it also has a list of funds in it, categorized by asset class (now all I have to do is remember the name of the book).

I think I understand what you are saying about index fund vs passive fund. I am concerned about that because all the calcs I did to come up with my target allocation were based on data from indexes, and if the fund isn't an index, will it have the same growth rate, standard deviation & correlation that are presupposed in my calculations? Seems like getting away from index funds would be a risk of using apples in a recipe that calls for oranges. But maybe a passive fund will not differ significantly in those respects from an actual index fund.

However, I am looking at the "Security Selection" section of the VIPSX prospectus again, and it does not sound as if it is even passively managed. I see phrases like "the...advisor to the fund buys and sells securities based on its judgement about issuers...prices...other economic factors..." or "...the Fund's average maturity and mix of bonds may differ from those of the index...for example, when the advisor sees an opportunity to enhance returns..." or "the Fund is subject to manager risk, which is the chance that poor security selection...will cause the fund to underperform relevant benchmarks". This (especially the parts I put into boldface) sounds more like an active management approach to me--does it sound like that to you also? In the data given (covering 2004-2008) the turnover has ranged from 21% in 2007 to 73% in 2005. I would have expected the turnover to be much lower than this in a passively managed fund--is that correct?

Thanks for this thread! It's so informative.
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Old 09-22-2009, 03:52 PM   #188
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....
I think I understand what you are saying about index fund vs passive fund. I am concerned about that because all the calcs I did to come up with my target allocation were based on data from indexes, and if the fund isn't an index, will it have the same growth rate, standard deviation & correlation that are presupposed in my calculations? Seems like getting away from index funds would be a risk of using apples in a recipe that calls for oranges. But maybe a passive fund will not differ significantly in those respects from an actual index fund.
....
Guess what? The index funds that you select will NOT have the same growth rate, will NOT have the same standard deviation, and will NOT have the same correlation that you presupposed in your calculations. I am not trying to convince you to not use index funds, but I am trying to get you to see the apples for the trees (or vice versa).
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Old 09-22-2009, 05:50 PM   #189
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Guess what? The index funds that you select will NOT have the same growth rate, will NOT have the same standard deviation, and will NOT have the same correlation that you presupposed in your calculations. I am not trying to convince you to not use index funds, but I am trying to get you to see the apples for the trees (or vice versa).
I know they won't be exactly the same (growth, standard deviation and correlation all change over time), but I do expect them to be very similar, like substituting a Fuji apple for a Granny Smith would not be expected to drastically change the results of the recipe--unlike substituting an orange.

When you say that the index fund won't have the same results, do you mean the results should not be expected even to remotely resemble calculations based on historic data? ISTM that would mean that there is no way even to estimate how a portfolio will perform, and would make it totally impossible ever to have any amount of confidence that one won't end up really old and completely broke. Isn't the whole idea of FIREcalc based on the assumption that checking against historic data gives a reasonable estimate of what to expect?

Or do you just mean that I'm splitting hairs and there is not enough difference between index, passive, and active funds (within an asset class) to have a significant effect on the ultimate success or failure of the portfolio?
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Old 09-22-2009, 05:53 PM   #190
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You are splitting hairs. Have you read that new book from Jim C. Otar yet? (Search the forum for a thread or two on it.) It's about the withdrawal stage of your portfolio. You may be surprised at what matters and what doesn't matter.
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Old 09-22-2009, 07:51 PM   #191
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You are splitting hairs. Have you read that new book from Jim C. Otar yet? (Search the forum for a thread or two on it.) It's about the withdrawal stage of your portfolio. You may be surprised at what matters and what doesn't matter.
I have read the threads but not the book. My local library does not have it and they won't request a book on interlibrary loan the first year after publication, so I guess I will have to pay for it if I want to read it.
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Old 09-23-2009, 10:37 AM   #192
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If you want access to Morningstar's X-Ray without registering, try this:

Instant XRay entry page

I don't remember where they draw their lines between value and growth, large and small, but I believe they use different metrics than Fama and French, for example.
This instant Xray sure is quicker than going in via T Rowe Price if I only want to get a quick snapshot, and being on dial-up, that's a big point in its favor.

I did an instant Xray after my recent trades and I'm up to 47% bonds. If I do everything I can with existing money I can get up to about 55% bonds—to get from there to my target of 70%, I need to put all the new money going to my Roth into bonds as well. It will take years (in fact I think it would take longer than until my target retirement date) to hit the target that way, though. Maybe I need to look at that self directed option in my 457 plan again. What a choice—pay a bunch of extra fees or be stuck at 15 percentage points too high in my stock allocation. Or maybe I should just cross my fingers and be satisfied with getting as close as I can to the target allocation until I retire. Then I can roll the 457 into an IRA that doesn't have such limited fund choices and I can get the higher bond allocation I want from then on out.

But the cool thing is, I just realized that sometime this past summer the combined total in my two retirement accounts hit six figures.

It's actually more than that because I still have an Ameriprise VA sitting off to one side waiting for the surrender charge to come down to a reasonable level (or for me to bite the bullet and cash it in anyway).

One question, I don't see a slice in the pie chart for my REIT fund. Is it included in the percentage for stocks? There's not enough "other" for the REIT fund to be in that category.
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Ouch!
Old 09-23-2009, 11:05 AM   #193
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Ouch!

This from The Big Picture
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Old 09-23-2009, 11:09 AM   #194
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Great. Every gold bug on the planet is now registering here to say "I told you so!!!"
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