Author Topic: Portfolio Overhaul  (Read 1005 times)

appleshampooid

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Portfolio Overhaul
« on: February 12, 2018, 01:36:48 PM »
Hi Mustachians,

I am doing a portfolio overhaul for my wife and I. The good news is that we're in a pretty good position (IMO) and have generally invested in low-cost index funds over the years. But several years ago I read The Intelligent Asset Allocator by William Bernstein and got into a complicated slice-and-dice allocation in my portfolios (before we were married and combined finances), with 7 asset classes including bonds. I love the theory of diversifying across assets with negative correlation to reduce risk, but in today's global economy it starts to feel like a fool's errand. All stocks are strongly correlated, etc.

The more I read and learn, the less inclined I am to keep this up, given the small (if any) benefit over a simpler approach and the effort required to keep it all balanced. I am thinking of going for a very basic portfolio, built on VTSAX or equivalent and VBTLX or equivalent. I want to mostly set it and forget it, with occasional rebalancing of course, but it's much easier when your rebalancing consists of one exchange vs. 6 or 7. Why not an international fund for the standard 3-fund lazy portfolio? Ehhh. I kind of agree with jlcollinsnh on this subject; US companies are heavily invested internationally already. I like VTSAX as a one stop shop for equity.

We are spread out across all kinds of accounts. At my first job, we got our RSUs through Charles Schwab so I started there. I have the bulk of my assets still at Schwab, both trad and Roth IRAs that have accumluated all of my 401(k) rollovers throughout the years, plus a taxable account. These accounts are currently all in the slice-and-dice model described above, although the taxable account is all out of whack since last year we sold a ton of stock to buy our house, and I went for tax efficiency (losses and LT gains first) over maintaining the perfect allocation in the remaining funds.

My wife started out at Vanguard and went for the super simple approach - all straight into VFINX/VFIAX. She has the same at Vanguard as I have at Schwab, both trad and Roth IRAs and a taxable account. She also owns some US savings bonds (Series I and EE), all with decent interest rates (we dumped the lower rate ones to contribute to our down payment). I will consider this total as part of our bond allocation. I also have a Vanguard Roth IRA that I rolled over from an individual 401(k) I started there when I was self employed for a short time.

Lastly we each have our current company 401(k)s with Fidelity. Both plans offer decent low-cost fund options. Hers is currently 100% invested in a Wells Fargo target-date fund that has a .07% expense ratio, but there are some vanguard index funds available (VIIIX VMCPX VSCPX). My account also has target date funds, but from Fidelity with expense rations in the .7% range, WTF. Probably some actively managed funds in there. So I have a simplified slice and dice approach here with some large cap/small cap/international/bonds.

Now I could rollover my IRAs from Schwab to Vanguard, but I'm not sure if it's worth the hassle. The nice thing about Vanguard offering so many bargain-basement funds is that they have forced most of the competition to do the same. For VTSAX I would use SWTSX. For VBTLX I would use SWAGX. The flip side is that I do believe in Vanguard's mission of being an investor-owned company, so maybe I should just bite the bullet and roll everything but my taxable account over.

I will also try to account for tax advantages in my overhaul by holding the bond funds in one of our IRAs.

So I guess I just rambled on a lot there, basically I'm looking for any glaring errors in my approach. Am I doing anything supremely stupid, or does it look sound given my desires and assumptions, etc. Thanks for reading. I posted this same thing over at Bogleheads so curious to see what differences I get in the responses :).

RWD

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Re: Portfolio Overhaul
« Reply #1 on: February 12, 2018, 02:34:39 PM »
Sounds like you're on the right track to me. Whatever your plan you should be sure to write it down as an investment policy statement so that you can continue to follow that in the future.

appleshampooid

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Re: Portfolio Overhaul
« Reply #2 on: February 12, 2018, 05:56:51 PM »
Sounds like you're on the right track to me. Whatever your plan you should be sure to write it down as an investment policy statement so that you can continue to follow that in the future.
I read about IPSs at Bogleheads and thought they were kind of silly. But the more I make changes in my plan and forget why I made them etc....I can see the benefit. You know what you're doing and why. You can stick to it.

I'm writing one now :)

MustacheAndaHalf

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Re: Portfolio Overhaul
« Reply #3 on: February 13, 2018, 07:19:25 AM »
Some of the most respected investors and investment minds agree with 0% international, like John Bogle and Warren Buffet.  But Vanguard itself provides target date funds with a 40% allocation to international, and that probably has more weight.  Same with other large brokerage houses holding billions in retirement assets.

Is slice and dice a hassle or enjoyable for you?  I assume you believe in it enough to want to continue it, but also wish it were simplified.  Let's say you pick two things that have done well historically, and keep only those.  You might pick US small/value stocks and emerging market stocks.  Most of your portfolio would be the index you already use (US Total Market, maybe Total International).  But you would use 10-25% of the portfolio to hold these other tilts.  That's one approach.

If you're really wanting the excitement, then it's better to have a very limited part of your portfolio as play money.  Maybe 1-5% that you can allocate in ways that will keep you distracted while the other 95-99% of your portfolio remains indexed.

appleshampooid

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Re: Portfolio Overhaul
« Reply #4 on: February 14, 2018, 12:29:47 PM »
Is slice and dice a hassle or enjoyable for you?
It was enjoyable when I set it up initially. But I was young and single back then, now I'm married with a kiddo. Not as much time or brain space to spend on these things.

Quote
If you're really wanting the excitement, then it's better to have a very limited part of your portfolio as play money.  Maybe 1-5% that you can allocate in ways that will keep you distracted while the other 95-99% of your portfolio remains indexed.
I've done this in the past, but I'm over it. Made some good money on marijuana penny stocks a couple years back. Was totally dumb gambling but I enjoyed it at the time. Now it would feel like gambling with my family's future as opposed to just my fun money. I do realize there is a difference between playing with penny stocks and playing with index funds :)

MustacheAndaHalf

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Re: Portfolio Overhaul
« Reply #5 on: February 15, 2018, 08:52:24 PM »
In that case, it sounds like you can pick 1-2 of your slices and stick with only those.  For someone far from retirement with 1/3rd international it might look like:

45% US Total Stock (ex: VTI)
15% US small cap value (ex: VBR)
30% Total International (ex: VXUS)
10% Total Bond (ex: BND)

You get some slice/dice (or tilt), but mostly stick with total market index funds.

SeattleCPA

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Re: Portfolio Overhaul
« Reply #6 on: February 15, 2018, 09:10:54 PM »
For what it's worth...

Bill Bernstein is a really smart guy. And though he can come across sort of grumpy sometimes in his writing, he is really savvy and ruthlessly quantitative and data-driven in his thinking. Further, I know from personal interactions with him that he is very motivated in his writing to share best practices and help you and me and everybody else improve our retirement plans.

I guess this is a long-winded way to say I'd either stick with a Bernstein-style approach... or go with a target retirement income approach (which is what I tout in the "Thirteen Word Retirement Plan" free download available via that link in my sig).

My blog Evergreen Small Business
My free downloadable ebook: Thirteen Word Retirement Plan

appleshampooid

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Re: Portfolio Overhaul
« Reply #7 on: March 28, 2018, 03:13:12 PM »
Was hemming and hawing since I came here for this post over the past month+, and finally decided today that I do want some international allocation. Decided to go with 20% of my total portfolio. So
70% US equities
20% international equities
10% US bonds

Putting the finishing touches on my final FINAL IPS now. Will post it for feedback etc. later.
« Last Edit: March 29, 2018, 04:19:15 AM by appleshampooid »