Asset Mix Question: Bogle Vs. Merriman
Asset Mix Question: Bogle Vs. Merriman
I am changing my asset mix and would like input on which of the two approaches might be preferable: Bogle recommendation for mix, or Merriman?
Emergency Funds: $400,000
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: Federal 22%, State 0%
State: Florida
Age: 66
Work Status: Retired
Desired Asset Allocation: 60% Stock/40% Bond
Desired International Mix: 30%
Portfolio size: $2.0M
Current Allocation Mix
US Large-Cap Stock 19%
US Mid/Small Cap Stock 12%
International Stock 24%
Sector Stock 4%
US Intermediate-term Bonds 11%
Corporate Bonds 20%
Cash 10%
Income
Pension #1 $2,522/mo. Net after taxes
Pension #2 $1,059/ Mo. After taxes
Social Security: Waiting until age 70
Wife, retired but not yet eligible for Social Security
Other Information
Until recently, I was in Schwab’s Intelligent Portfolio Program. I was dissatisfied with the complexity of the asset mix and the number of funds/ETF’s they recommended. Consequently, I transferred my holdings to Vanguard since I have always been a believer in indexing.
Vanguard has a managed portfolio program too, which recommends fewer holdings than Schwab. After researching a number of approaches to asset mix, I have narrowed my approach down to two. The two are:
1. Vanguard Recommendation:
Total Stock Market: VTI 48%
Total Internationa:l Market VXUS 12%
Total Bond: BND 32%
International Bond: BNDX 8%
2. Paul Merriman Recommendation:
US Large Blend 6.6%
US Large Value 6.6%
US Small Blend 6.6%
US Small Value 7.2%
US REIT 3.0%
Int Large Blend 5.4%
Int Large Value 5.4%
Int Small Blend 5.4%
Int Small Value 5.4%
Int REIT 3.0%
Emerging Markets 5.4%
Intermediate Bonds 20%
Short-Term Bonds 12%
Tips 8%
These categories would all be held in Vanguard Index funds
Questions:
Which approach would be preferable?
On one hand, it seems that the Vanguard Recommendation is very simple, but has proven effective over a long time period. It is very easy to rebalance and track performance.
The Merriman Recommendation is also fairly simple, but approaches the market with a large cap – small cap Value/Blend approach. It also tends to skew more to international holdings. Due to the limited number of holdings, it is also fairly easy to rebalance.
I would like recommendations on which approach you feel would be preferable.
Emergency Funds: $400,000
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: Federal 22%, State 0%
State: Florida
Age: 66
Work Status: Retired
Desired Asset Allocation: 60% Stock/40% Bond
Desired International Mix: 30%
Portfolio size: $2.0M
Current Allocation Mix
US Large-Cap Stock 19%
US Mid/Small Cap Stock 12%
International Stock 24%
Sector Stock 4%
US Intermediate-term Bonds 11%
Corporate Bonds 20%
Cash 10%
Income
Pension #1 $2,522/mo. Net after taxes
Pension #2 $1,059/ Mo. After taxes
Social Security: Waiting until age 70
Wife, retired but not yet eligible for Social Security
Other Information
Until recently, I was in Schwab’s Intelligent Portfolio Program. I was dissatisfied with the complexity of the asset mix and the number of funds/ETF’s they recommended. Consequently, I transferred my holdings to Vanguard since I have always been a believer in indexing.
Vanguard has a managed portfolio program too, which recommends fewer holdings than Schwab. After researching a number of approaches to asset mix, I have narrowed my approach down to two. The two are:
1. Vanguard Recommendation:
Total Stock Market: VTI 48%
Total Internationa:l Market VXUS 12%
Total Bond: BND 32%
International Bond: BNDX 8%
2. Paul Merriman Recommendation:
US Large Blend 6.6%
US Large Value 6.6%
US Small Blend 6.6%
US Small Value 7.2%
US REIT 3.0%
Int Large Blend 5.4%
Int Large Value 5.4%
Int Small Blend 5.4%
Int Small Value 5.4%
Int REIT 3.0%
Emerging Markets 5.4%
Intermediate Bonds 20%
Short-Term Bonds 12%
Tips 8%
These categories would all be held in Vanguard Index funds
Questions:
Which approach would be preferable?
On one hand, it seems that the Vanguard Recommendation is very simple, but has proven effective over a long time period. It is very easy to rebalance and track performance.
The Merriman Recommendation is also fairly simple, but approaches the market with a large cap – small cap Value/Blend approach. It also tends to skew more to international holdings. Due to the limited number of holdings, it is also fairly easy to rebalance.
I would like recommendations on which approach you feel would be preferable.
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Re: Asset Mix Question: Bogle Vs. Merriman
Welcome to Bogleheads!
The easiest way to hold 60/40 at Vanguard is with Life-strategy Moderate Growth Fund.
https://investor.vanguard.com/mutual-fu ... trategy/#/
I wouldn’t want to manage the Paul Merriman portfolio in retirement.
Cheers
The easiest way to hold 60/40 at Vanguard is with Life-strategy Moderate Growth Fund.
https://investor.vanguard.com/mutual-fu ... trategy/#/
I wouldn’t want to manage the Paul Merriman portfolio in retirement.
Cheers
Re: Asset Mix Question: Bogle Vs. Merriman
Your question is actually a question as to whether a tilt to small and value is a good idea and also what the right allocation to international stocks is.
Here are about 8000 posts to read on small and value: https://www.google.com/search?sitesearc ... value+tilt
A little bit different search gives 23,900 posts to read: https://www.google.com/search?sitesearc ... &q=tilting
I doubt you will get a resolution of your question as the end result is really just a preference. At one time they allowed survey's on the forum and the result for how many tilted to small and value was that a little over half the respondents claimed they did. That number could be different today because the small and value outperformance has not existed for awhile and in fact is underperformance in recent years. That means nothing for the future. I don't think the Fama-French research behind it has been discredited though Mr. Bogle seems to have never accepted it.
https://www.bing.com/search?q=fama+fren ... 096e235789
You can read Swedroe on the subject: https://www.amazon.com/Your-Complete-Gu ... 281&sr=8-1
Merriman is probably a pretty vociferous advocate for the position.
I personally don't invest in factors because I don't need to and I don't want to, which is as good a reason as any.
As to international the discussion is searched below, but the forum consensus is that you should hold between 0% and 50% or a little more of stocks in international. You could also consider what people think of international bonds:
https://www.google.com/search?sitesearc ... ernational
PS I agree trying to hold that Merriman portfolio would not be much fun. Small and value tilts can be taken in simpler ways than that. Swedroe in fact actually has an example in which the only stock holding is a single small cap value fund and bond holdings are increased to adjust risk. It is called the "Larry" portfolio by some people. That doesn't mean I am recommending it.
Last edited by dbr on Fri Jul 09, 2021 1:02 pm, edited 1 time in total.
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Re: Asset Mix Question: Bogle Vs. Merriman
I fully agree with this.Silk McCue wrote: ↑Fri Jul 09, 2021 12:58 pm Welcome to Bogleheads!
The easiest way to hold 60/40 at Vanguard is with Life-strategy Moderate Growth Fund.
https://investor.vanguard.com/mutual-fu ... trategy/#/
I wouldn’t want to manage the Paul Merriman portfolio in retirement.
Cheers
- nisiprius
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Re: Asset Mix Question: Bogle Vs. Merriman
Paul Merriman is an impassioned advocate of an investing strategy called "factor investing." One salient characteristic is a departure from simply mirroring the total market, and instead incorporating a tilt or overweight in "small cap value." The titles of some of his articles, as shown on his own website, should give you the general idea:
He might be right. A fair percentage of people in the Bogleheads forum agree. It's certainly not a crazy idea. But a fair percentage of people do not agree.
John C. Bogle did not, and he said so in considerable detail with charts and data in his essay, The Telltale Chart.
There is no way to answer your question except to say it's controversial, it's debated, and you have to look into it for yourself and decide what your personal convictions are about small-cap value.
But I will go this far. I would say that if you do not have strong convictions about small-cap value yet, you should do some homework and read up on, not restricting yourself to what Merriman says about it--or what John C. Bogle said about it.
And I would go further: if you aren't pretty sure you want small-cap value, then I would start with the simple portfolio, without a small-cap tilt.
As evidence, I would point out that as far as I know, there is no major fund company whose target-date funds include a small-cap value tilt, not even DFA's. Small-cap value tilts are not for everyone, they are for individual investors who are personally convinced about small-cap value.
Jared Kizer, writing of factor strategies in general, wrote:
He might be right. A fair percentage of people in the Bogleheads forum agree. It's certainly not a crazy idea. But a fair percentage of people do not agree.
John C. Bogle did not, and he said so in considerable detail with charts and data in his essay, The Telltale Chart.
There is no way to answer your question except to say it's controversial, it's debated, and you have to look into it for yourself and decide what your personal convictions are about small-cap value.
But I will go this far. I would say that if you do not have strong convictions about small-cap value yet, you should do some homework and read up on, not restricting yourself to what Merriman says about it--or what John C. Bogle said about it.
And I would go further: if you aren't pretty sure you want small-cap value, then I would start with the simple portfolio, without a small-cap tilt.
As evidence, I would point out that as far as I know, there is no major fund company whose target-date funds include a small-cap value tilt, not even DFA's. Small-cap value tilts are not for everyone, they are for individual investors who are personally convinced about small-cap value.
Jared Kizer, writing of factor strategies in general, wrote:
Any transparent strategy... is capable of extended periods of underperformance. There is nothing that preordains these strategies to work over any period of any length. Investors should either commit to these strategies over an extremely long time horizon or not tilt toward these factors at all.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Asset Mix Question: Bogle Vs. Merriman
Have you ever written up an Investment Policy Statement? The Wiki has a great article and Morningstar has an excellent worksheet you can use in roughing one out. Doesn't have to be pretty, doesn't have to be perfect, but it is a way of putting your thoughts on paper and discovering who you are as an investor. It even works if you have a few coffee stains on it. An exercise in knowing thyself.
Problem is you did the Schwab Intelligent Portfolio thing, got interested in Bogle, and now want to go the full Merriman. You aren't going to do well jumping from strategy to strategy to strategy. You not only can get a buy high and sell low effect with investments, you can get this effect with investment strategies as well. All good investment strategies work most of the time but all strategies have time periods when things don't look so good, one can switch to a strategy just before it stops working for a while and then jump ship just before that strategy starts working again. I don't see a lot of conviction here.
Read the Wiki article, fill out the Investment Policy Worksheet at Morningstar, and then get back to us.
Here is the Wiki article:
https://www.bogleheads.org/wiki/Investm ... _statement
Here is the link to the Morningstar worksheet:
https://im.morningstar.com/im/InvestPolicyWS.pdf
Get a plan, Stan.
Problem is you did the Schwab Intelligent Portfolio thing, got interested in Bogle, and now want to go the full Merriman. You aren't going to do well jumping from strategy to strategy to strategy. You not only can get a buy high and sell low effect with investments, you can get this effect with investment strategies as well. All good investment strategies work most of the time but all strategies have time periods when things don't look so good, one can switch to a strategy just before it stops working for a while and then jump ship just before that strategy starts working again. I don't see a lot of conviction here.
Read the Wiki article, fill out the Investment Policy Worksheet at Morningstar, and then get back to us.
Here is the Wiki article:
https://www.bogleheads.org/wiki/Investm ... _statement
Here is the link to the Morningstar worksheet:
https://im.morningstar.com/im/InvestPolicyWS.pdf
Get a plan, Stan.
A fool and his money are good for business.
Re: Asset Mix Question: Bogle Vs. Merriman
OP, What is your goal? To have ENOUGH money to enjoy your retirement years? Or to try to work at growing your portfolio so that you might have MORE? I have no idea which portfolio would achieve the latter. I myself have chosen a portfolio very much like the recommended Vanguard portfolio and spend very little time messing with it.Triple digit golfer wrote: ↑Fri Jul 09, 2021 12:59 pmI fully agree with this.Silk McCue wrote: ↑Fri Jul 09, 2021 12:58 pm Welcome to Bogleheads!
The easiest way to hold 60/40 at Vanguard is with Life-strategy Moderate Growth Fund.
https://investor.vanguard.com/mutual-fu ... trategy/#/
I wouldn’t want to manage the Paul Merriman portfolio in retirement.
Cheers
- Taylor Larimore
- Posts: 32842
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- Location: Miami FL
Re: Asset Mix Question: Bogle Vs. Merriman
Stratcat:Stratcat wrote: ↑Fri Jul 09, 2021 11:47 am I am changing my asset mix and would like input on which of the two approaches might be preferable: Bogle recommendation for mix, or Merriman?
Emergency Funds: $400,000
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: Federal 22%, State 0%
State: Florida
Age: 66
Work Status: Retired
Desired Asset Allocation: 60% Stock/40% Bond
Desired International Mix: 30%
Portfolio size: $2.0M
Current Allocation Mix
US Large-Cap Stock 19%
US Mid/Small Cap Stock 12%
International Stock 24%
Sector Stock 4%
US Intermediate-term Bonds 11%
Corporate Bonds 20%
Cash 10%
Income
Pension #1 $2,522/mo. Net after taxes
Pension #2 $1,059/ Mo. After taxes
Social Security: Waiting until age 70
Wife, retired but not yet eligible for Social Security
Other Information
Until recently, I was in Schwab’s Intelligent Portfolio Program. I was dissatisfied with the complexity of the asset mix and the number of funds/ETF’s they recommended. Consequently, I transferred my holdings to Vanguard since I have always been a believer in indexing.
Vanguard has a managed portfolio program too, which recommends fewer holdings than Schwab. After researching a number of approaches to asset mix, I have narrowed my approach down to two. The two are:
1. Vanguard Recommendation:
Total Stock Market: VTI 48%
Total Internationa:l Market VXUS 12%
Total Bond: BND 32%
International Bond: BNDX 8%
2. Paul Merriman Recommendation:
US Large Blend 6.6%
US Large Value 6.6%
US Small Blend 6.6%
US Small Value 7.2%
US REIT 3.0%
Int Large Blend 5.4%
Int Large Value 5.4%
Int Small Blend 5.4%
Int Small Value 5.4%
Int REIT 3.0%
Emerging Markets 5.4%
Intermediate Bonds 20%
Short-Term Bonds 12%
Tips 8%
These categories would all be held in Vanguard Index funds
Questions:
Which approach would be preferable?
On one hand, it seems that the Vanguard Recommendation is very simple, but has proven effective over a long time period. It is very easy to rebalance and track performance.
The Merriman Recommendation is also fairly simple, but approaches the market with a large cap – small cap Value/Blend approach. It also tends to skew more to international holdings. Due to the limited number of holdings, it is also fairly easy to rebalance.
I would like recommendations on which approach you feel would be preferable.
Although you did not show the actual funds in the Merriman portfolio, there is little question in my mind that Mr. Bogle's simple lower cost, better diversified, tax-efficient portfolio of total market index funds is much better than the complex Merriman value tilted Portfolio.
Read what experts say about simplicity and total market index funds:
[url=viewtopic.php?f=10&t=156579[/url]
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Selecting funds that will significantly exceed market returns, a search in which hope springs eternal and in which past performance has proven of virtually no predictive value, is a loser’s game.”
"Simplicity is the master key to financial success." -- Jack Bogle
- arcticpineapplecorp.
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Re: Asset Mix Question: Bogle Vs. Merriman
Merriman's simplified his approach (thanks to Chris Pederson) to two funds for life:
https://www.youtube.com/watch?v=hbuKPjfj5ZI
1. Target Date Retirement Index Fund
2. Small Cap Value Index Fund
Basically it's 1.5 X your age in a TDF, and the remaining in SCV (until 67 when you'd be 0% SCV).
https://paulmerriman.com/2-funds-for-li ... ife-study/
target date might not be good for a taxable acct, but for retirement acct, it's fine.
viewtopic.php?t=262367
https://www.youtube.com/watch?v=hbuKPjfj5ZI
1. Target Date Retirement Index Fund
2. Small Cap Value Index Fund
Basically it's 1.5 X your age in a TDF, and the remaining in SCV (until 67 when you'd be 0% SCV).
https://paulmerriman.com/2-funds-for-li ... ife-study/
target date might not be good for a taxable acct, but for retirement acct, it's fine.
viewtopic.php?t=262367
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Asset Mix Question: Bogle Vs. Merriman
I would not even consider the 14 fund approach.
And I would be suspicious of anything from Merriman, based on his fund recommendations on this page: https://paulmerriman.com/this-investmen ... by-a-mile/
ASSET CLASS RECOMMENDED ETF (TICKER)
U.S. large-cap blend AVUS
U.S. large-cap value RPV
U.S. small-cap blend IJR
U.S. small-cap value AVUV
International large-cap value EFV
International small-cap blend FNDC
Expense ratios:
AVUS: 0.15%
RPV: 0.35%
IJR: 0.06%
AVUV: 0.25%
EFV: 0.39%
FNDC: 0.39%
Merriman seems to be trying to draw the passive investing crowd back into an active approach. I would have to rebalance 14 funds to one decimal? An emphatic "no thanks" from me.
And I would be suspicious of anything from Merriman, based on his fund recommendations on this page: https://paulmerriman.com/this-investmen ... by-a-mile/
ASSET CLASS RECOMMENDED ETF (TICKER)
U.S. large-cap blend AVUS
U.S. large-cap value RPV
U.S. small-cap blend IJR
U.S. small-cap value AVUV
International large-cap value EFV
International small-cap blend FNDC
Expense ratios:
AVUS: 0.15%
RPV: 0.35%
IJR: 0.06%
AVUV: 0.25%
EFV: 0.39%
FNDC: 0.39%
Merriman seems to be trying to draw the passive investing crowd back into an active approach. I would have to rebalance 14 funds to one decimal? An emphatic "no thanks" from me.
Re: Asset Mix Question: Bogle Vs. Merriman
If it were me, I would use only BND and VTI and I would try to keep as much of the BND as I could in tax sheltered accounts.
I would also be perfectly happy with an emergency fund that is no more than $25k—what are the odds of an emergency larger than that befalling you when you have the pensions and all that savings and health insurance, other than not carrying enough liability insurance? Overall, everything looks good—keep it super simple—simple enough that anyone else can easily pick up the ball and run with it if something were to happen to you.
I would also be perfectly happy with an emergency fund that is no more than $25k—what are the odds of an emergency larger than that befalling you when you have the pensions and all that savings and health insurance, other than not carrying enough liability insurance? Overall, everything looks good—keep it super simple—simple enough that anyone else can easily pick up the ball and run with it if something were to happen to you.
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Re: Asset Mix Question: Bogle Vs. Merriman
I don't understand this part, and I've seen the same type of sentiment from many people, so maybe it's me. Emphasis on the part that I bolded and underlined:
Merriman says that investors need growth and value, but does not explain (at least in this article) why such a heavy value weighing over growth.
I think the tilt should be explained. It seems so logical, 50/50 of each major thing, except growth/value is not 50/50 and it is not explained.
Now, a 25/75 growth/value weighing may be about as "tilted" to value as a 50/50 large/small weighing is to small. Maybe that is the answer. I'm not sure.
Guess I'm just looking for more of the reasoning behind it is all.
I'm sure it's a fine portfolio and will suit many investors well. I'm a simple guy and there's something comforting about simply owning the world equity market and accepting its returns that appeals to me.
It's split 50/50 large/small, 50/50 U.S./international, but 25/75 value/growth.That is the world-wide four-fund combo. With equal weights in those four asset classes, this portfolio provides what long-term equity investors need most: growth and value, large and small, U.S. and international.
Merriman says that investors need growth and value, but does not explain (at least in this article) why such a heavy value weighing over growth.
I think the tilt should be explained. It seems so logical, 50/50 of each major thing, except growth/value is not 50/50 and it is not explained.
Now, a 25/75 growth/value weighing may be about as "tilted" to value as a 50/50 large/small weighing is to small. Maybe that is the answer. I'm not sure.
Guess I'm just looking for more of the reasoning behind it is all.
I'm sure it's a fine portfolio and will suit many investors well. I'm a simple guy and there's something comforting about simply owning the world equity market and accepting its returns that appeals to me.
Re: Asset Mix Question: Bogle Vs. Merriman
If something happened to you, would your spouse be comfortable managing the Merriman portfolio?
In many ways, simpler is a gift to both your spouse, and to your future self. I have a 3-fund portfolio that will transition to a moderate growth fund on my 80th birthday.
Best wishes!
In many ways, simpler is a gift to both your spouse, and to your future self. I have a 3-fund portfolio that will transition to a moderate growth fund on my 80th birthday.
Best wishes!
Ipsa scientia potestas est. Bacon F.
Re: Asset Mix Question: Bogle Vs. Merriman
The basis for the whole thing is the Fama-French 3 factor model for investment returns. This is a fairly robust statistical analysis of investment returns regressed against the factors they were able to find to be predictive of greater expected returns than the market portfolio would be predicted to have. There can be much discussion regarding how persistent this result is. In any case the great variability of investment results means that actual performance can be quite different from expected return and even for long times. Another discussion especially in the academic literature is to understand why small and value loaded portfolios should have higher expected return and what the risk really is.Triple digit golfer wrote: ↑Fri Jul 09, 2021 3:54 pm I don't understand this part, and I've seen the same type of sentiment from many people, so maybe it's me. Emphasis on the part that I bolded and underlined:
It's split 50/50 large/small, 50/50 U.S./international, but 25/75 value/growth.That is the world-wide four-fund combo. With equal weights in those four asset classes, this portfolio provides what long-term equity investors need most: growth and value, large and small, U.S. and international.
Merriman says that investors need growth and value, but does not explain (at least in this article) why such a heavy value weighing over growth.
I think the tilt should be explained. It seems so logical, 50/50 of each major thing, except growth/value is not 50/50 and it is not explained.
Now, a 25/75 growth/value weighing may be about as "tilted" to value as a 50/50 large/small weighing is to small. Maybe that is the answer. I'm not sure.
Guess I'm just looking for more of the reasoning behind it is all.
I'm sure it's a fine portfolio and will suit many investors well. I'm a simple guy and there's something comforting about simply owning the world equity market and accepting its returns that appeals to me.
https://en.wikipedia.org/wiki/Fama%E2%8 ... ctor_model
If a person wants to see the factor loading for their own portfolio an analysis is available in Portfolio Visualizer: https://www.portfoliovisualizer.com/factor-analysis
Re: Asset Mix Question: Bogle Vs. Merriman
In contrast to the French-Fama 3-factor or 5-factor models, here is the Boglehead 3-factor model:
1. Spend below your means and save the difference.
2. Invest for the long-term in a small number of passive, broad-market index funds.
3. Minimize fund/ETF fees, taxes and all other investment costs.
(Apologies, couldn’t resist )
“My opinions are just that - opinions.”
Re: Asset Mix Question: Bogle Vs. Merriman
That's not bad, really.Gaston wrote: ↑Fri Jul 09, 2021 5:27 pmIn contrast to the French-Fama 3-factor or 5-factor models, here is the Boglehead 3-factor model:
1. Spend below your means and save the difference.
2. Invest for the long-term in a small number of passive, broad-market index funds.
3. Minimize fund/ETF fees, taxes and all other investment costs.
(Apologies, couldn’t resist )
Re: Asset Mix Question: Bogle Vs. Merriman
Given the OP's stock-to-bond and US-to-foreign preferences, I'd suggest a two fund Vanguard solution:
50% Balanced Index
50% Life Strategy Moderate Growth.
Here's why.
(1) It is close to the 4:1 US-to-foreign ratio OP desires for stocks and bonds
(2) It achieves OP's desired 60:40 stock-to-bond ratio.
(3) It has managed rebalancing, so OP never needs to lift a finger to manage.
(4) It is very low cost.
If adding a Merriman-style small cap tilt is desired, then something like a bit of the Extended Market Index fund (US medium and small) and Vanguard's World ex-US Small cap fund can be added (or similar value funds).
Now the 50-50 blend of Balanced Index and Moderate Growth funds is really something like a 3.55:1 US-to-foreign stock ratio, and not exactly the 4:1 specified by the OP. To achieve the nearly exact 4:1 ratio you'd have to increase the Balanced index to about 55.5% and decrease LS Moderate Growth to about 44.5% of the allocation. Since each is 60:40 stock-to-bond balanced fund, this split (I believe) hits the nail pretty much on the head for the overall 60:40 and 4:1 ratios.
Hope this is helpful. Best wishes. And if anyone is actually interested, maybe check the math for the ratio calculations. Here's the base info:
Vanguard Balanced Index is 60:40, all US.
Vanguard LS Moderate is 60:40, comprised of approx. 36% US stock, 27% foreign stock, 25% US bond, and 11% foreign bond. (see https://investor.vanguard.com/mutual-fu ... file/VSMGX)
50% Balanced Index
50% Life Strategy Moderate Growth.
Here's why.
(1) It is close to the 4:1 US-to-foreign ratio OP desires for stocks and bonds
(2) It achieves OP's desired 60:40 stock-to-bond ratio.
(3) It has managed rebalancing, so OP never needs to lift a finger to manage.
(4) It is very low cost.
If adding a Merriman-style small cap tilt is desired, then something like a bit of the Extended Market Index fund (US medium and small) and Vanguard's World ex-US Small cap fund can be added (or similar value funds).
Now the 50-50 blend of Balanced Index and Moderate Growth funds is really something like a 3.55:1 US-to-foreign stock ratio, and not exactly the 4:1 specified by the OP. To achieve the nearly exact 4:1 ratio you'd have to increase the Balanced index to about 55.5% and decrease LS Moderate Growth to about 44.5% of the allocation. Since each is 60:40 stock-to-bond balanced fund, this split (I believe) hits the nail pretty much on the head for the overall 60:40 and 4:1 ratios.
Hope this is helpful. Best wishes. And if anyone is actually interested, maybe check the math for the ratio calculations. Here's the base info:
Vanguard Balanced Index is 60:40, all US.
Vanguard LS Moderate is 60:40, comprised of approx. 36% US stock, 27% foreign stock, 25% US bond, and 11% foreign bond. (see https://investor.vanguard.com/mutual-fu ... file/VSMGX)
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Re: Asset Mix Question: Bogle Vs. Merriman
I have my own experiment (trial) going on with a comparison between #1 and #2 at a 70/30 equity to bond asset allocation. Started the trial on June 13, 2018. Equal amounts invested in both portfolio #1 and #2 week in and week out at the same time for the past three years via a Robo-Advisor. I threw in a #3 for the experiment (trial) of a 100% equities via 53 individual stocks that I chose which also has received the exact same equal amounts invested week in and week out at the same time for the past three years as #1 and #2.Stratcat wrote: ↑Fri Jul 09, 2021 11:47 amVanguard has a managed portfolio program too, which recommends fewer holdings than Schwab. After researching a number of approaches to asset mix, I have narrowed my approach down to two. The two are:
1. Vanguard Recommendation:
Total Stock Market: VTI 48%
Total International Market: VXUS 12%
Total Bond: BND 32%
International Bond: BNDX 8%
2. Paul Merriman Recommendation:
US Large Blend 6.6%
US Large Value 6.6%
US Small Blend 6.6%
US Small Value 7.2%
US REIT 3.0%
Int Large Blend 5.4%
Int Large Value 5.4%
Int Small Blend 5.4%
Int Small Value 5.4%
Int REIT 3.0%
Emerging Markets 5.4%
Intermediate Bonds 20%
Short-Term Bonds 12%
Tips 8%
Every week's subsequent additional investment goes towards automatically rebalancing the basket in each of these three portfolios as the underperforming assets are funded first with each subsequent investment. It's all on automated pilot thanks to the robo-advisor and automatic weekly transfers from my bank account.
Three years running now (June 2018 - July 2021), and so far the score card reads:
1. Three Fund Portfolio return to date +52.11%
2. Merriman Ultimate Buy & Hold return to date +42.88%
3. Stock Basket return to date +125.28%
It's too early to draw any conclusions beyond what I already knew going into it, but the topic comes up so often on these boards and other forums I thought I would run the experiment head to head with some actual cash and track it so I can show the score card every time the subject appears. Even if it is only for my own edification, it is what it is.
CyclingDuo
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Re: Asset Mix Question: Bogle Vs. Merriman
I'd say it wasn't necessary to move from Schwab to Vanguard just because a program at Schwab that you seemingly no longer intended to participate in recommended a more complicated set of funds than you wanted. You may not be aware that until very recently, Vanguard took a lot of incoming fire on Bogleheads because its advisers almost always recommended a relatively complicated mix of index and active funds, including the widely-despised (by many Bogleheads, not me) Diversified Equity. Also you might not be aware of all the griping here at Bogleheads about Vanguard as a brokerage relative to Schwab and Fidelity. We no longer have polls, but it's certainly not clear that Bogleheads would recommend investing at Vanguard. Almost surely more would recommend Vanguard funds than would recommend investing in Vanguard funds at Vanguard.
Speaking of changing philosophies, if you'd asked this question about factors/tilting on Bogleheads a decade or so ago, you'd have gotten a lot more support for factors/tilting (at least in terms of value, although not everyone would have agreed on the best measures or implementation of value.) So while not a brokerage, Bogleheads waffle in their fund style preferences too.
Speaking of changing philosophies, if you'd asked this question about factors/tilting on Bogleheads a decade or so ago, you'd have gotten a lot more support for factors/tilting (at least in terms of value, although not everyone would have agreed on the best measures or implementation of value.) So while not a brokerage, Bogleheads waffle in their fund style preferences too.
Re: Asset Mix Question: Bogle Vs. Merriman
Either option is fine, but I prefer 1 for it’s simplicity. There was a time when I would have used Merriman’s approach, but as Ive gotten deeper into retirement I’ve seen the light that simplicity is better (for several reasons). You aren’t really missing any overall returns with the additional factors, as long as you don’t tinker with the AA to performance chase.
Just one person’s opinion…
Just one person’s opinion…
Re: Asset Mix Question: Bogle Vs. Merriman
The Merriman portfolio is overly complex, but you can achieve a similar goal of a factor-diversified portfolio with just 3-4 funds: total world market, international small or small value, and domestic small cap value. The diversified portfolio doesn’t need to have 10+ funds
Crom laughs at your Four Winds
Re: Asset Mix Question: Bogle Vs. Merriman
Just a few remarks/observations:
Stratcat wrote: ↑Fri Jul 09, 2021 11:47 am
This is a very big EF. Many would include this in your asset allocation as fixed income/bonds, unless that's a new house fund
Emergency Funds: $400,000
Desired Asset Allocation: 60% Stock/40% Bond
Desired International Mix: 30%
Portfolio size: $2.0M
Current Allocation Mix
US Large-Cap Stock 19%
US Mid/Small Cap Stock 12%
International Stock 24%
Sector Stock 4%
US Intermediate-term Bonds 11%
Corporate Bonds 20%
Cash 10%. <<< add the EF to this
The Merriman Recommendation is also fairly simple, but approaches the market with a large cap – small cap Value/Blend approach. It also tends to skew more to international holdings. Due to the limited number of holdings, it is also fairly easy to rebalance.
Many here would consider the Merriman portfolio complex, and rather hard to rebalance. Not worth the fuss unless this portfolio is your hobby.
I would like recommendations on which approach you feel would be preferable.
When in doubt choose simple.
Re: Asset Mix Question: Bogle Vs. Merriman
When you read "recipe" type portfolio recommendations it is often difficult to separate the actual strategy from just an example of one way to implement it. The damage is that the potential investor runs off to buy a list of funds without knowing what they are doing or that there are other ways to it. It takes a little more work than just reading a list to understand what the writer is teaching.
I think a post above mentions that Merriman has since recommended more practical ways to take this tilt.
Whether or not taking a small cap value tilt is helpful or a good idea takes a lot more discussion than just reading one article.
I think a post above mentions that Merriman has since recommended more practical ways to take this tilt.
Whether or not taking a small cap value tilt is helpful or a good idea takes a lot more discussion than just reading one article.
Re: Asset Mix Question: Bogle Vs. Merriman
Merriman calls this something like "the World Wide 4-fund Combo." It started out as user trev h's alternative to Merriman's slice and dice strategy (viewtopic.php?t=38374).muffins14 wrote: ↑Sat Jul 10, 2021 8:55 am The Merriman portfolio is overly complex, but you can achieve a similar goal of a factor-diversified portfolio with just 3-4 funds: total world market, international small or small value, and domestic small cap value. The diversified portfolio doesn’t need to have 10+ funds
Just be convinced of your own convictions. If you aren't, after several years of underperformance, you will jump ship, and reallocate at just the wrong time.
Nothing to say, really.
Re: Asset Mix Question: Bogle Vs. Merriman
You're only suggesting Balanced Index to accomplish the 4:1 US:International requirement. Otherwise, the Life Strategy would be enough by itself. Right? Or are there other benefits?Beehave wrote: ↑Fri Jul 09, 2021 8:45 pm Given the OP's stock-to-bond and US-to-foreign preferences, I'd suggest a two fund Vanguard solution:
50% Balanced Index
50% Life Strategy Moderate Growth.
Here's why.
(1) It is close to the 4:1 US-to-foreign ratio OP desires for stocks and bonds
(2) It achieves OP's desired 60:40 stock-to-bond ratio.
(3) It has managed rebalancing, so OP never needs to lift a finger to manage.
(4) It is very low cost.
Re: Asset Mix Question: Bogle Vs. Merriman
No brainer. Four funds is better than 14 funds. When you reach 70, you'll wonder why you even have as many as 4.
Link to Asking Portfolio Questions
Re: Asset Mix Question: Bogle Vs. Merriman
The basic answer is yes. My suggestion was intended exactly as you suggest. It was to achieve the 4:1 US:International target within a 60:40 stock-to-bond framework.etfan wrote: ↑Sat Jul 10, 2021 10:11 amYou're only suggesting Balanced Index to accomplish the 4:1 US:International requirement. Otherwise, the Life Strategy would be enough by itself. Right? Or are there other benefits?Beehave wrote: ↑Fri Jul 09, 2021 8:45 pm Given the OP's stock-to-bond and US-to-foreign preferences, I'd suggest a two fund Vanguard solution:
50% Balanced Index
50% Life Strategy Moderate Growth.
Here's why.
(1) It is close to the 4:1 US-to-foreign ratio OP desires for stocks and bonds
(2) It achieves OP's desired 60:40 stock-to-bond ratio.
(3) It has managed rebalancing, so OP never needs to lift a finger to manage.
(4) It is very low cost.
However, your question provokes additional thought. Suppose the OP were to choose the Balanced Index and LS Moderate Growth portfolio two fund solution, and, for simplicity, in a 50-50 ratio. Over time, foreign or US assets will outperform, and the 50-50 ratio will come out of balance. OP will have the choice of whether to rebalance between the funds or simply let them ride (the overall 60:40 ratio of stocks to bonds will not have been changed because each fund manager retains that balance). If they do want to rebalance between funds they can determine what the reblancing bands and/or frequency should be.
Since there is no single "right way" to rebalance (see for example https://personal.vanguard.com/pdf/ISGGBOT.pdf), this split between funds provides an opportunity that some might consider an advantage to fine tune the overall rebalancing within the portfolio. It's a kind of interesting thing to think about - - the implications of rebalancing between balanced funds.
But here's the thing. Since the OP was considering the much more complex Merriman portfolio, this two-fund alternative provides the opportunity to fiddle with things without getting into any trouble. With the Merriman-typee portfolio, you look at statements, see that three of your outlier funds are dogs, and dump them and reinvest the proceeds into your winners. Just in time for it to be the exactly wrong thing to do - you sell your losers to buy more of your winners when your patience breaks just at the wrong time. I've been there and done that before coming into the Boglehead fold.
At least with this two-fund portfolio you can be hands-on if you are inclined with little chance you'll hurt yourself meaningfully. The degree to which you can screw up the two fund portfolio is muted because in the two-fund scenario all you are doing is selling what's currently high to buy what's currently low. It's a great solution for someone who wants to be hands on (such as almost anyone seriously considering the Merriman portfolio) but knows they need to tamp down and control that temptation.
Re: Asset Mix Question: Bogle Vs. Merriman
I wonder if, at that point, one might as well just hold 3 funds (US, ex-US, Bonds). Not much more complex than 2, and has cleaner boundaries for rebalancing.Beehave wrote: ↑Sat Jul 10, 2021 12:30 pm At least with this two-fund portfolio you can be hands-on if you are inclined with little chance you'll hurt yourself meaningfully. The degree to which you can screw up the two fund portfolio is muted because in the two-fund scenario all you are doing is selling what's currently high to buy what's currently low. It's a great solution for someone who wants to be hands on (such as almost anyone seriously considering the Merriman portfolio) but knows they need to tamp down and control that temptation.
My main concern with a portfolio consisting of as many funds as Merriman's is it seems to be built on the premise that the investor either knows something the market doesn't know, or knows something the experts don't know (the people who manage life strategy or target date funds).
Since I claim to have neither of those two advantages, I consider complex portfolios to be a waste of time. I'm unlikely to do better than the common "funds of funds" out there. So there is no tweaking of so many funds I can possibly do that seems worth the effort.
Re: Asset Mix Question: Bogle Vs. Merriman
Thanks for all the informed replies to my asset mix question. The majority of the responses recommend sticking with option 1, basically a 3-fund approach. The simplicity of tracking is a major positive factor. The other comment which hit home was if something should happen to me, how would my wife handle the management of the account. Simple strikes me as the way to go.
Thanks again for the responses!
Thanks again for the responses!
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Re: Asset Mix Question: Bogle Vs. Merriman
If you feel strongly about small value, you may consider a 10 percent slice to it. Otherwise, a 3 fund portfolio can work just fine for most people.
Having an Investment Policy Statement can help you spouse upon your untimely demise. Even if you go with the 3 fund portfolio, I suggest you still create an IPS with her input so she is fully abreast of the what and why you’ve structured the portfolio in the manner created.
Having an Investment Policy Statement can help you spouse upon your untimely demise. Even if you go with the 3 fund portfolio, I suggest you still create an IPS with her input so she is fully abreast of the what and why you’ve structured the portfolio in the manner created.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: Asset Mix Question: Bogle Vs. Merriman
My portfolio is a hybrid VG and Merriman portfolio, somewhat similar to your current portfolio without the bonds.Stratcat wrote: ↑Fri Jul 09, 2021 11:47 am I am changing my asset mix and would like input on which of the two approaches might be preferable: Bogle recommendation for mix, or Merriman?
Emergency Funds: $400,000
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: Federal 22%, State 0%
State: Florida
Age: 66
Work Status: Retired
Desired Asset Allocation: 60% Stock/40% Bond
Desired International Mix: 30%
Portfolio size: $2.0M
Current Allocation Mix
US Large-Cap Stock 19%
US Mid/Small Cap Stock 12%
International Stock 24%
Sector Stock 4%
US Intermediate-term Bonds 11%
Corporate Bonds 20%
Cash 10%
Income
Pension #1 $2,522/mo. Net after taxes
Pension #2 $1,059/ Mo. After taxes
Social Security: Waiting until age 70
Wife, retired but not yet eligible for Social Security
Other Information
Until recently, I was in Schwab’s Intelligent Portfolio Program. I was dissatisfied with the complexity of the asset mix and the number of funds/ETF’s they recommended. Consequently, I transferred my holdings to Vanguard since I have always been a believer in indexing.
Vanguard has a managed portfolio program too, which recommends fewer holdings than Schwab. After researching a number of approaches to asset mix, I have narrowed my approach down to two. The two are:
1. Vanguard Recommendation:
Total Stock Market: VTI 48%
Total Internationa:l Market VXUS 12%
Total Bond: BND 32%
International Bond: BNDX 8%
2. Paul Merriman Recommendation:
US Large Blend 6.6%
US Large Value 6.6%
US Small Blend 6.6%
US Small Value 7.2%
US REIT 3.0%
Int Large Blend 5.4%
Int Large Value 5.4%
Int Small Blend 5.4%
Int Small Value 5.4%
Int REIT 3.0%
Emerging Markets 5.4%
Intermediate Bonds 20%
Short-Term Bonds 12%
Tips 8%
These categories would all be held in Vanguard Index funds
Questions:
Which approach would be preferable?
On one hand, it seems that the Vanguard Recommendation is very simple, but has proven effective over a long time period. It is very easy to rebalance and track performance.
The Merriman Recommendation is also fairly simple, but approaches the market with a large cap – small cap Value/Blend approach. It also tends to skew more to international holdings. Due to the limited number of holdings, it is also fairly easy to rebalance.
I would like recommendations on which approach you feel would be preferable.
Merriman recommends 50% international, VG 40%. I do 30%. Of that 30%, 10% total intl, 10% intl small cap, and 10$ EM.
The rest of the 70% is 40% total stock index, 10% mid index, 10% small index, and 10% small value index.
It gets complex, but not as complex as full Merriman.