Rational Investing Portfolio, Bob Clyatt

[REWahoo]

Bob, nice to hear from you! Thanks for the updated info.

 

[deserat]

Bob, thanks for checking in! Still love the book and have the original edition. Have recommended it many times...

 

[ESRBob]

The Work Less Live More "Sandwich Portfolio" managed to eke out a .72% positive return in 2011. Funds, weights, returns and weighted return for 2011 are:

VFINX sp500 20% 1.89% 0.38%
VTMSX Txmgsmal 8% 1.22% 0.10%
VGTSX Tot Int' 6% -14.56% -0.87%
VINEX Int'l Explor 10% -19.74% -1.97%
VEIEX Emerging 6% -19.18% -1.15%
VBIIX Intmed Bond 30% 10.62% 3.19%
BEGBX Foreign Bond 11% 5.72% 0.63%
VGSIX Reit index 5% 8.47% 0.42%
Vmmxx Prime MM 4% 0.05% 0.00%

Total Weighted Return 0.72%



This portfolio closely tracks the full Rational Investment Portfolio in the book but can be done with 8 readily available mutual funds and has the added benefit of allowing me to personally calculate return (the sub-index returns in the more complex RIP Portfolio are done for me by a service when the book gets revised) International kinda got clobbered this year, but that's what slicers & dicers need to accept sometimes.

Returns for recent years since the book was published are:

2007 7.58%
2008 -20.34%
2009 23.10%
2010 13.36%
2011 0.72%

Hope everyone is having a great year! My ER avocation, sculpture, is finally starting to take off after 11 years; I have a new studio in the back yard, and enough galleries wanting any new work I can make that I am staying comfortably busy and even putting some $ in the bank this year.
Stay the course, it is well worth it.

 

[REWahoo]

Hey Bob! Nice to hear from you again.

 

[Focus]

I second that. Bob, your "Work Less, Live More" books remain among my favorites on the retirement shelf, and if I were to slice and dice, I'd follow your portfolio recommendation.

A question: If one wanted to stay entirely within Vanguard, would you say that a viable replacement for BEGBX Foreign Bond would be the new Vanguard Total International Bond Index Fund?

 

[W2R]

Bob, welcome back. It's great to get an update on how the "Sandwich Portfolio" did last year. BTW, I love your sculptures! You are a gifted artist.

 

[Chuckanut]

US Large Stocks Value Tilt 12%
US Small Stocks Value Tilt 8.5
International Large Stocks 5%
International Small Stocks 10%
Emerging Markets Stocks 6.5%
ST Corp Bonds/Money Market 4%
US Govt Bonds-Long 4%
Med-Term US Bonds 10%
Med Term Int Bonds 12%
GNMA Bonds 5%
High Yield Bonds 4%
Oil and Gas 3%
Market Neutral Hedge Fund 2%
Commodities 4%
Comm Real Estate 5%
Venture Cap/Private Equity 5%

All these funds make me think one is creating one's own Total World Everything Index fund. My 2 cents.

 

[simple girl]

Thanks for the update Bob and congrats on the sculpture!!!

 

[Nords]

Hope everyone is having a great year! My ER avocation, sculpture, is finally starting to take off after 11 years; I have a new studio in the back yard, and enough galleries wanting any new work I can make that I am staying comfortably busy and even putting some $ in the bank this year.
Stay the course, it is well worth it.

Thanks, Bob, I was wondering about your propane & electricity bills!

 

[ESRBob]

Nords, the electricity bills are definitely climbing -- doing my part to make the Northeast the next Florida. 45 degree sunny January days are pretty nice!
Actually the glass studio is fairly energy efficient with double panes and cellular pleated shades, but my main heating is from a wood pellet stove -- love it. Fill the hopper with 'rabbit food' (pressed sawdust I think), turn on the thermostat, and it feeds itself, starts and stops the fire etc all with a little help from electricity. Keeps the place warm round the clock in freezing weather with less than a bag a day ($4), supplemented with a Mitsubishi Split heat pump.

Kiln firings are another matter, but in principle the things coming out of the kiln get sold for a lot more than the cost of the clay and heat, so it's all good. Maybe $10-$15 per firing for an 9 cubic foot kiln? How does that compare to surfboard wax, suntan lotion and advils?

Bob

 

[Nords]

Maybe $10-$15 per firing for an 9 cubic foot kiln? How does that compare to surfboard wax, suntan lotion and advils?

Um, that'll last me at least six months if I stay out of the big waves and don't run into anything! But this year I need to invest in a 3mm neoprene high-neck long-sleeve top. Not enough body fat to survive those bitter 75-degree surf temps.

I really like the minimalist look of your studio's steel & glass design. I guess your spouse likes having her house back?

Check your e-mail-- I just sent you an update on the book sales. I'll post the report on the blog at 5 AM HST Wednesday (in about 13 hours).

 

[REattempt]

Thanks Bob...

Bob,

Thanks for the update...went looking for it today on your website, but 2011 isn't up there yet.

I've made the switch from an active advisor (.8% advisor + ave 1.1% funds) to a low cost advisor, passive index advisor (low fixed + .3% funds). Trying to figure out what rolling my own looks like.

I like your sandwich w/8 funds...but started thinking about the exposure to intermediate term bonds with our current rate environment.

I'm not into market timing, but it does seem to me, taking into account extreme circumstances seems prudent...

Any thoughts on how one might handle an intermediate term bond holding that could drop (post 2014) as rates rise?

 

[ejw93]

Hope everyone is having a great year! My ER avocation, sculpture, is finally starting to take off after 11 years; I have a new studio in the back yard, and enough galleries wanting any new work I can make that I am staying comfortably busy and even putting some $ in the bank this year.
Stay the course, it is well worth it.

I've been (mostly) replicating Bob's RIP inside my Roth account with the following funds/stocks/etfs... expenses are all less than 0.5% except where noted. The only pricey sectors are VC and Market Neutral...not sure why everyone thinks they need to beat a path to an 'advisors' door to assemble this portfolio:

US Large Stocks Value 12% VTV
US Small Stocks Value 8.5% VBR, IWN
International Large Stocks 5% VGK/VPL
International Small Stocks 10% SCZ
Emerging Markets Stocks 6.5% VWO
ST Corp Bonds/Money Market 4% VFSTX
US Govt Bonds-Long 4% VIPSX
Med-Term US Bonds 10% BIV, (others) VBIIX , CDs
Med Term Int Bonds 12% FNMIX, BWX
GNMA Bonds 5% VFIX
High Yield Bonds 4% VWEHX, BKLN
Oil and Gas 3% VDE, (others) OIL, GASFX
Market Neutral Hedge Fund 2% MERFX, ARBFX, RYMSX
Commodities 4% PCL, (others) QRAX, PCRIX (.74), DBC(0.8), GSG(.75)
Comm Real Estate 5% VNQ, PDM, (others) GOV, VNO
Venture Cap/Private Equity 5% PSP(.7), (others) CSWC, MVC

 

[yakers]

US Large Stocks Value 12% VTV
US Small Stocks Value 8.5% VBR, IWN
International Large Stocks 5% VGK/VPL
International Small Stocks 10% SCZ
Emerging Markets Stocks 6.5% VWO
ST Corp Bonds/Money Market 4% VFSTX
US Govt Bonds-Long 4% VIPSX
Med-Term US Bonds 10% BIV, (others) VBIIX , CDs
Med Term Int Bonds 12% FNMIX, BWX
GNMA Bonds 5% VFIX
High Yield Bonds 4% VWEHX, BKLN
Oil and Gas 3% VDE, (others) OIL, GASFX
Market Neutral Hedge Fund 2% MERFX, ARBFX, RYMSX
Commodities 4% PCL, (others) QRAX, PCRIX (.74), DBC(0.8), GSG(.75)
Comm Real Estate 5% VNQ, PDM, (others) GOV, VNO
Venture Cap/Private Equity 5% PSP(.7), (others) CSWC, MVC

That is a nice AA, wish I had thought of it. I prefer to keep things simpler (have DWs IRA in Wellesley) but this looks like a case where the complexity could actually pay off.
Which funds are in tax deferred/free and which taxable?

 

[REattempt]

The Work Less Live More "Sandwich Portfolio" managed to eke out a .72% positive return in 2011.

Returns for recent years since the book was published are:

2008 -20.34%
2009 23.10%
2010 13.36%
2011 0.72%

I've been (mostly) replicating Bob's RIP inside my Roth account with the following funds/stocks/etfs...

US Large Stocks Value 12% VTV
US Small Stocks Value 8.5% VBR, IWN
International Large Stocks 5% VGK/VPL
International Small Stocks 10% SCZ
Emerging Markets Stocks 6.5% VWO
ST Corp Bonds/Money Market 4% VFSTX
US Govt Bonds-Long 4% VIPSX
Med-Term US Bonds 10% BIV, (others) VBIIX , CDs
Med Term Int Bonds 12% FNMIX, BWX
GNMA Bonds 5% VFIX
High Yield Bonds 4% VWEHX, BKLN
Oil and Gas 3% VDE, (others) OIL, GASFX
Market Neutral Hedge Fund 2% MERFX, ARBFX, RYMSX
Commodities 4% PCL, (others) QRAX, PCRIX (.74), DBC(0.8), GSG(.75)
Comm Real Estate 5% VNQ, PDM, (others) GOV, VNO
Venture Cap/Private Equity 5% PSP(.7), (others) CSWC, MVC

...but this looks like a case where the complexity could actually pay off.

The last quote got me thinking...and I took a flyer at comparing the sandwich with the Full RIP mentioned by ejw93 to see if it was worth it.....

1. I looked through the RIP list and found ones I liked given what they were and long term performance. I also tried to use ETFs instead of MFunds when possible.
2. I don't like VC/PE in general. I do like PCL (Timber), GLD and DBC (broad commodities) so I took out VC/PE, added those $ to Commodities and split it between the 3.
3. The shortest living fund started in 2007. So I got starting prices Dec 31, 2007.
4. I distributed $1mm per the RIP portfolio percentages.
5. I put all the information into a morningstar portfolio as if I purchased everything before the open on Jan 1, 2008.
6. Morningstar allows you to then apply all dividends and distributions over the holding period to reinvest. I did that.

Here is what I got.

Comparing results from the Sandwich:

Year	Sandwich	RIP
2008	-20.34%	-19.74%
2009	23.10%	29.61%
2010	13.36%	15.13%
2011	0.72%	2.01%

Looks like there may be some upside to slice and dice, but is it worth it? [obviously fund fees are included, but I didn't include transaction fees]

Attached is the spreadsheet results from Morningstar...which shows which funds I chose.....

Yeah it is only a short term exercise, but was fun and interesting to go through the thought exercise.....

Bob, forgive me what I did with the VC/PE $...I know it's not pure RIP.

YMMV

 

[REattempt]

Which funds are in tax deferred/free and which taxable?

I didn't try to fit these into my account sizes, but here is a good reference to tell you where to put each:

Principles of Tax-Efficient Fund Placement - Bogleheads

 

[ejw93]

Yakers -

All my RIP emulation is in tax-deferred Roth Acct. I don't own each and every security listed above in the RIP list- I usually own only the cheapest security in each class, and I've simplified the bond portion using AGG, BWX, plus supplementing w/ Lending Club as a quasi-bond holding (I also see zero upside in owning 30-year government bonds right now).

My (taxable) brokerage acct is much simpler with zero bonds and little re-balancing. I figure I can always overweight bonds in my tax-deferred accts as I approach ER.

 

[ESRBob]

RE Attempt -- thanks so much for pulling these updated numbers together. It is interesting to see what looks like a material added benefit from the full RIP Portfolio in the past few years-- sometimes complexity does help?

To answer your original question, the risk of coming inflation (and lower bond prices) does feel real to me -- how to tweak the RIP portfolio holdings to be safer from that? In fairness I have been personally defending on that for a number of years and, like most things, too clever by half. I basically cranked down the maturity/duration of my overall US bond holdings vis-a-vis the published portfolio and the result has been underperformance. But I believe the day will come when the yield curve starts to move up again (presumably from inflation) and bonds will get hurt. CDs were my answer at first since they are 'bond-like' but yields are essentially zero now, so that doesn't work. Short term bond funds like Vanguard's at least get you a bit of yield at what looks like safe levels of risk of default and rising interest rates.

The other thing I have been doing personally is moving toward more international bonds, treating the two domestic Medium Term and International Medium Term as one target asset allocation. To that end I have been shifting out of the US Medium term bonds into better yielding (and lower-deficit economies with less-risk-of-depreciation) currencies such as Aussie and Canadian dollars, and the fund FAX which holds Pacific Rim currencies from strong economies. That has given me comfort not only from better yields but also from currency appreciation against the dollar.

You have to decide whether you believe that currencies from these types of economies will do well against the dollar medium term. Personally I think with the world's economies becoming closer the dollar bias in most historical portfolios is fair to question, as is long-term dollar strength. RIP is non-dollar heavy compared to most things people recommend to Americans, but I am comfortable going even further out of the dollar at times like this.

Again, these are my personal tweaks in my own investing -- I am not trying to re-vamp the published portfolio -- it has done well and I continue to believe it is a sound basis for successful long term retirement investing.

Hope this helps!

Bob

 

[mexico]

I'm completely biased in my analysis here, but I've had success with a couch potato portfolio of index funds. RIP looks way too complicated to keep an eye on overall asset allocation easily. I like DFA's idea that steady strategic investing, rather than tactical jumping about is the way to go.....but why do you need them to do that...and you can only buy their funds through financial advisers. More fees there. They are repackaging indexing, but saying hey we look for value too and like small caps.....you can do that with any low cost index fund company


1) Wow that's really slicing and dicing.
2) If DFA was a retail fund company ie selling to the public I would like it better, why do the hide behind those financial advisors.
3) Use broad index funds, it's simpler and cheaper.

I agree. I read this book and enjoyed it, but to me, the asset allocation model is a bit complicated. For example, take emerging mkts. Vanguard's total International fund is comprised of about 25% emerging mkts. If 30% of your EQUITY portfolio is in International, you are well represented in this area. With bonds, Vanguard recommends their Intermediate Bond fund as the sweet spot. This will also give you the safety of US treasuries.
With respect to Gas and utilities... they are included in Vanguard's total stock market Index fund- at least solid companies that produce and manufacture. If you decide to purchase a separate fund for emerging and commodities, you best know what you are doing.