Target Portfolio

[smooch]

As I said in another post, I am in the process of moving funds to Vanguard. I am moving from a full service firm with high fees. The following portfolio sort of follows the Sandwich Portfolio in ESRBob's book. VG does not seem to have a Foreign Bond fund, so I thought I would leave what I already have in Oppenheimer International.

I would really appreciate any thoughts on this plan. I hope to add TIPS and maybe HealthCare later, but this would be a start.

20 VIVAX Value Inx Fund
8 VISVX Small Cap Value
16 VGTSX Total International Index
6 VEIEX Emerging Markets Index
30 VBIIX Intermediate Bond Index
11 OIBAX Oppenheimer Int
4 VMSXX Tax Exempt Money Market

 

[brewer12345]

I personally would include some PCRIX, which I believe is available at VG. What's the expense ratio on the Oppenheimer fund? GIM (listed closed end fund) has reasonable expenses and can be bought through any brokerage account (including VG).

 

[Cut-Throat]

I personally would include some PCRIX, which I believe is available at VG. What's the expense ratio on the Oppenheimer fund? GIM (listed closed end fund) has reasonable expenses and can be bought through any brokerage account (including VG).

Brewer,

I looked briefly at this fund and it is confusing to me. Can you tell us in a Nutshell what this fund invests in and what asset class this would belong to. - Thanks!

 

[brewer12345]

Brewer,

I looked briefly at this fund and it is confusing to me. Can you tell us in a Nutshell what this fund invests in and what asset class this would belong to. - Thanks!

Not sure if you were referring to GIM or PCRIX. GIM is pretty simple: it holds an unleveraged portfolio of non-US govt debt, issued by both developed and developing countries. GIM is not hedged, so you directly experience currency gains and losses in addition to the return of the bond portfolio in local currency terms. Asset class: foreign bonds.

PCRIX is a commodity fund. The fund holds TIPS that collateralize total return swaps on the DJ-AIG commodity futures index. There is some beef with the IRS that may force the fund to shift to structured notes, but the end result would be roughly the same. Asset class: commodities/commodity futures.

As an aside: It is always interesting to read half year and full year fund reports to see what interesting little things funds are doing that you would not expect. For example, PCRDX (different share class of PCRIX) sent me a mid-year report recently that disclosed that the fund had sold 1 and 2 year credit default swap protection on Ford Credit and GMAC bonds. Not what I would expect from a commodity fund, but relatively small potatoes because the notional amount was small. Not that long ago I read a report from EFA that disclosed that the fund was playing a spread game, borrowing short term at very attractive rates and buying highly rated, very safe commercial paper. Not what I would have expected from an EAFE index ETF. This sort of thing is why I am generally happier to manage my own money and skip funds in any case where I have competency: I know what I am getting.

 

[mb]

Smooch, looks like a good start.  My thoughts/comments/questions:

(1) Is VBIIX in a tax deferred account and VMSXX in a taxable account?  If not is there a reason to have a taxable bond fund and a tax excempt money market fund?  Have you done the calcs based on your tax rate and the fund yields to see where you should be?
(2) Is there any US large cap growth exposure?  If not, why not?  My impression is that most "experts" suggest starting with the overall index and then adding some value bias (assuming that you accept the work suggesting that value out performs growth).

MB

 

[smooch]

Brewer,

   The ER on Oppenheimer is 1.02. I will study GIM. I also want to have some exposure to commodities; I just thought I should get a basic portfolio established first and then diversify more, but maybe I should include them from the start.

MB,

   All funds except the Money Market are IRAs. Good point about the Growth funds and I will investigate this more.

 

[Parrothead]

Re: PCRIX --- better hold up on jumping into PCRIX at this point as they just got an unfavorable IRS ruling a few weeks ago that jeopardizes the fund as a viable investment alternative. As I understand it, the IRS is basically disallowing (effective June 2006) the preferred "mutual fund" tax status wherein all income and gains are passed through to fundholders ... the IRS ruling would cause PIMCO to have to pay taxes AS WELL AS fundholders, creating a double taxation issue. Here's a link to some articles with more info:

http://socialize.morningstar.com/Ne...F100000015&convSeqNumber=45955&mrr=1135087260

http://www.allianzinvestors.com/newsAndMedia/NewsPIMCONews12202005_P.jsp

I would definitely suggest not making the leap into this fund until they get all this sorted out. Hopefully they will, as there haven't been lots of other reasonably priced alternatives for investing in commodities via mutual funds (short of the "indirect" approach of owning stocks in natural resource companies and funds).

 

[brewer12345]

Re: PCRIX --- better hold up on jumping into PCRIX at this point as they just got an unfavorable IRS ruling a few weeks ago that jeopardizes the fund as a viable investment alternative. As I understand it, the IRS is basically disallowing (effective June 2006) the preferred "mutual fund" tax status wherein all income and gains are passed through to fundholders ... the IRS ruling would cause PIMCO to have to pay taxes AS WELL AS fundholders, creating a double taxation issue.  Here's a link to some articles with more info:

http://socialize.morningstar.com/Ne...F100000015&convSeqNumber=45955&mrr=1135087260

http://www.allianzinvestors.com/newsAndMedia/NewsPIMCONews12202005_P.jsp

I would definitely suggest not making the leap into this fund until they get all this sorted out. Hopefully they will, as there haven't been lots of other reasonably priced alternatives for investing in commodities via mutual funds (short of the "indirect" approach of owning stocks in natural resource companies and funds).

I wouldn't get too excited about this. If PIMCO can't convince the IRS or Congress to make a change, they have plenty of time to switch to other instruments that give the same results and etain their tax status. Specifically, PCRIX will almost certainly switch to structured notes, which is what QRAAX uses. From what I have heard, it would cost an extra 10BP, but thats about all. No biggie, IMO.

 

[mickeyd]

Smooch,

Why have both VGTSX (16%) as well as VEIEX (6%)?

VGTSX is a fund-of-funds with Euro, Pac, and EM parts.

VGTSX has an emerging market exposure of about 12% already. It looks like you would have overlap unless you are looking to have an emerging market tilt to your portfolio.

 

[smooch]

I notified my financial advisor that I am moving funds to Vanguard. The response was:

"you will pay "transfer out" fees & will also pay fees at Vanguard outside of your 403B that are comparable to your fees here..."

Before I ask her, does anybody know what "transfer out" fees would be and what other fees at Vanguard I should be aware of? I am going on a compatison of the Expense Ratios for the VG funds as opposed to those at ML. Thanks.

 

[brewer12345]

Smooch, sounds like scare tactics on the part of the advisor WRT to "fees" levied by VG. AFAIK, you won't pay any account fees, etc. at VG as long as you areover their threshhold amounts. VG can tell you for sure.

The transfer fees are just the final bit of flesh that ML will be extracting from you. Pretty much every broker I have seen has them. Suck it up and consider it a life lesson.

 

[justin]

Depending on which share classes you are in at ML, you may have to pay a back-end sales load or contingent deferred sales charge (usually class B or C shares have this).

I seem to recall that some brokers have a $50 (per fund or per account, I don't know) transfer fee or account closing fee.

I just transferred all of my portfolio (very low 6 figure) out of Edward Jones full service brokerage, and I'm not aware of any fees that I had to pay (but I owned all class A shares, and transferred everything in kind, without selling anything).

You may have to pay a few fees at VG - usually they are very tiny ($10-$25 each). They have a page or two on their website explaining their fee structure - it is explained pretty clearly so you can add it all up and avoid fees if you want. If you look at it like this - save 0.5% per year in expense ratios at VG (a low estimate I'm sure) and you have saved $1000 on a $200,000 portfolio. That will pay a lot of $10 low balance fees and account fees at VG. Your broker is using scare tactics on you. Your broker's warnings sound like the advice I received from an old crappy insurance agent of mine. She told me I'd be sorry that I switched from Nationwide to a different company and that I'd be back eventually once I figured out how good their agency was. And how I'd be paying so much more for insurance elsewhere (I guess she didn't realize it is a commodity good for the most part).