Sanity Check - Factor Portfolio Review

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Topic Author
FiveFactor
Posts: 100
Joined: Thu Apr 08, 2021 8:47 pm

Sanity Check - Factor Portfolio Review

Post by FiveFactor »

Investment portfolio ~$800k. Age 41.

History, for years I ran a simple AA

25% US Total Market VTI
25% US Small Value mix of VBR and DFSVX
25% International ex US VXUS
12.5% Intl Small VSS
12.5% EM VWO

Near the bottom of the 2020 crash (3/23rd) I felt the value / growth gap was absurdly wide and moved to my current allocation:

35% AVUV Advantis US Small Value
15% VTI Vanguard Total Market
15% AVDV Advantis Intl Small Value
15% AVEM Advantis Emerging Markets
15% VXUS Vanguard Global Ex-US
5% “High” yield savings

My plan @ $1m - $2m

30% AVUV Advantis US Small Value
12.5% VTI Vanguard Total Market
12.5% AVDV Advantis Intl Small Value
12.5% AVEM Advantis Emerging Markets
12.5% VXUS Vanguard Global Ex-US
10% High” yield savings
10% BLV Vanguard Long Duration Investment Grade Bond

Plan @ $2m - n

25% AVUV Advantis US Small Value
10% VTI Vanguard Total Market
10% AVDV Advantis Intl Small Value
10% AVEM Advantis Emerging Markets
10% VXUS Vanguard Global Ex-US
10% “High” yield savings
25% BLV Vanguard Long Duration Investment Grade Bond

The theory is to maximize the benefits of diversification through lower correlation of risk factors and geographies. Specifically i am targeting beta, size, value, profitability, term, and a bit of credit risks. I’ve been through three major market corrections now and I handle volatility really well. I also handle tracking errors really well. I’m confident in my behavior. I’m also confident in my liquidity position.

I just started my BLV journey adding in a small allocation to get comfortable with its movements.

Note: I own a $850k house w/ negative bond of $500k @ 2.875% fixed. Important information from an inflation perspective. I have no intention of ever paying off the mortgage on this property. Will downsize before 30-years.

That all said, thoughts? Dare I ask... opinions?

<EDIT> Added fund names.
Last edited by FiveFactor on Fri Apr 09, 2021 11:23 am, edited 2 times in total.
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
Topic Author
FiveFactor
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Joined: Thu Apr 08, 2021 8:47 pm

Re: Sanity Check

Post by FiveFactor »

Oh one last piece of information. My EF is part of this allocation. I do not separate it from my investment portfolio
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
Topic Author
FiveFactor
Posts: 100
Joined: Thu Apr 08, 2021 8:47 pm

Re: Sanity Check

Post by FiveFactor »

Bump.... over 200 views and no opinions? I've been lurking here every few months for years. Never seen this before. I'm not sure how to read the lack of reaction?
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
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TomatoTomahto
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Re: Sanity Check

Post by TomatoTomahto »

FiveFactor wrote: Fri Apr 09, 2021 10:00 am Bump.... over 200 views and no opinions? I've been lurking here every few months for years. Never seen this before. I'm not sure how to read the lack of reaction?
I am responding, but tbh, it’s not my kind of thing. It’s too fussy for me, and I suspect many other BHs also. Many of us are 2 or 3 find types.
I get the FI part but not the RE part of FIRE.
lazynovice
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Location: Denver area. Former Texan.

Re: Sanity Check

Post by lazynovice »

For non-Vanguard and Fidelity funds, you probably need to add fund names. I am seeing AVUV more and more on the forum but most don’t know that one off the top of their heads. And the others? Unlikely.

This sentence-
“Specifically i am targeting beta, size, value, profitability, term, and a bit of credit risks.”

A foundation principle of Boglehead-ism is that you can do all this work and likely not beat the market over the long run so why not match the market and use your time for other things?

You don’t explain why you make the change at $2 million. Maybe add that to your post for feedback?
Topic Author
FiveFactor
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Joined: Thu Apr 08, 2021 8:47 pm

Re: Sanity Check

Post by FiveFactor »

lazynovice wrote: Fri Apr 09, 2021 10:16 am For non-Vanguard and Fidelity funds, you probably need to add fund names. I am seeing AVUV more and more on the forum but most don’t know that one off the top of their heads. And the others? Unlikely.
Done.
lazynovice wrote: Fri Apr 09, 2021 10:16 am This sentence-
“Specifically i am targeting beta, size, value, profitability, term, and a bit of credit risks.”

A foundation principle of Boglehead-ism is that you can do all this work and likely not beat the market over the long run so why not match the market and use your time for other things?
Im in the camp that believes in the persistence and diversification benefits of risk factors.

lazynovice wrote: Fri Apr 09, 2021 10:16 am You don’t explain why you make the change at $2 million. Maybe add that to your post for feedback?
The change is based on "I have enough." So it's about de-risking through a barbell approach. Adding longer duration bonds to a five factor equity portfolio accomplishes this.
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
lazynovice
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Location: Denver area. Former Texan.

Re: Sanity Check

Post by lazynovice »

FiveFactor wrote: Fri Apr 09, 2021 10:54 am
lazynovice wrote: Fri Apr 09, 2021 10:16 am This sentence-
“Specifically i am targeting beta, size, value, profitability, term, and a bit of credit risks.”

A foundation principle of Boglehead-ism is that you can do all this work and likely not beat the market over the long run so why not match the market and use your time for other things?
Im in the camp that believes in the persistence and diversification benefits of risk factors.
Don’t you get all the factors by owning the whole market? There are some who tilt toward value or growth but I think the minority. I tried a small and mid cap tilt for three years or so and it was a minor hassle and I was not rewarded economically at all. So I tax loss harvested out of that last March.

Maybe retitle the thread with something about “Factors” to attract other Factorheads.
Topic Author
FiveFactor
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Joined: Thu Apr 08, 2021 8:47 pm

Re: Sanity Check

Post by FiveFactor »

lazynovice wrote: Fri Apr 09, 2021 11:01 am Don’t you get all the factors by owning the whole market?
No you dont. By definition, owning the market only exposes you to market risk - which only explains like 66% of portfolio returns. Not to size, value, profitability, investment, momentum etc etc that when combined explain 95%+
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
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TomatoTomahto
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Re: Sanity Check

Post by TomatoTomahto »

lazynovice wrote: Fri Apr 09, 2021 11:01 am Maybe retitle the thread with something about “Factors” to attract other Factorheads.
+1

Thread only got me to click because I’m interested in sanity. I’m not at all interested in factors.
I get the FI part but not the RE part of FIRE.
Topic Author
FiveFactor
Posts: 100
Joined: Thu Apr 08, 2021 8:47 pm

Re: Sanity Check - Factor Portfolio Review

Post by FiveFactor »

Is there a forum anyone can recommend where they discuss factor portfolios? Thanks!
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
luckyducky99
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Re: Sanity Check - Factor Portfolio Review

Post by luckyducky99 »

FiveFactor wrote: Fri Apr 09, 2021 3:23 pm Is there a forum anyone can recommend where they discuss factor portfolios? Thanks!
The forum for Ben Felix's rational reminder podcast has a whole category devoted to factors and a lot of factor discussion in general. https://community.rationalreminder.ca/
Topic Author
FiveFactor
Posts: 100
Joined: Thu Apr 08, 2021 8:47 pm

Re: Sanity Check - Factor Portfolio Review

Post by FiveFactor »

luckyducky99 wrote: Fri Apr 09, 2021 4:49 pm
FiveFactor wrote: Fri Apr 09, 2021 3:23 pm Is there a forum anyone can recommend where they discuss factor portfolios? Thanks!
The forum for Ben Felix's rational reminder podcast has a whole category devoted to factors and a lot of factor discussion in general. https://community.rationalreminder.ca/
Thank you!
Small/Value/Profitability: | 30% AVUV | 30% AVDV | 30% AVES | Momentum: | 5% QMOM | 5% IMOM | Volatility: | 0.1% PUTW | Term: | 0.1% BND
Olemiss540
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Re: Sanity Check - Factor Portfolio Review

Post by Olemiss540 »

FiveFactor wrote: Fri Apr 09, 2021 3:23 pm Is there a forum anyone can recommend where they discuss factor portfolios? Thanks!
Reddit possibly? R/investing?

I appreciate the market returns and low cost of a broadly diversified one fund portfolio. The only beta I am aware of swims in my kid's fish bowl.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
pkcrafter
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Re: Sanity Check - Factor Portfolio Review

Post by pkcrafter »

FiveFactor wrote: Fri Apr 09, 2021 3:23 pm Is there a forum anyone can recommend where they discuss factor portfolios? Thanks!
I think now that you have changed the title you will get more replies. My thought is you seem to understand what you are doing and you have a plan, so just stay with it. There are Bogleheads who invest in factors, so you aren't alone. The only eyebrow raiser is your move to increase small value based on recent performance.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
muffins14
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Location: New York

Re: Sanity Check - Factor Portfolio Review

Post by muffins14 »

I would not bother with AVEM and just use VWO instead. You have enough exposure to small and value elsewhere, and I don’t think AVEM is additive enough to merit the cost
Crom laughs at your Four Winds
Wade Garrett
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Location: Jasper, MO/Double Deuce

Re: Sanity Check - Factor Portfolio Review

Post by Wade Garrett »

Your portfolio is a little heavy value/SCV for my taste but seems reasonable assuming you're able to stick with it.

Me personally I target 30% SCV/30%momentum/40% minimum volatility.

I'm not a fan of corporate bonds. I prefer treasuries for my very small bond allocation for the diversification benefit.
"I'm not an inventor. I'm an improver. I see things that are wrong, and I improve them." - Larry David, Curb Your Enthusiasm
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