Author Topic: Critique my portfolio  (Read 3139 times)

lifeminimalized

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Critique my portfolio
« on: July 04, 2017, 01:49:11 PM »
VINX (VG S&P500) 52%
VXF (VG Extended Market) 13%
VXUS (VG International Market) 15%
BND (VG Total Bond) 20%

Before you ask, VTSMX is not offered in this investment vehicle.


Merdox

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Re: Critique my portfolio
« Reply #1 on: July 04, 2017, 02:42:43 PM »
I defer to the far wiser finance folks around here, but I can predict that they'll need more details about your IPS. Age/target RE date/needs/etc.

PapaBear

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Re: Critique my portfolio
« Reply #2 on: July 04, 2017, 03:23:57 PM »
+1 on the additional information regarding objectives, planned investment strategy, other investments (if any), current portfolio size.

I ran your portfolio through the Morningstar X-Ray: http://portfolio.morningstar.com/RtPort/Free/InstantXRayDEntry.aspx?ChangeMode=P&entrynum=10&productcode=
The tool shows quite nicely how the overall porfolio is structured in terms of regions and industries.

The xray shows a clear focus on US Large caps, with a slight tilt to value (if you follow Morningstar's categorization) - see the attached screenshot. Depending on your overall portfolio size and investment horizon, you might want to consider increasing the international and US/International small cap exposure in the stock part of your asset allocation for increased diversification.

lifeminimalized

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Re: Critique my portfolio
« Reply #3 on: July 04, 2017, 03:37:10 PM »
80% of my domestic stocks should be S&P500, and 20% should be mid/small cap if I did my allocation correctly. Which I believe I did.

PapaBear

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Re: Critique my portfolio
« Reply #4 on: July 04, 2017, 03:54:38 PM »
So what was your rationale for your current 80/20 asset allocation? And which goals do you want to achieve with it?

There is no one-size-fits-all asset allocation or portfolio, that is why the context is so important. Without context it is quite difficult to add anything meaningful.
Here on the forum you will see anything from very simple 1-2 fund portfolios focused on US large caps to quite diversified portfolios with 10+ funds.
All of them can be a good fit for the individual situation, depending on your objectives, investment strategy and personal view on the future economic development in the US and other parts of the world.

lifeminimalized

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Re: Critique my portfolio
« Reply #5 on: July 04, 2017, 05:21:53 PM »
I wanted to hold 80% stocks total. However I wanted 80% of that 80% to be with the S&P while the other 20% of that 80% with mid/small caps.

I was just asking if I did that correctly.

chasesfish

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Re: Critique my portfolio
« Reply #6 on: July 04, 2017, 08:15:36 PM »
Can you buy VTI or ITOT in your investment vehicle?

lifeminimalized

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Re: Critique my portfolio
« Reply #7 on: July 04, 2017, 10:54:22 PM »
Can you buy VTI or ITOT in your investment vehicle?

Unfortunately not

Radagast

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Re: Critique my portfolio
« Reply #8 on: July 04, 2017, 11:39:21 PM »
Increase international to around 25%-30% of total / 40% of stocks because that has been shown to have been about the optimal point to minimize currency risk.

There's nothing magic about market weighting if you don't have a total market fund to take advantage. If you have it near then whatever. Personally I would equally weight the three stock components, or maybe even all four.

PapaBear

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Re: Critique my portfolio
« Reply #9 on: July 05, 2017, 02:47:54 AM »
I wanted to hold 80% stocks total. However I wanted 80% of that 80% to be with the S&P while the other 20% of that 80% with mid/small caps.

I was just asking if I did that correctly.

The math is right. Within your 65% Domestic stock part you have 80% S&P 500 and 20% S&P Completion Index (the underlying index for the Vanguard Extended Market ETF). With that 80/20 split in the domestic section, you are roughly replicating VTI or generally speaking the total US stock market weighted by market capitalization.

While market capitalization is definitely a legitimate way to structure your portfolio, some people prefer to overweight certain parts of the stock market (e.g., small cap, value, momentum). The rationale for this are factor premiums based on the research of Fama/French, Swedroe and others, which have found that past excess return were linked to certain factors. This Vanguard article gives a nice overview on the topic https://personal.vanguard.com/pdf/ISGFBI_042015_Online.pdf
However, the three-factor model and factor-based investing is quite debated. One could also argue, that this is not passive investing anymore, since you actively choose a (factor-based) strategy over a market-cap portfolio :)

However, if you stick to market capitalization as a rationale for the US, why not sticking to market capitalization on a Global scale?
If I take the MSCI All Country World IMI Index as a reference (~99% of Global investable market cap), US stocks are only ~52% of global market capitalization (see https://www.msci.com/documents/10199/4211cc4b-453d-4b0a-a6a7-51d36472a703 second page, pie chart on the right).
EDIT: For your reference, you might also want to look at the asset allocation in the Vanguard Target Retirement funds. If I take the Target 2040 and 2050 as an example, Vanguard is allocating their stock part into ~60% domestic and ~40% International. Only the stock/bond ratio is changing over time (https://investor.vanguard.com/mutual-funds/target-retirement/#/mini/holdings/0696).

Don't get me wrong, as I said previously, there is no right and wrong in terms of how your portfolio should look like.  Putting more emphasis on the home market and home currency is okay if it is done intentionally and with a certain rationale (and not only home bias). I just want to make sure that the choices you have made are intentional.

BTW, did you already run your portfolio through https://www.portfoliovisualizer.com/ The page has quite some nice backtesting features for trying out different portfolio combinations.
« Last Edit: July 05, 2017, 04:14:44 AM by PapaBear »