Premise:
You are gratuitously managing the portfolio of a 70-year old dear friend in great health with NO income or cash needs.
Friend has been sitting on about 20% cash for the past several years and has decided she now wants to invest some/all of it.
Friend particulars:
Total Return investor seeking maximum TR over the next 5-??? years
Tax-deferred account
Volatility is NOT an issue
Diversification is NOT an issue
Already owns sizeable chunks of VWENX, VBIAX, VWIAX and VGWAX and does NOT want to add to those positions
ONLY wants to own VG Asset Allocation funds
No heirs, entire estate is being willed to charities
Friend has never and you trust will never hold you accountable for anything related to her portfolio performance
Your job:
You are trying to compile a suggestion list of at least 2-3 funds but know there are not many more VG AA funds available.
Given this premise and these particulars, what VG Asset Allocation fund(s) would you suggest?
EDIT: I have compiled my suggestion list but don't want to present it here yet and possibly affect other suggestions.
Given the limited number of other VG AA funds available, would you attempt to suggest
(1) any non-VG AA funds and if so, what would they be
(2) simply adding to existing holdings?
Comments
https://investor.vanguard.com/mutual-funds/profile/portfolio/vgstx
While active management (I'm a big fan of Wellington) can add some value its impact is marginal compared with the effect of allocation decisions. I'd focus on that, and then just pick the fund or funds that best match the chosen allocation.
For example, Life Strategy Conservative Growth (VSCGX) and Wellesley (VWIAX) are both 40/60 funds. VWIAX has done better over the past 1 and 10 years, while VSCGX has done better over the past 5. Over the past 3 years the difference was minuscule (0.04%).
With respect to the allocation of foreign securities, the portfolio is underweighted. I might try to increase that. (OTOH, given the long term underperformance of foreign holdings, this suggestion might be analogized to eating one's vegetables.)
Vanguard's neutral foreign allocation is 40%. (I'll dig up a source for that if needed.) VSCGX seems to target that, with 40% of its equity holdings being foreign. It also has a healthy slug of foreign bonds. So that's one way to boost foreign exposure. VGSTX (30% of equity is foreign) is another.
The point is not to pick funds at the start, but to identify a target allocation (stock/bond, domestic/foreign) and then pick the funds that most simply come close to that target.
FWIW, if the cash really is not needed over the next decade, and the target time frame is 5-10 years, a traditional 60/40 allocation would be reasonable. If the cash might be used in under five years, I'd think in terms of bond funds. Since the friend wants allocation funds, one could use a 20/80 fund (VASIX) and overweight it. Or even push it to a 30/70 fund (VTINX).
My suggestion would be to check out FMSDX, a Great Owl fund with an excellent risk/reward profile that would also bring a significant element of diversification to the the portfolio.
Here is the latest data of FMSDX's composition:
Equities ex. Preferred Stock 46.54%
U.S. Treasury & Government Related Securities 17.75%
Investment-Grade Corporate Bonds 0.24%
Mortgage Backed Securities 0.01%
High-Yield Investments 14.70%
Bank Loans 6.23%
Convertibles 6.78%
Preferred Stock 4.52%
Emerging-Markets Debt 3.26%
Cash & Net Other Assets -0.03%
Good luck,
Fred
In 2008, VAAPX was (judging from its performance) completely allocated to stocks. It returned -36.39%, vs. the S&P's -37.00%, and vs. the -19.21% return of its blended (stock/bond) benchmark.
With a 25% allocation to VAAPX, it is not surprising that VSCGX underperformed its benchmark by 4.7% (close to 25% x 17.2% VAAPX underperformance).
To go back to 2008 is to look at two funds that no longer exist:
- a VSCGX fund holding anything other than total (stock or bond) market index funds, and
- VAAPX - a dynamic allocation fund that was merged into VBINX in 2012
2009 VSCGX prospectus for 2008 composition and performance/benchmark data
2009 VAAPX prospectus for 2008 data and for dynamic nature of fund
VAAPX 2012 prospectus supplement - completion of merger into VBINX
I listed everything that I thought posters would need to know but based on some responses...
VHNW woman with well over $5M in this account alone who will likely never spend a dime of this money but would like it to be as large as possible for her gift to charity upon her death.
Amounts will only be w/d from this a/c because of RMDs.
There are NO required or even desired target stock/bond or domestic/foreign allocations.
She does NOT like to pay TFs so any non-VG AA funds suggested should be NTF at VG.
She desires AA funds in tribute to her beloved, deceased husband who always told her she should have "some bonds" in her portfolio after he passes, with AA funds being the simplest way for her to ensure that she does.
To repeat though...
Perhaps the most important "Particulars" to note are
Total Return investor seeking maximum TR over the next 5-??? years (via AA funds)
Tax-deferred account
Also of note...
I've been investing in OEFs since 1980 and there really aren't many (any?) GREAT AA OEFs that I am NOT aware of and/or own personally. SO I'm REALLY NOT looking for DETAIL of any given suggestions or WHY they were suggested or how they did during this/that period.
I'm REALLY just looking for poster's LISTS of 2-3 AA OEFs (NOT listed in the OP) that they believe will be amongst the BEST TR funds for the at least the next 5 years or until she becomes mentally incapacitated or passes. I can do the DD on them if I don't already know what I/she need to know about them.
Sorry for any confusion.
With $5M in this account alone, she gets 100 free trades (aside from the normally NTF funds) per year. Frenetic trader?
https://investor.vanguard.com/investing/transaction-fees-commissions/mutual-funds
If / since this is really money she is not going to touch and not going to need, why not put everything into something like VONG or equivalent? Who cares what happens? There are many managed outperforming funds as well, sure; I mean it could all go into Fido Sel Tech or something like that, or indeed QQQ. But VONG is an easy sell and compelling case. If the word dividend appeals, then something like SCHD or all of its worthy competitors. If the criterion ESG appeals, then PRBLX. I mean, KISS.
Or even better, pick a fund that tracks a pure equity index using derivatives, with most of its assets in bonds as an added kicker. That would meet the window dressing bond requirement while providing equity-like returns for better or worse.
(AA may be the simplest way but it's not the only way to get bonds into the portfolio.)
For tracking the S&P 500, there's PSPAX, or if one is willing to eat the $8 (max) TF to get better performance, there's PSTKX or MWATX. If one prefers to track CAPE, there's DSENX (or the better performing DSEEX for an extra $8).