54 years old, been a DIY'er for years, outperform some years, underperform others. Forgotten how lousy I feel when i am at the helm and I underperform when there's a correction. I don't ever want this feeling again, and I'm giving up tinkering.
I've been doing lots of tossing and turning. I manage my wife and daughter's portfolios very conservatively but still a basic 60/40 ish stock bond setup with Vanguard funds. I don't touch their portfolios mroe than once a year. I did a little calculation and discovered that since 1-1-2020 my wife and daughter's portfolios only lost 10% while mine lost 15% ish. Why? My wife's is in 5-6 vanguard index funds, 17% cash (newest contribution), and I manage my "best girls" portfolios like my life depends on it (i.e. conservative and hands off, set it and forget it). Daughter's ROTH is 50% dividend growth, 50% STAR. Her UTMA is 100% Wellington. I USED to have my Vanguard account setup the same way, maybe slightly more complex but rarely fooled with it. Then converted it to brokerage and over the past year I've snuck in many 5K positions of "high income REITS, BDCs, MLPs, mREITS and CLO funds that I just couldn't pass up. All of which tanked $2 for every $1 of the S&P500 this week. I've finally made the irrevocable decision that I'm going to be a hands off index investor. A Boglehead, or nearly so. No more than 10 minutes a month rebalancing (if that).
The question now is how? I'm leaning toward this portfolio. Too complex? Can I just use Wellington or a 3 fund (TOTAL SM, TOTAL INT SM, TOTAL BOND) or will I get a better risk adjusted return this way? #1 goal is "80% of the return of the market with half the risk" (i.e. volatility, potential drawdown).
POSITION PERCENTAGE
TOTAL STOCK MARKET 20
SC VALUE 5
TOTAL INT'L STOCK MARKET 15
EMERGING MKTS 5
TOTAL BOND (INT?) 10
TIPS 10
ST BOND 10
FOREIGN (EM) BOND 5
REIT 5
BDC 5
GOLD 5
CASH 5
100
I love the idea of 3 fund or Wellington. I lean toward the 3 fund more because I can (and will) rebalance, and maybe get some rebalancing bonus that way or at least be able to withdraw retirement funds from whatever's doing the best. I did read on the bogleheads forum though, about low volatility world funds (Vanguard having one). I like the idea. Here is what I want, what is important to me, maybe you folks can guide me on the best approach: 1 or more of these desires or expectations might not be reasonable. Feel free to point that out of course!
1. Equity like returns but no special attachment to meeting or beating any particular benchmark as long as it's not too far below it. BUT with disproprtionately less volatiltiy. In other words, if I'm going to accept 10% less performance on average, I want 20% or more less volatility (I'm making those percentages up to illustrate the point)
2. Stress testing based on a Monte Carlo simulator which includes all big meltdowns should show this portfolio does not ever have a drawdown of more than 20%.
3. Side note: It strikes me at first glance as senseless to have any long-term bonds in a portfolio when 30 year treasuries are yielding less than 2%. I do realize that with the nature of zero coupon or very long term bonds, getting a rate cut from 2 to 1.5 can I can give a huge capital gain but I don't care ... it doesn't strike me as a good risk-reward picture to be invested in bonds that yield 1 or 2% but have a duration of 5% or more with rates this low. Can someone poke any holes in that? I know I know they're meant to anchor the portfolio and that nobody can time-to-market and so on but at certain valuations things cease to make sense. And if Vanguard Total Bond Fund (for example) is not a good choice due to the exposure to longer maturities in a low interest environment, what might replace it?
4. I want it to be simple. I am open to using managed funds if they have a long-term track record but I'm leaning toward index. For example I wouldn't lose any sleep worrying about leaving money on the table if every dime and my retirement account was invested in vanguard Wellington. But frankly I think even that is too volatile in a meltdown.
5. I would rather not do tactical asset allocation. I know it really can prevent big draw downs, but during bull markets it often vastly underperforms and so I would have to pay attention and check indicators, etc. deciding when to use it, when not to use it in such and that is antithetical to my goal which is do have a pretty much hands-off portfolio aside from making deposits and rebalancing. That's not to say I'm completely against it. If that's the only way to get to my goal of "80% of the return of the market with half the volatility" I'll do it. Perhaps when vanguard Total stock market dips below its 200-day exponential moving average I take 50% of it and move it to cash etc. Now I'm diversifying my investment style as well. 50% buy and hold & 50% TAA.
6. That being said, I did read about Larry Swedrow's research on low volatility strategies. Perhaps there's something simple along those lines I can use to reduce the volatility of a simple 2-4 fund portfolio?
Anyway, end of the story I'm going to simplify: I just want to make sure I "talk it all out" so I don't leave anything to wonder about (you know...6 months into having 400K in Wellington, that article about volatility management is still bugging me...)
Thank you for all your firm but gentle guidance you've given me thus far, and thank you in advance for any more that comes.
I've been doing lots of tossing and turning. I manage my wife and daughter's portfolios very conservatively but still a basic 60/40 ish stock bond setup with Vanguard funds. I don't touch their portfolios mroe than once a year. I did a little calculation and discovered that since 1-1-2020 my wife and daughter's portfolios only lost 10% while mine lost 15% ish. Why? My wife's is in 5-6 vanguard index funds, 17% cash (newest contribution), and I manage my "best girls" portfolios like my life depends on it (i.e. conservative and hands off, set it and forget it). Daughter's ROTH is 50% dividend growth, 50% STAR. Her UTMA is 100% Wellington. I USED to have my Vanguard account setup the same way, maybe slightly more complex but rarely fooled with it. Then converted it to brokerage and over the past year I've snuck in many 5K positions of "high income REITS, BDCs, MLPs, mREITS and CLO funds that I just couldn't pass up. All of which tanked $2 for every $1 of the S&P500 this week. I've finally made the irrevocable decision that I'm going to be a hands off index investor. A Boglehead, or nearly so. No more than 10 minutes a month rebalancing (if that).
The question now is how? I'm leaning toward this portfolio. Too complex? Can I just use Wellington or a 3 fund (TOTAL SM, TOTAL INT SM, TOTAL BOND) or will I get a better risk adjusted return this way? #1 goal is "80% of the return of the market with half the risk" (i.e. volatility, potential drawdown).
POSITION PERCENTAGE
TOTAL STOCK MARKET 20
SC VALUE 5
TOTAL INT'L STOCK MARKET 15
EMERGING MKTS 5
TOTAL BOND (INT?) 10
TIPS 10
ST BOND 10
FOREIGN (EM) BOND 5
REIT 5
BDC 5
GOLD 5
CASH 5
100
I love the idea of 3 fund or Wellington. I lean toward the 3 fund more because I can (and will) rebalance, and maybe get some rebalancing bonus that way or at least be able to withdraw retirement funds from whatever's doing the best. I did read on the bogleheads forum though, about low volatility world funds (Vanguard having one). I like the idea. Here is what I want, what is important to me, maybe you folks can guide me on the best approach: 1 or more of these desires or expectations might not be reasonable. Feel free to point that out of course!
1. Equity like returns but no special attachment to meeting or beating any particular benchmark as long as it's not too far below it. BUT with disproprtionately less volatiltiy. In other words, if I'm going to accept 10% less performance on average, I want 20% or more less volatility (I'm making those percentages up to illustrate the point)
2. Stress testing based on a Monte Carlo simulator which includes all big meltdowns should show this portfolio does not ever have a drawdown of more than 20%.
3. Side note: It strikes me at first glance as senseless to have any long-term bonds in a portfolio when 30 year treasuries are yielding less than 2%. I do realize that with the nature of zero coupon or very long term bonds, getting a rate cut from 2 to 1.5 can I can give a huge capital gain but I don't care ... it doesn't strike me as a good risk-reward picture to be invested in bonds that yield 1 or 2% but have a duration of 5% or more with rates this low. Can someone poke any holes in that? I know I know they're meant to anchor the portfolio and that nobody can time-to-market and so on but at certain valuations things cease to make sense. And if Vanguard Total Bond Fund (for example) is not a good choice due to the exposure to longer maturities in a low interest environment, what might replace it?
4. I want it to be simple. I am open to using managed funds if they have a long-term track record but I'm leaning toward index. For example I wouldn't lose any sleep worrying about leaving money on the table if every dime and my retirement account was invested in vanguard Wellington. But frankly I think even that is too volatile in a meltdown.
5. I would rather not do tactical asset allocation. I know it really can prevent big draw downs, but during bull markets it often vastly underperforms and so I would have to pay attention and check indicators, etc. deciding when to use it, when not to use it in such and that is antithetical to my goal which is do have a pretty much hands-off portfolio aside from making deposits and rebalancing. That's not to say I'm completely against it. If that's the only way to get to my goal of "80% of the return of the market with half the volatility" I'll do it. Perhaps when vanguard Total stock market dips below its 200-day exponential moving average I take 50% of it and move it to cash etc. Now I'm diversifying my investment style as well. 50% buy and hold & 50% TAA.
6. That being said, I did read about Larry Swedrow's research on low volatility strategies. Perhaps there's something simple along those lines I can use to reduce the volatility of a simple 2-4 fund portfolio?
Anyway, end of the story I'm going to simplify: I just want to make sure I "talk it all out" so I don't leave anything to wonder about (you know...6 months into having 400K in Wellington, that article about volatility management is still bugging me...)
Thank you for all your firm but gentle guidance you've given me thus far, and thank you in advance for any more that comes.
