How many index ETFs are too many?

[gayl]

Last year I significantly decreased my trading and went (primarily) to index ETFs. But after posting once, I was met with a response of "an a partridge in a pear tree." This got me to wondering if I am overcomplicating my portfolio. So without going into how many I have, I wonder what others think.

 

[joylesshusband]

6

 

[gayl]

6

And they would be? (Guess I should have added that in the op)

 

[flintnational]

6 is the correct answer. 7 would be too many.

70% Stock allocation:

1 US Total Market Index
2 US Value Index
3 US Small Cap Value Index
4 International Total Mkt Index
5 Emerging Market Index

30% Bond allocation:

6 Short term bond index

 

[aaronc879]

6 is the correct answer.

70% Stock allocation:

1 US Total Market Index
2 US Value Index
3 US Small Cap Value Index
4 International Total Mkt Index
5 Emerging Market Index

30% Bond allocation:

6 Short term bond index

Too many.

1. US Total Stock Index
2. International Total Stock Index
3. Total Bond Index

% is variable based on risk tolerance and stage of life.

 

[flintnational]

Too many.

1. US Total Stock Index
2. International Total Stock Index
3. Total Bond Index

% is variable based on risk tolerance and stage of life.

If I add a REIT and commodity index, I can get the correct number up to 8.

 

[GoBears]

4:
60% stock allocation divided between US Total Stock Market Index (80%) and International Total Stock Index (20%).
40% bond allocation equally divided between Total Bond Index and Intermediate Term Corporate Bond Index.

When I retire, I will consolidate so all bond holdings are in the Total Bond Index.

Check out the Three Fund Portfolio thread on Bogleheads.org.

 

[pb4uski]

+1 I think that many of the biggie's target date funds can be used as a starting point.

Vanguard's target date funds include domestic equities, international equities, domestic bonds and international bonds.. so a minimum of 4 is a decent place to start (though I know some people would question the need for international bonds and would go with 3).

We have 9. Our core 7 cover domestic equities, international developed equities, emerging market equities, domestic investment-grade bonds, domestic high-yield bonds, international developed bonds and emerging market bonds.

The 8th is a pesky position in DW's taxable portfolio in a S&P 500 index fund that has appreciated so much that I don't sell it for tax reasons and the 9th is a Blackrock target date investment-grade bond fund when all our others are Bulletshares.

For purposes of the above I have considered any maturity date bond fund investments as 1.... IOW, if I hold multiple years of investment-grade Bulletshares I view them as 1 rather than 3 or 5 or however many there are.

 

[aja8888]

+1 I think that many of the biggie's target date funds can be used as a starting point.

Vanguard's target date funds include domestic equities, international equities, domestic bonds and international bonds.. so a minimum of 4 is a decent place to start (though I know some people would question the need for international bonds and would go with 3).

We have 9. Our core 7 cover domestic equities, international developed equities, emerging market equities, domestic investment-grade bonds, domestic high-yield bonds, international developed bonds and emerging market bonds.

The 8th is a pesky position in DW's taxable portfolio in a S&P 500 index fund that has appreciated so much that I don't sell it for tax reasons and the 9th is a Blackrock target date investment-grade bond fund when all our others are Bulletshares.

For purposes of the above I have considered any maturity date bond fund investments as 1.... IOW, if I hold multiple years of investment-grade Bulletshares I view them as 1 rather than 3 or 5 or however many there are.

pb, I am curious to know what your AA is with the 9 investments you list above. I am considering getting heavier in bonds as I am in my early 70's. Care to share this?

 

[easysurfer]

Too many.

1. US Total Stock Index
2. International Total Stock Index
3. Total Bond Index

% is variable based on risk tolerance and stage of life.

LIKE .

 

[OldShooter]

Last year I significantly decreased my trading and went (primarily) to index ETFs. But after posting once, I was met with a response of "an a partridge in a pear tree." This got me to wondering if I am overcomplicating my portfolio. So without going into how many I have, I wonder what others think.

What is your objective? If you don't know where you're going, any road will get you there.

For us, we are passive investors on the equity side. Vanguard World Index (VTWIX) suffices. There is no reason to have both a total US and a total international fund unless you want to adjust home country bias away from what the US market cap % is versus the total world market cap. IIRC it's been running 50-55%.

If you are someone who thinks they can call tops and bottoms at the sector level, you'll need one fund per sector that you like. Sectors can be geographical, based on company size, or based on line of business, like emerging market, large cap, and energy.

 

[kgtest]

For me ideally, 2...possibly 3, reality is more for me.

I hope in retirement to be simply at VTI, BOND

or possbily VUG, VOT, VBK until I get near the time I might need to re-allocate more convervatively to VTI (80), BOND (20).

In reality between DW and I we own 5. VBK, VOT, SCHG, SCHK, VHT.

*BOND can be substituted for your most tax efficient bond ETF.

Until I retire and rollover 401k/403b we are stuck with some index funds but have surprisingly decent options.

 

[gayl]

What is your objective? If you don't know where you're going, any road will get you there.

I'm changing from an active investor with 300+ trades a year to fewer trades (~15 last year) but did great. As to withdrawal rate, was somewhere around 1% and anticipate that will be the rate going forward until RMD

So I would like to simplify with capital appreciation as the primary objective

 

[OldShooter]

I'm changing from an active investor with 300+ trades a year to fewer trades (~15 last year) but did great. As to withdrawal rate, was somewhere around 1% and anticipate that will be the rate going forward until RMD

So I would like to simplify with capital appreciation as the primary objective

OK. That sounds reasonable. I would say one, VTWIX, plus whatever you want to do on the bond side.

We are not believers in bond funds, so I have no suggestions.

 

[pb4uski]

pb, I am curious to know what your AA is with the 9 investments you list above. I am considering getting heavier in bonds as I am in my early 70's. Care to share this?

	Base AA	US/Int'l		Target
Domestic Equities	60.0%	65.0%		39.0%
Int'l Equities		35.0%	85.0%	17.9%
Emerging Markets Equities			15.0%	3.2%
Domestic IG Bonds	35.0%	80.0%	85.0%	23.8%
Domestic HY Bonds			15.0%	4.2%
Int'l Bonds		20.0%	85.0%	6.0%
Emerging Market Bonds			15.0%	1.1%
Cash	5.0%			5.0%
				100.0%

Above is my target AA... based on an overall 60/35/5 plus a sprinkle of slice and dice.

Mind you that 2 of the 9 funds cited in my earlier post are unnecessary duplicates for the reasons that I described... but I have found an index fund to cover each asset class above.

I'll be the first to concede that I could probably fold the emerging markets equities and bonds into international and make things simpler. I could probably also fold the international bonds into domestic bonds without much detriment. I include those 3 for a bit of diversification and entertainment value.

 

[aja8888]

	Base AA	US/Int'l		Target
Domestic Equities	60.0%	65.0%		39.0%
Int'l Equities		35.0%	85.0%	17.9%
Emerging Markets Equities			15.0%	3.2%
Domestic IG Bonds	35.0%	80.0%	85.0%	23.8%
Domestic HY Bonds			15.0%	4.2%
Int'l Bonds		20.0%	85.0%	6.0%
Emerging Market Bonds			15.0%	1.1%
Cash	5.0%			5.0%
				100.0%

Above is my target AA... based on an overall 60/35/5 plus a sprinkle of slice and dice.

Mind you that 2 of the 9 funds cited in my earlier post are unnecessary duplicates for the reasons that I described... but I have found an index fund to cover each asset class above.

I'll be the first to concede that I could probably fold the emerging markets equities and bonds into international and make things simpler. I could probably also fold the international bonds into domestic bonds without much detriment. I include those 3 for a bit of diversification and entertainment value.

Thanks, that gives me some food for thought as I need to move in the direction of less equities and more fixed income. I have been hovering about 70/20/10 with very little international equities or bonds.

 

[joylesshusband]

And they would be? (Guess I should have added that in the op)

1. Total stock market (VTI)
2. FTSE Developed Markets (VEA)
3. FTSE Emerging Markets (VWO)
4. FTSE All-World ex-US Small-Cap (VSS) for a tilt
5. Intermediate-Term Bond (BIV)

 

[Ed B]

Mr Owl says tha-reeeeee

 

[gayl]

Ok. So I'm not that far off with ETFs (3)

Total stock market 68%
International index 16%
Fixed income (1 + CDs) 14%
Just cash 2%

Retirements great

 

[mpeirce]

Ok. So I'm not that far off with ETFs (3)

Total stock market 68%
International index 16%
Fixed income (1 + CDs) 14%
Just cash 2%

Similar to what I have. The majority of my investments are in a total market index fund, but for international I have a few. While I'm good with simply using the total market for my domestic investments, I haven't found the same with international. I have a few different international funds to capture a variety of approaches to International investing.

I don't really see a useful distinction for me between ETF and traditional MFs. I get the tMFs if I can and the ETFs if the account only has these available to me .

Retirements great

Darn right!

 

[OldShooter]

... I don't really see a useful distinction for me between ETF and traditional MFs. I get the tMFs if I can and the ETFs if the account only has these available to me . ...

+1

ETFs were created primarily to give the traditional brokerage houses a way to stanch the flow of assets out of their customer accounts and into accounts at the traditional MF vendors. As a secondary benefit, they were designed to generate commission income by making it possible for foolish people to gamble with them. Gambling is not of the slightest interest to me, and the industry has now changed so we don't have to transfer money to buy traditional MFs.

Yes, there are tiny pros and cons in comparing the two vehicles but to a long term investor, IMO they are essentially equivalent. Like @mpeirce, I believe that favoring conventional MFs is the right strategy for us.

 

[gayl]

Lower expense ratios. VTWIX = 0.19% / SCHB = 0.03% / SCHF = 0.06%. But it's really about comfort zone

 

[OldShooter]

Lower expense ratios. VTWIX = 0.19% / SCHB = 0.03% / SCHF = 0.06%. But it's really about comfort zone

To a degree, but for example FSTVX is 4bps. For ETFs you also lose to the extent of the spread and, in market tumult, there are various pathologies that can become costly too.

The other thing about fees these days is that all the vendors are slitting each other's throats, forcing fees down to levels that are probably unsustainable. So I don't project the current fees very many years into the future. Between these low fees, the continuing decline in customers wanting active management and the impact of the DOL fiduciary rule, we will probably see shakeouts among smaller firms. These will upset the fee applecart too.

Actually, the thing I like least about ETFs is the idea of the "Authorized Participant." (Who Are Authorized Participants? | ETF.com) There are a lot of nice words on that page and other nice words on other pages, but the bottom line is this: APs serve their own interests first, then the interests of the fund manager, and the only thing that the fund buyers and sellers get is whatever is left over. Years of management experience have taught me that all the disclaimers and nice words in the world are trumped by simply looking at the financial interests of the participants in a deal.

Another way of thinking about this is to remember the old poker rule: "if you are sitting at a table and don't know who the sucker is, it is you."