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How crazy would it be to implement this portfolio?
Since 1/1/2008 ~12.5% annual return vs S&P ~7% annual return 2008 return -17% vs S&P -38% return Beat S&P 5 out of 6 years 2008-2013, YTD about even .55% expense ratio POAGX holds 30% Large/Giant Cap, 30% Mid Cap, 40% Small/Micro Cap, 14% non-US FWIW, POAGX is Morningstar 5 star Gold fund, PIMIX is Morningstar 5 star Silver fund
Not crazy at all, to the contrary. I just looked at summer 08 to fall 12, tough time, and it did better overall than MAPOX, GLRBX, FPACX and OAKBX, to name four of the very best actively managed balanced funds (not 40/60, no less). Much better than DODBX and even AOM (have to start the last at 12/08).
So I would go for it without hesitation, myself not even in quite those proportions.
With hindsight it looks great!! I'm a big fan of POAGX and its my largest single position so I've been very happy with its performance in the last few years. The Primecap folks have a fantastic record with the Vanguard funds they sub-advise for as well as their own Odyssey funds. I'm not sure I'd invest in anything from PIMCO now, but it certainly would have worked out over the past 6.5 years.
I backtested your two fund portfolio by creating three distinct portfolios using your two funds in differing percentages. The starting balance was $10,000.
Using this portfolio tool I was able to compare these three portfolios (from 2008-2013). What I found interesting is that for all years except 2013 the 20/80 (portfolio one) provided the highest end of year balance.
I assume the sequence of returns coupled with strong results from the bond side caused the lower equity allocation to stay ahead. With the first year being way down, it takes awhile for the higher equity allocation to overcome those early losses. Maybe something to consider given valuations right now...
A lot of bond funds, including PIMIX, have benefitted from falling interest rates. It's hard to believe they'll perform as well going forward. I like both funds, but I wouldn't overweight a bond fund with a four year average maturity right now, unless it's one like LSBDX, whose manager is explicitly preparing for a rising rate environment.
But in general, yes, one great stock fund, one great bond fund, what else do you need?
>> manager is explicitly preparing for a rising rate environment
? Surely this applies to PONDX, PDI and all the other Pimco fancy-schmancy vehicles, FSICX, DODIX, FTBFX, the new Gundlach, the old Gundlach, etc., don't you think?
@davidrmoran yes, you're probably right, and that was silly of me to call out that particular fund. But my basic thought is that for years we've been in a long-term bull market for bonds due to falling interest rates, so any backtesting for the last few decades is going to make a bond heavy portfolio look very good, but I'm doubtful as to whether that can continue. Interest rates just can't drop much further, and they may start going up.
I'm sure the best funds will do fine, but a repeat of the 9% a year returns PIMIX has turned in the last 5 years is unlikely. Of course some people say stocks are overvalued too... Personally I don't see that, so I'd overweight POAGX in this two-fund portfolio, even if bee's backtesting shows that overweighting PIMIX was the way to go the past 5 years.
I don't have a cristal ball, just my two cents' worth.
Not sure how I missed this thread earlier. My answer is "It is pretty crazy".
If one is investing in actively managed fund, one is assuming "manager risk" rather than "market risk". I'm not going to make the "you should be diversified" argument, for no other reason than I believe it is more of a myth and increasingly more so everyday. I say just 2 actively managed funds is not a good idea because I know if I did it, both managers would have accident on the same day, at the same time, and because they crashed into each other.
Market Risk come into play in both active and passive fund investing. The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets.
i wouldn't ever place dan ivascyn's ability to hedge duration via [pay fixed return floating] swaps next to the plain vanilla barclay's agg benchmarked fidelities and D&Cs of the world. it's like comparing a diamond to a brick. there is nothing wrong with any of them, mind you. bricks are good at building a house. but diamonds are what you cherish if you have the sophistication (or trust in your dealer) to appreciate them.
>> manager is explicitly preparing for a rising rate environment
? Surely this applies to PONDX, PDI and all the other Pimco fancy-schmancy vehicles, FSICX, DODIX, FTBFX, the new Gundlach, the old Gundlach, etc., don't you think?
Comments
So I would go for it without hesitation, myself not even in quite those proportions.
Portfolio 1 - POAGX =20% & PIMIX =80%
Portfolio 2 - POAGX =40% & PIMIX =60% (your suggestion)
Portfolio 3 - POAGX =80% & PIMIX =20%
Using this portfolio tool I was able to compare these three portfolios (from 2008-2013). What I found interesting is that for all years except 2013 the 20/80 (portfolio one) provided the highest end of year balance.
Here's a small part of the results:
But in general, yes, one great stock fund, one great bond fund, what else do you need?
? Surely this applies to PONDX, PDI and all the other Pimco fancy-schmancy vehicles, FSICX, DODIX, FTBFX, the new Gundlach, the old Gundlach, etc., don't you think?
I'm sure the best funds will do fine, but a repeat of the 9% a year returns PIMIX has turned in the last 5 years is unlikely. Of course some people say stocks are overvalued too... Personally I don't see that, so I'd overweight POAGX in this two-fund portfolio, even if bee's backtesting shows that overweighting PIMIX was the way to go the past 5 years.
I don't have a cristal ball, just my two cents' worth.
>> I'm sure the best funds will do fine
Let us hope so. I am actually a little nervous some days with big wads in PDI and PONDX, though they do just chug along.
If one is investing in actively managed fund, one is assuming "manager risk" rather than "market risk". I'm not going to make the "you should be diversified" argument, for no other reason than I believe it is more of a myth and increasingly more so everyday. I say just 2 actively managed funds is not a good idea because I know if I did it, both managers would have accident on the same day, at the same time, and because they crashed into each other.
The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets.
regards.