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Final Portfolio Allocation Review

edited August 2013 in Fund Discussions
Simply thought I would post my thoughts on an allocation that I'm close to adopting and would greatly appreciate your thoughts and criticism?

These investments are primarily to fund our retirement which is 20+ years away. There are no immediate income needs from the portfolio nor will we need to take any withdrawals out until retirement. I am a very conservative investor so capital preservation is a priority with an objective of generating returns of inflation plus 3-4% while generating decent upside and downside capture. Targeting a beta of 0.3-0.4.

There are four main categories of the portfolio allocation.
The first consists of Global Asset Allocators. My goal here is to invest in 5 risk conscious managers with varying views and that have great investment flexibility. 40% will be allocated amongst the following:
Wells Fargo Absolute Return (GMO)- WABIX
FPA Crescent-FPACX
PIMCO All Asset All Authority- PAUIX
Ivy Asset- IVAEX
First Eagle- SGIIX

The second category consists of what I term tactical allocation and long-short. A 20% weighting will be allocated to:
Good Harbor US Tactical Core- GHUIX
AQR Managed Futures- AQMIX
Marketfield- MFLDX

The third category consists of flexible bond funds. A 40% weighting to the following:
Scout Unconstrained- SUBFX
Doubleline Total Return- DBLTX
Osterweis Strategic Income- OSTIX
Templeton Global Total Return- TTRZX
Sierra Core Retirement- SIRRX
RiverPark Strategic Income- interested in this fund after it launches

The fourth category is invested outside of my portfolio outlined above. This consists of two direct lending vehicles, Lending Club and a private placement fund that specializes in short term small business loans.

I also plan to reduce the global asset Allocators over time and invest in the following after a 15-20% market decline:
Seafarer Growth & Income- actually might consider now
Yacktman Focused
FMI International or FPA International Value



  • Hi Heather. I remember you posting a while back on this portfolio. What I think I remember was your dedication and hard work to create what you thought was best for you. So, if you are happy with this then that's whats important.

    But since you asked, in my opinion, if this is a retirement account with a 20+ year target, you may be way to conservative "and complicated". Most of the funds you chose seem to be top-notch, at least right now. Time will tell if those alternative funds like PAUIX and AQMIX pan out. Maybe they could have a sleep well affect - if you are 5 years from retirement. I would be concerned having so many bond funds myself. 40% in bonds along with the "flexible" and "alternative" funds you think you need are also heavy in bonds themselves! Not sure why OSTIX and TTRZX wouldn't be a suitable combination on their own.

    Another thing that jumps out is I don't see any small cap fund exposure. Or much straight stock funds at all for that matter. Why not use index funds for some or most of your equity exposure and maybe a couple managed funds for possible alpha - or conserving principle as you hope. I guess I'll stop there. You asked so I spoke. This might be an okay allocation for a 55 year old, but again, way to complicated and conservative for 20+ years out IM<HO. Over 20 years, the portfolio allocation will be what drives 90% of your returns, not the funds you choose. And over 20 years the short term volatility of equity won't mean much either.

    But, as always, if this feels right for you, go with it. Obviously know one knows you better then yourself. And obviously you put a lot of work into this. I do notice you took PRPFX out of the equation.
  • Frankly, I think you can take the entire "second category" and eliminate it. I have been underwhelmed by all of these "tactial allocation" "alternative investment" and long-short funds, with the possible exception of Marketfield (MFLDX). They invariably:

    1. give mediocre to poor performance over an entire market cycle.

    2. have ridiculously high expense ratios which, when compounded over several decades ---
    which is what you are talking about prior to your intended retirement date ---- become
    quite substantial.

    3. underperform several of the best balanced (MAPOX, OAKBX, etc.) and go-anywhere/do
    anything" funds (FPACX) without substantially changing the volatility of one's portfolio.

    And I agree with MikeM: you are making things unduly complicated and micromanaging
    your portfolio without a clear-cut reason or realistic anticipated result.
  • edited August 2013
    I think it's an interesting, certainly rather "outside the box" portfolio. The criticism from some is likely that it's going to be too conservative (and it probably is), but I think you ultimately have to leave the desired risk level up to the individual.

    The only thing that I remain skeptical about is the managed futures fund - despite being apparently one of about two or three people on this board who do not appear to loathe alternative funds, I have yet to really find a managed futures mutual fund of interest. The AQR fund is one of the best examples of the managed futures category, but I still think managed futures is more suited to hedge funds that can be more nimble than mutual funds.

    I do agree that there's not that much straight-up stock exposure. I'd say maybe adding a small portion to start with (10%?) in Seafarer, FMI and/or Yacktman rather than putting 40% in bonds.
  • 13 funds, Heather, is a bit beyond what I'd want to bother taking the time to track and "babysit." Can you get this portfolio down to 8 or 9 funds? Spread out your money TOO much and you end up just diluting your profits. KISS it. Simplify:

    1. Domestic CORE, maybe a good balanced fund like MAPOX, mentioned above.
    2. Domestic small-cap (MSCFX? From the same shop: Mairs and Power)....Or TRP PRSVX.
    3. Domestic BONDS--- nothing longer than intermediate-term. DODIX, DBLTX. DLFNX.
    (keep your bond stake small for several more years. You have 20+ years to retirement. You want this animal to GROW. Make sure, when the mutual funds offer you the choice to take pay-outs or to RE-INVEST them, that you do the LATTER!)

    4. INTERNATIONAL, global: MAPIX, SFGIX (mentioned above, in your own note) and TBGVX.
    5. World bonds: MAINX.
    6. A small stake in EM bonds. No more than 3% or so of your total. Right now would be a perfect moment to buy-in because they are so depressed: PREMX, FNMIX.

    You can't hope to cover EVERY base. Later on you can get more complicated with various "sleeves." Make it more complicated than it needs to be and you end up chasing your own tail. -----"Max."

  • Hrux, I think there are very good comments from this group. I don't know anything about you personally but doesn't affect my one idea, that is to offer one suggestion for a Global fund since I recently purchased OAKGX. It is managed by a favorite manager of mine
    Clyde S. McGregor. He is also the manager of Oakmark Equity & Income fund which I owned for several years and does a fine job with the equity side.
  • edited August 2013
    Unless you have a substantial (in your opinion) amount of money involved, I would suggest a 30% investment in each of T Rowe Price, Vanguard and Schwab target date funds. You could pick the target date year based upon your desired asset allocation between stocks and bonds. The remaining 10% you can treat as "fun money" to be invested in tactical funds and the like.

    When the stock market starts heading south again (as it did in October, 2007), will any of these tactical, long/short, global asset allocation funds or the latest fad funds invented by mutual funds' marketing departments help? It's anyone's guess, but I'm in for only 10% of my investment dollars.

    Over the past 10 years, I own or have owned many of the funds you have mentioned. Picking good funds and getting in and out at the correct times is a very difficult task. I enjoy participating in investment forums such as this one and keeping current in the financial world, but I try to "beat the house" only with a small percentage of my investments.
  • TedTed
    edited August 2013
    Dear Heather: I hate to tell you this, but you need to go back to square one. With twenty years and no current need for money, you need to build a capital appreciation portfolio to go with your capital preservation.
    Sample Capital Appreciation Portfolio:

    Lazy Portfolio:
  • Too conservative, or at least too many nonequity vehicles, and way way too many funds period. (Depending on balance percentages, you will be lucky overall to equal the performance of AOR.) I would put it all into YAFFX and SGIIX, 2:1, and call it a day. If you simply must have a third, and since you say you are "very conservative" and preservation-oriented, whatever that means (woulda fooled me), you could put a third into those two and a third into OSTIX and call it a day. You are going to fuss needlessly with these down the road, almost certainly, I bet.
    Or simply put everything into FPACX and leave that alone. I'm simply giving choices from your batch; I myself would do different even with your criteria. You're trying too hard to have everything, imo.
  • Reply to @Ted: Good advice with a few caveats: I don't think I'd pay "extra" for DFA funds. I like the lazy portfolios, but choosing the "correct" one can be tricky. For example, I like Swensen's Yale portfolio, except that it has stumbled recently due to being overweight (at least for now) TIPs. It can be difficult to choose among managed ETF portfolios because past performance isn't always audited.

    With all of this advice, I hope the OP doesn't leave more confused than when she started
  • I think you're on the right track. The number of funds gives you diversification and exposure to some excellent managers. I do not believe that any "Set it and forget it" portfolio is likely; but this portfolio can be upgraded as conditions change without radical surgery.
  • Reply to @davidrmoran: Hear, hear!
  • edited September 2013
    I am sorry I did not review your earlier thread but I am not a fan of this portfolio. Morningstar which likes active funds has pointed out that the main predicter of performance is the expense ratio.I agree with those who commented that the fancy funds with high expenses may well have poor performance.
    Since you do seem to believe that past performance is a good predictor I would go with
    10% FPACX
    5% MFLDX
    25% DBLTX
    5% total stock index(a fund or etf)
    5% Total international index(a fund or etf )
    15% moderate to conservative allocation fund like VWINX or PRWCX or OAKBX(own 1, 2 or all 3)
    35% total of a short term bond fund, a TIPS fund and whatever else you want that makes you comfortable as to risk noting that my suggested portfolio is much less than 40% in stocks unless you add a stock fund as part of the 35%.
    You should not have less than 5% in a fund as it otherwise will have almost no impact on your performance. You have obviously spent a good deal of time on research but remember you can do quite well with a three- fund portfolio total stock market, total international, intermediate bond and just rebalance when the desired asset allocation is out of line by 5+% or once a year on your birthday if you don't want to spend much time.
  • Reply to @jerry: Well said, Jerry
  • Thanks to all for your comments. I plan to simplify things a bit and post an update soon. However, I used to be your typical "boglehead" index investor however do not believe the current market environment lends itself to such a strategy.
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