Sanity check on portfolio

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Topic Author
leafmuncher
Posts: 6
Joined: Fri Apr 16, 2021 6:04 pm

Sanity check on portfolio

Post by leafmuncher »

Emergency funds: yes

Debt: no

Tax Filing Status: married usually filing separately, but when appropriate filing jointly.

Tax Rate: 35% federal, 11% state

State of Residence: Hawaii

Age: 50

Desired Asset allocation: Roughly 50/50

Current retirement assets

Taxable

This is what I'm planning to build, basically a blend between a simple Bogleheads one and Ray Dalio All-Seasons:

45.00% Vanguard Total Stock Market ETF (VTI) (0.03%)
30.00% Vanguard Long-Term Treasury Admiral (VUSUX) (0.10%)
15.00% Vanguard Interm-Term Treasury Adm (VFIUX) (0.10%)
5.00% Vanguard Utilities ETF (VPU) (0.10%)
5.00% Gold (IAU) (0.25%)

Questions:

1. Does this seem like a sane allocation? Anything I'm missing?

Appendix

This shows the portfolio on Portfolio Visualizer compared to All-Seasons and a Boggleheads.

https://www.portfoliovisualizer.com/bac ... ion17_3=35
Last edited by leafmuncher on Mon Apr 19, 2021 10:45 pm, edited 1 time in total.
furwut
Posts: 2123
Joined: Tue Jun 05, 2012 8:54 pm

Re: Sanity check on portfolio

Post by furwut »

Hi leafmuncher,
You’ll probably will get a better response if you follow the format here viewtopic.php?t=6212. Just update your original post.
Topic Author
leafmuncher
Posts: 6
Joined: Fri Apr 16, 2021 6:04 pm

Re: Sanity check on portfolio

Post by leafmuncher »

furwut wrote: Mon Apr 19, 2021 8:30 pm You’ll probably will get a better response if you follow the format here
So sorry for being a n00b. Updated.
furwut
Posts: 2123
Joined: Tue Jun 05, 2012 8:54 pm

Re: Sanity check on portfolio

Post by furwut »

Some comments,
1. Many Bogelheads will diverge from pure indexing by a small degree, say 5 to 10%, to focus on a particular sector. So 10% in utilities and gold should be fine.

2. 30% in long-term treasuries is interesting. I see more people, if they choose to differ from the Total Bond, going the other direction into short-term bonds or CDs.

3. No international equities? There’s no consensus on what the appropriate equity exposure is for a US based investor and I’ve seen recommendations of 0 to 20% (The Warren Buffet and John Bogel school), 40% (Vanguard’s recommendation), and up to 50% (approximate world capitalization).
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Sanity check on portfolio

Post by dbr »

leafmuncher wrote: Mon Apr 19, 2021 8:02 pm

1. Does this seem like a sane allocation? Anything I'm missing?

1. Most likely no harm done (but see below)

2. What you are missing is that it doesn't seem you have any idea why you are choosing that portfolio except that it is one in a list with some other portfolios that all have roughly similar behavior as far as you can tell for the time being. (For the given standard deviations of annual return those 14 year CAGR results are all the same within a statistical margin of uncertainty.)

3. Gold and utilities are probably irrelevant at those allocations or maybe at any allocation. These days it seems to be conventional to hold a significant allocation to international stocks. One might ask for the reason not to in your selection.

4. Given that all your assets are in taxable holdings you might consider the tax cost of your bonds and that a utilities holding would not be tax efficient. At your tax bracket munis might be indicated. Do you really have no tax deferred/tax exempt assets? Also if some of your tax planning is MFJ it would seem your investment planning should consider how your wife is invested.
Topic Author
leafmuncher
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Joined: Fri Apr 16, 2021 6:04 pm

Re: Sanity check on portfolio

Post by leafmuncher »

Thanks so much for the feedback!
furwut wrote: Tue Apr 20, 2021 6:46 am No international equities? There’s no consensus on what the appropriate equity exposure is for a US based investor and I’ve seen recommendations of 0 to 20% (The Warren Buffet and John Bogel school), 40% (Vanguard’s recommendation), and up to 50% (approximate world capitalization).
I guess from everything I've read about, US equities generally have outperformed international ones, and international ones tend to be fairly well correlated as well with US. Perhaps that's a naive view.
dbr wrote: Tue Apr 20, 2021 9:07 am 2. What you are missing is that it doesn't seem you have any idea why you are choosing that portfolio except that it is one in a list with some other portfolios that all have roughly similar behavior as far as you can tell for the time being. (For the given standard deviations of annual return those 14 year CAGR results are all the same within a statistical margin of uncertainty.)
Absolutely agreed that CAGR is very similar; I like the fact that volatility and drawdowns are lower (beyond statistical margins). That's why the portfolio is attractive.
dbr wrote: Tue Apr 20, 2021 9:07 am 3. Gold and utilities are probably irrelevant at those allocations or maybe at any allocation. These days it seems to be conventional to hold a significant allocation to international stocks. One might ask for the reason not to in your selection.
Per above, I haven't been convinced that performance/correlation make it worthwhile. Happy to be convinced otherwise.
dbr wrote: Tue Apr 20, 2021 9:07 am 4. Given that all your assets are in taxable holdings you might consider the tax cost of your bonds and that a utilities holding would not be tax efficient. At your tax bracket munis might be indicated. Do you really have no tax deferred/tax exempt assets? Also if some of your tax planning is MFJ it would seem your investment planning should consider how your wife is invested.
We have tax deferred assets, but the % is small compared to this taxable chunk so didn't feel like it was particularly relevant.

Munis vs Utilities is interesting, do you mean perhaps something like Vanguard Tax-Exempt Bond ETF?
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Sanity check on portfolio

Post by dbr »

leafmuncher wrote: Tue Apr 20, 2021 2:40 pm
dbr wrote: Tue Apr 20, 2021 9:07 am 2. What you are missing is that it doesn't seem you have any idea why you are choosing that portfolio except that it is one in a list with some other portfolios that all have roughly similar behavior as far as you can tell for the time being. (For the given standard deviations of annual return those 14 year CAGR results are all the same within a statistical margin of uncertainty.)
Absolutely agreed that CAGR is very similar; I like the fact that volatility and drawdowns are lower (beyond statistical margins). That's why the portfolio is attractive.

I don't know about the statistical confidence on standard deviations and drawdowns, but that is fine if it so.
dbr wrote: Tue Apr 20, 2021 9:07 am 3. Gold and utilities are probably irrelevant at those allocations or maybe at any allocation. These days it seems to be conventional to hold a significant allocation to international stocks. One might ask for the reason not to in your selection.
Per above, I haven't been convinced that performance/correlation make it worthwhile. Happy to be convinced otherwise.

Right, I personally am not so sure international is that important. The Forum consensus is that the fraction of stocks in international should be between 0% and 50% or maybe a little more.
dbr wrote: Tue Apr 20, 2021 9:07 am 4. Given that all your assets are in taxable holdings you might consider the tax cost of your bonds and that a utilities holding would not be tax efficient. At your tax bracket munis might be indicated. Do you really have no tax deferred/tax exempt assets? Also if some of your tax planning is MFJ it would seem your investment planning should consider how your wife is invested.
We have tax deferred assets, but the % is small compared to this taxable chunk so didn't feel like it was particularly relevant.

Munis vs Utilities is interesting, do you mean perhaps something like Vanguard Tax-Exempt Bond ETF?

At your tax rates I would think you would look at both a national tax exempt bond and even state specific bond funds, though the latter may be too expensive. Also, all Treasuries are exempt from state income tax.
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retiredjg
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Re: Sanity check on portfolio

Post by retiredjg »

leafmuncher wrote: Mon Apr 19, 2021 8:02 pm 1. Does this seem like a sane allocation? Anything I'm missing?
If this is what you were planning for the total portfolio, I doubt you would get much pushback. However, the bonds and probably the utility ETF (I didn't check) are not tax efficient. In the 35% tax bracket, they are probably not great choices for your taxable account.
Topic Author
leafmuncher
Posts: 6
Joined: Fri Apr 16, 2021 6:04 pm

Re: Sanity check on portfolio

Post by leafmuncher »

dbr wrote: Tue Apr 20, 2021 2:51 pm At your tax rates I would think you would look at both a national tax exempt bond and even state specific bond funds, though the latter may be too expensive. Also, all Treasuries are exempt from state income tax.
So e.g. replacing some % of the long-term treasury with something like Vanguard High-Yield Tax-Exempt Fund Admiral Shares (VWALX)?
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