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Old 11-16-2008, 01:46 PM   #21
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Just a heads up: While going with Vanguard is probably not the way to reverse engineer a DFA portfolio (use ETFs instead), the Vanguard internal explorer (int'l small cap) fund is no longer closed to new investors.
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Old 11-16-2008, 04:03 PM   #22
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> While going with Vanguard is probably not the way to reverse engineer a DFA portfolio (use ETFs instead),

Could you please explain why ? One thing I dont like about ETFs is the transaction costs which Vanguard mutual funds dont have. I guess ETFs make sense for bulk investments which I dont like as the market can immdiately crash after I make the bulk investment and stay crashed my whole life and only recover after I pass away :-) Sorry if I sound really pessimistic but it happened to me with my very first purchase of Vanguard S&P 500 index fund (VFINX) on Dec 31 1999. Last I checked, it is still 40% down, after a bloody decade, for crying out loud. At least with Vanguard, I can DCA small amounts every month and take advantage of lower prices. Not sure if this scientific tho'. Some say DCA vs bulk doesnt matter but I am biased toward DCA. Let me put it another way : I dont want to do a bulk buy when the market is at its all time high. I would much rather be fearful 'when others are greedy'.

> the Vanguard internal explorer (int'l small cap) fund is no longer closed to new investors.

Thanks for this info. So the only fund thats left is Vanguard small cap intl value fund.
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Old 11-16-2008, 05:15 PM   #23
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Originally Posted by bluejeansman View Post
Could you please explain why ? One thing I dont like about ETFs is the transaction costs which Vanguard mutual funds dont have.
What transaction costs? It's pretty well known around here that folks don't pay transaction costs on ETFs because they use a broker that doesn't charge any commisssion.

Homework assignment: Which brokers are free?
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Old 11-16-2008, 07:38 PM   #24
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> It's pretty well known around here that folks don't pay transaction costs
> Homework assignment: Which brokers are free?

Thanks :-) Sorry, my problem is unique. I live in the UK and still access my old US funds, banks, brokerage accounts. Unfortunately, since I dont have a US citizenship/green card or US residence, I cannot open any new US bank or brokerage accounts. I am stuck with using Amritrade which charges me $9.99 a pop.

I have bigger problems such as US mutual funds are not "recognized" by UK, so I would end up paying "income tax" (40%) on any Vanguard dividend distributions / capital gains in the taxable accounts. My 401(k) is allright tho'. Oh well ...

Well, I never bothered introducing myself properly here. Sorry. I have been posting on bogleheads under the same name and met nun there. Since I saw her post here, wanted to respond. To summarize, I used to work in the US for a long time and then relocated to UK (It wasnt really planned, just kinda happened). I am in a big dilemma about how to invest my US funds economically and wisely. I have landed into a problem of my own making. Oh well ...

On an aside, the trading costs of DFA funds are $19.99 in a "custodial account" such as TD Ameritrade. That sounds expensive.
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Old 11-17-2008, 08:31 AM   #25
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Nun,

Suppose you want exposure to equities : The issue comes down to whether you want to keep a simple "total stock market index fund" vs "slice and dice". I tried to raise this in my asset allocation paralysis thread on bogleheads and also in my "getting equities right" bogleheads thread and most people opined that "it doesnt matter" or and "your stocks/bonds AA is the most important". But just ignoring things which seem complicated to us is not the scientific thing to do. Based on the research I am doing, it appears that slice-and-dice may provide better returns.
Whether one investing strategy has the potential to provide more returns than another isn't my main concern. If it was I wouldn't have kept my TIAA-annuity for 20 years at 5% through the stock market bubble. I have a retirement goal that requires a certain level of annual saving and an annual growth of 5%. Then a SWR of 4% will see me into my dotage. I have mix of low cost index funds, fixed income, real estate and pensions all of which I understand and let me sleep at night. So while "slice and dice" may be "better" is some ways it isn't right for me.
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Old 11-18-2008, 06:31 AM   #26
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I hear you. Simplicity is good, but we are not talking about some ultra-complicated market-timing day trading strategies. Slice and dice is just an extra 15 minutes a year. Whats so complicated about that ?

To explain : lets say I was in the US (Lets leave the UK equation out of the picture). In taxable account, lets say I want 60% equities, 40% bonds. To keep things really simple, what Vanguard funds would you recommend ? Just S&P 500 index (VFINX) and Total Bond Market Index (VBMFX) ? If I start like this, the immediate response many people would provide is : "No, you probably need Total Stock Market index (VTSMX) and split the bonds into short-term bonds and tips". Why VTSMX ? Because it has some small caps also. The moment you start thinking along these lines, you are heading towards diversification territory.

Why diversification ? Just to hedge your bets. Over the very long term, say 50 years, maybe nothing matters, and (VFINX+VBMFX) may likely be same as (Japan Equities + UK Bonds) who knows ? But most of us invest for say 25 year periods, not 100 years. And it helps to diversify, i.e get a little helping of all equity asset classes.

If this is not a powerful argument for slice/dice, I dont know what is. For example, VFINX has gone nowhere in last 10 years. But a US equity portfolio split equally between Large X Small X Growth X Value has done quite well even in bad periods. Of course nobody can predict the future, but it is just about maximing the odds of good return with less risk. Having a little helping of every equity asset class helps.

The links I sent in my earlier post all explain this in a much better way, especially FundAdvice.com - Where's the "Total" in the Total Stock Market Fund?

So far I have not heard a solid reason against slice/dice except that it is "too complicated". Yet as far as I can tell, the only complication is the little bit of extra work you have to do come annual-rebalance time. But a spreadsheet can sort that out for you. Of course there may be trading costs or tax reasons to consider.

So far all the evidence seems to indicate to me that slice/dice has a decent chance of providing better returns with less risk than a total stock market portfolio. Given this, why would you not go for it ? Please give me a logical reason other than "personal preference".
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Old 11-18-2008, 09:07 AM   #27
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If DFA floats youe boat go with it. If putting a Vanguard portfolio together with various weights of micro cap etc is what you want to do more power to you. It comes down to individual goals and investment style.
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Old 11-18-2008, 12:16 PM   #28
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Appreciate your thoughts.

Sorry, I dont intend to be argumentative here, but I am not convinced with the "Its all about personal preference" argument. I dont understand why investing should be like buying a shirt : "Okay, I like this color / design". We invest in order to get some growth on our money and possibly secure our retirement. Why do we invest in equities at all to begin with ? Because there is some past data that says that over the long term equities do well compared to other asset classes. Therefore, to some extent, we are going with past data and making a decision that says : "Okay, I will go with some equities, it will likely to give me growth in the long run"

I would agree that how much stock / bond split you want is a personal preference. Some people, even when presented with data that says equities do very well over long run, dont want too much stocks, because they dont like to endure the psychological turmoil of watching their portfolios plummet by 40% in one year. But once you decide how much equities, is it not worth even discussing how to get the equity part ? I tried discussing this on bogleheads, but everyone pretty much seemed to say : "do whatever you want, it doesnt matter". I still cannot decide how I want to get equities, but slowly I am gathering data that seems to indicate that slice/dice may give you slightly better returns with lower risk. Isnt that what this game is all about ?!

I wonder why no one is interested in discussing this at all. In my links I showed both Paul Merriman and Rick Ferri saying slice/dice is mathematically better. So why people choose to ignore it ? I dont understand.

Why does Vanguard offer so many equity funds ? Is it just to confuse people ? Why would someone just buy a Vanguard Value fund without the other pieces of the puzzle ? Again, this is not like buying a shirt. I am slightly frustrated when nobody replies to the specific articles I posted, but instead just say : "Go with what you like".

Even I like simple portfolio, but these articles from Merriman and others keep staring at me in the face that makes me think. At least I would like to engage people in discussing this subject. I wonder if "LOL", you have anything to say. So, nun, on equities side, what would be your simple suggestion for me (assuming I continue to invest in US) : 70% VTSMX, 30% all world ex-US is it ? On the bond side, just total bond market index fund ? In your opinion, we dont need to complicate it more than that ?!
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Old 11-18-2008, 12:44 PM   #29
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If DFA floats youe boat go with it. If putting a Vanguard portfolio together with various weights of micro cap etc is what you want to do more power to you. It comes down to individual goals and investment style.
So, getting back to your original question, have you found out what you wanted to know?
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Old 11-18-2008, 07:31 PM   #30
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I guess I see the central point of nun's message : Keep costs as low as possible, keep things as simple as possible and just get the market's overall long term return.

I suppose the key is having a clear goal for your money, and if a Toyota will get you there in the expected timeframe, why bother with a Lexus etc ? Sorry if the analogy is poor.

But I wanted to write about DFA because from my own research, my opinion was DFA was not hype. It is afterall from the legendary Eugene Fama. And it looks like they just want to take indexing to the next level and ask some smart questions about indexing itself. However I am also doubtful about the "small/value premium / tilt".

Also, the more research I do, the more I am confused. And my money continues to idle in the bank earning 1.75% interest for the last 7 years. I just cannot bring myself to any decision whatsoever.

sorry, didnt mean to hijack the thread. I will let nun answer Nords' question. Cheers.
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Old 11-19-2008, 06:45 PM   #31
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Nun, I would like your opinion on what Vanguard funds you would suggest for (a) equities (b) bonds. Lets say : taxable account, and the person wants to go with 60% equities and 40% bonds and has say a 10 year time horizon. Cheers
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