Vanguard Advisor's Portfolio Proposal

[Goldenmom]

Yes . . . it's been interesting.

[samclem]

Quote:

Originally Posted by Mulligan . In addition I believe experts want a person to avoid sector concentration of any type.

This is another quibble I have with Swedrow's suggestion that retirees invest their equity holdings solely in small and value stocks. A lot of investors in 2007 - 2008 probably thought they were safe because they weren't loaded up with a lot of frothy growth stocks, they were in value stocks. As they found out, that meant they were heavily invested in the financial industry, and they took a real beating when the housing/subprime bubble burst.
Concentrating in value (or growth) stocks can mean inadvertently concentrating in one or two sectors/industries, with attendant trouble if that sector takes ill.

[photoguy]

Quote:

Originally Posted by samclem This is another quibble I have with Swedrow's suggestion that retirees invest their equity holdings solely in small and value stocks. A lot of investors in 2007 - 2008 probably thought they were safe because they weren't loaded up with a lot of frothy growth stocks, they were in value stocks.

In fairness, if you were following swedroe's fat tail portfolio, you would have a *huge* chunk in treasuries (probably the majority of your portfolio) which had substantial gains during 2007/2008. Vanguard's int treasury fund had 10%+ returns in both 2007/2008 so that would probably negate any loss in your equity portion assuming something like a 70% bond / 30% equity portfolio.

Also do investors generally think value stocks are "less risky"? Even though they don't have sky high PE based on (perhaps unrealistic) growth perceptions, I've always thought of them as substantially more risky.

[Goldenmom]

Thanks samclem and photoguy for those cogent replies. Much food for thought.

I wonder if I will live long enough to see my Vanguard Intermediate-term Treasury fund rebound. Since I have taken the hit already, I (or my heirs) await the bond rally.

"Buy the ticket, take the ride"
~Hunter Thompson

[jkern]

It hasn't been brought up, but how would Vanguard Wellington and Wellesley fit into this conversation?

[LOL!]

Quote:

Originally Posted by Goldenmom I wonder if I will live long enough to see my Vanguard Intermediate-term Treasury fund rebound. Since I have taken the hit already, I (or my heirs) await the bond rally.

What hit is that? The fund is up for the past 12 months almost 2%. Even in the past month it is down less than 1.5%. It is doing what bond funds do: Fluctuate.

This fund dropped about 4% in the summer of 2013 and recovered nicely.

Are you planning to die in the next month or so?

[Goldenmom]

Hi LOL!
I invested $100,000 in Vanguard Intermediate-term Treasury Fund on 10/28 and it's now valued at $9898.03. I wasn't expecting a loss of over 1K from a Treasury fund in November. I bought it because I thought it was safe and secure. Typical rookie mistake, huh?

No more bond funds for me. Too risky. Thought they were supposed to be a buffer. Equities and cash or CDs in the future. Glad I didn't invest more.

Your thoughts? Please be candid. I realize I am in a learning curve and I seek advice of more seasoned investors. I have spent my life teaching primary school and am new to investing especially against robots and high-frequency traders.

Goldenmom

[pb4uski]

Quote:

Originally Posted by Goldenmom Hi LOL! I invested $100,000 in Vanguard Intermediate-term Treasury Fund on 10/28 and it's now valued at $9898.03. I wasn't expecting a loss of over 1K from a Treasury fund in November. I bought it because I thought it was safe and secure. Typical rookie mistake, huh? No more bond funds for me. Too risky. Thought they were supposed to be a buffer. Equities and cash or CDs in the future. Glad I didn't invest more. Your thoughts? Please be candid. I realize I am in a learning curve and I seek advice of more seasoned investors. I have spent my life teaching primary school and am new to investing especially against robots and high-frequency traders. Goldenmom

No disrespect, but it seems to me the rookie mistake that you are about to make is rushing to sell a position that you have had two weeks. Bonds are a valid buffer, but not over two week periods.

If this has you rattled, perhaps CDs are more your speed.

[Mulligan]

Mom, you have a problem with "loss aversion". Are you sure you can handle 20% plus swings in stocks? Unless you buy specific bonds and stuff them into a vault or buy CDs, fluctuations in principal will occur.
I don't minimize your angst, as I deal with it too. I own no bonds and only a small sliver in common stock. But my personal "loss aversion" solution would definitely not be in your wheel house, so I wont mention it.


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[hnzw_rui]

A $1K "loss" on a $100K investment is nothing. You should expect day to day fluctuations like that and learn to ignore short term volatility. Might I suggest you stop looking at investments daily, weekly or even monthly? Looking at your portfolio only once a year will do wonders for your peace of mind.

If you're this panicky about a 1% dip, maybe it is a good idea to just pay the 0.30% fee for VPAS.

[samclem]

Quote:

Originally Posted by hnzw_rui A $1K "loss" on a $100K investment is nothing. You should expect day to day fluctuations like that and learn to ignore short term volatility. Might I suggest you stop looking at investments daily, weekly or even monthly? Looking at your portfolio only once a year will do wonders for your peace of mind.

Absolutely.

Quote:

Originally Posted by hnzw_rui If you're this panicky about a 1% dip, maybe it is a good idea to just pay the 0.30% fee for VPAS.

But paying a manager won't change the fluctuations, and the angst will still be there.

Steps to avoiding stress and improving investment results:
1) Determine the desired asset allocation
2) set up the portfolio
3) Don't check the balance or look at the statements.
4) in December, make a withdrawal for all of the next year's spending, put into a MM fund for monthly transfers to bank account. Rebalance all the investments back to the desired allocation from Step 1.
5) Repeat steps 3 and 4 until dead.

Don't consider daily, monthly, quarterly fluctuations to be gains or losses. All that matters is the price the asset brings on the date you sell it.

[Goldenmom]

You are all correct. I do watch my accounts too much since I'm just getting our accounts funded at Vanguard. I've been investing in small increments instead of in lump sums and I'm very glad I did since the mistakes I've made have been relatively minor ones.

The 1K decline in the bond fund in such a short time did rattle me. I've decided to hold the bond fund since that is what my research has revealed, and I will remind myself that this decline is nothing in the big picture. Seeing that in print actually helped me a lot, so thank you. My new mantra is, "This is nothing--just play the game!"

I actually enjoy watching the ups and downs of my stock funds each day with my morning coffee. I look forward to this with anticipation and the swings in equities don't bother me since they change from day to day (so far). I just didn't realize that Treasury bond funds were so volatile. I am afraid I'm addicted now and even check my Vanguard app when I am away from home to see what the markets are doing.

I am gradually increasing my positions in Total Stock Market, Value Index, Small-Cap Index, Small-Cap Value, and REITS according to my portfolio plan allocations. (My influences have been Coffeehouse, Swensen, Bernstein, Swedroe, and, of course, Jack and the Bogleheads.)

I also have small positions in Vanguard Dividend Growth, Dividend Appreciation Index, Total World Stock Index, and Global Minimum Volatility.

I just exchanged my mid-cap and Total International Stock Market funds, but they were very small holdings, and I just decided to go with Jack Bogle regarding those. I have been puzzled about the value of holding international funds at this time, but that may be the recency effect and my inexperience.

Since I'm still funding my accounts, I do tend to watch my accounts daily to see if it is a good day to add more. Interestingly, they are up one day and down the next. This pattern makes it hard to time my buys, so I just buy a little bit a day now. I fancy that I am value averaging and in fact have noticed that I have bought at lower prices by buying incrementally across days due to the volatility. My REITS have gotten cheaper lately! I figure my strategy is better than sitting in cash.

I've read it is fatal to tinker too much, but that you shouldn't buy at the top of the market. Hence, I am buying small amounts across days until I get my asset classes funded and am keeping the rest in cash. I fancy I am working with the volatility and going with the flow.

Thank you for your comments. I mull over everything I read and I certainly see myself in discussions of the behavioral aspects of investing especially being influenced by recent events.

I advise any brand new investors reading this to invest a little at a time while you are learning (and you will always be learning), and to read a lot of investment books and participate in investment forums like this to learn from the pros. It IS rocket science!

I have not presumed to give advice before, but I think what I used to tell my young students applies here: Slow and steady wins the race! Good luck with your investing!

Goldenmom

[Goldenmom]

Loved your comment, samclem!

I am very glad I did not let the Vanguard advisor lump sum me into Total Stock Market, Total International Stock Market, and numerous bond funds. I would be having a fit right now! Ha!

[REWahoo]

Quote:

Originally Posted by Goldenmom Slow and steady wins the race!

+1

Quote:

Originally Posted by Goldenmom Good luck with your investing!

I associate luck with gambling, not investing. You need time, patience and self-discipline to be a successful investor. Being lucky helps but it isn't a fundamental element of long-term portfolio growth.

[Goldenmom]

I generally agree with you, but retirees can be lucky in that they retire during a bull market or during a bear market. That, I think, is the luck of the draw, but the skills you outlined may make luck irrelevant. "Time, patience, and self-discipline" is going on a post-it on my mirror. Great words to invest by!

[hnzw_rui]

Quote:

Originally Posted by samclem But paying a manager won't change the fluctuations, and the angst will still be there.

No but they will hold your hand through it and do the rebalancing for you. Granted, pretty expensive for hand holding service. I'd rather go with a cheaper balanced fund for the automatic rebalancing. Alas, no hand holding.

Quote:

Originally Posted by samclem Steps to avoiding stress and improving investment results: 1) Determine the desired asset allocation 2) set up the portfolio 3) Don't check the balance or look at the statements. 4) in December, make a withdrawal for all of the next year's spending, put into a MM fund for monthly transfers to bank account. Rebalance all the investments back to the desired allocation from Step 1. 5) Repeat steps 3 and 4 until dead. Don't consider daily, monthly, quarterly fluctuations to be gains or losses. All that matters is the price the asset brings on the date you sell it.

+1.

Personally, I'm planning on going all in with LifeStrategy Conservative Growth, Target Retirement Income or Wellesley Income when I retire, tax efficient placement be damned. Should take away much of the stress. Just need a once a year balance check for RMDs and schedule automatic withdrawals for the year.

[N02L84ER]

Quote:

Originally Posted by Goldenmom Hi LOL! I invested $100,000 in Vanguard Intermediate-term Treasury Fund on 10/28 and it's now valued at $9898.03. I wasn't expecting a loss of over 1K from a Treasury fund in November. I bought it because I thought it was safe and secure. Typical rookie mistake, huh? No more bond funds for me. Too risky. Thought they were supposed to be a buffer. Equities and cash or CDs in the future. Glad I didn't invest more. Your thoughts? Please be candid. I realize I am in a learning curve and I seek advice of more seasoned investors. I have spent my life teaching primary school and am new to investing especially against robots and high-frequency traders. Goldenmom

Something is wrong with your numbers. Did you invest $10,000 and it is now worth $9,898.03 (you only lost $101.97 or 1.02%)? Or did you really invest $100,000 and it is now only worth $9,898.03 as you posted in which case you lost $90,101.97 or 90.1% and you REALLY SHOULD PANIC!

[statsman]

Quote:

Originally Posted by N02L84ER Something is wrong with your numbers. Did you invest $10,000 and it is now worth $9,898.03 (you only lost $101.97 or 1.02%)? Or did you really invest $100,000 and it is now only worth $9,898.03 as you posted in which case you lost $90,101.97 or 90.1% and you REALLY SHOULD PANIC!

Given the OP mentioned over a $1K loss, I suspect $9,898.03 is really something like $98,98x.xx.

[N02L84ER]

statsman
I suspect you are right and that is only the 1.02% loss. Nothing to panic about. I just wanted to be cute and show that the calculation as posted was a 90% loss.

[samclem]

Quote:

Originally Posted by Goldenmom Since I'm still funding my accounts, I do tend to watch my accounts daily to see if it is a good day to add more. Interestingly, they are up one day and down the next. This pattern makes it hard to time my buys, so I just buy a little bit a day now. I fancy that I am value averaging and in fact have noticed that I have bought at lower prices by buying incrementally across days due to the volatility.

As you've seen, it's not really practical to buy on the dips (but we've all tried it!). Buying a set dollar amount every day/week/month until the desired allocations are reached ("dollar cost averaging") is a low- stress way to get into the market. Studies show it actually doesn't result in returns as high, on average, as just investing a lump sum all at once (because markets trend up overall, and money in a cash account waiting to be invested sits idle). But, the difference is minor, and in any one particular case DCAing might prove superior.

Regarding the portfolio overall--don't get stressed out over the details of the allocation. Nobody knows what is coming next, none of us will, in retrospect, have an ideal allocation. Avoid the big errors (high costs, lack of diversification, lack of regard for inflation) and you'll do fine if history is any guide. And if history isn't a guide, at least you'll have a lot of company!