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Portfolio Review
Old 02-11-2013, 04:09 PM   #1
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Portfolio Review

I know these are always controversial, but I'm trying to come up with a portfolio that I like. Here is what I am thinking:

Tax Deferred Accts:
SPHIX High Yield Bond 10%
FINPX inflation Protected 20%
Taxable Accts:
VFIAX Large Blend 20%
VVIAX Large Value 10%
VSIAX Small Value 10%
VTIAX International 10%
VWIUX Int Term Tax Exempt 18%
VMMXX Money Market 2%

I have appropriate low cost stock funds in the tax deferred arena if I need to rebalance stock funds there. I added a HY bond but it's being counted toward the equity allocation of the portfolio, thus this could be considered about 60/38/2.
The value tilt was to squeeze a bit more dividends as well as for possibly improved growth.
I also have some rental property, and that will likely be converted to a REIT fund if and when it is sold at a 10% portfolio allocation.
Any and all comments welcome, I'm trying to pull the trigger on setting my allocations in the next few weeks.
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Old 02-11-2013, 04:23 PM   #2
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There's no right answer as you know, and we all have our own biases for our own reasons (I certainly do). Given that:

Observations
  • Without looking up your funds (tax efficiency), placement looks right (taxable vs deferred), easy for you to verify.
  • I like a little value tilt too.
  • I believe in a bond slice, but I am not a fixed income expert. My holdings are split between VBTLX (Total Bond Market Adm) & VFSUX (Short-Term Investment-Grade Adm) . There are lots of members here with better bond advice.
    • I am not among the "bond bubble" crowd, but you may hear from them.
Questions
  • You probably have your reasons, but your international exposure is light for my tastes. For a 60/40 (close to where I am at), I'd be 40 dom eq/20 intl eq/40 bonds. But nothing wrong with what you've elected.
  • Small slice, but I dropped all my VMMXX. Bought iBonds & put the rest in Ally savings. Might as well make something on cash, IMO interest rates are going to be horribly low for a few more years.
Again, all in all your plan looks like a solid & defensible long term plan to me.
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Old 02-11-2013, 07:09 PM   #3
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It's hard to say if the portfolio is right for you without knowing more about your situation and goals, but I don't see any major red flags. I'd personally be comfortable with a portfolio similar to what you described (hopefully ~18 months from ER) but I might give it a few tweaks.

I wouldn't bother with a 2% MM allocation. I agree with Midpack that i-bonds and CDs are a better value right now.

I also use VWIUX for a significant portion (~50%) of my bond allocation. Once ER hits I'll switch that over to VBTLX since tax exempt bonds won't be a priority then. I certainly don't know what bond yields will do in the future, but I sleep a little better at night with ~25% of my bonds in VFSUX to reduce my overall bond duration. The other ~25% of my bonds are inflation protected (VAIPX and i-bonds).

That said, I probably wouldn't get heartburn with the allocation you picked. I once spent two weeks agonizing over whether I should put 52% or 53% of my portfolio in equities The reality is that a lot of diverse portfolios behave similarly over the long term. The important thing is to pick an allocation you are comfortable with and stick with it.

-Fean
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Old 02-15-2013, 03:32 PM   #4
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Thanks for the responses, I was traveling this week for w*rk and didn't have an opportunity to comment.

Midpack:
Your comment about international exposure has occured to me too. I've thought about reducing the large blend to 15% and then make the international 15%. I would do this with new money though, so it would take a while. I feel pretty comfortable either way, but I do believe that there is likely more upside off our shores.

The Money Market is a total waste. I've been thinking about putting this in a short term bond fund. I would prefer to keep it in vanguard for the sake of simplicity.

As for bonds, I'm no expert either, and I've been looking at VFSUX as well to shorten the duration.

Fean:

Good points, my situation is I'm early 40s, looking to set up a portfolio that will easily glide into ER. The fact that you are looking at something similar and 18 mos from ER I find very interesting. As I said above, your points about bond duration are well taken, I need to do some more thinking on that.
Also like I said above, you are absolutely right about money market funds. I hate lazy money, lol!

With these comments, I feel pretty comfortable where I'm at. The two main areas I think I need to re-think are bond duration and international exposure, the cash part is an easy fix. Thanks for making me think, I'd love some more input if anyone has anything to add!

EDIT: Had to fix my spelling of w*rk, lol!
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Old 02-15-2013, 09:40 PM   #5
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I like the additional international allocation. You could do it with the new Vanguard international bond fund too, since you've got lots of bonds.
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Old 02-16-2013, 02:51 PM   #6
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Quote:
Originally Posted by Animorph View Post
I like the additional international allocation. You could do it with the new Vanguard international bond fund too, since you've got lots of bonds.


This is an interesting idea. I'm not sure how I would count the international bond fund tho, equity due to risk characteristics or actual bond. If actual bond, I could split my intermediate term allocation into 1/2 this and half TBM (actually these would be the tax exempt).
I need to look into where to keep an international bond fund is there a tax advantage due to foreign income, or is it taxed more like a traditional bond fund....looks like over to bogleheads I go....
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Old 02-16-2013, 06:28 PM   #7
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I have also been finishing up an asset allocation review on my own portfolio. I agree with the comments about international exposure. I increased mine to 20%, split between emerging markets and developed. I expect to see more volatility but I think there is relatively good upside there over time, especially emerging markets.
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Old 02-16-2013, 08:24 PM   #8
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Yeah, I need to get this organized soon. When I did some of my original investments, I did them with an eye toward asset allocation, but not with taxes in mind. Now that I have learned more about taxes, I want to take more of an overall portfolio view. It's going to cost me some in capital gains, but the way it looks, I'll make up the difference in what I pay in taxes in about 2 years.

What changed for me is after reading bogleheads I tried to write a investment policy statement. Interesting exercise.... I kept changing the allocations. I decided not to act upon it until I looked at it for several weeks and was still (reasonably) happy with what I chose. I've never panicked at a market downturn (not even 2008/9) but with the portfolio growing, I felt I needed something to look to just in case. If anyone here has never done one, I recommend it....the allocations change with your mood, lol!

Anyway, the major allocations have more or less solidified, so I want to put this into action by months end...now to avoid analysis paralysis... Fean, I'm sure you can relate, lol!
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Old 02-16-2013, 08:28 PM   #9
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Another comment about the international bond fund: I'm going to leave this out of my allocation for the time being. Bogleheads have lots of interesting discourse on the subject, but my take from what I read is that the vanguard currency hedging in this fund pretty much washes out any diversification. I could choose a non-hedged fund, but I think I'm going to go the classic route and take my risk on the equity side (minus my high yield, which i count as equity anyway).
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Old 02-17-2013, 05:06 AM   #10
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my biggest loser ytd is the fidelity international bond fund , down 1.83% .

that is about 3x what their corporate bond fund is down.

fidelity global bond is down about 2x what corporate bond is.

so far it has not been good for international bonds this year..
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Old 02-17-2013, 12:25 PM   #11
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As others have mentioned, go over to the boggleheads forum. They'll disect your plan in more detail. Good luck.
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Old 02-17-2013, 01:02 PM   #12
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Overall, looks fine with the comments in the thread. My general rule of thumb is 70/30 domestic/international on the equity side. On the bond side, I would want to stay away from US treasuries, as you have done.
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