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Author: jadougherty Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75339  
Subject: Asset Allocation Date: 2/14/2014 5:07 PM
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Hello All,

I am in the process of leaving my investment advisor and moving IRA to Vanguard to take control of my retirement. In my IRA I currently have 4 Mutual funds, mostly large cap american funds with some international pacific basin funds.
Fees with class A shares and expense ratios were killing me. Looking for portfolio advice. Not on specific funds just want to make sure I am heading in the right direction.

I am 37 years old and are looking to invest for the long haul.

Thank You in advance.
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74263 of 75339
Subject: Re: Asset Allocation Date: 2/14/2014 7:19 PM
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It sounds as if you had reasonable diversification but now seek no load funds with the best possible performance.

Most would go the Morningstar.com and enter the tickers of the funds you have. Morningstar will give you a list of other funds in the same category. I would review those for a no load fund with similar performance, and preferably from a major supplier you trust (like Vanguard or Fidelity).

This should work fine for your domestic funds. For international funds you need to be more careful because you want ones in the same regions and there can be quite a variation in type of investments. Large caps, small caps, midcaps, and even weighting in selected sectors. Usually you can get the needed info from the fund prospectus if you cannot find it on line somewhere.

You will want to review the rules at Vanguard. An account with the Vanguard mutual fund company will probably limit you to Vanguard funds. A brokerage account at Vanguard would permit you to buy from their list--probably wider--of no fee mutual funds or you could select from etfs traded on the exchange.

Any combination that meets your expectations is fine, but be aware further modifications of your arrangement with Vanguard may give better choices at reasonable costs.

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74265 of 75339
Subject: Re: Asset Allocation Date: 2/15/2014 8:59 AM
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I believe in passive investing and use Vanguard & DFA.

American Funds Class A shares have higher expense ratios than these two but much lower than other actively managed funds.

YOu can lower your up-front charge at American funds - breakpoints start at 25K.

There is no commission on Class A shares exchanges.

If it's taxable account there will be a tax drag.

I don't have any clients who have personally had issues with Vanguard account transfers but several colleagues have dealt with horror stories.
Transfers that have taken two months then voicemail hell.

The influx of assets has overwhelmed Vanguard. The company is a victim of their success.

I still recommend do it yourselfers opening accounts at Vanguard but I warn them about going rogue. Too often novice DIYers costs themselves way more than a 5.75% Class A charge.

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Author: dbphd Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74266 of 75339
Subject: Re: Asset Allocation Date: 2/15/2014 2:18 PM
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I think it's wise to minimize the cost of investing with no-load low-fee funds. I think it's also wise to minimize the time you devote to your investments with a simple plan. I like Vanguard index funds, and think you can do well with just a few, perhaps the total stock market fund, total international market fund, total bond fund, and REIT fund, allocated according to your preference. For spice, you might add the small-cap value fund, or substitute it for the REIT fund.

db

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74268 of 75339
Subject: Re: Asset Allocation Date: 2/15/2014 5:50 PM
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You can easily replicate one of these portfolios with either ETFs or possibly Vanguard Funds.

http://assetbuilder.com/lazy_portfolios/

If you did a US and Global ETF in equities, REITs, and bonds you'd have your bases covered. 6 ETFs rebalance quarterly or yearly.

JLC

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Author: culcha Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74269 of 75339
Subject: Re: Asset Allocation Date: 2/15/2014 6:00 PM
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I am in the process of leaving my investment advisor and moving IRA to Vanguard to take control of my retirement.

Here's an interesting Vanguard tool. https://personal.vanguard.com/us/funds/tools/recommendation

You might also google "Bogleheads" and "Lazy Portfolios."

culcha

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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74270 of 75339
Subject: Re: Asset Allocation Date: 2/15/2014 7:20 PM
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Look. Asset allocation is bunk. You need to be in those assets that are moving up and out of those that are moving down. If you cannot tell when as asset is moving up or down, then give it up.

The idea that you should be in a little bit of everything is just really stupid.

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Author: TMFHockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74271 of 75339
Subject: Re: Asset Allocation Date: 2/16/2014 5:52 AM
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1. I think Vanguard is a great choice, but then that's where I have my non-403b funds. Good advice from others here on that, and the books they recommended are solid.

2. You have access to both Vanguard and non-Vanguard funds, many without extra fees. I keep with the Vanguard index funds for the core of my portfolio because for me they make sense, but Vanguard also has some nice managed funds as well.

3. At your age you may also want to eventually consider a self-directed IRA option. This allows you to further diversify your portfolio with ETFs and individual stocks. I create a "sandbox" of about 20% of my portfolio in which I can explore individual stocks and ETFs. AND the Vanguard ETF's are free to Vanguard users. As you reach higher dollar levels at Vanguard the stock transaction fees get smaller. The are still pretty competitive at any level.

Bob
RYR Home Fool

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Author: TMFHockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74272 of 75339
Subject: Re: Asset Allocation Date: 2/16/2014 6:00 AM
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Look. Asset allocation is bunk. You need to be in those assets that are moving up and out of those that are moving down. If you cannot tell when as asset is moving up or down, then give it up.

The idea that you should be in a little bit of everything is just really stupid.


I'm trying to figure out if this is "tongue in cheek." Since every transaction has a buyer AND seller are you saying 50% of the market is stupid? If so, isn't that an excellent reason for a broad asset allocation, and even index funds? Even if you're wrong, that may only be wrong for a set period of time, and be right long-term. In the mean time you have to pay the transaction costs of timing your moves.

Bob
RYR Home Fool

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Author: vc83 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74273 of 75339
Subject: Re: Asset Allocation Date: 2/16/2014 9:50 AM
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Don't forget to buy low and sell high....

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74275 of 75339
Subject: Re: Asset Allocation Date: 2/16/2014 10:19 AM
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Why does it have to be anything except someone else's opinion ?

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Author: dbphd Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74276 of 75339
Subject: Re: Asset Allocation Date: 2/16/2014 2:10 PM
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Chasing highs and selling lows seems like a good way of contributing to your broker's wealth, but not your own. That seems stupid to me.

db

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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74277 of 75339
Subject: Re: Asset Allocation Date: 2/16/2014 3:21 PM
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Nobody is talking about chasing highs and selling lows. In any case, if you do not know how to trade, then you should not be in the market. Spotting a good buy is not difficult, and I have mechanical systems that do quite well, both in back and forward tests.

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Author: spinning Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74278 of 75339
Subject: Re: Asset Allocation Date: 2/16/2014 5:44 PM
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if you do not know how to trade, then you should not be in the market

This is where I think you are completely wrong. Many will want to argue that trading successfully is impossible, that no one can know how to trade. I merely acknowledge that I do not know how to trade. Yet I have done much better by being in the market than being out of it.

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Author: frisky2010 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74279 of 75339
Subject: Re: Asset Allocation Date: 2/16/2014 7:54 PM
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I'm actually surprised that no one has stated what seems obvious to me on this post. I've been a member of Fool's RYR for the past 7 or 8 years and the "Model Portfolio" has served me well. Because of my personal situation I have used the "within 10 years" portfolio as my guide even though I'm a young retiree. I have followed closely with an ETF portfolio, low cost, well diversified and great gains above the S&P. Just this past week I re-balanced and moved to an allocation more closely in line with the "IN Retirement" portfolio. Thanks RYR, Frisky

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74280 of 75339
Subject: Re: Asset Allocation Date: 2/17/2014 8:08 AM
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It isn't obvious. In the beginning TMF emphasized learning so people learned to invest themselves. Then they began to sell things rather than teach so as someone who has been around for awhile, it wouldn't be obvious to me to recommend just copying something.

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Author: zol Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74286 of 75339
Subject: Re: Asset Allocation Date: 2/17/2014 4:45 PM
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I'm trying to figure out if this is "tongue in cheek."

Bob,

I believe joelxwil is talking about two concepts:

(1) Momentum investing - "You need to be in those assets that are moving up and out of those that are moving down." - Mebane Faber published a paper in 2006 with a follow-up in 2013 describing how to evaluate different asset classes and invest in the ones that are more likely to outperform going forward based on their recent performance. The 2013 paper (Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461 ) shows how the strategy worked out since it was originally published. This strategy is followed in the Mechanical Investing board under QTAA - http://boards.fool.com/qtaa-013114-31095614.aspx

(2) Deworsification - "The idea that you should be in a little bit of everything is just really stupid." - The concept here is that spreading your funds too thin will not improve returns. A 50% increase in one of your holdings will make more impact if you only have 5 holdings vs 100, for example. This article (Link: http://news.fredericksburg.com/businessbrowser/2010/08/10/th... ) talks about a study of managed funds. The study found that managers willing to concentrate their holdings and "bet big on their highest-conviction ideas" outperform the stock market. They quoted a few famous investors regarding this concept:
"This brings to mind a famous saying of Warren Buffett: “Diversification is protection against ignorance.” Star manager Peter Lynch has referred to diversification as “deworsification,” and Buffett’s partner Charlie Munger has said that “wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.”"

-zol

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Author: spinning Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74287 of 75339
Subject: Re: Asset Allocation Date: 2/17/2014 5:10 PM
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“wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.”"

Guaranteed ordinary results is not necessarily a bad thing. Much better than decidedly poor results.

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Author: zol Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74289 of 75339
Subject: Re: Asset Allocation Date: 2/17/2014 6:24 PM
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Guaranteed ordinary results is not necessarily a bad thing. Much better than decidedly poor results.

I think that's what the OP found out the hard way and is now planning to move to Vanguard. The truth of the matter is that for individual investors the only "guarantee" is how much we spend on fees, trading costs, etc. (AKA friction) So, the investments need to be evaluated with those costs in mind.

One of the accounts I manage had a low balance due to restrictions on contributions. I was originally investing in it the same way I was investing in the other accounts. Soon I realized that this small account couldn't absorb the transaction costs the same way. So, I just parked the money in an S&P 500 ETF and left it alone. It may only get ordinary results but, as you said, better than decidedly poor results due to friction.

- zol

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Author: TMFHockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74294 of 75339
Subject: Re: Asset Allocation Date: 2/18/2014 10:02 PM
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I believe joelxwil is talking about two concepts:

(1) Momentum investing - "You need to be in those assets that are moving up and out of those that are moving down." - Mebane Faber published a paper in 2006 with a follow-up in 2013 describing how to evaluate different asset classes and invest in the ones that are more likely to outperform going forward based on their recent performance. The 2013 paper (Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461 ) shows how the strategy worked out since it was originally published. This strategy is followed in the Mechanical Investing board under QTAA - http://boards.fool.com/qtaa-013114-31095614.aspx

(2) Deworsification - "The idea that you should be in a little bit of everything is just really stupid." - The concept here is that spreading your funds too thin will not improve returns. A 50% increase in one of your holdings will make more impact if you only have 5 holdings vs 100, for example. This article (Link: http://news.fredericksburg.com/businessbrowser/2010/08/10/th...... ) talks about a study of managed funds. The study found that managers willing to concentrate their holdings and "bet big on their highest-conviction ideas" outperform the stock market. They quoted a few famous investors regarding this concept:
"This brings to mind a famous saying of Warren Buffett: “Diversification is protection against ignorance.” Star manager Peter Lynch has referred to diversification as “deworsification,” and Buffett’s partner Charlie Munger has said that “wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.”"

-zol


Thanks Zol, and these are important areas for discussion. Most have been discussed by others on this post.

1. I think Faber's work is important and I have reported on it extensively. It is a simplified (IMO) system to what joelxwil contributes to over on the Mechanical Investing board. It's open to discussion and data backtesting how much it can add to a portfolio over time. Even Faber admits that it depends on discipline to follow the system, patience to disregard the "headfakes" or contradictory signals that sometimes arise, and great regard that the system additions aren't negated from additional transaction costs. And even Faber's system uses index funds.

2. Again, a worthy discussion. Others on the thread have discussed the value of "ordinary results." The statistics show that over 10 year time periods index funds beat about 85% their professionally managed competitors. The figures are actually higher. By that 10 year mark a significant number of poorly performing funds have vanished. It may be fun for you to use this link to pick a category (large cap funds) and look at the number that are followed by Morningstar for one year and then ten years. The drop, generally, are those that have vanished.
http://screen.morningstar.com/tools/fund-quickrank.aspx

Of course Bill Miller was the "poster board" of focused funds, until he wasn't, and then he retired. Bruce Berkowitz was, wasn't, and now he is again. It's hard. And always there is the exception that proves the rule in Warren Buffett and his comfounding compatriot Charlie Munger. But even Buffett, when he want to show up the hedge funds, chose the good old low-cost S&P 500 index as his $1 million bet.
http://features.blogs.fortune.cnn.com/2014/02/05/buffett-wid...

Again, long-term and low cost are important.

Joelxwil is a good contributor and provides good advice on this and other boards. No disrespect was intended. Thank you for your thoughtful post as well.

Bob
RYR Home Fool

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Author: MacNugget Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74300 of 75339
Subject: Re: Asset Allocation Date: 2/23/2014 2:20 PM
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...are you saying 50% of the market is stupid?

That sounds low to me.

Nugget
makes no claims as to which segment he is in

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