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The Vanguard Lifestrategy funds can really simplify investing, if you like the asset allocation. Some advantages are:
- They rebalance it.
- There is no need to touch it at all.
- There's less temptation to mess around with it.

But the expense ratio is a bit high. Vanguard sets it as the weighted average of the underlying funds using investor class funds, not admiral. For the 80/20 growth fund VASGX that comes to 0.14%. The weighted average of the components using ETFs is 0.06%. $800/year saving on $1M. Not a lot, but if we're trying to optimize...

I wondered how the expense ratio affected performance. Here's what I got from Porfoliovisualizer:

July 2013 - March 2019 CAGR (July 2013 when BNDX data available)
VASGX
8.44%

Component ETFs (VTI, VXUS, BND, BNDX)
Rebalance Annually 8.39%
Rebalance Quarterly 8.37%
Rebalance Monthly 8.36%

Different start times will give different results, depending on if the constant rebalancing helps or not, but it looks like the extra expense of Lifestrategy might not hurt much, if at all.
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AdrianC writes,

But the expense ratio is a bit high. Vanguard sets it as the weighted average of the underlying funds using investor class funds, not admiral. For the 80/20 growth fund VASGX that comes to 0.14%. The weighted average of the components using ETFs is 0.06%. $800/year saving on $1M. Not a lot, but if we're trying to optimize...

</snip>


That 8 basis point spread between Investor Class shares and Admiral means that the average person would have enough extra money to buy a mid-size automobile for their granddaughter.

http://www.retireearlyhomepage.com/vg_tsp.html

intercst
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They have a similar spread between VT (an ETF of all global stocks) and its equivalent components VTI, VEA and VWO in proper proportion.
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8 basis points is nothing.

Skip a trip to McDonalds or Starbucks for a couple of months and invest that money instead, and the grandkids will have enough extra money to buy a yacht. And a full-size luxury automobile.

8 basis points will be swamped by a one week difference of buy date, on an up day vs. a down day.

Heck, buying a few hundred or thousand Forever stamps from the post office today will save you more over a lifetime than 8 BPs to Vanguard. (Actually, you shoulda bought those stamps a couple of years ago. $0.47 in 2016, $0.55 now. 17% higher.)
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Rayvt analyzes,

8 basis points is nothing.

Skip a trip to McDonalds or Starbucks for a couple of months and invest that money instead, and the grandkids will have enough extra money to buy a yacht. And a full-size luxury automobile.

8 basis points will be swamped by a one week difference of buy date, on an up day vs. a down day.

</snip>


As usual, you're missing the arithmetic. It's not an 8 basis point one time charge. It's 8 basis points year after year compounded over 30 to 50 years. That's why it adds up to the price of an automobile.

And you don't have to skip a trip to McDonalds or Starbucks if that's your pleasure. You just need to pay attention to fees & costs when evaluating alternatives and choose the lowest one.

intercst
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Okay, from the OP, VASGX before-expense gain is 8.58% or 858 basis points.

We are quibbling about reducing that by the E/R of 6 BP vs 14 BP.

844 BPs vs. 852 BPs.

A difference of 8 BPs on an 858 BP return.

De-minimis.

And, as always, the standard is not perfection; the standard is the alternative.
VASGX does the rebalancing for you. If you DIY, you have to do the work of rebalancing, etc. yourself. The extra 8 BPs seems like a good deal to me, for most people.

Not everybody changes their own oil, paints their own house, rolls their own cigarettes, etc. even though you can save a lot of money by doing so.

*****************

Yeah, better than a poke in the eye with a sharp stick, but.....
If you are going to do the work of quarterly rebalancing, why not do something that will earn you dollars instead of pennies?

Rebalanced quarterly, Jan'1987 to Jan'2018. Assets, S&P500 and Total bond market.
80/20: $10,000 grows to $172K.
CAGR: 9.30% Max Drawdown: -42% Sortino ratio: 0.80

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&a...

Dual Momentum (with only one asset, so it's really single momentum): $10,000 grows to $315K
CAGR: 11.38% Max Drawdown: -30% Sortino ratio: 1.09

https://www.portfoliovisualizer.com/test-market-timing-model...


80/20, but with an additional 0.08% expense fee:
$10,000 grows to $168K

Saving 8 BPs fee gets you (or your grandchild) an extra $4000 after 32 years. B.F.D.

A different timing/rebalancing scheme gets you (or your grandchild) an extra $143,000 after 32 years.
Why spend your time trying to make $4000 when the same effort would make $143,000?

This is what I don't understand.
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We have Vanguard in our 401K. There is a feature in there that will rebalance for you automatically. They buy and sell for you on the schedule of your choosing. No cost.

So you are paying for them to do something that they do for free anyway. The difference is that I have to select my own asset allocation instead of the fund doing it for me. I think there are tools on their website to help with that too.

So the extra basis points are basically the cost of 5 minutes of time once. If you want to adjust your allocation over time it's 5 minutes maybe every couple years.
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That 8 basis point spread between Investor Class shares and Admiral means that the average person would have enough extra money to buy a mid-size automobile for their granddaughter.

Yes, after 60 years...
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“Okay, from the OP, VASGX before-expense gain is 8.58% or 858 basis points.”

8.58% was AFTER expenses. I think that got lost in the quibbling over expense ratios. Over the time period I looked at, the Lifestrategy fund did slightly better than the component ETFs after all expenses. Something about the constant rebalancing Vangaurd does for you, presumably.
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“Why spend your time trying to make $4000 when the same effort would make $143,000?

This is what I don't understand.”

Why use a 10 month look back, Ray?

IIRC Antonacci recommends a single 12 month look back. Which incidentally experienced a vicious whipsaw recently - down 13% or so versus the S&P this year.

Momentum looks good in the back tests. Implementing it oneself with your hard earned is another matter.
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Why use a 10 month look back, Ray?
IIRC Antonacci recommends a single 12 month look back.


Any lookback between about 6 months and 15 months is okay. Depending on the exact calendar dates of the backtest, there is one lookback that is better, but overall there's no one lookback that is always best. A recent paper "GLOBAL EQUITY MOMENTUM A CRAFTSMAN'S PERSPECTIVE" covered this exhaustively. Gary's argument for a 12 month lookback is specious---12 month lookback has nothing to do with 12 month holding period for LTCG.

Either that paper or a related one makes a strong argument for an "ensemble" approach, where you use a number of lookbacks and weight the holdings accordingly, in proportion to what the various lookbacks say.


Momentum looks good in the back tests. Implementing it oneself with your hard earned is another matter.

No, not any more hard than any other mechanical strategy. The momentum rules we are talking about here are simple---once a month/quarter look at current price vs. the price N months ago. The hard part is having the discipline to do what the signal says to do. You either have the discipline to adhere to your strategy or you don't.

We actually use different lookbacks for the GEM portfolios we handle for us & relatives. Some are 7 months, some are 10 months, some are 12 months.
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We actually use different lookbacks for the GEM portfolios we handle for us & relatives. Some are 7 months, some are 10 months, some are 12 months.

You're getting away from the simple rebalance or use momentum idea from upthread, but I get it. It's still not too complicated. It's doable.

How have your real money results been? Has it been worth it so far?
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You're getting away from the simple rebalance or use momentum idea from upthread, but I get it. It's still not too complicated. It's doable.

How have your real money results been? Has it been worth it so far?


Alas, ever since the 2009 bottom NOTHING has been worth it other than a buy-and-hold of the S&P 500.

The benefits from any timing method come on the downside not the upside. When the market is going up, the best you can do is be along for the ride. When the market is going down, that's where a timing system works---by letting you sidestep the fall.

So in a sick sort of way, I've been hoping for a bear market for the last several years, so that my timing/momentum portfolio can have a chance to beat the marlet.
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The benefits from any timing method come on the downside not the upside. When the market is going up, the best you can do is be along for the ride. When the market is going down, that's where a timing system works---by letting you sidestep the fall.

Thanks, Ray. The GEM strategy is attractive when looking at the back-tests. Those whipsaws it can produce are not. I'll probably just stick to what I know I can do: buy-and-hold/grin-and-bear-it.
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The GEM strategy is attractive when looking at the back-tests. Those whipsaws it can produce are not. I'll probably just stick to what I know I can do: buy-and-hold/grin-and-bear-it.

Yeah, recency bias is a bear. That's why successful investing is psychologically very difficult. It doesn't help when "recent" is the last 9 years.


... buy-and-hold/grin-and-bear-it.

You could do what Jim (mungfitch) over on the Mechanical Investing Board has talked about for the last many year. Buy Berkshire Hathaway and forget it.

A stock that I *still* remember almost buying in my IRA...but I couldn't convince myself to put my entire IRA into one share of a $2000 stock. It was just BRK back then. Now it's BRK-A and is $317,000. ;-(


Anyway, Jim has recently mentioned another twist he uses. When BRK gets ultra-cheap (P/B under 1.35) sell some (half?) of your shares and use that money to buy deep in the money LEAP call options (about 2 years to expiration). This is effectively leveraging the investment in BRK when it is cheap. Then, when the LEAPS expire, or if it becomes not cheap (P/B goes above 1.55), close out the LEAP options and buy the stock again.

The next result is you always hold BRK, but when it's cheap you use 2X leverage on half your holding, so you are net 1.5X leverage. When it's not cheap, you own it flat (no leverage).

FWIW, the P/B was 1.34 in January and is 1.49 today.
You can only do this if you have a significant stake in BRK-B, though. In Feb, the 2021 LEAP (2 years out) 110 strike cost $10,200 per contract.

But that discussion properly belongs on the MI board, not the Retirement Investing board.
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Yeah, recency bias is a bear. That's why successful investing is psychologically very difficult.

It is. That's why I'm leaning towards doing what I know we can (or could) do: hold on through thick and thin. I looked at the GEM strategy. Even read the book. But when it came to making the trades I couldn't do it. Buy after it's gone up? Sell after it's gone down? It just seems so backwards. I understand the reasoning...just can't get it psychologically.

You could do what Jim (mungfitch) over on the Mechanical Investing Board has talked about for the last many year. Buy Berkshire Hathaway and forget it.

I've been a member of the Berkshire cult since 1998, when I bought my first "B". I later learned that I'd seriously overpaid, and yet it has still beaten the S&P, and by a lot. I don't trade it like Jim does. I just buy some more when it looks cheap (bought a big chunk late 2018/early 2019). Most of our taxable investments are Berkshire. It's a great holding in taxable.
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