Simple Vanguard Portfolio

[Senin]

What do you think about this simple portfolio--

33% VTSMX-- Total Stock market
33% VISGX-- Vanguard Small Cap Index
33% VFIIX-- Vanguard GNMA Bond funds

(I know, I don't like international funds-- lol)

My thoughts are....
the market might just take off for a hellava rally. If so, the total and small caps will ride the wave. If things turn south, VFIIX has withstood more than one Bear Market and will provide lots of funds for DCA at the bottom.

What do ya think?

 

[LOL!]

Basically, it's not a real portfolio. I find there are two main philosophies with asset allocation for passively-managed portfolios:

A. Use total market weights and index funds. This means Total US Stock Market, Total Int'l Stock Market, and Total US Bond Market. Add TIPS if you wish.

B. A small-cap and value-tilted portfolio. Same as A, but add more Small-Cap Value Index and Small-Cap Int'l Index. Add REITs if you like.

GNMA is a fine fund. The Total US Bond Index has plenty of GNMA bonds. I own the GNMA fund and have off & on over the years, but some folks do not like it because it has addiional risk that they believe you are not compensated for. See, e.g. Bogleheads :: View topic - Vanguard GNMA I would not own the GNMA fund as my only bond fund.

What do you think of this simple portfolio?

30% VTI
30% VXUS
20% BND
20% VCSH

Or this one:
15% VTI
15% VBR
15% VXUS
15% VSS
20% BND
20% VCSH

 

[WilliamG]

Too much stock for me as retired since 2000. We are 45/55 and mostly market allocation except for Wellesley lean for value/dividend paying stock and Wellington managers buying bonds and rebalancing.

33% Vanguard Total Indices (10% International)
33% Wellesley
33% Bonds (currently GNMA, Short Inv Grade, IBonds)

LOL, could you add names to your abbreviations?

 

[growing_older]

You are missing international and any bonds except GNMA. In effect this is a bet that the US will do better than international and that GNMA (and by inference housing) will perform well. You may be right, but why take the risk that you may be wrong.

If you really want to keep things simple with a 3 fund portfolio, then total stock, total international and total bond can do that for you. Or are you asking what we think of your sector bets? If you want to play the economy guessing game there are ways to get bigger rewards if you are right.

 

[jerome len]

Every portfolio above makes sense.......none are bad or expensive. For me, I'd have 10% cash, to spend or pump up investments if there is a good buying opportunity and 10% Vanguard mid cap index......it's done super over the years and one of my best investments. Good luck to all! Let me add that everyone say's you need an international fund.....I've had Vanguard for a few years and haven't made a penny with it......maybe, that's a good reason to hand on to it or buy it now......someone smarter than me has the answer to that.

 

[golfnut]

I am semi-retired i.e. looking for a new job - but not looking too hard. For 50% of our portfolio, we have the following in my 401K thru Vanguard:

35% Total Market Index fund.
15% Total Int'l Index fund.
25% Total Bond Index fund.
25% TIPS Fund.

Probably will convert our IRAS to same allocation down the road. I am soon to be 56 yrs. old and my young wife is 52 (for a reference).

Golfnut

 

[mickeyd]

What do ya think?

I'd consider exchanging the GNMA fund for TBM and go with SC value instead of SC. Don't know why you dislike International, but I'd read up on that part and think about the long term aspects of it.

 

[jebmke]

Every portfolio above makes sense.......none are bad or expensive. For me, I'd have 10% cash, to spend or pump up investments if there is a good buying opportunity and 10% Vanguard mid cap index......it's done super over the years and one of my best investments. Good luck to all! Let me add that everyone say's you need an international fund.....I've had Vanguard for a few years and haven't made a penny with it......maybe, that's a good reason to hand on to it or buy it now......someone smarter than me has the answer to that.

What is "a few years'? I have been in their European Stock fund since it opened -- has done relatively well. I think I've had it over 20 years though. The Pacific fund, which I don't own, hasn't fared as well.

 

[clifp]

What do you think about this simple portfolio--

33% VTSMX-- Total Stock market
33% VISGX-- Vanguard Small Cap Index
33% VFIIX-- Vanguard GNMA Bond funds

(I know, I don't like international funds-- lol)

My thoughts are....
the market might just take off for a hellava rally. If so, the total and small caps will ride the wave. If things turn south, VFIIX has withstood more than one Bear Market and will provide lots of funds for DCA at the bottom.

Basically, it's not a real portfolio. I find there are two main philosophies with asset allocation for passively-managed portfolios:

A. Use total market weights and index funds. This means Total US Stock Market, Total Int'l Stock Market, and Total US Bond Market. Add TIPS if you wish.

I disagree I think it is fine, if somewhat unbalanced portfolio.

Historically, the GNMA fund has out performed total bond fund, by a respectable margin 30 to 80 basis points over 1,3,5,and 10 year periods. It does with the same risk Beta of 1.01 vs 1.00. Currently it has higher yield. 3.32% vs 2.55%, with a shorter maturity and average maturity than total bond meaning it should be less sensitive to a rise in interest rates. I own a few individual bonds, but the GNMA fund is my only diversified bond fund.

Comparing Vanguard Small cap to Vanguard International is somewhat more controversial, but if you use Vanguards comparison tool. You'll see that risk is slightly less for the Small Cap than Total International Index, with performance substantially higher 10.06% vs 6.45% over 10 years and a particularly wide gap this year.

Having said that I'd be inclined to have more exposure to international equities, either directly or indirectly via Large Cap US Firms. The PE ratio of the Small cap fund is >33, which is scary in my view,but then I am more of a value guy.

My other comment is at current interest rates, I don't think that GNMA will provide lots of cash for rebalancing, much of the return for bonds funds over the last decade has been from NAV appreciation due to lower interest rates, in the case of GNMA that is from <$10 to $11. The upside potential of bonds fund is limited, but I do agree the GNMA fund has withstood many bear markets.

Obviously past performance...yada yada.

 

[easysurfer]

What do you think about this simple portfolio--

33% VTSMX-- Total Stock market
33% VISGX-- Vanguard Small Cap Index
33% VFIIX-- Vanguard GNMA Bond funds

(I know, I don't like international funds-- lol)

My thoughts are....
the market might just take off for a hellava rally. If so, the total and small caps will ride the wave. If things turn south, VFIIX has withstood more than one Bear Market and will provide lots of funds for DCA at the bottom.

What do ya think?

Seems like you prefer small cap over international as VTSMX already has some small cap in it. My own personal preference would be Total Stock, Total International Stock, Total Bond and a Money Market for some cash and then play around with the percentages until you find what feels right.

But as I said, it really is a personal choice.

 

[arebelspy]

My assets are more heavily weighted towards real estate right now, and thats where I'm directing most of my investments right now as well, but I'm shooting for my eventual AA to be something like 65/35 equities/bonds as follows: 30% Wellesley, 17% Total Bond Market, 26% International Equity Index, 27% Total Stock Market. Not too different than many posted here, I suppose, besides maybe a bit more in international. I think most of us are fairly "boring" investors.

Suits me just fine.

 

[LOL!]

LOL, could you add names to your abbreviations?

The names were already given. The first group is portfolio A; the second portfolio B. VCSH is Vanguard Short-term Corporate Bond index. I prefer it to cash or a money market fund.

 

[Senin]

Great responses. I learned a lot.

My view on international is that they will always follow the US. Sure, you might get one country that all of sudden explodes, but for the most part, I think intl are the tail being wagged by the US. And definitely not as stable.

I like the Total, because that is "all in". Then I want something that is a driver. I think that small caps will lead the way when we finally start to recover from this recession. And the GNMA are my safety net.

Let's face it, we are all speculating. No body know what the future will bring. We can only judge by what has happened in the past. And we do our best to try to make the most money.

Lots of you guys outlined good basic portfolios that pretty much covered the market. That is great.

Thank you.

 

[clifp]

Great responses. I learned a lot.

My view on international is that they will always follow the US. Sure, you might get one country that all of sudden explodes, but for the most part, I think intl are the tail being wagged by the US. And definitely not as stable.

.

Lots of you guys outlined good basic portfolios that pretty much covered the market. That is great.

Thank you.

I often learn lot doing a research for these posts. In particular I was surprise just to see how volatile the total international stock market fund is. While I don't think it is true going forward that international necessarily will follow the US. I do think there is a good reason that Vanguard classifies the international fund a 5 on 1-5 risk scale.

If you look at this chart comparing total stock market to total international stock market. You'll see that while delivering slightly higher performance the US market the international fund, is much more of a roller coaster.

Now there is probably good reasons to have a separate international investment. Still if you are a conservative investor, who lost lots of sleep in 2008 and were tempted and/or bailed out of stocks during the crash, you may want to rethink having much more than 10% of your assets in international stocks. The fund (as well as most other international funds) dropped from 20 to 8 during the crash.

 

[arebelspy]

I often learn lot doing a research for these posts. In particular I was surprise just to see how volatile the total international stock market fund is. While I don't think it is true going forward that international necessarily will follow the US. I do think there is a good reason that Vanguard classifies the international fund a 5 on 1-5 risk scale.

If you look at this chart comparing total stock market to total international stock market. You'll see that while delivering slightly higher performance the US market the international fund, is much more of a roller coaster.

Now there is probably good reasons to have a separate international investment. Still if you are a conservative investor, who lost lots of sleep in 2008 and were tempted and/or bailed out of stocks during the crash, you may want to rethink having much more than 10% of your assets in international stocks. The fund (as well as most other international funds) dropped from 20 to 8 during the crash.

Past returns, etc etc.

Though it is a good point. I probably had more international than most posting here, and in my defense, I'm fairly young, so I'm okay having more in international with that volatility due to my longer timeframe. It could very well be wise though to balance out of international at the same time I balance towards more bonds.

Thanks for the insight.

 

[easysurfer]

I think in the years that internationals outpace domestic and if you feel like "man I could have had a V-8" by investing in internationals, then you might want to invest in them. Otherwise, if you feel they are not your cup of tea, that's okay too. I suppose the same can be said for deciding on being a passive or active investor and other asset clases (for example, real estate, precious metals).

For me, I would have the V-8 feeling missing out on internationals. But don't mind at all not being an active investor and staying away from real estate and metals.

 

[Ed_The_Gypsy]

Past returns, etc etc.

Though it is a good point. I probably had more international than most posting here, and in my defense, I'm fairly young, so I'm okay having more in international with that volatility due to my longer timeframe. It could very well be wise though to balance out of international at the same time I balance towards more bonds.

Thanks for the insight.

My AA is 50/50 US/international equities. I have a very small position in bond funds, but also 50/50 US/international. I rebalance maybe once a year, maybe every two years. I am in my 60's. Although I have no plans to change this allocation, I might change my mind at some point. It has worked well for me so far.

 

[GregLee]

33% VISGX-- Vanguard Small Cap Index
...
My thoughts are....
the market might just take off for a hellava rally.

My modest portfolio has 68% in a small cap mutual fund, so I sure hope you're right about that rally. (There's no need for me to worry about volatility or cashing in soon, so that's why I'm comfortable with some risk. I'm not recommending this for others.)

 

[mathjak107]

the portfolio really has to revolve around your pucker factor for risk,then your goals. age may really not play to much of a part in in.

while most brokerages and asset allocation charts go by age that is very very wrong in my opinion.

a twenty year old who panics and loses money every down turn shouldnt be in such an agressive mix regardless of age.

on the other hand even a 65 year old has money that wont be used to eat for 15-30 years. if that 65 year old has no problem sleeping or issues with risk he can go as aggressive as he likes.

15-30 years will put the odds in their favor they will never sell at a loss. perhaps that 65 year old has a pension and other inome too.

brokerages and advisors really have to work around peoples risk levels better and forget the age thing.

100 less your age is much cheaper even if its wrong thinking.

there are some very good profiling questionaires i saw offered for sale to brokerages .they really do a decent job of evaluating ones pucker factor. but they arent cheap to buy so they arent used much .

 

[DblDoc]

there are some very good profiling questionaires i saw offered for sale to brokerages .they really do a decent job of evaluating ones pucker factor. but they arent cheap to buy so they arent used much .

Unfortunately I think those intellectual exercises don't substitute well for the emotional exercise of going through a bear market. We sure saw a lot of posters selling out of stocks when the &^% was hitting the fan - and again with the recent correction.

DD

 

[mathjak107]

exactley. thats why if i was an advisor i would start my 20 year old off not at 80% stock but perhaps 30%. let them see how they feel and want to react. then if they can stand it have them increase a little bit at at a time until they hit their pucker factor.

 

[Chuckanut]

The problem with selling all when the market corrects is that you have to know when to get back in. So, that is two calls - one to get out, a second to get in. Given the poor record of most market timers, I doubt if I can do two calls like that, consistently enough, to protect my assets and make money. I guess that is why I am leaning to a simple portfolio and a simple yearly rebalancing. Otherwise, I might outsmart myself.

 

[easysurfer]

The problem with selling all when the market corrects is that you have to know when to get back in. So, that is two calls - one to get out, a second to get in. Given the poor record of most market timers, I doubt if I can do two calls like that, consistently enough, to protect my assets and make money. I guess that is why I am leaning to a simple portfolio and a simple yearly rebalancing. Otherwise, I might outsmart myself.

Makes total sense to me. Also, what asset allocation you have, when you rebalance, you have control over. When the market corrects and rebounds you do not.

 

[mathjak107]

if you missed the 10 best days in the last 20 years you gave up 70% of the gains. those days were very close to market bottoms when odds are you would not have gotten back in yet if you bailed out.

 

[DallasGuy]

if you missed the 10 best days in the last 20 years you gave up 70% of the gains. those days were very close to market bottoms when odds are you would not have gotten back in yet if you bailed out.

I'm guessing the majority of people that bailed out would have bailed out long before the market hit bottom. For those that bailed out, taking part in the biggest days don't necessarily help them that much because they didn't lose as much. If you stay in and participate in the big days near the market bottom, the market only gains back part of your losses. So that argument doesn't convince me to stay in the market all of the time.