What do you guys think of this portfolio?

[FANOFJESUS]

For a person that is 50 years old and wants some Reits and Natural Resources how would this portfolio be. No debt and in the 15% tax bracket. Have room in non taxable for BSV and VNQ. Tweaks welcome.

Vanguard Total Stock Market... VTI 30%
Vanguard FTSE All-World ex-US... VEU 12%
Vanguard Short-Term Bond ETF BSV 50%
Vanguard REIT (ETF) VNQ 4%
iShares S&P NA Nat. Re. Sc... IGE 4%

 

[M Paquette]

Well, you've got effectively a 50/50 split between stocks and bonds, a reasonable conservative allocation for your age.

On the equities side, you have 24% foreign, 76% domestic (assuming you are a US person), which is reasonable. The 'sweet spot' on the risk/return efficient frontier for the past 30 years is around 30% foreign, and is pretty broad, with anything from 20-40% looking reasonable.

Putting the least tax-efficient bond and REIT funds, BSV and VNQ, over in a tax deferred account is the right thing to do.

If you are going for a moderately conservative portfolio spiced up with REITs and natural resources, this looks just fine.

 

[walkinwood]

That's as good a portfolio allocation as I've seen, but I'm no expert.

From my reading:

Swedroe and Ellis suggest using Treasuries or TIPS in your bond portfolio because corp bonds are correlated to equities. My bond portion is 5% (of portfolio) TIPS and 35% ST. Corp bonds. I plan to migrate to treasuries/TIPS as the opportunities open up.

Ellis, Malkiel & others suggest a higher allocation to ex-US equities and favor a small exposure to emerging markets.

 

[FANOFJESUS]

I like TIPS but the Average duration of 5.7 years worries me if rates start rising. You bring up a great point about treasuries but right now they are high because of the flight to safety. The treasuries did great in this down turn. In normal times short term treasuries would look great right now.

 

[FANOFJESUS]

Well, you've got effectively a 50/50 split between stocks and bonds, a reasonable conservative allocation for your age.

On the equities side, you have 24% foreign, 76% domestic (assuming you are a US person), which is reasonable. The 'sweet spot' on the risk/return efficient frontier for the past 30 years is around 30% foreign, and is pretty broad, with anything from 20-40% looking reasonable.

Putting the least tax-efficient bond and REIT funds, BSV and VNQ, over in a tax deferred account is the right thing to do.

If you are going for a moderately conservative portfolio spiced up with REITs and natural resources, this looks just fine.

I read that owning about 20% foreign and 80% domestic has less risk than 100% domestic. Owning about 30% foreign is about the same risk as 100% domestic.

 

[ziggy29]

I read that owning about 20% foreign and 80% domestic has less risk than 100% domestic. Owning about 30% foreign is about the same risk as 100% domestic.

Depends on how much of the foreign is developed markets and how much is emerging. Generally I prefer about 2/3 domestic and 1/3 international, with about 2/3 of the international piece being developed and about 1/3 of it emerging.

 

[FANOFJESUS]

You are right Ziggy that foreign emerging risk is spelled with a capital R.

 

[charlie]

rec7, I think your choices are just fine if they suit your risk tolerance
and goals.

Personally at your age I would consider being a little more agressive
in the amount allocated to equity and would lean toward a 30% allocation
of your total equity to foreign.

Also, for simplicity sake in your taxable account, I would suggest you
use a balanced fund as your core holding. A balanced fund does the
rebalancing for you automatically and avoids the tax consequences
of selling to rebalance. Yes, you will have to pay taxes on income
thrown off, but you could reduce this by using Vanguard's Tax Managed
Balanced Fund (50% Total Stock Market & 50% tax exempt bonds) or
something like Vanguard's new Managed Payout fund that pays 3% of
the trailing 3 year average NAV.

Personally, I like the 3% Managed Payout idea better because it is
more diversified than Vanguard's other balanced funds and the foreign
equity is closer to 30%.

You can always spice up your IRA with REITs, commodities, foreign,
energy, etc. to your heart's content and change your mix as you
grow older and "wiser" .

Believe me, your investment ideas will change as you mature as an
investor. You need to use your IRA as the place to "experiment"
around the edges of your core holdings and keep your taxable
account simple and consistent.

Of course, all of the above is just my opinion and I am not an expert.

Cheers,

charlie