Portfolio Fund Allocations for Newbie to Market

[Jane_Doe]

Hi, all!

I’m Jane Doe, a new old member coming back to the fold and hoping to get some good advice and input on my small starter portfolio.

So that you know where I am coming from with my background please see where I have posted a “Hello, I am” thread link here:

https://www.early-retirement.org/forums/f26/new-old-member-back-and-ready-to-go-104329.html

[If you don’t want to read the long version - Cliff Notes Version:
DH semi-retired, 67. collecting ss early, on medicare/VA healthcare
Me,59, poss early retire - currently collecting unemployment (and ACA of all things!)
Own a commercial strip mall and live off income, husband maintains/manages
Wish to retire and travel/visit far away family]


--->Thanks in advance for any comments and guidance. I truly appreciate it!

I*am*curious*as*to*your*opinion*if*this*seems*likea*good*balance*for*us.

Our*criteria is 1) safe 2) on*conservative*side & 3) no*international*(personal*opinion)

This is due to our nature (esp DH when market tanks) and that over the past 40 years, whenever we have bought into stock investments it tanked, and any RE investment we made was great.

Our plan is to invest $100,000 in Vanguard funds as a starter portfolio that will give us a feel for being in the market. Then, when we sell our commercial property, we can follow that for our final retirement income portfolio.

[Cutting and pasting below so sorry for any weird formatting]

NOTE:we*do*have*$20,000cash*reserve*in*cd's*at*around*1.2%**
*already*so*the*portfolio*money*is*cushioned
by*the*separate*savings.***I*would*plan*if*we*later*on
have*around*a*million,*keeping*about*150-200k*set
aside*in*safe*liquid*as*draw*down*money*with*a*4-5%
draw.* Reinvest earnings and rebalance annually

only*other*income*at*retirement*is*about*18,000 in soc*sec
total*for*both*of*us.**we*always*invested*in*real*estate*a
and*were*self*employed*-*paid*least*amount*/*no*ss
when*possible.**never*did*think*I*would*collect*haha

breakdown**100K*for*now/*hoping*for*800k-1.2m *later*on

VUSTX*******15%* * * VG long Term Treasury Inv* * * * bond
VWESX******15%* * * VG Long Term Bond * * * * bond
VGSLX********20%* * * VG Real Estate Index Admiral* RE
VWINX* * * * 20%* * * VG Wellesley Income Inv* * * * *stock/bond
VWNFX* * * 15%* * * VG Windsor II Inv* * * * * * * * * * stock/bond
VMGAX* * * * 5%* * * VG Mega Cap * * * stock
VDIGX* * * * 10%* * * VG Dividend Growth Inv* * * * * stock

23%*corp bond, 21% treasuries,* 20%* RE* and 36% stock

So, I have been using https://www.portfoliovisualizer.com/backtest-portfolio
for scenarios, performance and to check worst down periods

It seems to work on paper.* What are your thoughts?*

I appreciate your input,* Thanks

PS I can't seem to fix the above but promise not to cut and paste in future!

 

[HI Bill]

Welcome back! There's a lot of overlap in your investments. For example, VWINX includes 39% stocks, 59% bonds, and 1.1% short term reserves, and you hold VWESX. Some of these MFs have high expense ratios (0.39% for VWNFX). I'd consider having VG do a one-time conversion of your MFs to ETFs, then considering any potential tax implications, consider something like VG's 'Diversified 4-Fund ETF portfolio: BND, BNDX, VTI, and VXUS (If you don't want international, you could just go with BND and VTI. Many folks here LOVE Wellesley and Windsor II, but I watched Windsor and Wellington languish for too many years to want those. Keep an eye on expense ratios. In my seven ETFs, my highest ER is 0.05%.

 

[Jane_Doe]

cool

thanks, bill

I will look into this. no tax issues as in ira's
basis should be even for when I buy.

I get free consult with vanguard and will ask them.

I like the portfolio backtest calculations so I can run scenarios in there and get a better feel.

on my homework list:

etf vs mm pros and cons

Jane

 

[OldShooter]

Way too complicated IMO. Investing should be simple and boring. DW and I have well over 10x your proposed portfolio amount and far fewer funds.

I suggest that you read "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ After that, "The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

For internet reading, start with https://www.bogleheads.org/wiki/Getting_started Don't spend time on the forums right away, though, as they can get a little crazy especially for a new investor.

Understand, too, that Portfolio Visualizer backtesting tells you nothing about the future. Fine tuning a complicated portfolio a few percent at a time by looking in the rear-view mirror is a waste of time. It's fun, though. I get that.

 

[Jane_Doe]

thanks old shooter

Thanks for your advice. I will rethink and dust off my bookshelf I'm pretty sure I read one or both of those about 12 years ago.

Agree on the looking back. and the way things are now it's a bit more of a crap shoot than ever.

that's why I am asking input from you all. in a couple/few years when we hope to have around 1m from sale of property, I hope to feel much more comfortable by then and hopefully can live comfortably on that

I am making a list of homework to study up again. very rusty and quite different from 2005!

Jane

 

[targatom2019]

don't get too complicated, just do total US market, total bond, CD and if yo are conservative then don't go more than 35% in equities. What will your annual withdrawal rate be per year ?

 

[Jane_Doe]

hey Tom

Thanks for your input. I like that idea. Certainly simpler. I think I have been over thinking the process.

BTW no one has commented on my wanting 20%in Real Estate fund
Our personal RE holdings are a good part of how we have successfully invested and has been a comfort zone. Now that all the corona is causing an avalanche in retail and restaurants I am not so sure..... maybe 10% as a hedge?

and on withdrawals, Looking at 4% probably, but I plan on doing cert ladder of about three years expenses separately(not figured in the portfolio) for draws and be able to be flexible on bad years. We also can trim our budget if need be.

Still in the planning/learning ins and outs. I was just on the boglehead forum and will be gleaning what I can from there.

Thanks again to you and other folks taking time and interest to help me figure out a good path.

Jane

 

[pb4uski]

According to this, Total Stock already includes 3.5% REITs.

I didn't comment on the OP because all the * instead of spaces was annoying.

 

[OldShooter]

Thanks for your input. I like that idea. Certainly simpler. ...

Here is simple: 90% of our equity tranche is in VTWAX and 90% of our fixed income tranche is in one TIPS issue.

ref your OP, IMO avoiding international is not a good idea. Here are a couple of links to ponder:

Vanguard " Global equity investing:The benefits of diversification and sizing your allocation" https://www.vanguard.com/pdf/ISGGEB.pdf

Ken French on International: https://famafrench.dimensional.com/videos/home-bias.aspx
​

If you are determined to avoid international, just substitute a low cost US total market fund like VTSAX for VTWAX and you are done.

 

[Jane_Doe]

PB - my apologies for the format issue and all of the asterisks! Cut and pasted from a saved document. I will not be doing that again! also did not know there's reits in other parts of my portfolio. need to dig / look further at each fund's allocation. question on are reits a good choice for my hedge since I am low in equities.

Old Shooter - I will look at your links. really appreciate the heads up and I will try and be more open to international. thanks!

Thanks to you both for input! and HAPPY FATHER's DAY!

Jane

 

[target2019]

BTW no one has commented on my wanting 20%in Real Estate fund
Our personal RE holdings are a good part of how we have successfully invested and has been a comfort zone. Now that all the corona is causing an avalanche in retail and restaurants I am not so sure..... maybe 10% as a hedge?

I hold VGSLX REIT index in my Roth account, about 5% being the target. Your 10% target appears healthy enough.

 

[Jane_Doe]

Thanks, target!

 

[catotx]

Our plan is to invest $100,000 in Vanguard funds as a starter portfolio that will give us a feel for being in the market. Then, when we sell our commercial property, we can follow that for our final retirement income portfolio.

VUSTX*******15%* * * VG long Term Treasury Inv* * * * bond
VWESX******15%* * * VG Long Term Bond * * * * bond
VGSLX********20%* * * VG Real Estate Index Admiral* RE
VWINX* * * * 20%* * * VG Wellesley Income Inv* * * * *stock/bond
VWNFX* * * 15%* * * VG Windsor II Inv* * * * * * * * * * stock/bond
VMGAX* * * * 5%* * * VG Mega Cap * * * stock
VDIGX* * * * 10%* * * VG Dividend Growth Inv* * * * * stock

23%*corp bond, 21% treasuries,* 20%* RE* and 36% stock

I agree with earlier comments that you can simplify the portfolio.

It looks like your target equity/bond is about 55/45. Given that you already have a strip mall, I would not add the REIT fund.

You must have read about the "ballast" effect of long term treasury (LTT) bonds on Bogleheads but I would caution you that LTT is very volatile (I have about 4% in LTT in my 65/35 portfolio).

Personally, I prefer bonds to act as a counterweight to equities, so I do not like funds with corporate bonds in them (because corporate bonds, especially the long term ones, have equity-like characteristics). So I like to stick to treasury only bond funds.

Here's my suggestion

VG Total Stock Market 55%
VG Intermediate Term Treasury 45%

Or

VG Total Stock Market 70%
VG Long Term Treasury 30%

When you sell the strip mall, you can think about adding the REIT fund, maybe take 10% out from the TSM fund to put into the REIT fund. Eg.

VG Total Stock Market 45%
VG REIT Index 10%
VG Intermediate Term Treasury 45%

 

[lordjust]

Welcome back! There's a lot of overlap in your investments. For example, VWINX includes 39% stocks, 59% bonds, and 1.1% short term reserves, and you hold VWESX. Some of these MFs have high expense ratios (0.39% for VWNFX). I'd consider having VG do a one-time conversion of your MFs to ETFs, then considering any potential tax implications, consider something like VG's 'Diversified 4-Fund ETF portfolio: BND, BNDX, VTI, and VXUS (If you don't want international, you could just go with BND and VTI. Many folks here LOVE Wellesley and Windsor II, but I watched Windsor and Wellington languish for too many years to want those. Keep an eye on expense ratios. In my seven ETFs, my highest ER is 0.05%.

When did Wellington languish? I have been looking at it lately as an option but am currently in vbiax.

 

[HI Bill]

When did Wellington languish? I have been looking at it lately as an option but am currently in vbiax.

1987-1994 was basically flat overall. I had seen little/no appreciation for a lot of years, and since I was decades from retirement, did not need/want bonds. Wellington: "Founded in 1929, Wellington™ Fund is Vanguard’s oldest mutual fund and the nation’s oldest balanced fund. It offers exposure to stocks (about two-thirds of the portfolio) and bonds (one-third of the portfolio). Another key attribute is broad diversification—the fund invests in stocks and bonds across all economic sectors. " The bond component was a real drag on growth compared to an all-equity portfolio, which is what I subsequently maintained up until FIRE - 2 years.

 

[OldShooter]

Just a comment on blended funds like Wellington whose equity tranche is not based on an index: They are nearly impossible to benchmark.

When the red Kool-Aid and the green Kool-Aid are mixed in a glass, you really can't know how the color was arrived at. Same problem with mixing the results of an equity portfolio and a bond portfolio. IMO these funds are fine for a fire-and-forget investor who has no interest in tracking the performance of the managers he/she has hired but for someone who wants to pay attention, balanced funds should be avoided.

Actually, a version of this problem arises with the usual brokerage statement for an account with both equity and fixed income. The reported "account performance" is another glass of mysteriously colored Kool-Aid. Being lazy, I just got the FA for a nonprofit I am involved with to split the portfolio into two accounts -- equity and bond. Now it is armchair-easy to see how he is doing.

 

[lordjust]

1987-1994 was basically flat overall. I had seen little/no appreciation for a lot of years, and since I was decades from retirement, did not need/want bonds. Wellington: "Founded in 1929, Wellington™ Fund is Vanguard’s oldest mutual fund and the nation’s oldest balanced fund. It offers exposure to stocks (about two-thirds of the portfolio) and bonds (one-third of the portfolio). Another key attribute is broad diversification—the fund invests in stocks and bonds across all economic sectors. " The bond component was a real drag on growth compared to an all-equity portfolio, which is what I subsequently maintained up until FIRE - 2 years.

I see. I plan on FIRE'ing in the very near future hence my investigation into mixed funds. I also have a bad habit of selling and buying at the wrong times, another reason for my choice of a fund "FIRE and forget".

 

[Jane_Doe]

I agree with earlier comments that you can simplify the portfolio.

It looks like your target equity/bond is about 55/45. Given that you already have a strip mall, I would not add the REIT fund.

You must have read about the "ballast" effect of long term treasury (LTT) bonds on Bogleheads but I would caution you that LTT is very volatile (I have about 4% in LTT in my 65/35 portfolio).

Personally, I prefer bonds to act as a counterweight to equities, so I do not like funds with corporate bonds in them (because corporate bonds, especially the long term ones, have equity-like characteristics). So I like to stick to treasury only bond funds.

Here's my suggestion

VG Total Stock Market 55%
VG Intermediate Term Treasury 45%

Or

VG Total Stock Market 70%
VG Long Term Treasury 30%

When you sell the strip mall, you can think about adding the REIT fund, maybe take 10% out from the TSM fund to put into the REIT fund. Eg.

VG Total Stock Market 45%
VG REIT Index 10%
VG Intermediate Term Treasury 45%

Thanks for this analysis I am working on / brushing up after many years of not being able to even think about investing. Now that we are starting again to plan our retirement it's a bit daunting. I am reading on bogleheads forum, and not a real rush. We are starting with a mini porfolio of 75-100k but long term the goal is SELL our commercial rental property (hence the REIT higher than normal hedge) .

So for now we probably don't need much into REIT and since it's not a huge chunk of money until we sell the property, I am leaning toward a KISS like so many of you are suggesting.

I do apologize for delay in responding. House full of our "kids" plus grand baby from out of town so of course she is my priority

I'll be back online after the holiday

Jane

 

[Jane_Doe]

thanks again old shooter

Just a comment on blended funds like Wellington whose equity tranche is not based on an index: They are nearly impossible to benchmark.

When the red Kool-Aid and the green Kool-Aid are mixed in a glass, you really can't know how the color was arrived at. Same problem with mixing the results of an equity portfolio and a bond portfolio. IMO these funds are fine for a fire-and-forget investor who has no interest in tracking the performance of the managers he/she has hired but for someone who wants to pay attention, balanced funds should be avoided.

Actually, a version of this problem arises with the usual brokerage statement for an account with both equity and fixed income. The reported "account performance" is another glass of mysteriously colored Kool-Aid. Being lazy, I just got the FA for a nonprofit I am involved with to split the portfolio into two accounts -- equity and bond. Now it is armchair-easy to see how he is doing.

TY Old Shooter!

This makes sense. I am currently keeping money on hold a little longer and have a chunk that is stuck in transfer land so not ready but hopefully soon.

Plus our kids and new grandbaby in town visiting for the next week so enjoying some wonderful time, esp after being in corona limbo.....

Cheers
Jane

 

[Jane_Doe]

Lord Just,
Definitely food for thought. My DH used to be the OMG the sky is falling with stock market. I am the one planning our investment portfolio and it needs to be balanced enough for his comfort level. We will need equites of course but we will be on the conservative side so he can sleep at night.

Jane