Need a DIY Portfolio? Here you go

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Today in the Dallas Morning News Scott Burns had an article on his Couch Potato Margaritaville portfolio. Here is how you would construct it with 4 of the largest firms (which was posted in the DMN):

First it is comprised of:
1/3 - US Broad Equity Market
1/3 - International Broad Equity Market
1/3- Inflation Protected Treasury Securities


Ameritrade-
Vanguard Total Stock Market Index
Vanguard Total International Stock Index
IShares Barclays TIPS

Total Expense Ratio is .14%


Fidelity -
iShares Russell ETF
iShares EAFE ETF
iShares Barclays TIPS Bond

Total Expense Ratio .25% (However if you invest at least $2500 you can use Spartan Mutual Funds and get it down to .12%)


Schwab
Schwab U.S Broad Market
Schwab International Equity
Schwab US TIPS

Total Expense Ratio .07%


Vanguard -
Vanguard Total Stock Market
Vanguard Total International Stock
Vanguard Short Term Inflation Protected Securities Index Fund

Total Expense Ratio .10%

Member Summary
Most Recent Posts
This should not be true over the last 30 years. Plot VBMF vs. VFINX for all common history starting around 1986 to toda... (more)

Jahlapenoez (Aug. 30, 2013 @ 5:24p) |

You may be right; I'm having a hard time determining whether the charts I am looking at assume re-investment of distribu... (more)

cleanbeat (Aug. 30, 2013 @ 6:31p) |

If you are comparing long bonds only, then yes mid 1980's through 2010 are similar performance because of the decline in... (more)

Jahlapenoez (Aug. 30, 2013 @ 8:52p) |

Link to online version of article (may be identical to DMN version:
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Mike, never thought I'd green a post of yours, but here you go. Interesting post. Thanks for sharing.

Thanks but I'd rather do it myself.

Here is a more detailed article on how to build the other variations of the Couch Potato portfolios on various platforms.

http://assetbuilder.com/scott_burns/building_index_fund_portfoli...

Since the article is from 2010, some of the fees may be off. I know the Fidelity prices are not correct as they recently switch which ETFs are free and which are pay.

So the simple Bogleheads' three-fund portfolio using a TIPS fund instead of Total Bond Market.

stanolshefski said:   So the simple Bogleheads' three-fund portfolio using a TIPS fund instead of Total Bond Market.

Pretty much and just watch the green roll in for this as well.

I could post a broad ETF with the ticker symbol SHIT and as long as it had an expense ratio under .15% it would get 50 green.

dshibb said:   stanolshefski said:   So the simple Bogleheads' three-fund portfolio using a TIPS fund instead of Total Bond Market.

Pretty much and just watch the green roll in for this as well.

I could post a broad ETF with the ticker symbol SHIT and as long as it had an expense ratio under .15% it would get 50 green.



Moving half of your portfolio out of equities in summer 2008 and then back in in the spring of 2009, could have paid for 1000 years of 1% expense ratio.

(studies have shown)

And I guess an actively-managed fund that trounced all the indices would just be considered lucky or survivor bias

Caveats: this works poorly in a taxable account because of the TIPS. Also, it's far from the efficient frontier because of no small and no value. No separate REITs and no separate commodities means less efficiency, too. And TIPS currently have a negative real yield.

All that said: 90% of individual amateur investors would be better off buying and holding these three funds than whatever lack of strategy strategy they're following right now.

"Here is how you would construct it with 4 of the largest firms..."

In case you're unfamiliar with Couch Potato portfolios, this is the more important part of what the OP wrote.

But it's worthwhile to check out all Couch Potato portfolios.

TravelerMSY said:   And I guess an actively-managed fund that trounced all the indices would just be considered lucky or survivor bias

Which funds continually trounce the indices?
I'll move some of my portfolio.

beltme said:   Here is a more detailed article on how to build the other variations of the Couch Potato portfolios on various platforms.

http://assetbuilder.com/scott_burns/building_index_fund_portfoli...

Since the article is from 2010, some of the fees may be off. I know the Fidelity prices are not correct as they recently switch which ETFs are free and which are pay.
Burns also argues that no more than 10 asset classes need to be in any portfolio. But all his portfolios useful, as one's degree of "laziness" (not to mention funds available for investment) can vary widely.

psychtobe said:   Caveats: this works poorly in a taxable account because of the TIPS. Also, it's far from the efficient frontier because of no small and no value. No separate REITs and no separate commodities means less efficiency, too. And TIPS currently have a negative real yield.

All that said: 90% of individual amateur investors would be better off buying and holding these three funds than whatever lack of strategy strategy they're following right now.


This would be my opinion also.

No doubt that there is a small %, 10% (or less,) that could beat this type of portfolio with a more efficient index portfolio, a portfolio of active funds, a holding of hand picked stocks (as we see in the stock thread), a holding of RE, a buying of businesses, etc, but for 90% of the population they could do much worse than this.

Do you rebalance every year?

rpi1967 said:   Do you rebalance every year?
I think that is up to you, but I think (someone correct me please) that most people do. SOme try to ride out the "hot" sector if you will, but I think most want to keep 1/3, 1/3, 1/3.

mikef07 said:   psychtobe said:   Caveats: this works poorly in a taxable account because of the TIPS. Also, it's far from the efficient frontier because of no small and no value. No separate REITs and no separate commodities means less efficiency, too. And TIPS currently have a negative real yield.

All that said: 90% of individual amateur investors would be better off buying and holding these three funds than whatever lack of strategy strategy they're following right now.


This would be my opinion also.

No doubt that there is a small %, 10% (or less,) that could beat this type of portfolio with a more efficient index portfolio, a portfolio of active funds, a holding of hand picked stocks (as we see in the stock thread), a holding of RE, a buying of businesses, etc, but for 90% of the population they could do much worse than this.


While not separate, I believe Total Stock Market is about 8% REITS and also 8% small cap.

mikef07 said:   rpi1967 said:   Do you rebalance every year?
I think that is up to you, but I think (someone correct me please) that most people do. SOme try to ride out the "hot" sector if you will, but I think most want to keep 1/3, 1/3, 1/3.


The big question is whether or not anyone takes the effort to tax loss harvest

If you could mix and match from any of those firms (zero commissions), what would be the best combo? Looks like Schwab wins on lowest expense ratio, but Vanguard wins on liquidity and maybe Fidelity brings something else to the table. Does it even matter?

I've a 401k with the employer with a fund named 2045 retirement something that I don't want to play around with and a roth ira that i self manage by trading stocks. Now, since the 401k is a low risk/low yield play, Is it advisable to buy a bunch of MLPs/REITs (high yield ones) using 50% balance of the roth ira and keep the remaining 50% aside to average any ones that fall 50% or more in the future? I know this is sounds like a very aggressive bet but am wondering how many of you have such an aggressive portfolio and if its been worth it so far.

Sounds good to me. I do know that you would rather have international in a taxable account becuase there is a foreign tax credit which you can claim.

minghi said:   I've a 401k with the employer with a fund named 2045 retirement something that I don't want to play around with and a roth ira that i self manage by trading stocks. Now, since the 401k is a low risk/low yield play, Is it advisable to buy a bunch of MLPs/REITs (high yield ones) using 50% balance of the roth ira and keep the remaining 50% aside to average any ones that fall 50% or more in the future? I know this is sounds like a very aggressive bet but am wondering how many of you have such an aggressive portfolio and if its been worth it so far.

Depending on how it's structured you first have to worry about UBIT tax which is the only tax you can be subjected to if you make certain investments with qualified money.

Don't look at your Roth as it's own separate entity. Look at it as a piece of overall portfolio. Determine the whole portfolio first and then assign the assets that one could reasonably conclude as the highest performing(and usually highest risk) into the Roth. Sure it could crash in a short period, but if it's truly the higher performing/higher risk category(highest beta let's say) than over a long enough time horizon it should perform the strongest.

You then also have to psychologically separate yourself from each individual account. For tax efficiency purposes your 401k will be slow and boring. For tax efficiency purposes your Roth will be volatile and hard to stomach if you looked at it by itself. Your taxable account will probably be somewhere in between(depending if you have overflow of more fixed income from 401k or more equities from Roth). Looking at each one individually will be hard. Looking at the performance of the overall portfolio across all accounts and you should feel fine.


gaffer said:   If you could mix and match from any of those firms (zero commissions), what would be the best combo? Looks like Schwab wins on lowest expense ratio, but Vanguard wins on liquidity and maybe Fidelity brings something else to the table. Does it even matter?

I think that's what they did in the Ameritrade account--picked the optimal mixed portfolio.

I hate oversimplified portfolios like this for reasons already mentioned. In particular, there is no consideration of the individual's time horizon--1/3 of a 25 year old's portfolio in TIPS is far too high IMO. In addition, not diversifying across the fixed income market and only buying TIPS seems risky to me. The equity portion of the portfolio is quite reasonable, though I tend to skew my portfolio towards Value stocks & smaller company stocks. I also like to have a little more domestic equity than Int'l (~ 60/40 seems right to me, though 50% Int'l isn't unreasonable based on World Market cap). The equity portion of this portfolio probably would do a very nice job capturing broad market returns at a very low cost.

ETA: I don't understand why this thread is getting so much green--do people really not know that broad market index etf's exist?

raringvt said:   gaffer said:   If you could mix and match from any of those firms (zero commissions), what would be the best combo? Looks like Schwab wins on lowest expense ratio, but Vanguard wins on liquidity and maybe Fidelity brings something else to the table. Does it even matter?

I think that's what they did in the Ameritrade account--picked the optimal mixed portfolio.

I hate oversimplified portfolios like this for reasons already mentioned. In particular, there is no consideration of the individual's time horizon--1/3 of a 25 year old's portfolio in TIPS is far too high IMO. In addition, not diversifying across the fixed income market and only buying TIPS seems risky to me. The equity portion of the portfolio is quite reasonable, though I tend to skew my portfolio towards Value stocks & smaller company stocks. I also like to have a little more domestic equity than Int'l (~ 60/40 seems right to me, though 50% Int'l isn't unreasonable based on World Market cap). The equity portion of this portfolio probably would do a very nice job capturing broad market returns at a very low cost.

ETA: I don't understand why this thread is getting so much green--do people really not know that broad market index etf's exist?


We are of the same opinion and the reason I think it is getting green is the same reason I posted it. This is a very basic simple portfolio that 90% of people could do worse then and because it shows how to purchase it from 4 different "houses". As I have pointed out many times, and as you are now, this is by no means the portfolio where one has reached the pinnacle of investing. It is a solid performing, cheap portfolio that if one holds for a long time they will do better than many of the so called "expert" advice out there. If you are one that simply has a handle on the finer aspects of investing, and it sounds like you may, I don't think anyone is arguing that this cannot be beat long term.

We all could have a very long and lengthy discussion on speculating what we feel is the ideal holdings of a perfect portfolio (which we have in many other threads), but it is all speculation in the end and it accomplishes nothing until after the fact to see who was right.

In the end this gives a good, solid mix of holdings that is moderate risk and that should perform somewhat well through all the hills and valleys of the market over a 20-30 year period.

I'm too young for 1/3 TIPS. I'm 100% stocks, indexed or otherwise. Any reason not to be with a 30+ year outlook before withdrawal?

mikef07 said:   ...but it is all speculation in the end and it accomplishes nothing until after the fact to see who was right.
I would prefer to say "...to see who was lucky".

Not surprisingly, I applaud these types of portfolios so people can see what is possible. I do have some random observations, based on nothing more than my own inclinations and biases.

I think 'total' indices tend to underweight smaller cap firms, but this can be corrected by breaking up the index into components. Using Fidelity as an example (since that's where my investments are), I have both S&P500 (FUSVX) and Extended Market (FSEVX) rather than Total Market. Similarly, for international, you can divide between MSCI EAFE (FSIVX) and emerging markets (FPMAX). Many investors further divide between value and growth, but I didn't go that far.

I've never liked bonds, so all of my cash is in FDIC-insured accounts. I'm not sure I can defend this, but that's the way I am.

I've never understood the attraction of ETFs for long-term buy-and-hold investors. I can get the same low expense ratio in mutual funds, with no transaction costs, and why would I care about intra-day pricing? That said, I do have a position in VWO; I was buying it before Fidelity offered an emerging market fund and it was the only reasonable way for me to buy a Vanguard product from within a Fidelity account.

One final point: I would never claim that my portfolio will always be a gainer. On paper, I lost oodles and oodles in the big downturn several years ago (before I got it all back and much more), but my aim is no more or no less than to simply reflect the overall performance of global markets. I ride out the ups and downs trusting that the global economy is headed generally up, selling more stuff to more people; market timing is delusional.

SuperMxyz said:   I'm too young for 1/3 TIPS. I'm 100% stocks, indexed or otherwise. Any reason not to be with a 30+ year outlook before withdrawal?

Well the obviously reason would be that if you want to take less equity risk with your portfolio.

But was there any 30 year period where one was better off holding any bonds or fixed income than 100% stock?

SuperMxyz said:   But was there any 30 year period where one was better off holding any bonds or fixed income than 100% stock?

I would imagine there was, but why does that matter in terms of how much risk you want to take?

UncaMikey said:   mikef07 said:   ...but it is all speculation in the end and it accomplishes nothing until after the fact to see who was right.
I would prefer to say "...to see who was lucky".

Not surprisingly, I applaud these types of portfolios so people can see what is possible. I do have some random observations, based on nothing more than my own inclinations and biases.

I think 'total' indices tend to underweight smaller cap firms, but this can be corrected by breaking up the index into components. Using Fidelity as an example (since that's where my investments are), I have both S&P500 (FUSVX) and Extended Market (FSEVX) rather than Total Market. Similarly, for international, you can divide between MSCI EAFE (FSIVX) and emerging markets (FPMAX). Many investors further divide between value and growth, but I didn't go that far.

I've never liked bonds, so all of my cash is in FDIC-insured accounts. I'm not sure I can defend this, but that's the way I am.

I've never understood the attraction of ETFs for long-term buy-and-hold investors. I can get the same low expense ratio in mutual funds, with no transaction costs, and why would I care about intra-day pricing? That said, I do have a position in VWO; I was buying it before Fidelity offered an emerging market fund and it was the only reasonable way for me to buy a Vanguard product from within a Fidelity account.

One final point: I would never claim that my portfolio will always be a gainer. On paper, I lost oodles and oodles in the big downturn several years ago (before I got it all back and much more), but my aim is no more or no less than to simply reflect the overall performance of global markets. I ride out the ups and downs trusting that the global economy is headed generally up, selling more stuff to more people; market timing is delusional.


Thanks and I wish (hope) you would post more as these are the types of posts that help DIYers. They can see what others do for their investments.

The whole luck thing is a futile argument either way. Person has a philosophy, follows it, and either it works out or it doesn't. In the end no matter how many times it works out no one can say that going forward it will work out. That is OK by me. If someone decides they want to try and beat the market go for it. In the end some will and some will long term, albeit a small %. Who, how often, and when is anyone's guess. I like you do not like bonds. I feel my horizon is far too long to hold bonds. IMO your portfolio will always be a gainer. It just depends on how long the view we look at.

SuperMxyz said:   But was there any 30 year period where one was better off holding any bonds or fixed income than 100% stock?

In absolute returns I do not believe so with a few caveats. For example my index portfolio the worst 30 year period ever would have been from 79-2009 and the return was ~11% (a tick below that). Not sure if there has ever been a 30 year period where a portfolio with bonds has performed that high (assuming the same specific index funds as the equities portion of my portfolio). However 3 points to consider which changes the answer from maybe no to maybe yes:

1) Mine is pretty solid portfolio of index funds. What if someone held 100% horrible active funds or a bad mix of index funds for 30 years. You can bet your ass that there are solid portfolios of index funds with some % of bond holdings that beat those 30 year numbers.

2) If we adjust for risk then I would be willing to bet that there have been some portfolios of a mix of equities and bonds that may have beaten just 100% equities. Not necessarily in absolute returns, but in risk adjusted returns.

3) Like #1 what if someone held a better index portfolio of 90% equities (as in one whose equities outperformed mine) and 10% bonds and even after those 10% bonds still beat my 11%. Then you could say that their mix of bonds and equities performed better than my 100% equities.


Hope that makes sense.

JacksonX said:   TravelerMSY said:   And I guess an actively-managed fund that trounced all the indices would just be considered lucky or survivor bias

Which funds continually trounce the indices?
I'll move some of my portfolio.


OK. Berkshire Hathaway.

But there's no way to predict if they will continue to do so in the future.

SuperMxyz said:   I'm too young for 1/3 TIPS. I'm 100% stocks, indexed or otherwise. Any reason not to be with a 30+ year outlook before withdrawal?

tjguitar85 said:   SuperMxyz said:   I'm too young for 1/3 TIPS. I'm 100% stocks, indexed or otherwise. Any reason not to be with a 30+ year outlook before withdrawal?

Well the obviously reason would be that if you want to take less equity risk with your portfolio.


Personally, I feel that NOBODY should EVER be 100% stocks. One could argue 80% vs 90%, but I feel one should never get to 100%. And that 10, 20, 25, whatever % not in equities will be in Fixed Income. Your choice on whether it's Bonds (including TIPS), CDs, Stable Value, etc.

CycloneFW said:   SuperMxyz said:   I'm too young for 1/3 TIPS. I'm 100% stocks, indexed or otherwise. Any reason not to be with a 30+ year outlook before withdrawal?

tjguitar85 said:   SuperMxyz said:   I'm too young for 1/3 TIPS. I'm 100% stocks, indexed or otherwise. Any reason not to be with a 30+ year outlook before withdrawal?

Well the obviously reason would be that if you want to take less equity risk with your portfolio.


Personally, I feel that NOBODY should EVER be 100% stocks. One could argue 80% vs 90%, but I feel one should never get to 100%. And that 10, 20, 25, whatever % not in equities will be in Fixed Income. Your choice on whether it's Bonds (including TIPS), CDs, Stable Value, etc.


Why? I do not hold any bonds and have no plans to unless my horizon changes (which it will someday). Bonds lower risk. If I am under my threshold for risk holding 100% equities why would I want to lower risk more? Furthermore as I just posted all equities being equal there has never been a 30 year period where holding the same equities as the equities portion + bonds has outperformed 100% equities.


For example I just looked and the 20 year period is where my break even is if you will. The worst 20 year period of my portfolio with 100% equities is 6.60%. The worst with 10% bonds holding the same funds (just a different allocation) is 6.63%. To me that means once my horizon is 20 years or less it may be time for me to incorporate some bonds into the mix.


I would love to hear a mathematical (statistical argument) that supports your position though.

One reason it is beneficial to keep at least some money in non-equity funds is that it forces you to rebalance. For example, if equities are significantly overvalued it would cause you to sell off some of the high position, or undervalued it would cause you to buy low.

The us stock market dropped 50% relatively quickly a few years ago. Say you had an 80/20 position:

Pre-drop (you have 100k total):
80k in stocks
20k in bonds

Post-drop (you have 60k total to rebalance):
40k in stocks
20k in bonds

If you sold to rebalance:
48k in stocks - you were just forced to buy 8k at the low point, which would claw back to over 16k in a few years
12k in bonds

psychtobe said:    No separate REITs and no separate commodities means less efficiency, too.

Could you elaborate on this point? How do REITs and commodities make a portfolio more efficient?

debtinator said:   One reason it is beneficial to keep at least some money in non-equity funds is that it forces you to rebalance. For example, if equities are significantly overvalued it would cause you to sell off some of the high position, or undervalued it would cause you to buy low.

The us stock market dropped 50% relatively quickly a few years ago. Say you had an 80/20 position:

Pre-drop (you have 100k total):
80k in stocks
20k in bonds

Post-drop (you have 60k total to rebalance):
40k in stocks
20k in bonds

If you sold to rebalance:
48k in stocks - you were just forced to buy 8k at the low point, which would claw back to over 16k in a few years
12k in bonds


I completely don't understand this at all. SO your position is that unless you hold some % of bonds you can't rebalance? I respectfully disagree. If I hold 100% equities then I am always balanced. Furthermore if I hold 60% US Stock and 40% Intl Stock at any point I can rebalance just as one could with a Bond/Stock mix. In other words every example you just gave has 0 to do with holding bonds and has to do with a person't desire to rebalance.

mikef07 said:   In other words every example you just gave has 0 to do with holding bonds and has to do with a person't desire to rebalance.
I agree with mikef07 here. (!!!)

Rebalancing is always about selling winners and buying losers, where 'winner' and 'loser' are purely relative. (I.e., a 'loser' doesn't mean a loss per se, just less of a gain than the 'winner.')

For example, I only rebalance my equities and hold no bonds. This last year my international funds were slightly overweighted (through having larger gains) and small/mid cap US were underweighted (had gains, but not so much as the int'l), so some of the former was sold to buy the latter. I purposely hold some part of my portfolio in retirement accounts so I can do these buy/sell transactions without tax effects.

When/how to rebalance is a legitimate question. Whether to hold bonds and how much is a legitimate question. But I think they are two different questions without much interaction.

Rayout said:   mikef07 said:   rpi1967 said:   Do you rebalance every year?
I think that is up to you, but I think (someone correct me please) that most people do. SOme try to ride out the "hot" sector if you will, but I think most want to keep 1/3, 1/3, 1/3.


The big question is whether or not anyone takes the effort to tax loss harvest

The pessimist viewpoint but what about paying capital gains when you rebalance. Usually you are selling the winners to buy the laggard.

Skipping 36 Messages...
If you are comparing long bonds only, then yes mid 1980's through 2010 are similar performance because of the decline in stock prices.

Plot VUSTX instead of VBMFX against VFINX to see Long Treasury Bonds rather than the aggregate bond market.

I wouldn't normally suggest anyone load up on a heavy dose of long bonds for their fixed income allocation.  I personally would prefer to take stocks once you are past 15-20 years of maturity.



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