Retirement Portfolio Advice

[harry06880]

Hi Guys&Gals

Have read quite a few books suggested here, and need just advice on my Retirement Portfolio. I have split my portfolio into 55/45 equities and bonds I am 56 years old and retired Aug 31 2012

I am mostly in cash right now and will allocate via DCA every quarter to take advantage of some averaging over the next 2 years to accounts below. I have enough cash to cover three years expenses so I'm ok there.

Target allocation

Vanguard Taxable
VTSAX Total Stock Market 55%
VMAX Mid Cap Value 5%
VSIAX Small Cap Value 5%
VFWAX FTSE all World ex US 15%
Cash 20%( to take advantage of any serious dips)

IRA Account
VBTLX Total Bond Market 75%
VIPSX Inflation Protected sec 15 %
VGSLX US Reits 10%

I have put the reits in my IRA as I am out of room in my Taxable accounts.

I just need some advice or what others have done with regards to below questions

1) The total stock market funds are a little light on value stocks in the MID and Small value area, has anyone else made adjustments added as I did above

2) The Inflation Protected securities in my IRA, I am wondering if this is the best choice from Vanguard there are a couple of Tip funds.

I am forever thankful for all the help I have received here

Thanks Harry

 

[MasterBlaster]

1) The total stock market funds are a little light on value stocks in the MID and Small value area, has anyone else made adjustments added as I did above

If you are of the Bernstein (Slice-and-Dice) persuation then yes you'll need to balance all of the un-correlated asset groups.

If you are of the Bogle (Market Capitalization) persuation then holding broad based index funds is appropriate.

My only comment on your portolio is that perhaps you should consider a higher portion of International equities. The other stuff I have no opinion on. Perhaps others will weigh in on that.

 

[samclem]

Harry,
Without knowing the relative weights of your IRA and taxable accounts, it's hard to get an idea of your actual asset allocation.

1) Yes, I did something as you've done to increase small cap and value tilt by using VSIAX. I tilted quite a bit more than you did. Since it is in a taxable account, consider use of tax-managed MFs like Vanguards Tax Managed Small Cap (VTMSX) for the "Small" portion and then buy another fund for the "value" portion. If taxes go up on CGs and dividends, this could be even more important.

AS MasterBlaster noted, it looks like your international exposure may fairly small. That's okay, but realize it's a "bet."

You're holding a lot of bonds at a time of very low bond rates. That puts this portion of your portfolio at risk when rates rise. You can avoid some of this risk by staying in short duration bond funds. Or, you could reduce your bonds further and increase your cash holding until the Fed gets done suppressing rates. Or, maybe the Guggenheim "Bullet Shares" bond MFs are worth investigating--they "pay off" on a fixed date in the future, so you avoid interest rate risk if you hold the fund to "maturity."

Good luck.

 

[pb4uski]

One thing that I would suggest that you do is to log on to Vanguard and use Portfolio Tester to simulate the end result and see how your Portfolio watch metrics come out and make adjustments as needed.

I am 57 and target 60 stocks/40 fixed for my investment portfolio or 56 stock/38 fixed/6 cash for my total cash and investments. Similar to MasterBlaster's suggestion, I have a higher allocation to international (between 25-30% of total equities).

Since I'm not happy with the yields of the Total Bond or Inflation Protected (because they are predominately government securities), I have a 74/16/9 mix of Investment-Grade Corporate, High Yield Corporate and GNMA for my fixed income portfolio which yield 150-200% what Total Bond yields (albeit with higher credit risk, which I am willing to accept) and slightly lower duration than Total Bond.

I have in the past added some mid and small cap value to balance the equity allocation out, but the best equity funds for my DC retirement fund and HSA have a value tilt so I now do it in a different way.

When I rebalance I typically try to jigger things using Portfolio Tester to hit the Portfolio Watch metrics for my target AA fairly closely.

 

[pb4uski]

.....Or, maybe the Guggenheim "Bullet Shares" bond MFs are worth investigating--they "pay off" on a fixed date in the future, so you avoid interest rate risk if you hold the fund to "maturity." ....

samclem, do you own Bullet Shares? The reason I ask is that I found them intriguing for the same reason you cite and strongly considered them but ultimately decided against it for the time being since I couldn't find anyone who had real experience with them. I like the concept though.

 

[Midpack]

Here's one of many well known model portfolios with a value tilt. However, there is no universal answer, you have to consider the risks & returns of all the asset classes and invest accordingly. If not, you might as well buy a low ER balanced fund and let someone else worry about asset allocation/rebalancing for you.

I have a value tilt, others don't buy the idea for variety of reasons. No one should recommend what you should do in the end, all we can do is explain how you are deviating from (hopefully) mainstream model portfolios - as others above have. Best of luck...

And not knowing the relative size of your taxable and sheltered accounts makes it all the more difficult. Taking all your assets together when sharing your AA is the only way readers can evaluate in a meaningful way.

 

[samclem]

samclem, do you own Bullet Shares?

No, I don't, but I've been considering adding them just as a stopgap until the bond market gets back to "normal." The 2015 version of the Corprorate Bond ETF (ETF, ticker "BSCG") has a 2.4% yield, and an expense ratio of .24%.

The "high-yield" version offers a better rate, but that's riskier than I want to go with the bond portion of my portfolio.

Yes, I agree they are an interesting product. Better diversity than buying a single bond. IIRC, there was another company doing something similar, but their ER was higher.

 

[rbmrtn]

I like the concept of the Bullet shares as well. Diversity of a bond fund, but with fixed maturity of a single bond. Also can build a ladder.

They are thinly traded but if holding to maturity then shouldn't be an issue. I'm looking for an entry on the Hi yield shares. They may pull back some on this sell off going into year end.

 

[eytonxav]

No, I don't, but I've been considering adding them just as a stopgap until the bond market gets back to "normal." The 2015 version of the Corprorate Bond ETF (ETF, ticker "BSCG") has a 2.4% yield, and an expense ratio of .24%.

.

May be I wrote the symbol down wrong on my little cheat sheet, but isn't BSCG a 2016 maturity?

I'm also intrigued by these and have been mulling converting some other bonds to bulletshares.

 

[Lsbcal]

...Have read quite a few books suggested here, and need just advice on my Retirement Portfolio. I have split my portfolio into 55/45 equities and bonds I am 56 years old and retired Aug 31 2012

I am mostly in cash right now and will allocate via DCA every quarter to take advantage of some averaging over the next 2 years to accounts below. I have enough cash to cover three years expenses so I'm ok there.
...

What I'd question is your DCA plan. So far we are about 43 months out from the last miserable SP500 low. Business cycles tend to give us a correction on the order of every 5 years or so from a low, but note that is pretty variable (or the market would be obvious). Just based on the past, it would seem you might be all allocated closer to the end then the beginning of a business cycle.

Personally I'd consider accelerating the equity allocation. Maybe be all in within the next 6 months. But that is a real judgement call on your part.

Being the analytical type, I'd gather up SP500 monthly data in a spreadsheet and try out different DCA schemes from market lows. This would show what worked in the past. If your plan did not work in the past then maybe it wouldn't work in the future ... but the future is unknowable, unfortunately.

P.S. You might take a look at the chart I posted in another thread here: http://www.early-retirement.org/forums/f28/how-far-weve-come-now-what-63224.html

 

[samclem]

May be I wrote the symbol down wrong on my little cheat sheet, but isn't BSCG a 2016 maturity?

Yes, sorry. "BSCG" is a 2016 maturity. I'd probably be looking at buying some 2014, 2015, and 2016 maturities and as they mature either roll them into later Bullet Shares dates or just buy a "regular" bond fund with the proceeds (if rates have gone up). After subtracting the ER, they are paying about 1% above CDs, the question is whether that's still a "good deal" after accounting for default risk for these corporate bonds. IMO both CDs and these Bulletshares stand a good chance to lose ground to inflation, it's just a question of how much--and a lack of other good alternatives for "safe money".

For reference:
2013: BSCD
2014: BSCE
2015: BSCF
2016: BSCG
2017: BSCH

 

[pb4uski]

What I'd question is your DCA plan. So far we are about 43 months out from the last miserable SP500 low. Business cycles tend to give us a correction on the order of every 5 years or so from a low, but note that is pretty variable (or the market would be obvious). Just based on the past, it would seem you might be all allocated closer to the end then the beginning of a business cycle.

Personally I'd consider accelerating the equity allocation. Maybe be all in within the next 6 months. But that is a real judgement call on your part......

I tend to agree - being out of the market for such a long wouldn't sit well with me. If I was 100% cash and wanted to get in I think I would dollar value average in over 12 months.

 

[harry06880]

MM thanks all gives me something to think about, I m going to check out those bullet shares. I think will keep add to my foreign exposure by adding with new cash and the dividends.

Thanks as always you guys always have great advice