Portfolio Thoughts

[Lsbcal]

The capitalization on Total Stock Market is 72/19/9 LC/MC/SC. Wellington and Wellesley seem to do quite well with large caps.

FWIW, our US split is 48/44/8 but is tilted to value stocks. Midcaps seem to do best (compared to large caps) when first coming out of a recession.

 

[mathjak107]

in this enviornment of uncertainty since the election and since bonds and gold sold off we changed strategy .

we went with the golden butterfly so we can profit up or down .

so far it has done very well , and the gold portion is our biggest gainer followed by small cap value .

20% s&p 500 IVV
20% SMALL CAP VALUE SLYV
20% GOLD TLT
20% TLT LONG TREASURY BONDS
20% SHY AND CASH

the long treasury bonds and shy/cash make a bond barbell which has a duration like a intermediate term bond fund but because flight to safety's are based on greed ,fear and perception their ability to soar far more than rates would dictate fly fighter cover for the portfolio .

each component is carefully matched to the other pieces so they perform pretty well as a cohesive unit .

going back to 1972 the butterfly actually surpassed a 60/40 mix in gains , had less losing years and smaller swings through quite a few variations of scenario's ..

 

[MrFlish]

Hello, I'm preparing to transfer my 401 upon retirement this year, to an IRA. One of the portfolio options I'm considering is shown below. I wanted to get some feedback and thoughts from the community.

Assumptions:
Portfolio initial balance ~1.3mm
Objective is biased towards captial preservation while allowing an opportunity for growth.
AA is 50/50, rebalanced annually
Investment window is 20-30 years
Annual withdrawal rate would be in the 3-5% range over that period.
Will have a fixed pension that will provide ~30% of the annual budget
SSN will provide ~25% of annual budget

VFIAX: Vanguard 500 Index 10%
VIMAX:Vanguard Mid-Cap Index 20%
VSMAX:Vanguard Sm-Cap Index 20%
VBTLX:Vanguard Total Bond Mkt. Index 50%

Thanks in advance...

After some further considerations I've made the following adjustment to my initial proposed structure.

VFIAX: Vanguard 500 Index 20%
VEXAX:Vanguard Extended Market Index 30%
VBTLX:Vanguard Total Bond Mkt. Index 50%

VEXAX gives me the sm/mid cap exposure that I was looking for with VIMAX and VSMAX while providing a more cost efficient portfolio.

New thoughts?

 

[mathjak107]

as i mentioned above , my feeling is at this point in time i did not just want to bet on prosperity and low rates in ordr to maintain positive returns so i decided to give up some upside in an up market for the ability to have upside in a down market too .

that isn't to say at some point in the future i won't switch back to a more conventional mix but for now we can teeter totter either way just as easily.

being retired i want to tighten up the swings more . as i learn more and more about portfolio construction i am learning you can get the same average returns taking a path with steeper valley's and higher peaks or take a smoother path to even a higher return that may be more direct with tighter draw downs .

 

[pb4uski]

After some further considerations I've made the following adjustment to my initial proposed structure.

VFIAX: Vanguard 500 Index 20%
VEXAX:Vanguard Extended Market Index 30%
VBTLX:Vanguard Total Bond Mkt. Index 50%

VEXAX gives me the sm/mid cap exposure that I was looking for with VIMAX and VSMAX while providing a more cost efficient portfolio.

New thoughts?

You still have a significant tilt to small/mid caps... the total market is 65% large cap/35% mid/small caps and your proposed AA is 40% large cap/60% mid/small caps. As long as you are doing it with your eyes wide open, then fine... but IMO you are trading more volatility for negligible incremental return.

3, 5 and 10 year charts of $10,000 with dividends reinvested for VTSAX, VFIAX and VEMAX:

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

 

[Huston55]

we went with the golden butterfly so we can profit up or down .

so far it has done very well , and the gold portion is our biggest gainer followed by small cap value .

20% s&p 500 IVV
20% SMALL CAP VALUE SLYV
20% GOLD TLT
20% TLT LONG TREASURY BONDS
20% SHY AND CASH

How long have you done this & why'd you choose it versus a Harry Browne "Permanent Portfolio"?

Will you remain in it throughout your retirement horizon?

 

[mathjak107]

i did this near the lows on tlt and gld after the election sell off .

the permanent portfolio in my opinion is a miss-match of asset allocations in the real world .

it bets equal amounts of money on scenario's that are anything but equal at playing out . that has hurt it , especially the last 5 years .

the gb is very growth oriented . not only is it 40% in stock but the small cap value 600 index is as volatile as can be . it acts leveraged as it moves two to 3x the s&p 500.

you can't even say the pp is low volatility anymore . imagine if you decided to use it after brexit . by years end you had close to double digit losses buyingthen . just at the time someone inclined to leave equity's for lower volatility would have done so .

i do believe stocks will still be the best performer so the gb is a whole lot more of the balance i want .

 

[MrFlish]

You still have a significant tilt to small/mid caps... the total market is 65% large cap/35% mid/small caps and your proposed AA is 40% large cap/60% mid/small caps. As long as you are doing it with your eyes wide open, then fine... but IMO you are trading more volatility for negligible incremental return.

3, 5 and 10 year charts of $10,000 with dividends reinvested for VTSAX, VFIAX and VEMAX:

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

Don't disagree with your points at all. My curiosity and question is what effect does the bond fund have when it's included in the mix. I used the portfolio backtesting tool at portfolio visualizer to run an analysis between 2001 and 2016 to see not so much the difference in gains/losses but rather the dampening effect, if any, caused by the bond fund allocations. When you change the allocation ratios around you get results that surprised me and ultimately got me to the mix I settled on above.

I'm wondering a few things now...
1. I'm I interpreting the backtest data incorrectly?
2. Does allocating a certain percentage of bonds really dampen equity volatility and if so does it allow you to hold more volatile equities successfully.
3. How the heck do I determine if my risk level aligns with my ability to make my estimated budgets going forward 30 years...

 

[MrFlish]

Here's the data showing the 3 different allocations...

 

[JohnnyBGoode]

Related question (I'm just curious) - you've got 1.3MM in a tax-deferred 401K account? I may be really dense here, but can I ask at a high level how you were able to accumulate that much - even maxing out annual contributions with a generous corporate match that seems super high value. Was there company stock in there or something that took off?

 

[MrFlish]

Related question (I'm just curious) - you've got 1.3MM in a tax-deferred 401K account? I may be really dense here, but can I ask at a high level how you were able to accumulate that much - even maxing out annual contributions with a generous corporate match that seems super high value. Was there company stock in there or something that took off?

The 1.3mm breaks down like this

~470k in an IRA from an old employer 401k
~400k from current employer 401k
~435 from DW's current employer 401k

The two remaining 401's will get transferred to respective IRA's later this year upon retirement.

Nothing special in the funds over our career really. We max'ed our 401's early in our career's and lived a modest lifestyle, no debts, own our home now, this year!!! We generally would review the funds each year and made adjustments based on our very limited knowledge of investments. I think the key was making the max contributions as soon as possible and staying the course over 34 years...

We've got close to two years budgeted expenses in simple savings and if the severance package I'm looking at pays out as planned we'll have the third year in the bag by the end of the year. At 57 we're ready to make the transition.

 

[NW-Bound]

Related question (I'm just curious) - you've got 1.3MM in a tax-deferred 401K account? I may be really dense here, but can I ask at a high level how you were able to accumulate that much - even maxing out annual contributions with a generous corporate match that seems super high value. Was there company stock in there or something that took off?

Not bragging, but our 401k's are higher than that. No stock options, and only the usual 50% corp matching. Investment choices were the usual ho-hum MFs. And I was too ignorant and conservative to go 100% equity. And my wife retired at 50, and I left megacorp at 40 to strike out on my own, hence no more 401k contributions after those dates. We did always max out the contributions though.

We were fortunate to be working and saving during the great market bull run of 1982-2000. Still kicking myself for not paying attention and being too conservative during that time.

 

[target2019]

I've noticed that using VEXAX with the analyzer has the effect of limiting the data. 1985 through 2000 is not used.

 

[MrFlish]

I've noticed that using VEXAX with the analyzer has the effect of limiting the data. 1985 through 2000 is not used.

I think it has to do with the dates the funds that are compared existed. I think the time frame I had to use was 2001 to present.

 

[target2019]

I think it has to do with the dates the funds that are compared existed. I think the time frame I had to use was 2001 to present.

Yes. I think it is better to have the additional 15 years of data for your analysis. Meaning, use two funds instead of the completion fund. When you actually decide, it's your option which way to go.