Work Less Live More: Is his balanced portfolio still good?

[Shabber2]

I loved the book by Bob Clyatt and with about 2-3 years left prior to retiring, I have had 80% of my nest egg in 5% mutual fund at BoA. Got thinking, if I believe in his portfiolio, the one with the mutual funds listed below that is rebalanced each year, why not start now?

My question is, do you think it is still a good portfolio?
Shouldn't I start it now instead of waiting for official ER?

VFINX20%VTMSX8%VGTSX6%VINEX10%VEIEX6%VBIIX30%BEGBX11%VGSIX5%VMMXX4%

 

[Spanky]

It's hard to ask for feedback when you only provide ticker symbols.

Vanguad S&P 500 VFINX 20%
Vanguard TM SmCp VTMSX 8%
Vanguard Tot I Stock VGTSX 6%
Vanguard Intl Explrer VINEX 10%
Vanguard EM VEIEX 6%
Vanguard Int-Tm Bond VBIIX 30%
Amer Cent:Intl Bond BEGBX 11%
Vanguard REIT Idx VGSIX 5%
Money Market VMMXX 4%

Your proposed portfolio looks fine. It's about 60% equity split between US and international. The rest in bond and cash.

 

[samclem]

. . . Got thinking, if I believe in his portfiolio, the one with the mutual funds listed below that is rebalanced each year, why not start now?

My question is, do you think it is still a good portfolio?
Shouldn't I start it now instead of waiting for official ER?

VFINX20%VTMSX8%VGTSX6%VINEX10%VEIEX6%VBIIX30%BEGBX11%VGSIX5%VMMXX4%

- I can't see any fundamental reason why your portfolio's asset allocation should be different at 2 years from retirement than it would be on your retirement date. So, there's no particular reason to wait.

- What are you invested in right now? (You bought it at BofA, but which mutual fund(s) is(are) it(they)? Are they in an IRA or in a taxable account?) This is important, as selling these and buying into the mix recommended by Bob could have important tax implications, and there may be smart ways to do the exchange IOT reduce your tax burden. Fow instance--if these are taxable accounts, it >might< make sense to wait to sell them (to buy the funds on your new list) until you've quit working and are in a lower tax bracket. Etc.

- Regarding the fund mix you've quoted from YMORL: You'll find a lot of different opinions here. I think the mix is a good one for many people. Some >>might<< argue for a slightly smaller share in international holdings (bonds and stocks), and there's a case to be made for a somewhat larger holding in cash (money market funds) to allow the retiree a longer "cushion" with which to avoid selling stocks/bonds if both markets enter a downturn. A 4% allocation is only (approx) one year's worth of withdrawals. These are my minor and highly subjective observations: I think the mix you've quoted is probably better on a risk-adjusted basis than that held by 90% of retirees.

 

[FIREd]

I am about 10-15 years away from retirement and I built a portfolio similar to the "rational investing portfolio" described in Bob Clyatt's book. Comparable portfolios are featured in other books such as "the four pillars of investing" by Bernstein. These portfolios are sometimes referred to as "low correlation portfolios".

I believe that the reasons behind the creation of a low correlation portfolio are as valid today as they were when the book came out. Actually my portfolio held up pretty well today despite a big drop in the market (portfolio down 1.4% vs. DOW down 2.6%).

My portfolio is about 66% US assets / 33% Int'l assets. And for each one of them it's about 66% stocks and 33% bonds/cash.

I did not necessarely usedthe funds suggested by Clyatt in his book, but the final asset allocation is fairly close.

 

[Shabber2]

Thanks for the comments. And my assets now are 80% money mkt at BoA (5%) and 20% in stock (Oakmark, Intel and Checkpoint). So the Stock portion sucks and the MM is losing against inflation. I think I am going to switch to the Clayton Portfolio in Jan.

I am thinking Schwab account and ditch the BoA completely as my normal bank. Sound good?

 

[samclem]

Thanks for the comments. And my assets now are 80% money mkt at BoA (5%) and 20% in stock (Oakmark, Intel and Checkpoint). So the Stock portion sucks and the MM is losing against inflation. I think I am going to switch to the Clayton Portfolio in Jan.

I am thinking Schwab account and ditch the BoA completely as my normal bank. Sound good?

Won't you save a bit if you buy your funds straight from Vanguard? What are the charges at Schwab, and what does that buy you?

 

[Shabber2]

I haven't looked at Vanguard , but I would like the flexibility to vary my funds in the future if I need, so Schwabb offers me that. Plus if I ditch BoA, I need real banking ability with locations, atm's, online account lookups. Seems Schwabb is th best choice, but I am open to others.

 

[travelover]

I use a credit union for my checking & banking and Vanguard/Fidelity for investments. Best of both worlds for low costs.

 

[trixs]

I put this into a model I made earlier today.. Heres the results:

Year 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Return 7.77% 12.07% 23.02% -4.33% -1.22% 0.99% 13.92% 10.06% 12.57% 8.71%
Standard Deviation: 8.08% Annualized Return: 8.08%
I substituted anguard Intl Explrer VINEX for more Vanguard total Int

-trixs

 

[Spanky]

or you could have invested in Wellington (VWELX), a balanced fund with a return of 8.7%, SD 8.2% from 10/21/99 to 10/1/07.
VWELX

 

[FIREd]

or you could have invested in Wellington (VWELX), a balanced fund with a return of 8.7%, SD 8.2% from 10/21/99 to 10/1/07.
VWELX

Interesting you mention Wellington. In my version of the "rational investing Portfolio", I actually use Wellington in conjunction with Wellesley to simultaneously take care of 2 asset classes in my portfolio: US Large Caps (with a value tilt in my case) and US Intermediate bonds. And by choosing the proper ratio between Wellington and Wellesley, one can maintain the proper asset allocation outlined in Clyatt's Book.

 

[Shabber2]

So that is very interesting, but isn't it difficult to figure out what the returns would be those years because you need to rebance annually? So those returns are just straight with no changes right?

It seemed much more volatile than I really like to see....

What ratio of Wellesley and Wellington should I be looking at to compare?

 

[FIREd]

Your proposed portfolio is about 55% stocks and 45% bonds/cash. To obtain a similar asset allocation using only Wellington and Wellesley, one has to have a portfolio composed of 67% Wellington and 33% Wellesley.

 

[ESRBob]

Just saw this thread, and wanted to tell OP that I have updated the portfolio through end of 2006 in the new edition of Work Less Live More just released this month. If anything the portfolio looks better than ever. I'm still using it myself with no inclination to tweak. In rough outlines it is 40% equities (half international/half domestic) 40% bonds/CD/money market (again with a solid dollop in non-dollars) and 20% "Other" which includes commercial real estate, commodities, private equity, hedge funds, oil/gas (or anything else you can think of that is a credible asset class and won't correlate much with stocks or bonds). It is probably more applicable for people who are ER than those who are in accumulation mode, as it is a notch more conservative than you might want if you were still full-time employed and living off salary.

Hope this helps

 

[LOL!]

Just saw this thread. Here is a study The Benefits of Low Correlation - Journal of Indexes on a 7-asset class retirement portfolio composed of Large US stocks, small US stocks, foreign stocks, intermediate bonds, cash, REITs, and commodities. Remarkably, Bob has it nailed in his post #14.

 

[Bikerdude]

I haven't looked at Vanguard , but I would like the flexibility to vary my funds in the future if I need, so Schwabb offers me that. Plus if I ditch BoA, I need real banking ability with locations, atm's, online account lookups. Seems Schwabb is th best choice, but I am open to others.

Schwab IMHO charges too much to buy Vanguard funds. This will be a problem when you rebalance each year. I use Schwab, but if I was doing the Vanguard portfolio mentioned I would use Vanguard.

 

[samclem]

Schwab IMHO charges too much to buy Vanguard funds. This will be a problem when you rebalance each year. I use Schwab, but if I was doing the Vanguard portfolio mentioned I would use Vanguard.

I agree. He could be with Vanguard Brokerage Services and buy the VGD funds at zero cost, plus have the flexibility to buy from other fund families (incl Schwab) as well. Since he's primarily got VGD funds now, this makes more sense. The costs add up.

 

[cute fuzzy bunny]

These deep allocations suffer from a major problem. A lot of the back-data is from times when these asset classes were thinly owned and not very liquid. Not sure if they behave the same way when Joe Investor buys and sells them with an ETF...

 

[Ed_The_Gypsy]

I am with Bikerdude.

I used to have everything with Schwab, but when I realized that my funds were all Vanguard and that Vanguard also had a brokerage, I moved it all to Vanguard. I have a couple of outside funds in the Vanguard brokerage now. (Not the cheapest brokerage, but I don't fiddle with those funds, so few fees.) I rebalance every year or two. EZ and cheap. Can't think of a good reason to use Schwab now.

 

[Alan]

Your proposed portfolio is about 55% stocks and 45% bonds/cash. To obtain a similar asset allocation using only Wellington and Wellesley, one has to have a portfolio composed of 67% Wellington and 33% Wellesley.

Almost all of our taxable money are in these 2 funds, I am very pleased with them - been in them 5 years. Also have my IRA in Wellesley.

 

[cute fuzzy bunny]

A split mix of wellington/wellesley is pretty cost efficient and pretty darn common. Its where I started when I quit buying individual stocks and went with funds.

For those who want a different graining of balance control, you can buy what amounts to the equity component of wellesley/wellington as a separate fund, managed by the same people (of course the holding amounts are a little different) and an intermediate bond fund and balance that way. Or buy a large cap value index and a short or intermediate bond index (or TIPS for that matter).

Alec did a bunch of analysis on the indexing option to show that there was no special 'magic' to wellesley/wellington other than convenience and reasonable pricing vs the index options. Performance can be tweaked with the two index options to simulate the returns of wellesley/wellington with a very small savings in ER.

 

[ESRBob]

Just saw this thread. Here is a study The Benefits of Low Correlation - Journal of Indexes on a 7-asset class retirement portfolio composed of Large US stocks, small US stocks, foreign stocks, intermediate bonds, cash, REITs, and commodities. Remarkably, Bob has it nailed in his post #14.

LOL
thx for posting this article -- just finished reading it and I think it does something important and new in quantifying the importance of low-volatility portfolios to retired investors who are drawing down their portfolios. Rather than just saying 'low volatility portfolios are good', though, it shows benefits in terms of reducing the maximum loss, and more importantly, showing how much longer it takes (and how much additional return you need) to restore portfolio to its original value after a loss when you are also withdrawing from the portfolio.

The star of this paper is the 7-sector fund which includes equal shares of Foreign and Domestic stocks and bonds along with cash, REITs and Commodities. Lowest volatility, highest return, lowest losses, fastest recovery. Not bad.

 

[Midpack]

Fascinating

For several years now, my portfolio has been built on what I read in Bernstein's Four Pillars of Investing. But this Low Correlation Portfolio article was fascinating to me. Only problem, so far I have found no way to add a "commodity" holding to my portfolio, I don't intend to trade directly but it would be nice to lower the correlation in my portfolio, especially now. I am seriously considering VGENX as the next best thing, but if you know of any commodity index funds (never even occured to me), thanks...

 

[LOL!]

Midpack, there is an entire asset allocation tutorial thread with info on where to find all the best places for the various asset classes including commodities: http://www.early-retirement.org/forums/f28/asset-allocation-tutorial-31324-2.html#post578722
If you have questions after reading that thread, why not post a question in that thread?

 

[Midpack]

Midpack, there is an entire asset allocation tutorial thread with info on where to find all the best places for the various asset classes including commodities: http://www.early-retirement.org/forums/f28/asset-allocation-tutorial-31324-2.html#post578722
If you have questions after reading that thread, why not post a question in that thread?

I'm new here so thanks for the redirect. Just read it and enjoyed it immensely, plenty for me to go research now...