I think I'm over-diversified

[toganet]

I've been using the free version of Future Advisor (futureadvisor.com) for a while now, and as a result I have a portfolio that includes a large number of different funds.  From an allocation standpoint I am not too worried -- though it's maybe weighted a little more international than I would like -- but the large number of funds makes it a little hard to manage.  I'd like to consolidate down to the fewest funds that will provide me a similar level of diversification / asset allocation, but I'm not sure if I'm worrying about something that doesn't matter.

Here is my allocation:
Symbol   Description   Percentage
IEMG   ISHARES INC CORE MSCI EMERGING MKTS ETF   16.31%
IVE   ISHARES S&P 500 VALUE ETF   12.20%
IEFA   ISHARES TRUST CORE MSCI EAFE ETF   9.03%
IVV   ISHARES CORE S&P 500 ETF   6.00%
STIP   ISHARES 0-5 YEAR TIPS BOND ETF   5.91%
FNDF   SCHWAB STRATEGIC TR FUNDAMENTAL INTL LARGE CO INDEX ETF   5.55%
EFV   ISHARES TR EAFE VALUE ETF   5.31%
VNQ   VANGUARD INDEX FDS VANGUARD REIT ETF FORMERLY VANGUARD INDEX   4.81%
SCZ   ISHARES TR EAFE SML CP ETF   4.46%
AGG   ISHARES CORE U.S. AGGREGATE BOND ETF   4.46%
SCHB   SCHWAB STRATEGIC TR US BROAD MKT ETF   4.39%
VNQI   VANGUARD INTL EQUITY INDEX FDS GLOBAL EX-US REAL ESTATE INDE   4.14%
IJR   ISHARES CORE S&P SMALL-CAP ETF   2.74%
SYNC   SYNACOR INC COM   2.65%
IGOV   ISHARES TR INTL TREA BD ETF   2.56%
VSS   VANGUARD INTL EQUITY INDEX FDSFTSE ALL WORLD EX USA SMALL CA   2.50%
RWX   SPDR INDEX SHS FDS DJ WILSHIRE INTL REAL ESTATE ETF   1.75%
VWO   VANGUARD INTL EQUITY INDEX FUND INC FTSE EMERGING MARKETS ET   1.42%
VEA   VANGUARD FTSE DEVELOPED MARKET ETF   1.23%
SCHV   SCHWAB STRATEGIC TR US LARGE CAP VALUE ETF   1.22%
SCHH   SCHWAB STRATEGIC TR US REIT ETF   1.10%
FREL   FIDELITY MSCI REAL ESTATE INDEX ETF   0.17%
IDV   ISHARES TR INTL SEL DIV ETF   0.09%
FDRXX**   FIDELITY GOVERNMENT CASH RESERVES   0.02%

Thoughts?

[Metric Mouse]

Do you really need funds that are less than 1% of your invested assets? Would seem to be easy to clean them out into anything else.

[marty998]

You're duplicating funds in different providers, and duplicating stocks within funds (e.g. VEA has crossover with IVE and with IVV and with SCHB and with SCHV - they all invest in the same US large cap stocks)

Pick one US Fund, one World Fund, one REIT, one emerging markets fund, one bond fund

Ignore anything that focuses on large cap / small cap / dividends /value etc

Minimum 15% in each one. Easy :)

[toganet]

Thanks for the advice.  I forgot to mention that these holdings are spread across three IRA's (one Roth two Traditional) all at Fidelity.  That complicates it somewhat as I'm not sure if Roth/Non-Roth matters for any of these.

As to why I have the <1% ones -- I don't like having idle cash there so I occasionally buy in small chunks, like when I'm reinvesting dividends, and Future Advisor likes all cash to be used as well.

[marty998]

Cash is good when you have difficulty making a decision. I am now 80% cash in my super (retirement) fund because I am unable to believe that the market will keep rising, in an environment where the interest rate cycle has begun to shift upwards.

Of course, the market may choose to believe that rates going up is a good thing because it means the economy is growing strongly, but that would defy the logic of the past 4 years.

[AdrianC]

Commission free at Fidelity
ITOT
IXUS
AGG

If you need to be more complicated than that you should be able to explain why.

[nereo]

serious question:  why are you holding assets through multiple different brokers?  Vanguard, Schwab, Fidelity, IShares...
it's adding complexity but not diversity.  Is there a reason you did it this way?

[SeattleCPA]

You have way too many funds. Oh my gosh...

To give you a couple of bits of further encouragement and maybe actionable advice, David Swensen the Yale Endowment Fund manager says in his book "Unconventional Success" that you and I want to have enough of a asset class in our portfolio that if something good happens in the asset class, we get a positive portfolio effect... but not so much of an asset class that if something bad happens in the asset class, we see our portfolio get totally beat up. He then gives the range of 5% to 30%... Never less than 5% to an asset class.... Never more than 30%. Swensen's formula for individual investors by asset class: 30% US stocks, 15% developed foreign stocks, 15% REITs, 15% intermediate treasuries, 15% TIPs, and 10% emerging foreign markets.

BTW, I have no idea how much you have in each asset class--too much work to look up what's inside your various holdings--but you might be able to use Swensen's idea to grind down your holdings.

Another even simpler bit of advice: Taylor Larimore, a Bogleheads author and a wise old man when it comes to many things including investing proposes a three-fund portfolio. In his own words:

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

[Cwadda]

Pick one broker - I recommend either Vanguard or Fidelity. Do a trustee-to-trustee transfer (there is no tax burden) and consolidate all of your money into one broker.

Pick one US Fund, one World Fund, one REIT, one emerging markets fund, one bond fund

[Heckler]

Three IRAs.

Three funds. 


Coincidence?

[NoStacheOhio]

Thanks for the advice.  I forgot to mention that these holdings are spread across three IRA's (one Roth two Traditional) all at Fidelity.  That complicates it somewhat as I'm not sure if Roth/Non-Roth matters for any of these.

As to why I have the <1% ones -- I don't like having idle cash there so I occasionally buy in small chunks, like when I'm reinvesting dividends, and Future Advisor likes all cash to be used as well.

If you don't want idle cash, use mutual funds instead of ETFs. Set your dividends to automatically reinvest in the fund that's paying them (ITOT dividends paid as ITOT fractional shares) rather than cash to the core account. It's in account features, you'll have to set each one individually.

Commission free at Fidelity
ITOT
IXUS
AGG

If you need to be more complicated than that you should be able to explain why.

^This^

MF equivalents:
FSTVX/FSTMX
FSGDX/FSGUX
FSITX/FBIDX

All free to trade at Fidelity.

[Retire-Canada]

Cash is good when you have difficulty making a decision. I am now 80% cash in my super (retirement) fund because I am unable to believe that the market will keep rising, in an environment where the interest rate cycle has begun to shift upwards.

Of course, the market may choose to believe that rates going up is a good thing because it means the economy is growing strongly, but that would defy the logic of the past 4 years.

Only 80% cash? Time to commit man before the Great Crash of 2017! ;)

[toganet]

I really appreciate the advice here -- I am a bit embarrassed by the "cruft" I have accumulated here.  Generally these were what FA told me to use, though some of these were a result of asset transfers from other brokerages.  At the end of last year I consolidated everything to Fidelity and my goal now is to get down to fewer funds.

I'm going to review the recommended funds from this thread and get this crazy list down to 3-5, max.

[Metric Mouse]

Cash is good when you have difficulty making a decision. I am now 80% cash in my super (retirement) fund because I am unable to believe that the market will keep rising, in an environment where the interest rate cycle has begun to shift upwards.

Of course, the market may choose to believe that rates going up is a good thing because it means the economy is growing strongly, but that would defy the logic of the past 4 years.

Only 80% cash? Time to commit man before the Great Crash of 2017! ;)

I'm still waiting for the great crash of 16. I will accept the great crash of 17 as a substitute, i guess.

[Retire-Canada]

I'm still waiting for the great crash of 16. I will accept the great crash of 17 as a substitute, i guess.

or the Great Crash of 2018 or 2019...the thing with investing is you need to stay flexible.

[Interest Compound]

I've been using the free version of Future Advisor (futureadvisor.com) for a while now, and as a result I have a portfolio that includes a large number of different funds.  From an allocation standpoint I am not too worried -- though it's maybe weighted a little more international than I would like -- but the large number of funds makes it a little hard to manage.  I'd like to consolidate down to the fewest funds that will provide me a similar level of diversification / asset allocation, but I'm not sure if I'm worrying about something that doesn't matter.

Here is my allocation:
Symbol   Description   Percentage
IEMG   ISHARES INC CORE MSCI EMERGING MKTS ETF   16.31%
IVE   ISHARES S&P 500 VALUE ETF   12.20%
IEFA   ISHARES TRUST CORE MSCI EAFE ETF   9.03%
IVV   ISHARES CORE S&P 500 ETF   6.00%
STIP   ISHARES 0-5 YEAR TIPS BOND ETF   5.91%
FNDF   SCHWAB STRATEGIC TR FUNDAMENTAL INTL LARGE CO INDEX ETF   5.55%
EFV   ISHARES TR EAFE VALUE ETF   5.31%
VNQ   VANGUARD INDEX FDS VANGUARD REIT ETF FORMERLY VANGUARD INDEX   4.81%
SCZ   ISHARES TR EAFE SML CP ETF   4.46%
AGG   ISHARES CORE U.S. AGGREGATE BOND ETF   4.46%
SCHB   SCHWAB STRATEGIC TR US BROAD MKT ETF   4.39%
VNQI   VANGUARD INTL EQUITY INDEX FDS GLOBAL EX-US REAL ESTATE INDE   4.14%
IJR   ISHARES CORE S&P SMALL-CAP ETF   2.74%
SYNC   SYNACOR INC COM   2.65%
IGOV   ISHARES TR INTL TREA BD ETF   2.56%
VSS   VANGUARD INTL EQUITY INDEX FDSFTSE ALL WORLD EX USA SMALL CA   2.50%
RWX   SPDR INDEX SHS FDS DJ WILSHIRE INTL REAL ESTATE ETF   1.75%
VWO   VANGUARD INTL EQUITY INDEX FUND INC FTSE EMERGING MARKETS ET   1.42%
VEA   VANGUARD FTSE DEVELOPED MARKET ETF   1.23%
SCHV   SCHWAB STRATEGIC TR US LARGE CAP VALUE ETF   1.22%
SCHH   SCHWAB STRATEGIC TR US REIT ETF   1.10%
FREL   FIDELITY MSCI REAL ESTATE INDEX ETF   0.17%
IDV   ISHARES TR INTL SEL DIV ETF   0.09%
FDRXX**   FIDELITY GOVERNMENT CASH RESERVES   0.02%

Thoughts?

You're not over-diversified. You're over-complicated.

You'd be just as diversified with these three funds, and things would be greatly simplified:

Total US Stock Index Fund ~3600 stocks across the USA.
Total International Stock Index Fund - ~6100 stocks across the world (excluding the USA)
Total USA Bond Index Fund ~8800 bonds across the USA.

Note, I said funds, not ETFs. Use funds to avoid the idle cash problem.

If you value automation, Vanguard has services that can manage a portfolio like this for you. And what better expert than Vanguard? The only investment firm that's legally obligated to act in our best interests?



You have two amazing options:

1. "I want Vanguard's experts to do everything for me. I'll just tell them my age and they'll put it in the appropriate Target Retirement Fund"



2. "I want Vanguard's experts to do everything for me. I'll just tell them how much risk I want, and they'll put it in the appropriate LifeStrategy Fund"



Then forget about it.

[Indexer]

...
Then forget about it.

+1


As has been pointed out you aren't over diversified, you are over complicated.

You could build a MORE diversified portfolio with 4 total market index funds, or 1 Vanguard Target Retirement/LifeStrategy fund(these funds are made up of 4 total market index funds).

[Radagast]

I actually typed that entire thing into portfolio visualizer. Should we be surprised that Vanguard LifestrategyGrowth kicked the crap out of it over the four years IEMG has existed? Probably not given the huge tilt towards emerging markets which did poorly over that time. Unfortunately I somehow lost it before I could post the impressive results... touch screens are still in their infancy.

[marty998]

Cash is good when you have difficulty making a decision. I am now 80% cash in my super (retirement) fund because I am unable to believe that the market will keep rising, in an environment where the interest rate cycle has begun to shift upwards.

Of course, the market may choose to believe that rates going up is a good thing because it means the economy is growing strongly, but that would defy the logic of the past 4 years.

Only 80% cash? Time to commit man before the Great Crash of 2017! ;)

I'm still waiting for the great crash of 16. I will accept the great crash of 17 as a substitute, i guess.

or the Great Crash of 2018 or 2019...the thing with investing is you need to stay flexible.

Ahem. I'm not one of those who predicts doom and gloom and great crashes every year. I am but a humble investor who knows when share prices have run well ahead of earnings and growth expectations.

Banks in Australia, which make up 1/3 of the market, usually trade on P/E multiples of 11-13. They are up around 15-16, in an environment where profit growth is benign at 1-2%

With the big retailers shooting themselves in the foot with unsustainable price cuts (causing deflationary pressure in the grocery market) I just don't see that it is a rational decision to allocate significant chunks of money to the market at this point in time.

If the February earnings reporting season suggests otherwise, then I will reconsider. Right now, our market has gone up 10% in sympathy with yours for 2 months on nothing more than odd political events. It's irrational and doesn't fit with what is actually happening in our economy.

[Retire-Canada]

Ahem. I'm not one of those who predicts doom and gloom and great crashes every year. I am but a humble investor who knows when share prices have run well ahead of earnings and growth expectations.

Banks in Australia, which make up 1/3 of the market, usually trade on P/E multiples of 11-13. They are up around 15-16, in an environment where profit growth is benign at 1-2%

With the big retailers shooting themselves in the foot with unsustainable price cuts (causing deflationary pressure in the grocery market) I just don't see that it is a rational decision to allocate significant chunks of money to the market at this point in time.

If the February earnings reporting season suggests otherwise, then I will reconsider. Right now, our market has gone up 10% in sympathy with yours for 2 months on nothing more than odd political events. It's irrational and doesn't fit with what is actually happening in our economy.

Not saying you are an annual doom and gloomer. However, you are clearly counting on a crash in the near future as evidenced by the 80% cash you are holding. Personally I don't know if the run up through the election until now is sustainable, but since my money is invested if the market goes up 10% and then goes back down 10% it's essentially irrelevant to me. I'll continue to collect dividends. If the market doesn't correct I'm ahead and if the market does correct I'll leave my money invested and there is no need to panic.

For the past few years there has always been a reason to be in cash. Yet doing that would have resulted in significant lost returns...all to avoid a paper loss.

[Interest Compound]

For the past few years there has always been a reason to be in cash. Yet doing that would have resulted in significant lost returns...all to avoid a paper loss.

Exactly. What people like marty998 don't realize, is there's always a reason to be in cash. No matter what year you pick, if you put yourself in the shoes of someone from that year, and likely find a reason to keep your money in cash.

Seriously, go through IndexView:

http://thume.ca/indexView/

Put in any two years.



Then put in two different years.



Then two different years again.



You'll see, no matter which years you put in,



it looks like ***OMG A CRASH IS COMING***, because the line is so much up and diagonal to the right, it looks like it has no where to go but down!  This year is no different,



Had you sold it all every year it looked like a crash was coming...you'd never be in the market.  Let's not argue about whether a crash is coming or not, let's agree that it feels that way right now. Like there's been a turning point, a division between an old era and a new era, and therefore past history is no longer a guide to the future.

And here's my point: it always feels that way. That's always what it feels like. It's not a number, it's a sense that there's been a break, the ground has shifted, the rules have changed.

This is why it's so hard to stay the course.  Your investment plan needs to be in tune with your own personal willingness to take financial risk.  When you're deciding what your risk tolerance is, it's not a tolerance for the number 10 or the number 15 or the number 25. It's not a tolerance for an "A" turning into a "+". It's a tolerance for accepting genuinely-scary, nothing-like-this-has-ever-happened-before, heralds-a-new-era news events.

We are all watching marty998 fail this test in real-time, and stocks are at record highs! Remember what this looks like from the outside, if you find yourself having similar thoughts when real market volatility actually shows up.

Volatility is only temporary, but you can permanently cripple your portfolio trying to avoid it.

[DavidAnnArbor]

The market volatility is so unpredictable, that the best solution is to just stay the course.

[MustacheAndaHalf]

It may help to drill into what others mean by "not diversified" when they see your list of funds.  U.S. mutual funds hold some combination of public U.S. companies.  So the "Total Stock Market" type funds hold everything - those have diversification.  But you need to think in terms of assets within funds / ETFs, not just number of ETFs.

For example, you hold value-tilted S&P 500 and S&P 500.  There's plenty of overlap there - the same funds, just getting more of your dollars.  When you diverge from the stock market weight, you should understand why.  For example I see a lot of funds with "value" in the name, which tends to buy companies with lower price/book.  And you have "small" cap focused funds, which tend to buy companies with less total market cap.  You should understand the tradeoffs with small and value investing - how long you might have to wait to see it pay off, and the chance that it won't pay off during your lifetime.

Have you read an investment book like A Random Walk Down Wall Street?  It might help clear up some of the ideas around diversification and how much you're paying in annual fees.

[toganet]

Thanks folks, I do understand the difference between diversification and complexity -- I guess my joke didn't land.  Overall I my goal is to simplify, which I did last week and am now positioned like so:

ITOT:   40%
IXUS:     20%
AGG:   20%
IEMG:   10%
FREL:   10%

(These are rounded)

I'll admit I have a lot to learn in this area -- which is one reason I'm here ;)  I don't a lot about Value vs. Small Cap, etc., and while I'd like to learn more, I would prefer to do that gradually and not make that learning a prerequisite to having a sensible portfolio.  So, I've simplified and now I will return to my education :)

[toganet]

And should I just ignore Future Advisor at this point?  It's pushing me to re-complicate:

[NoStacheOhio]

And should I just ignore Future Advisor at this point?  It's pushing me to re-complicate:

http://jlcollinsnh.com/stock-series/

TL;DR complicated bad. simple good.

[toganet]

And should I just ignore Future Advisor at this point?  It's pushing me to re-complicate:

http://jlcollinsnh.com/stock-series/

TL;DR complicated bad. simple good.

I've read that series and learned a lot -- part of my motivation to simplify.  It's hard to resist adding complexity when there are so many options, though.

[AdrianC]

That's a nice allocation IMO. I don't personally go for real estate or quite that much in EM but I can see the reasoning.

EDIT: I mean your new actual allocation, not the over-complicated Future Advisor one.

[NoStacheOhio]

I've read that series and learned a lot -- part of my motivation to simplify.  It's hard to resist adding complexity when there are so many options, though.

Think of it like Starbucks. You can go to Starbucks and there are a ton of options, they're all really expensive and generally unhealthy. You can also get plain coffee, which is less expensive, and probably better for you. You can also make plain coffee at home for even less money, and it'll taste better, but it's not as exciting. Just make some coffee and don't overthink it.

[Metric Mouse]

I've read that series and learned a lot -- part of my motivation to simplify.  It's hard to resist adding complexity when there are so many options, though.

Think of it like Starbucks. You can go to Starbucks and there are a ton of options, they're all really expensive and generally unhealthy. You can also get plain coffee, which is less expensive, and probably better for you. You can also make plain coffee at home for even less money, and it'll taste better, but it's not as exciting. Just make some coffee and don't overthink it.

The 'plain cup of joe' portfolio. I love it.

[Khan]

One thing about your initial .... ridiculous distribution of funds is that it would make trying to do a portfolio rebalance a complete nightmare. If you're going to manage it yourself, you should probably create an IPS, and set rebalance limits, and triggers(every 'x' years, or whatever).

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

[NoStacheOhio]

I've read that series and learned a lot -- part of my motivation to simplify.  It's hard to resist adding complexity when there are so many options, though.

Think of it like Starbucks. You can go to Starbucks and there are a ton of options, they're all really expensive and generally unhealthy. You can also get plain coffee, which is less expensive, and probably better for you. You can also make plain coffee at home for even less money, and it'll taste better, but it's not as exciting. Just make some coffee and don't overthink it.

The 'plain cup of joe' portfolio. I love it.

If you can't tell, I really love coffee.

[Metric Mouse]

I've read that series and learned a lot -- part of my motivation to simplify.  It's hard to resist adding complexity when there are so many options, though.

Think of it like Starbucks. You can go to Starbucks and there are a ton of options, they're all really expensive and generally unhealthy. You can also get plain coffee, which is less expensive, and probably better for you. You can also make plain coffee at home for even less money, and it'll taste better, but it's not as exciting. Just make some coffee and don't overthink it.

The 'plain cup of joe' portfolio. I love it.

If you can't tell, I really love coffee.

I enjoy it as well.