As part of my end of the year portfolio review I try to simplify my holdings without compromising performance. I am 60 years old and have a pension, but no Social Security (SS's WEP provision eliminated SS for me). I see the next 20 years as a time to spend a little bit of what I have saved knowing full well that, if I am lucky enough to live into my eighties, spending priorities will begin to shift away from "foot loose and fancy free" to "foot wear that's loose and free".
Simplification comes in two forms. One, I am attempting to simplify what I hold (the number of funds) and two, where I hold these funds (the number of institutions where I hold the funds). I manage all of my investments independent of advisors. I do attempt to seek out mutual funds that are managed. So, in a sense, I do pay for investment management advice as a function of the Expense Ratio (ER) of the funds i own that have fund managers or management teams.
Over the next 20 years my withdrawal from these investments need to fund:
- Yearly Income gaps - the yearly shortfall when I subtract my projected yearly expenses from my retirement income.
- One time Expenses - For gift costs (weddings, tuition, holidays), travel costs, medical procedures costs (not covered by insurances), large one time item costs (a car, boat, real estate)
- Roth Conversions up to the 12% tax bracket limit (25% of my retirement accounts are in deferred taxable IRA, 75% in Roth/HSA).
- Help fund retirement needs beyond 80 such as income gaps as a result of inflation, out of pocket health care costs, funeral expenses, providing for surviving spouse, and gifting to beneficiaries (Spouse, Kids, Charities)...oh yeah, and loose fitting shoes.
Here are my present holding by percentages of total:
71% Moderate to Aggressive positions (for long term growth and periodic withdrawals)
PRWCX - 22% (half Roth, half SD IRA)
PRGSX - 10.5% (Roth)
PRMTX - 7.5% (Roth)
PRHSX - 4% (SD IRA)
VMVFX - 6% (Roth)
VHCOX / POAGX-11% (Roth)
VHT - 2% (Roth)
FSMEX - 4% (Roth)
FSRPX - 4% (Roth)
6% Balance position (to cover Long term HC costs)
BRUFX - (HSA)
23% Conservative positions (to cover sequence of return withdrawals, to provide cash for buying opportunities, lower portfolio volatility)
FRIFX, VWINX, PTIAX, VFISX, PRWBX, SPRXX - (mostly Roth)
I am presently at 5 institutions which I will reduce to 4 by Spring 2020 and 3 by summer 2020
Recently, I back tested a portfolio consisting of PRWCX (34%), PRMTX (33%) and PRHSX (33%) which I consider moderately aggressive.
Its past 20 year performance had a MAXXDD recovery period of 3 years. I consider this a reasonable time frame to cover a sequence of return risk withdrawal.
Having at least 3 years of retirement income money earmarked for these future time frames (market pull backs and recoveries) seems reasonable to me. A combination of FRIFX / VWINX / PTIAX / ST Bonds are my choices for this part of my portfolio.
Any thoughts or suggestions would be appreciated.
Comments
Great stuff @bee. I’m a dozen years beyond you in age and facing the same challenges. I went from 5 institutions to 4 a year ago - vacating Oakmark. Tough getting it down further anytime soon. I view both Permanent Portfolio Funds and Invesco as “one-trick ponies” at this point. The first for PRPFX and the second for its gold fund. The bulk, however, is at D&C and TRP - both of which I regard highly.
bee - You incentivized me to count mine: I have 14 funds (which includes 2 ultra-shorts). I find that number quite manageable. (If I counted correctly, you listed 16, including VHT.)
My allocation :
Balanced: 25% (3 funds)
Alternative: 25% (3 funds)
Diversified Income: 25% (2 funds)
Cash (Ultra-short / Short-term): 15% (3 funds)
Real Assets: 10% (3 funds)
PS - As noted recently, thinking about this allocation is a good way to fall asleep.
I'm setting up similar to what you are doing, a 3 1/2 year withdrawal bucket, so I like hearing your ideas.
It looks like with a little flexibility, you could get down to two institutions - Fidelity and Vanguard - pretty easily. TRP is now NTF at Fidelity (and at Vanguard, though I'd favor Fidelity for brokerage/third party funds). The only reason I might have for continuing to invest directly with TRP is free M* premium access.
For the HSA, if you're willing to invest in anything other than BRUFX, Fidelity now offers HSA accounts that are as free as its regular/IRA brokerage accounts. As a side note, you don't have to withdraw money from an HSA as expenses are incurred. You can pay out of pocket and reimburse yourself anytime in the future out of the HSA so long as you hold onto your bills and receipts. So, like other "Roths", you can keep the HSA invested in more volatile funds and draw on the HSA only when it is doing well.
Personally, I tend to avoid sector funds. In part because I don't claim any macro expertise. In part because, as you wrote, I pay my fund managers to make those kinds of decisions. To each his own. I agree with targeting 3 years or so of "survival funds". Even if the other funds don't fully recover in three years, they should come back enough that drawing on them after that time shouldn't be too painful.
A curiosity question, no need to respond w/personal data: my understanding of WEP is that "By law, it cannot eliminate your benefit entirely." (AARP page) So I'm wondering how you're getting hit so hard by it.
https://discuss.morningstar.com/NewSocialize/forums/t/373185.aspx
The end result is that it simplifies managing all the funds. Also the ERs was reduced considerably since we use many Vanguard funds and their ETFs.
I’d never quarrel with that approach. Certainly sounds reasonable. Personally I’ve never used it. A very conservative investor by nature, I believe I’m better off maintaining 100% invested at all times and pulling annual distributions from that overall pot. (Note: That does not mean 100% in equities or risk assets.) Never have I needed more than 10% from investments in a single year. Most often it’s in the vicinity of 5-7%.
I could be wrong. But my sense is I’m somewhat protected against severe equity selloffs by the diversification I maintain. It’s probably the #1 reason I pay intense attention to different market sectors almost daily and track several funds that represent various sectors. And, if equities drop sharply, I’ll essentially “rebalance on the run” by shifting withdrawals to the fixed income holdings. To some extent this has been an ongoing process over the years. I always pull distributions from the portions that have fared the best.
Just some rambling thoughts. One size does not fit all. Admittedly, my approach is better suited for very conservative investors.
Plus cash in MINT.
(Divided b/w ML and Fido, and if I were to do it over I would not do ML except to the extent of getting some BoA bennies.)
Oh, and a spot in BIVRX (thanks to DSnowball-MFO), plus some held underwater stocks.
I do enjoy reading everyone's input on this topic. Glad bee brought it up.
https://www.kitces.com/blog/managing-sequence-of-return-risk-with-bucket-strategies-vs-a-total-return-rebalancing-approach/
In short, if one uses multiple buckets (say, a 3 year short term bucket and one or two others), the results are the same as using an integrated portfolio (as hank does), assuming one rebalances periodically. Which makes perfect sense because taking money from one bucket and rebalancing is effectively just drawing proportionately from each bucket.
At the end of the piece, Kitces compares that with not rebalancing at all. With no rebalancing, the portfolio ultimately fails. What I would have liked to have seen was a strategic replenishing - refilling the cash/near cash bucket when equities are up.
Still, his column does confirm there's more than one way to skin a cat.
Derf
For others are not familiar with SS and WEP:
https://ssa.gov/policy/docs/program-explainers/windfall-elimination-provision.html
@msf Fidelity's HSA option looks like a good one...on my to do list for 2020.
@Sven @msf mentioned TRP is available NTF on Fidelity's Brokerage platform...good to know.
@MikM regarding FRIFX MAXXDD of -40%...you have a very valid point...though this is a small position in my portfolio I did consider this a non-correlated US market asset (.72) it does pay a dividend that appears to remain constant even as share price fluctuates.
@hank said, ...seems like a valid approach to me
1) If equities are up, take the retirement spending from equities
2) If equities are down but bonds are up, take the spending from bonds instead
3) If both equities and bonds are down in the same year, take the distribution from Treasury bills ”
(or, in my case, from “Alternative” investment funds)
Thanks for the link @msf - I’d never seen any analysis comparing the two approaches before and somewhat humbled that Kitces sees some merit in what I’ve been doing. Of course there will be other experts who disagree.
My method IMHO only works if one is willing to sacrifice some current level of return in exchange for being fully invested at all times (a lousy misleading term anyway). So, I carry what some would consider expensive, low performing or erratic performance funds as an offset to a severe equity sell-down. Funds like TMSRX, PRPFX, OPGSX - none of which would pass mustard based on the metrics most mutual fund investors use or receive high marks on this board. There’s also a static 15% weighting in the mix devoted to ultra-short and short term bonds. (I just recently increased that frim 10%.) And as Kitces mentions, you have to be willing to sell your winners in a downturn and hang on to your losers.
One big problem is in trying to backtest anything. For most, 10-15 years seems like an eternity. But in terms of really important global financial turning points 10-15 years is little more than a drop in the bucket. And some of the alternative investment funds (like TMSRX) have only become available recently.
Derf
I’ve read a bit of what Price’s “brain trust” envisions for the fund. What I hear from them is that they foresee a possible scenario in which both bonds and equities are falling together. It’s not hard for one to imagine how that might happen. They believe the approach they’ve taken with this fund will allow it to avoid serious losses under such conditions. Obviously, the fund is new and untested. Time will tell whether it can hold up well during both an adverse bond and adverse equity market as they hope and expect.
As far as cash level, it can be misleading for a fund that engages in shorting equities as this fund does to an extent. Essentially, as I understand it, the cash-stash serves as a kind of collateral against the equities it has sold short..
BTW @Derf, Were you aware that board Prima Donna, PRWCX, is currently holding 15% in cash?
Yacktman funds also hold high cash position and they are lagging their peers.
It can’t keep pace with stocks or bonds when those markets are advancing. One willl probably never produce a M* “Manager of the Year.” Their best use, I’d think, is with an older and very conservative investor who would like to earn a couple % more with an investment than cash or short term bonds are likely to provide without assuming a lot of additional market risk.
We tend to think mainly of equities as risky. However, under some circumstances, all but the very shortest duration bonds can entail quite a bit of risk. We’ve become somewhat immune to the potential risk in bonds because interest rates have been generally falling or stable for the past 25 years or longer. These alternative type funds carry a lot of baggage of their own as well. More fail than succeed. A lot depends on the manager getting the timing right. The markets / market sentiment have been running against them for quite a while as well. And they carry higher expenses and fees, somewhat justifiably because of the short selling and other derivatives they invest in. Just one ingredient to consider as part of a broader portfolio if one is highly risk averse either by nature or by age and circumstance.
P.S. donuts $.27 & a wavier in effect for ER.
I’d be very surprised if anyone else who posts here owns it. I own a great many funds that are not currently popular. I have to answer only to myself. So, you invest your way and I’ll invest mine.
Thanks for this stimulating exchange. Markets can be and often are complex and frustrating. That’s the nature of the beast.
But as Benjamin Franklin observed: “speak little, do much. Well done is better than well said.” So let’s just make our decisions, and just do it.
Best Wishes for the Holidays and beyond
It made me curious about how Fidelity (where I do almost all of my business) handles fees on TRP funds, so I checked.
Most, but not all, charge no fee.
PRWCX is NTF (but closed to new investors).
TMSRX has a 49.95 fee
PRSCX (one of my favorites since I owned it for years in my 403b) is NTF. I think I prefer FSCFX now.
PRHSX is NTF
PRDGX is NTF
PRFRX is NTF.
There are many more ...
David
Derf
It's T. Rowe Price Multi-Strategy Total Return Fund Investor Class. Many of the Investor Class funds have fees.
There is also TMSAX : T. Rowe Price Multi-Strategy Total Return Fund Adviser Class,
but I guess only Advisers have access to info about it. I can not even get a quote.
David
Fidelity displays Advisor class shares for a couple of TRP funds on its retail site. Still, they're only accessible through Fidelity® Wealth Services, and carry a TF: PRITX / PAITX, PRTAX / PATAX.
The difference between the classes is a 12b-1 fee created to pay for the platform or advisor. A few fund other families do something like this with N (retail) and I (institutional) shares. TCW goes so far as to make both classes available with the same minimum purchase, so you choose whether to pay a transaction fee for the same fund. See, e.g. TGFNX / TGCFX.
Consider a fund like JECAX. NTF at Schwab and TDAmeritrade, but sold with a load at Fidelity, even though Fidelity waives the load on A shares for most of JP Morgan funds.
Way back in the dark ages, when it was hard to find a free checking account, I was able to purchase a T. Rowe Price Advisor class fund NTF at Citicorp Investment Services. I figured that the extra 12b-1 fee amounted to just a few dollars and it was a cheap way to qualify for free checking. I've long since moved the position to T. Rowe Price, where they did a tax-free conversion to Investor class shares.
I don’t think this makes the case either way as to whether someone should own the fund. Just wanted to make sure Derf and I were looking at the same figures and time-frame for TMSRX. Glad some folks found @bee’s thread interesting or helpful.
My questions pertain to the fact that I'm thinking of dumping PRPFX & finding somewhere else to invest.
Have a Merry good week !, Derf
Merry Christmas to you too.