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Would like your advice
Old 01-03-2008, 08:20 PM   #1
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Would like your advice

Vanguard’s Small Cap Value Index had a 1 year return of -7.07%. We have about 60k in it. The Value Index returned .09% for the year. We have 51k there. These 2 together are about 9% of our portfolio. Is this when I am supposed to do nothing, or would it make sense to move it into the Total Stock Market Index or into Wellington?

Also, we don’t have anything in Reits. Since that index fund is down 16% for 1 year, is this a good time to move some money into it?
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Old 01-03-2008, 08:51 PM   #2
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If your written asset allocation plan says that you need $75K in small cap value, then you need to buy more small cap value. If it says you need $50K in small cap value, then you need to sell small cap value.

Even though you may not have any specific REITs, you should note that your small cap value fund owns REITs. What does your written asset allocation plan say about REITs? Who knows if now is a good time to buy REITs? We can say that now is a better time than one year ago.
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Old 01-03-2008, 10:30 PM   #3
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What's the other 91% of your portfolio made up of?
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Old 01-04-2008, 08:56 AM   #4
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you need to know allocation before choosing funds and you need to know allocation before selling existing funds or buying new funds.

My allocation is 43% large cap domestic, 15% mid cap, 15% small cap domestic, 15% large cap foreign, 10% small cap foreign and 2% bonds.

I increase the bonds 1% every 6 months.

This allocation drives all decisions for what to buy, how much I should buy, when to sell and how much to sell.
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Old 01-04-2008, 09:28 AM   #5
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That interesting mechanism that has people running to sell when things go on sale and rushing to buy when things are marked up.

FWIW, I bought more SCV recently and nibbled at some REITS. I dont think either is cheap but at least they've fallen away from being ridiculously expensive.
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Old 01-04-2008, 09:36 AM   #6
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I'm personally snapping up VISVX right now as I need to get back to my target asset allocations. Like CFB - I think it isn't cheap but rather fairly priced.
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Old 01-05-2008, 07:51 PM   #7
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Thank you for your answers. I'm sorry to say I had not defined our desired allocation much beyond domestic and international stock funds, bonds and money market. I'm working on it now to further define where we are and where we need to be. My initial plan was 50/50 equities/bonds. CDs, TIPS and money market are included in the bonds. DH is 61 and I am 58 and will have no pension and no health benefits. Is 50/50 too conservative?

Another question. VG says in the portfolio watch wheel on the first page that we have 52.9% equities, 42.1 bonds and 4.2 short term reserves. When I add up my spreadsheet (I allocate balanced funds according to the VG description), I get different totals. What is the best way for me to find the accurate allocation for each fund?
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Old 01-05-2008, 10:44 PM   #8
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Best way to get current asset allocation is to use the Morningstar portfolio X-ray tool. Here is an asset allocation tutorial that may be helpful:
Asset allocation tutorial?
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Old 01-05-2008, 11:19 PM   #9
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Value went out of favor about 6 months ago.
I would get some of that money into Mid Cap Growth (VMGIX) and possiby Large cap index (VLCAX).
I think it's early for REITS, but keep an eye on them.
Of course, if these funds are in a taxable account you will need to figure what these swaps will do for or against you.
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Old 01-06-2008, 02:51 AM   #10
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JPatrick,

You're recommending market timing. Are you suggesting that you know more about where value / REITs should be priced than the rest of the market?

If so, I'd advise the evidence is strongly against you. To time the market, you have to be right on both buy and sell ends. To recommend growth right now.. you're already late to the party. When would you recommend to 'get out' of growth? When you read in the paper that Value is back in vogue? By then you're pretty late.

Instead of that monkey business (a loser's game), either:

1) Own the market by its capitalization (ie, TSM) and STICK WITH IT, or
2) Consider a tilt to value and/or small indexes, based on historical risk premia.

Of course, you need to make sure that you have decided on an asset allocation plan first that you can stick with. If changing conditions have you shifting in and out of sectors, you'll underperform in the long run unless you think you are so special you fall in the less than 5% of investors who can occasionally do so.

To the OP: If your plan calls for you to rebalance now, and that means buying SCV and REIT, thats what you do.
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Old 01-06-2008, 04:23 AM   #11
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Quote:
Originally Posted by cute fuzzy bunny View Post
That interesting mechanism that has people running to sell when things go on sale and rushing to buy when things are marked up.

FWIW, I bought more SCV recently and nibbled at some REITS. I dont think either is cheap but at least they've fallen away from being ridiculously expensive.


i have been buying icf (reits) over the last few weeks buying on the drops. ill never catch the bottom but with them down from their highs of around 50% id say we are closer to the bottom then the top.

you got to get into things a little early and then wait , thats how the big money is made. although with individual stocks it can be very risky as individual company risk can make or break the out come , funds will almost always have their day in the sun. if you wait until the class moves its usually to late for the big gains
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Old 01-06-2008, 08:57 AM   #12
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Quote:
Originally Posted by innova View Post
JPatrick,

You're recommending market timing. Are you suggesting that you know more about where value / REITs should be priced than the rest of the market?

If so, I'd advise the evidence is strongly against you. To time the market, you have to be right on both buy and sell ends. To recommend growth right now.. you're already late to the party. When would you recommend to 'get out' of growth? When you read in the paper that Value is back in vogue? By then you're pretty late.

Instead of that monkey business (a loser's game), either:

1) Own the market by its capitalization (ie, TSM) and STICK WITH IT, or
2) Consider a tilt to value and/or small indexes, based on historical risk premia.

Of course, you need to make sure that you have decided on an asset allocation plan first that you can stick with. If changing conditions have you shifting in and out of sectors, you'll underperform in the long run unless you think you are so special you fall in the less than 5% of investors who can occasionally do so.

To the OP: If your plan calls for you to rebalance now, and that means buying SCV and REIT, thats what you do.
I always try to avoid using the "timer" word around here, and I thought I had in my post above.
However, calling the process rebalancing works fine with me also.
The fact is that the performance of asset classes differ from year to year.
Take the good old 90's for example. In 92 "small value" ruled. Then 2 years of "foreign" followed by 4 years of "large growth" and then finally 2 years of small cap. Oh yes, we started that decade with bonds in favor.
So, the bottom line is, that if you were not represented generously in those sectors during those years your portfolio suffered.
No you don't need to watch CNBC or read a paper-just read your statement---OFTEN
Value clearly began to fail last Spring and was replaced on the leader board by large and midcap growth. Of course, foreign stocks, sectors, emerging, have been the real stars, but I was keeping my response to US funds.
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Old 01-06-2008, 11:22 AM   #13
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I rebalance to a SET allocation. I'm interested in buying more of whichever asset classes are down by selling some of any recent winners. That involves no forecasting. Other strategies do the same except they are, shall we say, over-rebalancing in anticipation of profitable market movements. The set allocation prevents my greed and many behavioral finance short-comings from influencing my investing. For me, that is better. Although I have enough dollars, I also have a wealth of experience in what didn't work. Do what suits you.
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