-12% YTD. Thoughts on these holdings?

[mikes425]

Just assessing the specifics of my YTD losses on what was, on paper, a 2.4M all-time high value of investment assets in January. Down abt. 12% from there, YTD. I have it on good authority that this is not terribly out of line with the average for a "moderate" PF. My occasional/hourly FA never recommended any fundamental shift in my AA of roughly 50/50; that is, never advised any reduction of bond fund positions - just to modify duration to short & intermediate term. Fixed Income holdings consist of a well diversified mix of ultra short to intermediate bond funds - largely TIPS, ST Treasury, ST Corporate, some Muni. I'm debt free, 64, semi-retired and have dividend income at present around 60k/yr. The frustration is having ridden down NAV losses in bond funds to the tune of roughly 10k for each. I'm listing some of these biggest losers and would be interested in any thoughts on whether any of them send up a 'red flag' as far as continuing to hold "after" the damages of their NAV losses - to collect the dividend income and what kind of timeframe I should realistically figure on to recoup the losses.

VNQI -27%
MSD-28%
EDD -27% (EM Bond)
VWOB-23%
BAB -16%
WIW -11%
MSD -12%
VGIT -10%
Bonus Losses:
Small recent equity energy 'plays' that have subsequently promptly tanked:
MP -22%
CCJ -15%

Thanks for any thoughts! Always enjoy the helpful conversation on this forum and best of luck to all investors!

Mike

 

[TheWizard]

-12% is pretty good.
I see nothing to complain about...

 

[RobbieB]

Yes, your authority is good.

 

[audreyh1]

I have a widely diversified portfolio of mutual funds, much of which are index funds, around 50/50 AA and I’m down around 12% year to date. Yours seems in line.

 

[yakers]

Looks OK to me, down 11.04%YTD, AA55/28/17

 

[target2019]

What answer does the FA have for your questions? For example, you have a benchmark, and either meet that, or miss it. Since these are his picks, he should have a good answer as to why the portfolio under- or over-performs your benchmark.

Here's what highly regarded fund managers have for performance at this time. 50/50.
https://www.portfoliovisualizer.com...location1_1=50&symbol2=VWINX&allocation2_1=50

That's a 50/50 balanced portfolio. Can be tweaked any way you like. You can change the start year to yours to see how you fare.

 

[Car-Guy]

Just curious, does the -12% include your FA fees?

Rhetorical...

 

[Closet_Gamer]

My only question is why you have so many different positions? If I read you're post right, these are the "big losers" which implies you have several other positions in your portfolio. as well.

Feels overly complicated. You have as many positions listed in your OP as I have in my entire portfolio and the reality is that I could dial back my complexity with little harm.

-12% in itself isn't a reason to change the AA unless you've underperformed a benchmark for a similarly volatile portfolio.

I would question the FA on the purpose of the complexity and whether the risk/yield on the various funds is worth it.

Good luck.

 

[friar1610]

Also down about 11% on a 50-50 port at the beginning of the year. About 23% of fixed is in I-Bonds which helped soften the hit to bond holdings.

 

[OldShooter]

My only question is why you have so many different positions? If I read you're post right, these are the "big losers" which implies you have several other positions in your portfolio. as well.

Feels overly complicated. You have as many positions listed in your OP as I have in my entire portfolio and the reality is that I could dial back my complexity with little harm.

-12% in itself isn't a reason to change the AA unless you've underperformed a benchmark for a similarly volatile portfolio.

I would question the FA on the purpose of the complexity and whether the risk/yield on the various funds is worth it.

Good luck.

This!

1) One of every FA's objectives is to have their clients believe that investing is difficult and complicated, hence the client could not possibly do it himself. The way this is typically done is to invest in far more things than is necessary. I reviewed a non-profit's financial statements one time and was quite amused to find over 200 stocks held with only $15M or so in the account. (I got bored and stopped counting at 200.)It certainly looked complex and intimidating, but the same account performance could almost certainly have been achieved by holding one US total market fund. So, @mikes425, I think you are probably a victim of this.

2) Diversification is often misunderstood. The idea of diversification is to blend assets with weak or negative correlations. Buying multiple funds that invest in the same stuff does not do this. Two S&P 500 funds, for example, have a correlation coefficient of 1.0 subject to tiny tracking errors. Even an S&P 500 fund and a total US market fund have near 1.0 correlation because the S&P so dominates the market. So holding a bunch of broad index funds is a waste of effort. You just need one. If you hold a broad index fund and then add some kind of sector fund (index or not), you are actually reducing your diversification to the extent of the tilt.

Nassim Taleb says: "Don't tell me what you think. Show me your portfolio." OK. On the equity side we are 95% in VTWAX. We hold basically all the stocks in the world -- 9,488 of them according to Vanguard today. There is no way to be more diversified than this. In fact, anything we might buy, other than another world fund, would reduce our diversification.

 

[Dash man]

You didn’t say whether these are in taxable accounts or tax deferred. If taxable, you may want to harvest some tax losses. One way would be to sell the funds for the tax loss, then reinvest into individual bonds. That way you also avoid the fund fees, and in case of a further bond market sell off, you can hold the bonds to maturity to salvage your principal.

 

[mikes425]

What answer does the FA have for your questions? For example, you have a benchmark, and either meet that, or miss it. Since these are his picks, he should have a good answer as to why the portfolio under- or over-performs your benchmark.

Here's what highly regarded fund managers have for performance at this time. 50/50.
https://www.portfoliovisualizer.com...location1_1=50&symbol2=VWINX&allocation2_1=50

That's a 50/50 balanced portfolio. Can be tweaked any way you like. You can change the start year to yours to see how you fare.

Hi, thanks for the replies. FA is basically saying I'm doing better than average with a 50/50 AA and that using the AGG bond benchmark is a little skewed because my bond fund mix doesn't really resemble that index...

 

[mikes425]

Just curious, does the -12% include your FA fees?

Rhetorical...

No major fees involved. FA is hourly. I meet maybe 3x a year on my own initiative. Actually with his assistance I must say that my total PF value has essentially doubled since 2009-ish. Usually very little is changed from one meeting to the next..just some tweaking 'at the margins' -

So the fees are pretty nominal in comparison to say, a typical "1% AUM/year type of arrangement which i never want to enter into unless someone could convince me they'd make it worth it to go that route.

 

[mikes425]

This!

1) One of every FA's objectives is to have their clients believe that investing is difficult and complicated, hence the client could not possibly do it himself. The way this is typically done is to invest in far more things than is necessary. I reviewed a non-profit's financial statements one time and was quite amused to find over 200 stocks held with only $15M or so in the account. (I got bored and stopped counting at 200.)It certainly looked complex and intimidating, but the same account performance could almost certainly have been achieved by holding one US total market fund. So, @mikes425, I think you are probably a victim of this.

2) Diversification is often misunderstood. The idea of diversification is to blend assets with weak or negative correlations. Buying multiple funds that invest in the same stuff does not do this. Two S&P 500 funds, for example, have a correlation coefficient of 1.0 subject to tiny tracking errors. Even an S&P 500 fund and a total US market fund have near 1.0 correlation because the S&P so dominates the market. So holding a bunch of broad index funds is a waste of effort. You just need one. If you hold a broad index fund and then add some kind of sector fund (index or not), you are actually reducing your diversification to the extent of the tilt.

Nassim Taleb says: "Don't tell me what you think. Show me your portfolio." OK. On the equity side we are 95% in VTWAX. We hold basically all the stocks in the world -- 9,488 of them according to Vanguard today. There is no way to be more diversified than this. In fact, anything we might buy, other than another world fund, would reduce our diversification.

Thanks, I always anticipate this reaction re: number of funds held and the probability that it is in fact needlessly complex. I've raised this quantity of funds issue MANY times over the years and his position has always been that so long as the overall ER isn't excessive, the # of funds shouldn't concern me as much as it has... and that each position is fulfilling some role in overall diversification. I can't argue of course, against the fact that simply holding a single balanced fund I'd have outperformed this portfolio. Maybe it's time for a major change but doing so would entail quite a bit of careful navigation to manage the tax consequences of wholesale exiting of everything in the mix. I appreciate your perspectives as always!

 

[mikes425]

My only question is why you have so many different positions? If I read you're post right, these are the "big losers" which implies you have several other positions in your portfolio. as well.

Feels overly complicated. You have as many positions listed in your OP as I have in my entire portfolio and the reality is that I could dial back my complexity with little harm.

-12% in itself isn't a reason to change the AA unless you've underperformed a benchmark for a similarly volatile portfolio.

I would question the FA on the purpose of the complexity and whether the risk/yield on the various funds is worth it.

Good luck.

ha, and the positions I listed are just on the fixed income side...and not 'all' of them at that... Perhaps it's finally time for a major change -- a little hard to jump ship with him at this point with the market as unpredictable as it likely will be for the near to intermediate term.

I must say he provides sensible guidance from a psychological standpoint in having helped me to increase my risk tolerance over the years from around 30% equity to close to 50% --and has 'talked me down' from what many would consider impulsive moves; essentially advocating to (insert hackneyed B&H catchphrase here..'stay the course' -don't watch the daily ups and downs, play the 'long game' etc) . As mentioned elsewhere, my own risk aversion was at fault for muted returns post-2008-09, and of course there's no value in regretting never raising the equity exposure much higher than the 35% range when I was only in my 40s but yeah, a big "oh well" on that.

That said I am not uncomfortable with a 60k dividend income and total PF valuation holding just about 2M (2.1M down from 2.5M in January) and no debt or major obligations. Preservation does come into play for me at age 64 but i doubt i'll choose to reduce equity much below 50% ever again.

My greatest concern, TBH is the prospect of NAV of the overall PF realizing any signficant 'erosion' from here - There's a psychological 'thing' about the 2M figure which has felt reassuring. I suspect that even with the complexity here, it's probably sufficient to safely generate at least 4-5% annual return and the div. income. My spend in recent years has been running around 45k/year in a low COLA market area. I'll be medicare eligible in a year + good for about 19-20k/year in SS at age 66-67 if the political wrecking crew doesn't try to screw me out of what I paid into and am absolutely entitled to - but that's another discussion. : )

Thanks for your the helpful insights as always

 

[OldShooter]

Hi, thanks for the replies. FA is basically saying I'm doing better than average with a 50/50 AA and that using the AGG bond benchmark is a little skewed because my bond fund mix doesn't really resemble that index...

That is complete bulls#it. It would be almost impossible for him to do the detailed analysis necessary for those to be valid conclusions.

One ubiquitous error that we see here too is the mixing of equities and fixed income in the same account. When you mix the red Kool-Aid and the green Kool-Aid in a single glass it is impossible to be sure which is responsible for the resulting color and taste.

I suggest that you start by opening at least one additional account for the biggest of your portfolio accounts and segregating the fixed income and the equities. Do that by the end of this quarter so that beginning next quarter you can benchmark each of the tranches sensibly.

Regarding the complexity, the next steps are not hard. No tax consequences in the sheltered accounts so just start consolidating. In taxable accounts, hopefully this down market has given you some losses to harvest and move the dough to the funds you really want. No wash sale worries there. From there, bite the tax bullet on small holdings just to get your count down. Finally clean things up over the next few years as the spirit and your cash needs move you.

If you're uncertain about strategy there is a lot to be learned over at bogleheads.com. If you prefer dead trees as I do, start with "The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365 , then try "The Bogleheads' Guide to the Three-Fund Portfolio" https://www.amazon.com/Bogleheads-Guide-Three-Fund-Portfolio-Outperforms/dp/1119487331

The industry devotes immense efforts towards convincing people that investing is difficult and it is necessary for the average investor to enrich investing priests and witches. It is not hard and the priests and witches are already rich enough. Good luck to you!

 

[Bamaman]

I'd be happy to be just down 12%.

My problem is that I've got to draw out substantial RMD's before the end of this year, and the amount to withdraw is based on when my portfolio was worth so much more.

My RMD's are going to be a double whammy. What's so bad (or good) is that I've made it to age 72 without needing to withdraw any of the IRA funds. And I really have no need for the funds for another 3 years or so.

 

[plex]

I looked...things were much better a week or two ago, right now I'm -12% in my more conservative taxable account, and -18% in my aggressive IRA account (it was slightly positive at one point a week or two ago).

 

[friar1610]

I'd be happy to be just down 12%.

My problem is that I've got to draw out substantial RMD's before the end of this year, and the amount to withdraw is based on when my portfolio was worth so much more.

My RMD's are going to be a double whammy. What's so bad (or good) is that I've made it to age 72 without needing to withdraw any of the IRA funds. And I really have no need for the funds for another 3 years or so.

I would like to be able to take credit for my investing brilliance and foresight on this, but it was just dumb luck…

Several years ago Navy Federal CU was offering a really good deal on IRA CDs - 3.75% for 3 years or so with the ability to add money at any time. At that time our IRAs were 100% VG TBM. My wife and I each transferred a chunk into those CDs and they mature in Sept. Since TBM has dropped in value, we’ll take our RMDs in Sept from the newly redeemed CDs. And (lesson learned) we'll set aside several years of RMDs in another CD, a Treasury or a shorter duration (than TBM) bond fund. I had always ignored the admonition to peg duration to the need for the money. But I’ve now had a good lesson that I need to keep some more readily available funds for RMDs since the duration of TBM is a tad long.

 

[HarryHawk]

Just assessing the specifics of my YTD losses on what was, on paper, a 2.4M all-time high value of investment assets in January. Down abt. 12% from there, YTD. I have it on good authority that this is not terribly out of line with the average for a "moderate" PF. My occasional/hourly FA never recommended any fundamental shift in my AA of roughly 50/50; that is, never advised any reduction of bond fund positions - just to modify duration to short & intermediate term. Fixed Income holdings consist of a well diversified mix of ultra short to intermediate bond funds - largely TIPS, ST Treasury, ST Corporate, some Muni. I'm debt free, 64, semi-retired and have dividend income at present around 60k/yr. The frustration is having ridden down NAV losses in bond funds to the tune of roughly 10k for each. I'm listing some of these biggest losers and would be interested in any thoughts on whether any of them send up a 'red flag' as far as continuing to hold "after" the damages of their NAV losses - to collect the dividend income and what kind of timeframe I should realistically figure on to recoup the losses.
.
.
.


Thanks for any thoughts! Always enjoy the helpful conversation on this forum and best of luck to all investors!

Mike

My total assets are pretty much in the same ballpark as yours. My FA did make some significant shifts late last year, going mostly to cash. I'm still down 3.5% ytd. (and I'm not getting the 60K dividend income you do)

 

[target2019]

What answer does the FA have for your questions? For example, you have a benchmark, and either meet that, or miss it. Since these are his picks, he should have a good answer as to why the portfolio under- or over-performs your benchmark.

Here's what highly regarded fund managers have for performance at this time. 50/50.
https://www.portfoliovisualizer.com...location1_1=50&symbol2=VWINX&allocation2_1=50

That's a 50/50 balanced portfolio. Can be tweaked any way you like. You can change the start year to yours to see how you fare.

Hi, thanks for the replies. FA is basically saying I'm doing better than average with a 50/50 AA and that using the AGG bond benchmark is a little skewed because my bond fund mix doesn't really resemble that index...

Eventually you will come to the conclusion that the gyrations and morphology of your investments will not put you ahead or behind of what the market can deliver. You may eventually accept that and simplify your investments.

An asset allocation of 50/50 can only deliver so much over longer periods. At any moment in time we can look at AGG vs. your mix, or whatever else a FA decides for you. But my opinion is that all of the needless complexity makes an investor very nervous all the time, or left in bewilderment as to how the parts work together.

From personal experience and analysis of what FA's do, I've found that one problem for the investor is that the advice you get is just mirroring of what you ask for.

In my own test of a relative's dependence on FA recommendations vs. my simple approach, I am $64K ahead of the FA after 5 years. Add in the AUM fees and I appear to be a great advisor. But I am not, and just following the basic principles of Bogle, Bernstein and others.

The idea of paying for advice that I can myself develop through discussion and reading is something I've never felt comfortable with. But I do see that some need the hand-holding or understanding of the basics.

 

[Dtail]

Eventually you will come to the conclusion that the gyrations and morphology of your investments will not put you ahead or behind of what the market can deliver. You may eventually accept that and simplify your investments.

An asset allocation of 50/50 can only deliver so much over longer periods. At any moment in time we can look at AGG vs. your mix, or whatever else a FA decides for you. But my opinion is that all of the needless complexity makes an investor very nervous all the time, or left in bewilderment as to how the parts work together.

From personal experience and analysis of what FA's do, I've found that one problem for the investor is that the advice you get is just mirroring of what you ask for.

In my own test of a relative's dependence on FA recommendations vs. my simple approach, I am $64K ahead of the FA after 5 years. Add in the AUM fees and I appear to be a great advisor. But I am not, and just following the basic principles of Bogle, Bernstein and others.

The idea of paying for advice that I can myself develop through discussion and reading is something I've never felt comfortable with. But I do see that some need the hand-holding or understanding of the basics.

+1
It is hard to conceive that one can do as well or better than a professional who gets paid for the same work.
For an example, no matter how much one studies how to remove a gallbladder, one would never perform that surgery or entrust a non doctor to do it.
So many folks feel the same way about FA's, in that one couldn't possibly have the same results as an FA who has been professionally trained.
However it is not the same as the doctor credentials example. This is the key point here.

 

[pb4uski]

No major fees involved. FA is hourly. I meet maybe 3x a year on my own initiative. Actually with his assistance I must say that my total PF value has essentially doubled since 2009-ish. ...

But a $100 50/50 index portfolio in Jan 2009 would be $287 at the end of June 2022 and a $100 50/50 index portfolio in Jan 2010 would be $245 at the end of June 2022... so $200 would be poor by comparison.

 

[OldShooter]

+1
It is hard to conceive that one can do as well or better than a professional who gets paid for the same work.
For an example, no matter how much one studies how to remove a gallbladder, one would never perform that surgery or entrust a non doctor to do it.
So many folks feel the same way about FA's, in that one couldn't possibly have the same results as an FA who has been professionally trained.
However it is not the same as the doctor credentials example. This is the key point here.

Yes, this is what keeps FAs in business. Also people's feelings that they just do not want to mess with the financial stuff, especially when they don't understand what the FA is costing them in fees and underperformance. Sad, but I cannot be my brother's keeper.

 

[aja8888]

Yes, this is what keeps FAs in business. Also people's feelings that they just do not want to mess with the financial stuff, especially when they don't understand what the FA is costing them in fees and underperformance. Sad, but I cannot be my brother's keeper.

How true!

I have several retired friends who use an FA because they don't have a clue as to what the "markets" are all about. Some are engineers, one a HR exec., one a postman, and a ex-Army West Point Colonel, and so forth. Clueless on the market and couldn't tell you the difference from a stock vs. bond.

If I knew what I know now, and was just starting out, I would have become an FA and advised (milked) these types of guys until I could afford a yacht and my own personal island. It would be that easy.

Instead, I became an engineer...