Portfolio advice sought

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wanderer
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Portfolio advice sought

Post by wanderer » Wed Apr 07, 2004 7:17 pm

We recently sold one of our properties. Had to reallocate A LOT of money (for us, at least).

I, of course, moved a substantial amount to REITs, which promptly got creamed. 7%+ divvies eases the pain a bit (VGSIX and some other middle of the road funds).

I kept in mind the 'you show me yours' thread, esp. your, raddr, ataloss, bpp, oliver and others' comments. I also used the model portfolio weightings of GMO. And Dreman Scudder.

This has meant changes as follows:

1. shrank VWEHX to 10% (was an eye-popping 21%)
2. grew REITs (up to 12%)
3. shrank individually held real estate (from 35% to 4% - sold property retained considerable debt)
4. grew emerging bonds (2.5%)
5. grew high dividend payers a la Dreman - individual equities and preferred stocks (3.7%)
6. grew cash (23%+ of ttl)
7. grew energy and timber stocks (using as my 'TIPS' - far from the same but can't bring myself to buy VIPSX at this yield... 6%). Mostly individual equities (integrated O&G, esp. foreign issues, and coal LPs).
8. grew health care (3%)
9. grew VEIEX to 6%
10. shrank US lge cap to 8.5%

Still need:

1. Commodities (besides energy). May buy individually but would prefer a mutual fund. VGPMX still closed. Haven't really looked at BGEIx yet.
2. SC int'l. (OAKEX closed)
3. Have mainly broad int'l indices. Getting small or large foreign value/growth seems like excessive bet at this point or simply impossible (VINEX closed, etc.).
4. Not enuf VISVX for my tastes but the run-up has scared me off.

Any ideas most welcome.

Probably boring, but the recent market action definitely has my attention. FWIW, even with a 15%+ allocation to real estate, we are only down maybe 2% overall. Diversification rules, baby. ;)

What about a perfect financial storm? That would be bad news for early retirees like me.
regards,

wanderer

The field has eyes / the wood has ears / I will see / be silent and hear

bpp
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Post by bpp » Wed Apr 07, 2004 8:40 pm

Hi Wanderer,

Still need:
1. Commodities (besides energy). May buy individually but would prefer a mutual fund. VGPMX still closed. Haven't really looked at BGEIx yet.


VGPMX is apparently reopening soon, with an expanded mandate: http://www.nofeeboards.com/boards/viewtopic.php?t=2263

There's also PCRIX, if you use the Vanguard brokerage.

Bpp

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ben
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Post by ben » Thu Apr 08, 2004 1:42 am

Hey that looks like a portfolio according to my multi asset style! :D

Lets see you said you need:
Commodities: as you want focus on a spread of commodities and not too much energy (as well as lower cost!) I have chosen PCRIX over QRACX.
In my Ameritrade account it let me buy the PCRIX despite being an institutional fund demanding a mill or so in minimum normally.
Admittedly I have not sold QRACX yet as I enjoy the current oil bull market too much :D . To buy commodity companies instead is probably ok - but I like my different asset classes to be as pure as possible/

SC international... auch! I have left that out myself as no index fund so lets see what others can come up with as I might be interested.

Agree that just broad foreign indexes must be enuff - it further adds the currency diversification nomatter what.

Small cap US value run-up? Yes; it is always tough (after your REIT experience ;) but what about doing it in 2-3 lots - 1 now and one-two later? Sure it might not be the most logical - but I have used the method quite often and it makes it easier to step in at all with less regrets both ways.

Latest market action certainly has my attention too! I must admit that I follow it daily - which has not always been the case. Many reasons for that - most importantly due to my closeness to FI I guess and portfolio adjustments in that connection, but also because I see a global economy
with so many contradictions that there is alwas something new to read about.

Just reading www.dailyreckoning.com with my morning coffee every day have certainly increased my expectations for various bubbles exploding.
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wanderer
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Post by wanderer » Thu Apr 08, 2004 2:23 am

Thanks for the responses fellas.

Good thread on VGPMX. There's gold in them thar luscious mounds o' spongecake (bpp's venerable twinkie hoard).

I am also looking at the Vanguard Basic Materials etf. i can't swallow hard enuf to buy the ishares stuff at .6%. Rather buy the top ten and just be done with it. Or VAW (Vanguard's materials VIPERS). Price is right. Fund is so small ($20mm). How do they grow it other than by issuing new shares? (Woefully ignorant on etfs.)

I have been doing the individual equity thing because it enables me to target yield or energy issues that are covered less and/or in combo with other exposures that I want (currency), etc. Also cuts out ishares overlap and ridiculous fees ishares wants.

ben -

The REITs were painful. :cry: But I researched the shite out of it. They were a good decision. I needed some flow. Paper assets but backed with real property. Granted it is inflated 20%. But the S&P is at 50% per Q. Have plenty for shopping when the bubble bursts.

I didn't remember you having commodities AND gold at 10%. Guess commodities includes O&G? Pls confirm.

I looked at qracx, but I saw a lot of FNMA and US gov't and agency shite. Very strange. Could do BGEIX. Not crazy about the er, but you do what you can...

What cef do you hold for precious metals?

btw, ben, don't read daily reckoning in the AM before shaving. :shock:
regards,

wanderer

The field has eyes / the wood has ears / I will see / be silent and hear

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ben
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Post by ben » Thu Apr 08, 2004 3:56 am

He,he - yeah daily reckoning certainly see the big bust coming! :shock:

As for portfolio I am currently adjusting so yes; I have both commodities AND gold w. equal weight (now 12 asset classes - but not finished yet setting up). The fact that I hold even more right now due to both QRACX, PCRIX and BGEIX should not confuse you. As I mentioned I SHOULD sell QRACX.....Oh; another reason; need to hold a few more months to sell without 1% redemption fee! (good excuse eh'? ;) ).

Note that BGEIX is a very pure gold fund (no focus on much other precious metals than gold) while the Vanguard changes means that theirs will be more of both other precious as well as other stuff. Both PRCIX and QRACX have rather limited gold exposure I feel.

As for QRACX don't let the FNMA and other stuff confuse you. Yes; it is where they put part their cash - but their gains/losses are related to futures/options on commodities not really on the cash/bond deposits. PRCIX puts most in TIPs if I remember correctly - but again - gains/losses are from commodity swings not from the bonds. One could argue that they should then put it in a cash account not to lose on bond prices.

CEF for precious metals? there is only one if you mean holding actual gold/silver Ticker is: CEF (Canadien something but traded US) - is about 60% gold and 40% silver bullions. I have some of my gambling money in that one.... Man, I hold a lot of commodities/oil/metals! :shock: Bring on inflation!


The REITs were painful. But I researched the shite out of it. They were a good decision. I needed some flow. Paper assets but backed with real property. Granted it is inflated 20%. But the S&P is at 50% per Q. Have plenty for shopping when the bubble bursts.

I didn't remember you having commodities AND gold at 10%. Guess commodities includes O&G? Pls confirm.

I looked at qracx, but I saw a lot of FNMA and US gov't and agency shite. Very strange. Could do BGEIX. Not crazy about the er, but you do what you can...

What cef do you hold for precious metals?

btw, ben, don't read daily reckoning in the AM before shaving.
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wanderer
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Post by wanderer » Thu Apr 08, 2004 4:28 am

talk to me ben:

gold, commodities, energy - 24%? (8% each)

Any coal?

have you considered VAW (vanguard materials etf)? .28% er. all the biggies.

how much timber? we have a small allocation but are also considering buying some fairly rural land a la 1HF (located somewhere in the MI woods).

any TIPS? any fears of gov't finagling with inflation rate?

really uncomfortable with the run up in paper assets. directly held stuff has a lot of appeal. still hold one house and raw land.
regards,

wanderer

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Post by raddr » Thu Apr 08, 2004 5:08 am

ben wrote:In my Ameritrade account it let me buy the PCRIX despite being an institutional fund demanding a mill or so in minimum normally.


Hi Ben,

Did you have any trouble getting Ameritrade to let you buy PCRIX? I can't get Schwab to let me in to that share class so I'm stuck with PCRDX. I'll tell them that Ameritrade allows this - maybe it will shame them into letting me into PCRIX. ;)

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Post by raddr » Thu Apr 08, 2004 5:18 am

Wanderer,

Looks pretty good to me. Looks like you're getting close to that 0% allocation I recommend for domestic large cap. ;)

I like BGEIX better than VGPMX for a pure gold play. It has a low expense ratio. For commodities I really like PCRDX (or PCRIX if you can get it), especially because it is leveraged with TIPS, giving you another inflation hedge along with the commodities.

Emerging markets (I like EEM) tend to track OAKEX pretty closely so you could add to your holdings here and get much of the OAKEX effect.

I'm leery of junk bonds right now. They seem a bit pricey to me. You might consider lowering your exposure here a bit more.

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Post by ben » Thu Apr 08, 2004 5:30 am

Call me Iceman! (insider joke - but am sure Wanderer/others get it).
To give you the total 12 assets of my new set-up(most I already hold):

USA large cap (Thinking RSP rather than IVV)
USA mid/small(VXF or IJR/DSV - depends on large cap choice)
USA Micro (BRSIX)

FOR EU/E.EU (IEV/CEE also looking at TROW E./central EU fund)
FOR EM (now VEIEX but consider EEM due to 0.5% trade fee on VEIEX)
FOR ASIAPAC (now VPACX - looking at ETFs too)

OTH Gold (BGEIX now - change to Vanguard?+ CEF or new gold ETF?)
OTH Commo (PRCIX - combine w. QRACX for more oil?)
OTH EM debt (PEMDX had TEI before but sold when no discount left)
OTH REIT (VGSIX - consider ICF instead - being REIT "large caps" only)
OTH Convertable bonds (VCVSX - hedging my equity exposure)
OTH Arbitrage fund* (ARBFX-learned from petey-good bond alternative)

A few thoughts; not much value twist. Also; have 50% equity and 50% "other" - but VCVSX and partly REITs do have some correlation to equity. I accept that as this portfolio, being my potential FIRE portfolio, will have to have equity level returns if to survive my loooong retirement! :D

Also; I have been considering bonds incl. TIPs but have a had time buying any in the current market. Instead I hold a geared Scandinavien mortgage bond fund in my home bank - is about 15% of total so above 12 classes is actually the remaining 85%. Should I go for bonds further it would be EU bonds - or maybe the bear fund: PSAFX (a bit expensive though).

As for REITs the Vanguard fund has more smaller REITs included/more diversified - but my initial studys seem to indicate that the large REITs (ICF) are better prepared/hedged when interest rates start an upward trend. Been wrong before 8).

Finally hold a rental unit in BKK for ultimate diversification, also currency wise. I consider the apt potential FIRE-base too.

Talked enuff?

*closed for new investors but Ameritrade lets me buy anyway -guess considered old investor as Ameritrade clients bought before
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ben
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Post by ben » Thu Apr 08, 2004 4:25 pm

Raddr; PCRIX I just put i the order online and had it. Was a bit surprised myself though. Probably a hick-up but I am not complaining!
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Kramer
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Post by Kramer » Thu Apr 08, 2004 5:37 pm

Wanderer,

What you should do depends a lot on your tax situation, so here
goes a little advice not knowing the specifics of that:

I like the choice of VEIEX over EEM due to the lower expense ratio

I have chosen to forgo the international small cap due to the high
expense ratios, and also lack of tax efficiency. I overweight
US small cap value even more than I would otherwise as a result.

PCRIX for commodities would be good choice, as others have
expounded. You can get institutional fund from Vanguard.
I would be careful about overweighting them now when they
are so hot. Lots of money has rushed in there. PCRIX is
significantly more diversified than any small basket of
individual commodity companies.

Cheapest way to own international is tax managed international
(VTMGX) with expense ratio now down to something like .28% but
there are penalties for early selling.

I never hold cash and rarely do I advise that. Short term
corporate fund is the equivalent, really, at well over twice
the yield.

Personally, I would not hold a sector fund like health care, you
get exposure in broader indexes. Unclear if medical expenses
and health care equity return will be related.

Need US small cap value. Use the Vanguard fund in a non-taxable
account, IJS in a taxable account (latter does not own REITs).

Your bond holdings are risky in nature (VHEWX and emerging), not
much of an anchor there. I have nothing against slice and dice of
bond holdings, but I am assuming you will move all your
cash into nice, safe bond holdings.

On the real estate, consider the possibility of a 1031 exchange, if
that is possible, to defer taxation, but then I am thinking you might
be in Canadian tax jurisdiction. Whether 1031 is the right thing
to do depends on a lot of factors.

HOpe that helps.

Kramer

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Post by zendrix » Thu Apr 08, 2004 8:56 pm

Wanderer: Nice to meet you too. I am fairly nomadic myself and hope I can add something significant to the FIRE and LBYM databases at some point. I'll try to rewrite my blip on Japan and real estate as I see my original post is more pessimistic than it should be. I've talked to some friends here since I wrote that who are presently investing in real estate and their perspective is that Japan's economy will surge at some point faster than any other countrys in Asia, the question is not if but when. My friends base their opinions on a number of things including the unique group work-oriented nature of the Japanese culture which we feel is outmatched by no other culture in the world.

Also, another note: for anyone buying PCRIX from Vanguard, it is one of 900 funds out of 2600 that requires an additional "Fund Access Transaction Fee" of $35 EVERYTIME you add to the fund.
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Post by ben » Thu Apr 08, 2004 9:19 pm

Ameritrade charge $18/mutual fund trade and have stopped all the no transaction fee deals we had with Datek before - stocks are $11.

Based on the above; needless to say that a 12 asset class portfolio like mine should not be done with $1200! :D

As for Japan I also have a fairly high exposure through VPACX and have been using EWJ before in my gambling account. I have a general faith in entire Asia as long as one remains diversified. I currently have a 50/50% exposure to US equity vs foreign, but have been considering to do more of a 40/60% exposure, increasing EM/Asia.

Cheers!
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Post by wanderer » Thu Apr 08, 2004 11:28 pm

Great stuff guys! I'll try to address these as I have time.

Kramer:

What you should do depends a lot on your tax situation, so here
goes a little advice not knowing the specifics of that:


One of our weirdisms is an unnaturally low tax rate due to FEIE. We are relatively nonchalant re: taxes as we generally pay no more than 15% total (and that just on investment income - worst would be in suburban DC real estate but interest/points and depreciation make sure that number is not too high (basically we strive to fill out the 15% dance card but not over as that would be taxed at 33% or so (MD plus US tax).

I like the choice of VEIEX over EEM due to the lower expense ratio

I just hate adding after it's already up 80% over the last 12 mos. Still, GMO tells me I'm light.

I have chosen to forgo the international small cap due to the high
expense ratios, and also lack of tax efficiency. I overweight
US small cap value even more than I would otherwise as a result.


It's a conundrum. Don't think there's a solution short of (ugh) DFA or OAKEX or someone re-opening. Does Bridgeway have such a fund.

PCRIX for commodities would be good choice, as others have
expounded. You can get institutional fund from Vanguard.
I would be careful about overweighting them now when they
are so hot. Lots of money has rushed in there. PCRIX is
significantly more diversified than any small basket of
individual commodity companies.


Good news! I would like to see what they are holding. PCRIX seems to be very popular here. Have to check them out - thought they would have none of the small fry like me. Don't like the extra $35 bs zendrix referred to...

Basic materials wise, ishares wants .6%+ to hold DOW, DD, AA, IP, WY, etc. 70%+ in 10 issues. I say I can do better, get decent coverage and get a value tilt on my own. I considered VAW but it was essentially the same as ishares offering (almost 60% in the top 10), but MUCH lower er. Not a bad choice. Just sub-optimal, imo.

Cheapest way to own international is tax managed international
(VTMGX) with expense ratio now down to something like .28% but
there are penalties for early selling
.

Again, taxes much less of an issue for us than most. VGTSX/VPACX/VEIEX/VEURX have done us right. Also hate the back end fees - totally justified from the existing/carry on shareholders' perspective, but we'd like to be more nimble. Like in case I let us get out of whack again. Never happen, I know. :)

I never hold cash and rarely do I advise that. Short term
corporate fund is the equivalent, really, at well over twice
the yield.


I hate it, too. I really do. But I have lived to regret not having some cash when the inevitable happens (buying oppty, cash crunch re the real estate [we were without a renter at one place for 6 mos.). I would much prefer to be at about 5%. But Warren tells me he is doing the 20% cash thing so, maybe we'll go down together. Hate the lack of choices out there these days...

Personally, I would not hold a sector fund like health care, you
get exposure in broader indexes. Unclear if medical expenses
and health care equity return will be related.


Understood. But er of .28 and there are some value issues (at least in terms of comparative historical prices) and I wanted that and the diversification, the large cap element (raddr has seduced me much of the way to the dark side - have less than 15% large cap US)

Need US small cap value. Use the Vanguard fund in a non-taxable
account, IJS in a taxable account (latter does not own REITs).


I've lived to regret not rebalancing more, but I guess we did OK. Wish I had more veiex and visvx early in the run. Guess I'll ease in like that single successful Thailand guy recommends.

Your bond holdings are risky in nature (VHEWX and emerging), not
much of an anchor there. I have nothing against slice and dice of
bond holdings, but I am assuming you will move all your
cash into nice, safe bond holdings.


Indeed. But VWEHX has barely budged in the interest rate hubbub - shallow end of the HY pool, decent duration, follow the recovering economy, cash for redeployment, nil tax bite. I will keep some for that reason, but will trim sails to maybe 5%.

The other stuff is closed ends with relatively high ers (ok, ridiculously high ers) but vanguard is too paternalistic and doesn't read ok think as highly of Jeremy Grantham as I do. Wasn't killed in the recent job report flurry.

On the real estate, consider the possibility of a 1031 exchange, if
that is possible, to defer taxation, but then I am thinking you might
be in Canadian tax jurisdiction. Whether 1031 is the right thing
to do depends on a lot of factors.


Great minds think alike! ;) Still US bound. I think.

Great comments Kramer. I thank you for making me think.
regards,

wanderer

The field has eyes / the wood has ears / I will see / be silent and hear

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