Author Topic: Advisor Uses a "Globally Diversified 60/40" Index - How to compare performance?  (Read 2970 times)

PartTime

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I am just looking over the quarterly performance report for my investment account (ending 12/31/15), which my investor sent me.

Since inception (the period is 3/7/14 to 12/31/15) my return (after his fee = 1% per year) is 0.34%.

For index comparison he uses "Globally Diversified 60/40" and for the same period is 1.81%.

I cannot find a ready source for his Globally Diversified 60/40 figure. I have asked him, but I must not have understood how/where the figure is derived.

All the funds in my portfolio are from DFA (Dimensional Fund Advisers).

Is there another benchmark for a globally diversified 60/40 portfolio that I can use?

Is there a way I can compare the return from a Vanguard or Fidelity globally diversified fund that is 60/40?

Funds in the portfolio use tax loss harvesting, so maybe there is some additional benefit from this portfolio. However, I want to look for evidence that this portfolio/plan is the best way for me to have globally diversified 60/40.

Thank you

Financial.Velociraptor

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Sounds like it is about benchmark despite the high fee.  S&P was down nominally last year but up a tiny hair after dividends. 

Is that 60 bonds or 60 equity?

At any rate, you can probably do better with two Vanguard funds split 60/40?  I am skeptical he is worth the high fee.

Heckler

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Your currency will play a major role unless you're hedged. 

See here for the $CAD version for 2015.  Remember, this depends on 100% of funds invested Jan 1 to Dec 31, 2015. 

http://canadiancouchpotato.com/2016/01/11/couch-potato-portfolio-returns-for-2015/

Heckler

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And an advisor worth his salt will also provide the index comparison.   It took me a few years to wrap my head around this little gem of a number. 

Here's the gist - your advisor resulted in 1.47% less return than had you invested in a similar index fund.  You can make that same diversifies index fund yourself and increase your returns by 1.47% in the same period of time.  With a ten year period and a $10,000 starting value, that would result in $1582 additional returns in your pocket instead of his.   

Is that worth learning how to manage your portfolio?
« Last Edit: January 20, 2016, 10:14:44 PM by Heckler »

Heckler

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Start your journey of learning here.

https://www.bogleheads.org/wiki/Getting_started

MustacheAndaHalf

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I'd recommend reading a book by Larry Swedroe before you give up on Dimensional Fund Advisor (DFA) funds.  I can't invest in them, but for the right fee I'd consider it.  There might be other DFA advisors who charge less than 1%, so that's something to investigate.

I personally own Vanguard, but my understanding is that DFA emphesizes small cap stocks and value stocks moreso than similar named Vanguard funds.  Take a look at morningstar's "portfolio" tab for "Vanguard Small Cap Value" and the equivalent DFA fund to see what I mean.

Most people who say 60/40 global portfolio probably mean:
40% US Total Stock Market index
20% Total International index
40% Total Bond index

And at least according to portfolio visualizer, that earned -0.64% in 2015.  If you're questioning your allocation over a small drop, an advisor might be a real value for you.  If they keep you invested when you want to sell and own more bonds, they could add to your returns.  But if you can stomach tough market volatility you might think about lower fees.  I suppose it comes down to what triggered you the last time you sold mutual funds.

Physicsteacher

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Vanguard Lifestrategy Moderate Growth (VSMGX) could be a reasonable benchmark for comparison. It's 60/40 equity to bond, and 40% of equities are non-U.S.

tj

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Vanugard LifeStragey would not be a benchmark for DFA. DFA has a heavy small/value tilt. Also, there are plenty of advisers who charge much less than 1% for DFA.

www.evansonassetmanagement.com is one.

a good benchmark might be DFA's 60/40 fund, DGSIX, https://us.dimensional.com/strategies/global-strategies/global-strategies/global-allocation-6040-portfolio-%28i%29.aspx

Interest Compound

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Is there another benchmark for a globally diversified 60/40 portfolio that I can use?

Is there a way I can compare the return from a Vanguard or Fidelity globally diversified fund that is 60/40?

Unless you were actively looking for a small/value tilt (and it doesn't seem like you were), I agree that a proper benchmark is Vanguard Lifestrategy Moderate Growth (VSMGX). This will show you how well DFA's bet (and make no mistake, it's a bet with your money) that small/value will outperform the overall market is going, and see if they can justify their significantly higher than normal fee.


PartTime

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Is that 60 bonds or 60 equity?


It was 60 equity and 40 bonds a year ago.
Currently it is about 46 equity and 51 bond

PartTime

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Start your journey of learning here.

https://www.bogleheads.org/wiki/Getting_started

I looked at the discussion on this page: https://www.bogleheads.org/wiki/Vanguard_four_fund_portfolio

and the 4-fund mix mentioned on this link is used in a fund that Vanguard offers that would seem appropriate for me: Target Retirement 2030 (VTHRX).

My thought is my financial adviser should be able to do better than VTHRX, to justify his fee. He has given my other helpful advice to help me get started, but I don't need hand-holding. I expect the market to go up and down and only am interested in having a return at least as good as, e.g. VTHRX, after 10 more years.

Thanks

tj

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Start your journey of learning here.

https://www.bogleheads.org/wiki/Getting_started

I looked at the discussion on this page: https://www.bogleheads.org/wiki/Vanguard_four_fund_portfolio

and the 4-fund mix mentioned on this link is used in a fund that Vanguard offers that would seem appropriate for me: Target Retirement 2030 (VTHRX).

My thought is my financial adviser should be able to do better than VTHRX, to justify his fee. He has given my other helpful advice to help me get started, but I don't need hand-holding. I expect the market to go up and down and only am interested in having a return at least as good as, e.g. VTHRX, after 10 more years.

Thanks

You're not going to find an adviser who contractually guarantees a higher return than Vanguard.