Proposed VG Reallocation - Comments??

[Achiever51]

I invite any and all comments. Here goes:

I've been invested in Vanguard for one year now and am scheduled for my annual review with their CFP next Monday. As I'm not interested in income right now, but would like to grow the portfolio, I've expressed interest in increasing my stock exposure to about 70% from my current 60% while decreasing bonds from 40% to 30%.

BTW - I am retired but am not drawing anything from this portfolio now. My non-COLA'd pension covers about 75% of our current monthly expenses, with the remainder coming from my husband's income and other savings. The earliest I might start to withdraw from the portfolio is 3.5 years from now and would likely draw no more than 3%. While working I was ineligible for a ROTH due to income limits, so portfolio is in a traditional IRA but I am investigating the possibility of moving some assets to a ROTH over time.

Current portfolio consists of:
41.1% - VG Total Bond Market Index Fund (Admiral Shares) VBTLX
21.4% - VG Diversified Equity Fund VDEQX
18.9% - VG Total Shock Market Index Fund (Admiral Shares) VTSAX
10.9% - VG Total International Stock Index Fund VGTSX
7.62% - VG Emerging Markets Stock Index Fund

According to M*, my current portfolio holds:
1.70% - Cash
38.07% - U.S. Stock
20.17% - Foreign Stock
39.54% -Bonds
0.52% - Other
Avg. Expense Ratio is 0.20% and Yield is 3.09%

Vanguard has proposed two possible portfolios for me, and frankly, both seem like a distinction without much difference to me.

Proposal 1, called Integrated Portfolio, recommends the following:
35.01% - VG Total Bond Market VBTLX
22.74% - VG Diversified Equity Fund VDEQX
22.74% - VG Total Stock Market VTSAX
10.94% - VG Total International Stock Index Fund VGTSX
5.74% - VG Developed Markets Index Fund VDMIX
2.80% - VG Emerging Markets Stock Index Fund VEIEX

M* says this portfolio would hold:
1.68% - Cash
42.52% - U.S. Stock
20.97% - Foreign Stock
34.39% - Bonds
0.44% - Other
Avg. Expense Ratio is 0.19% and Yield is 2.99%

Proposal #2, called Consolidated Portfolio, would hold the following:
35.0% - VG Total Bond Market Index Fund VBTLX
26.0% - VG Diversified Equity Fund VDEQX
26.0% - VG Total Stock Market Index VTSAX
13.0% - VG Total International Stock Index VGTSX

M* says this portfolio would hold:
1.80% - Cash
48.57% - U.S. Stock
14.98% - Foreign Stock
34.40% - Bonds
0.25% - Other
Avg. Expense Ratio is 0.19% and Yield is 2.91%


What do you think? What would you do if you wanted this portfolio to grow over the next 3 to 5 years? Thanks for any suggestions.

[ats5g]

Hi Achiever51,

I'm curious as to your thought process behind having both VG Diversified Equity Fund VDEQX and VG Total Shock Market Index Fund (Admiral Shares) VTSAX. VDEQX is just a fund of actively managed funds, which, when all added together, make it a Large Blend fund, very similar to VTSAX. It just seems like your paying higher fees for the same performance. Also, all those managers in VDEQX make it a more or less a closet index fund.

Also, you probably don't need VGTSX, VDMIX, and VEIEX. VGTSX is a fund of funds already includes all the funds/regions/stocks in VDMIX and VEIEX.

So, you could probably simply by just using:

35.0% - VG Total Bond Market Index Fund VBTLX
52.0% - VG Total Stock Market Index VTSAX
13.0% - VG Total International Stock Index VGTSX

That's much easier, and your expense ratio would go down to 0.11%.

Since your pension in non-cola'd, you may want to consider adding VG Infl Protected Securities (VIPSX).

- Alec

[Achiever51]

Alec,
Thanks for the input. VDEQX was recommended by VG when I set up my portfolio last year, and I've questioned what it added to the mix. I will likely drop it from my holdings when I reallocate.

Good suggestion about VIPSX. I know my pension is covering a chunk of my expenses right now, but I look at what my dad's non-COLA'd pension covers now vs. when he retired 25 years ago and I know I need to do something to maintain it. Thanks for your suggestions!

[mb]

Nothing really wrong with any of the three portfolios but I would add some TIPS (ats5g made a good suggestion) and REITS.

Other asset classes that some like to have in their portfolio and that you may want to consider include small cap int'l, foreign bonds and precious metals and/or commodities. They may help a bit for those "worst case" scenarios that everyone on this forum likes to worry about. IRRC, Vanguard doesn't have any funds in the first two categories so they will probably not be part of a Vanguard recommendation.

With regard to equity allocation that is something that you need to decide based on your risk tolerance.

My suggestion would be to run FIRECALC with the different allocations and look at what would happen to the different portfolios starting in say 1929 and 1966. If you can handle those sort of losses then your equity allocation is OK. If not it is to high.

MB

[cute fuzzy bunny]

Man, they really want to sell that diversified equity fund, dont they?

I dont think I'd be a buyer of the TIPS fund right now. Maybe in a year or two or three.

[LOL!]

I agree with CFB on the TIPS and VIPSX. I would not purchase them now. They have dropped in value in the last month and will continue their path if stocks keep going up. With I bonds paying a ridiculous fixed rate of 0% plus a temporary inflation-indexed rate of about 4.8%, I think one should look for better deals out there than I bonds or TIPs.

With interest rates going nowhere but up, all bond funds including TIPS and VIPSX will have drops in NAV. One will want to be in shorter average maturities so that the drop is less a factor.

But whether to purchase them or not is certainly a hot topic now on some forums. So get educated before jumping in.

[cute fuzzy bunny]

I think I'd go a third into short term corporate, a third into total stock market, and a third into either the total international or the ftse ex-us. Rebalance every 1-2 years. With a pension covering most of your expenses, you dont really need to play it too conservative by keeping a ton of bonds or reaching for yield at the expense of principal.

The short term corp should stand up to what will eventually be rising interest rates. At least you wont see your NAV get hammered. Sucks to lose 10-15% on a bond fund.

Not real comfortable with a lot of emerging market right now either. If this recession continues for a while it'll land in the laps of the emerging market countries after a brief lag. Uh...alleged and possible recession I should say

[ats5g]

Since it's a tax deferred account, I think I'd go with Total International b/c:

1) it avoids any purchase/redemption fees that are on FTSE All-World Index [VFWIX] and VEIEX.

2) it's owns practically everything VFWIX owns [except Canada, eh] and is 0.13% cheaper.

If you have enough money to split Total International into admiral shares of Europe, Pacific, and EM index funds, I might go that route, but then that just makes it more complicated.

According to bloomberg, long term TIPS are yielding around 2% real. So that's not too bad for someone with a fixed pension at [possibly] serious inflation risk. Though, ST inv grad admiral [VFSUX] should have less negative correlation to inflation than VBLTX [int term bonds]. But we're probably splitting hairs here. As long as the bonds are high quality, you should be fine.

- Alec

[cute fuzzy bunny]

Dont you just have to buy something with "SUX" in the ticker symbol?

Owning those canadian stocks could be big if the tar sands become a major oil source now that we're well within the range of profitability.

Or if they finally go ahead and invade the US. We'd be defenseless. Minnesota, Maine and North Dakota would fall within hours.

I hate the purchase fee and the high rate on the ftse ex-us too, but it is a pretty nifty package for someone wanting a simple way to allocate to US and non-US equities.

[FIREd]

I agree with ats5g,

you don't need both VDEQX and VTSAX. I would keep only the latter. As far as international goes, if you look at the portfolio for VGTSX, it's already kinda VDMIX + VEIEX. So you don't need all three funds. If you want to go the easy way then choose VGTSX, if you want (like me) to have the ability to rebalance between developed and emerging markets then choose VDMIX + VEIEX.

[ats5g]

Quote:

Originally Posted by cute fuzzy bunny Dont you just have to buy something with "SUX" in the ticker symbol?

But just think of all the bad puns you could do.!!

Quote:

Owning those canadian stocks could be big if the tar sands become a major oil source now that we're well within the range of profitability. Or if they finally go ahead and invade the US. We'd be defenseless. Minnesota, Maine and North Dakota would fall within hours. I hate the purchase fee and the high rate on the ftse ex-us too, but it is a pretty nifty package for someone wanting a simple way to allocate to US and non-US equities.

Canada would only make up 0.70% of Achiever's portfolio if she went with VFWIX, so not that big of a difference there. If it was a taxable account, I'd say go with VFWIX or VEU because of the foreign tax credit and tax efficiency.

- Alec

[Achiever51]

Thanks everyone! Last year, when I was a newbie with Vanguard, I went with their recommendation on the Diversified Equity Fund but I definitely will switch out of it this year when I rebalance. I'll play around with FIRECalc and M* more this weekend to get a better feel for exactly where I want to go, but your recommendations provide a fine place to start!

Nice to have lots of options -- just don't want to lose too much of the seed corn to high fees and stupid decisions.....