soon to be portfolio

[PJ03]

Hey guys, I'd like to know what your thoughts are on what I'm thinking after doing a little reading and learning.
First, from what I've read I'm a fairly mellow guy when it comes to investing and I will elect to choose a 60/40 Stock bonds mix within a "slice & dice portfolio based on the MPT. I think Im able to sleep with this mix.

Here's what I've come up with.

Stocks
S&P 500 Index.           VFINX  10%
US Large value.           VUVLX 10%
US small.                     VISGX 10%
US small value             VISVX  10%
International Large      VTRIX  10%
International small       FSCOX 10%  (Can't get into VINEX)

Bonds.
Short term.                  VFSTX  20%
Short term bond index. VBISX  20%

If you notice I don't have any real estate in the above, this is because I'm quite heavy with real estate at the moment but as time goes by my plan is to  maybe add a REIT with about 8% and rebalance the remaining stocks to 8% keeping a 60/40 split.
The above portfolio would be in a taxable account, I have about $100k in cap losses I could use to offset any taxable gains i may have from the above.

The overall plan is to invest in the above using the DCA method over the next few years, if my plan goes as planned I should be retired in about 5 to 8 years with a SWR of about 4%.
I'd love to hear from you experts that read my first post, how's my thinking, hows my schooling.
Needless to say, I'm still very early in learning all there is to know about investing but thanks to some of you I think i'm on my way.

 

[justin]

Re: soon to be portfoloi

Wow! I just finished setting up my target portfolio allocations too. My allocations are amazingly similar to yours. I had to pick a few different funds due to my 401k options being limited (Total Market/Extended Market combo instead of SP500 index). I went with international as 50% of my total equities (instead of your 33% international allocation). My international allocation consists of the Int'l value VTRIX, plus a mix of Emerging Mkts/Pacific Index/Total Int'l index. I'm 100% equities, so no bonds for me. Overall though, this allocation is pretty much what I came up with - balanced but leaning towards small and value with a significant international allocation.

I'm planning on doing just what you are doing to establish my portfolio positions - DCA'ing into the funds over the next few years.

to develop my portfolio allocation plan, I have read "the books" (4 pillars, intelligent asset allocator, Bogle Common sense on Mutual funds) and studied numerous "model portfolios" by Bogle, Bernstein, and many other clever folks. Looking at the historical returns and correlation, I feel like it is a pretty good allocation. Simple, sweet and (hopefully) effective. With your 40% allocated to short term bonds, your volatility should be significantly dampened so you can sleep at night.

I opted not to put a small portion in REITs or commodities/precious metals. Part of it is fear of buying into the currently "hot" sectors. Plus, the boost in returns due to adding a 3-5% allocation would be nominal. At some point in the future when I have a large enough nest egg, I may add an allocation to a REIT and/or commodities/PM fund.

Good job on setting up this allocation. It sound like you have a concrete goal in mind (ER in 5-8 years) and this plan should do the trick.

 

[PJ03]

Hey Justin, thank you for the reply.
I started reading the coffeehouse book then four pillars then Bogles common sense, now I'm reading a few others, but have a ways to go before I can say I really know all that I'm talking about.
I think my allocations are close to the intended market but could be tweaked a little by using funds other than vanguard, I'm hoping some of the guys on here can steer my in the right direction.
Best of luck to you in your plan.

 

[justin]

By the way, it's "justin" (don't worry happens to me all the time )

I had a hard time keeping my portfolio allocation to just 9 funds. In the end, I was trying for a balance between simplicity and flexibility to make small strategic bets in the future by altering allocation percentages slightly and temporarily. If you are lucky, you may be able to tweak your allocations and get a little better return, unless of course, you tweak in the wrong direction.

If you want passive index funds with low costs, then Vanguard is probably your best bet. Others have their favorites too, but the list is pretty short!

 

[NYCGuy]

PJ,

Will you do strict rebalancing to these percentages? If so, at what frequency? In addition to measuring performance will you also measure correlation on an ongoing basis? Will you rebalance based on changes in correlation? What is your expect return? What is your expected volatiility?

 

[dex]

PJ,
What are your goals? It helps to know where you are in the life cycle.

 

[PJ03]

I'll try to answer as many questions as possible. Rebalance, well I'm thinking of a 30% mark on any allocation. I would buy more instead of selling to rebalance due to tax issues.
Expected rate, I would be very happy with a 10% but would expect between 8 and 11% and would be taking between 3.5 and 4% SWR when the time arrived.
Goals. to have  about 2 mil invested by retirement and not be afraid of letting my money stay in the market.
Do a few things that I like, more rock climbing, hiking, do a little Architectural drawing, I’m a custom home builder and I think I can do better than most Architects! I’m getting off track.
Those funds are close to what I will buy into, they are a little off but I’m still learning, was hoping that some of the old school would chime in.
pat

 

[Cut-Throat]

I think you are on the right track. If that is the portfolio that you've decided on, then stick with it. If you give into the temptation every few years - "Maybe I should have some commodities or Foreign Bonds etc.e tc." - you will probably be buying high and selling low.

Stay the course will be the best plan.

 

[PJ03]

thanks cut throat.
I will stick with the 60/40 split but I may change one or two of the funds if Im able to find something closer to what Im looking for. I think the US small and small value funds are too close on MStars xray. I'd like to get something from DFA but one must go through an Adviser to buy anything from them.

I think you are on the right track. If that is the portfolio that you've decided on, then stick with it.  If you give into the temptation every few years - "Maybe I should have some commodities or Foreign Bonds etc.e tc."  - you will probably be buying high and selling low.

Stay the course will be the best plan.

 

[tlg501]

For a little more diversification consider, a growth stock fund and for bonds consider a small percent in TIPS, I also added foreign bonds for more diversification.

 

[lswswein]

Hi PJ
Couple of things that came to my mind.

First of all about all this being in the taxable account. You might have to rethink how you are going to implement the Bond portfolio in the taxable account. You should look into Ibonds and TIPS. Because 4% of 2mil is 80K you might run out of the 100K losses you have very soon.

Also REITS and SV have high correlation. Think about them - remember Small Cap is less than 10% of the total mkt. Your port has 20% - you are overloading on them. This could be because of recent performance - make sure you will stay with the alloc when Small Cap severely underpeforms over a decade. Also Small Cap is volatile.

hope that was useful
-h

 

[PJ03]

Thanks for the input, I'm working on it !

Couple of things that came to my mind.

First of all about all this being in the taxable account. You might have to rethink how you are going to implement the Bond portfolio in the taxable account. You should look into Ibonds and TIPS. Because 4% of 2mil is 80K you might run out of the 100K losses you have very soon.

Also REITS and SV have high correlation. Think about them - remember Small Cap is less than 10% of the total mkt. Your port has 20% - you are overloading on them. This could be because of recent performance - make sure you will stay with the alloc when Small Cap severely underpeforms over a decade. Also Small Cap is volatile.

hope that was useful
-h