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My Engineer Buddy Is Now Crowing ... But, We Both Have Smiles.

edited August 2015 in Fund Discussions
My engineer buddy is crowing …

My high school buddy who became an engineer by profession has now started to crow as his 60/40 walking allocation consisting mostly 60% invested in the S&P 500 Index, about 35% in the aggregate bond index plus keeping about 5% in cash has now come to life and has bettered my recent performance. His numbers for the past one, three, five and ten year periods, tracked by Morningstar, are 6.8%, 10.0%, 10.0% and 5.6% respectively while mine, also tracked by Morningstar, on my master portfolio which uses my sleeve management system, are about 2.9%, 10.1%, 9.8% and 6.9% respectively. The above performance numbers do not reflect special investment positions (SPIFFS), held from time-to-time, as they added to our above performance numbers but not reflected in this analysis.

It seems, over the past ten year period my master portfolio has bettered his 60/40 portfolio by more than twenty percent. So, it seems active management has out performed passive management over the long haul while passive now leads over the shorter period and they both have performed about the same through the mid years.

In comparing both of our portfolios to CTFAX which is a professional run hybrid type asset walking fund based upon setting its stock and bond allocation by the varying price valuation of S&P 500 Index has returned 3.2%, 6.6%, 8.9% and 6.2% for the same respective periods. I have linked it's Fact Sheet below for those that would like to review same.

It is interesting that his S&P 500 Index fund has returned an average of 7.0% for the ten year period while his bond index fund has returned 4.2%. Perhaps, Mr. Buffett provided good widsom and thought path that an investor would do well by just investing in the S&P 500 Index along with some US Treasury bonds.

I score both of us as winners over some of our classmates that chose many years ago not to become investors. No doubt, the years ahead for both of us will most likely be easier than those that chose not to become long term investors. We have classmates that bettered both of us during our working years ... but, I don't think they will going forward as most of them did not invest and thus prepare for retirement. I know some of them lived high on the hog and spent most of what they were making to live a high profile lifestyle. Some of these folks will just have to keep working ... but, neither of us will as we both have smiles.


  • edited August 2015
    From March of this year, a section of a thread for a simple portfolio of 50% each for VTI and BND :

    The results are listed below using VTI and BND; which will find this portfolio at age 5 years, this July.
    --- 2010 averaged return = 11.89%
    --- 2011 averaged return = 4.39% equity market melt in July
    --- 2012 averaged return = 10.23%
    --- 2013 averaged return = 15.69%
    --- 2014 averaged return = 9.25%
    --- 2015 averaged YTD = 1.76%
    M* 5 year anualized to date = 10.31%

  • edited August 2015
    Hi Catch 22,

    The performance numbers that you are reporting come from etfs. The ones used in the study come form those he actually holds in his retirement plan plus he has held some cash along the way too. And two, it seems the etfs are perhaps more efficient over the mutual funds he holds.
  • Hi @Old_Skeet

    Yes, and I suspect there are indexes that closely match holdings within either VTI or BND. If one's retirement plan (rollover IRA) is or has a brokerage feature, an index or etf match or direct investment could be had/found to reflect VTI and BND.

    VTI is more of the variable in the numbers I posted, as it is at 50% of the total portfolio, versus 60% S&P index held by your friend. 'Course, they are both U.S. centric equity; with VTI having a wider spread among cap sizes.
  • Thanks for sharing Old Skeet.

    I read many years ago from different publications, M* is one that sticks in my mind, that the actual funds you invest in are a smaller contributor to your total return over time compared to how you construct your portfolio. More importantly for return is the portfolio construction, mainly equity to bond ratios. Sounds to me your 2 portfolio comparison agrees with what I've read.

    Given that belief, it has moved my investing style to hold fewer funds, and not duplicate funds in a category. At least that is what this information tells me. If I expect alpha from managed funds, duplication doesn't help the cause.

    Not arguing with others who think management diversification helps them. I just don't buy it for me. Give me an index sprinkled with 1 proven "alpha" manager and you are in good shape from my view.

    Heck, to be real simple, maybe we should all just invest in a great managed balanced fund like PRWCX (and I've given that thought). The older I get the more I question the idea I can do better:

    returns for one of the great balanced funds, PRWCX
    1year 13.0%
    3year 15.6%
    5year 14%
    10year 11.6%

    the average moderate balanced fund wasn't bad either. very similar to your friend's.
    1year 4.3
    3year 9.9
    5year 9.5
    10year 5.8
  • edited August 2015
    Hi @ MileM,

    Thanks for stopping by and sharing your thoughts and perspectives.

    It is for sure being a former corporate credit manager who believes in spreading his risk among many over just a few there is no doubt in my mind that my investment style through my fund sleeve management system, where each sleeve consists from three to six funds or in a couple sleeves seven funds, just might not be right for some. Currently my portfolio is comprised of ten investment sleeves plus two cash management sleeves. The total number of funds currently held total fifty one.

    PRWCX dusted my britches as it did most. If it had been available for purchase for me in one of my investment platforms I would have probably have owned it. Currently, M* reports that it is only available for new money for those that currently own it and possibly in some retirement plans as it shows limited access in its fund report.

    Indeed it is a great fund along with some others that I do not own. But, I still have a smile on my face as I am still ahead of most conservative, moderate and global allocation funds.

    Again, thanks again for stopping by. It is indeed appreciated.

  • Hi old _skeet. Steady growth is all about the way you allocate, and your method works for you. I would say what your style does well is it allows you to easily adjust sector or category weighting based on value methods you use to your advantage.

    Still, I'm really starting to believe all the effort we at this discussion board put into finding the best funds, the hot funds, the new and improved alternive funds is an effort that will not produce better returns versus just holding a plain vannela balanced fund. Not a knock at what you or anyone else is doing. Just the facts comparing total return over time as you demonstrate in your post.

    Just my introspective two cents.
  • Since I started reading this forum and actively managing my money I've tracked the difference in returns between my portfolio as it has evolved and changing nothing but keeping it at where it was prior to paying attention. Since April 18th 2013 managing my funds has beat not doing so by about 1.2% annually. Is it worth it? It's an interesting question.
  • edited August 2015
    MikeM said:

    Still, I'm really starting to believe all the effort we at this discussion board put into finding the best funds, the hot funds, the new and improved alternative funds is an effort that will not produce better returns versus just holding a plain vanilla balanced fund. Not a knock at what you or anyone else is doing. Just the facts comparing total return over time as you demonstrate in your post.

    I wholeheartedly agree and it takes too much valuable time for me.

  • edited August 2015
    Hi jlev,

    For me that extra spread earned has justified my time and effort and from my perspective made it worth the effort. Just think in these terms 1.2% on a million dollar portfolio is an extra $12,000.00 a year. Over ten years this out size performance amounts to $120,000.00. So, from my perspective it has indeed been worth the effort.
  • Or let some broker, broker for you & cough up another 1 % or so.
  • @Old_Skeet that's a very fine point, and should probably even include compounding effects over time. Just at not yet even 30 in age the actual number of dollars can seem very small right now. In terms of what is my hourly wage, but I guess I should think of it as an investment. When it's a larger base number it'll pay off handsomely.assuming of course that the outperformance is sustainable...
  • The more I look at VMVFX,with a 0.3 ER, global scope and active management, the more convinced I am that it is the fund for the money I invest for my children and grandchildren, even with its short track record. I thank MFO for bringing it to my attention. Its recent record is impressive, and I think it will be stable, since it's owned by its investors.
    DSENX, in which I am invested, has a higher ER, US focus, and too many moving parts for me to commit to a 40 to 70 year run. I think PRWCX is closed to new investors.
    I don't value my investment skills that highly, and late onset dementia is a family risk; so, I'll trust Vanguard's management over my own. The only real question is whether a bond component is necessary, or if Social Security represents it. Considering the current bond return, I'll hold off on BND. My actively managed bond funds have a variable recent performance, nothing I would rely on for my descendants' retirement.
    Now, I only need to convince myself to transfer my other funds and stocks and relax. (Although I'll probably read MFO looking for a superior option for my own money.)
  • Skeeter, here is the point I'm trying to make, again. Your benchmark is relative only to yourself. Your added "spread" on return of 1.2% added value per year is relative. You can say over 10 years you have gain $120,000 on your million dollar bogey, but you could also pick a different benchmark and find you may have shorted yourself $100,000 over 10 years.

    What I'm trying to express is most investors, even possibly yourself, could have had better returns just by investing in 1 well managed balanced fund. I'm not proposing a 1 fund portfolio but I'm making a point. Even you who has worked hard to come up with an elaborate and skilled portfolio plan, has not beaten many of the good, seasoned balanced fund managers available to all of us.

    Examples: Returns over 5 and 10 years:
    PRWCX 13.8% 8.9%
    FBALX 11.3% 7.2%
    FPACX 10.1% 7.7%
    OAKBX 9.8% 7.5%
    VWELX 10.8% 7.8%
    MAPOX 10.8% 7.3%
    skeeter 9.8% 6.9%
    engineer 10% 5.6%

    And again, this is not a knock on your work. Your returns are right there with some of these great funds. I'm just trying to point out that anyone can have good returns just by sticking with a seasoned proven manager or management team. You don't need an elaborate portfolio and you don't need a lot of funds to do it. Simple is most often better for most investors.

  • beebee
    edited August 2015
    Let's keep in mind that what worked in the past for Balance Funds may not work going forward (ala Ed's commentary about balance funds). That's not to say smart balance fund managers (much like Ed) won't find new ways to manage risk and return.

    @Old_Skeet portfolio construction always reminds me that asset allocation (ala his sleeves) is often the more important component of a well design portfolio. To me it include three things: Income for present spending, growth for future spending, and portfolio Insurance for the unexpected but very real market risk events.

    Income for a young investor is often merely wages, but for a retiree their guaranteed income (pension, social security,etc.) may also need to be augmented with a monthly stream of non-guaranteed income (rent, dividends, etc.). Income pays the bills and retirees often need to design their portfolio to throw off adequate income with a minimum amount of risk.

    Growth for the young investor is a very loose term since this could mean an investment over a period of 60 plus years. Growth for a retiree could entail a time frame of 30 plus years. Growth comes with lots of market risk, but often works out over the long term. The periodic downside market volatility combined with human emotions (fear and safety) can derail these important portfolio risk assets in the short term. Designing a portfolio that offsets this market risk requires holding uncorrelated assets. Ed mentioned in his commentary that some of these uncorrelated assets may not perform as well going forward as they historically have.

    Trying to meet present and future growth and income needs seems achievable so long as investors stay the course by trying to maximize a balance between risk and return. For me, this means holding adequate uncorrelated risk investments or owning a well managed balance fund.

    For over 75 years VWELX has successfully managed risk for its shareholders. I have a feeling this fund (and others) will meet the challenges Ed outlined in his commentary.
  • Hi @bee and all

    One would have to believe that the majority of investors here form their own "balanced" fund allocations.
    The holdings may indeed simply be balanced funds of whatever flavor, active management funds and the management hopefully filling the needs of investor "x".

    So, we find active investors managing active managed and passive fund holdings to suit their needs.

    'Course, many forms of investor knowledge, desire and risk shape a personal, balanced portfolio, eh? Knowing that these balanced portfolios run the range from aggressive to conservative; but are balanced at any given time for a particular individual.

    Take care,
  • MJG
    edited August 2015
    Hi Old Skeet,

    Congratulations to both you and your Engineer friend. You have each chosen separate investment pathways, but your common decisions to save and invest early in your earning lifecycle is yielding a huge payoff today. That’s no great surprise.

    Every single financial advisor who has developed a set of financial rules recommends consistent savings and accepting the risks of investing. In his Zurich Axiom book, Max Gunther’s first axiom is to accept the risk challenge. He said: “Worry is not a sickness, but a sign of health. If you are not worried, you are not risking enough.”

    It is amazing how many folks are not up to that challenge. I too have experienced the reluctance of smart and successful folks to engage in the investment world. They don’t consider it investing, but identify it as speculation or gambling. Among these folks, the deep recession of the 1930s has a long arm.

    A long time ago, I gave lectures to senior citizens and High School age kids to encourage both savings and prudent investing. My single most effective graph when making the presentations was the comparative Stocks, Bonds, and Inflation historical chart. I know you are familiar with it, but here is a convenient Link:

    This Ibbotson chart was a terrific deal closer. I was always surprised by how conservative folks were, and how uninformed they were with respect to inflation’s erosive impact.

    The goal was to get these folks into the ballgame. What game they played and/or what position they took was far less important. “There is no one right portfolio, but there is one right for you.”

    That saying comes from Larry Swedroe’s “14 Simple Truths”. It is Number 14 on his list.

    I currently own a mixed portfolio of both actively and passively managed mutual funds and ETFs. I am moving in the direction of more passively focused funds, so I am now more inclined towards your engineer buddy’s program than yours. Some of the logic in doing so is captured succinctly by Swedroe’s Truths Numbers 2 and 3.

    Truth 2 is that “The past performance of an actively managed fund is a very poor predictor of its future performance.”

    Truth 3 is that “If skilled professionals don’t succeed, it is unlikely that individual investors will.”

    I believe these are statistically correct with plenty of experimental data to corroborate them. Over my investing career, I have experienced both sides of those arguments. It is indeed a challenge to overcome the professionals’ advantages. As the professionals have become more knowledgeable, and compete more against each other, Alpha is a disappearing quantity.

    I especially congratulate you on winning at this most difficult challenge with such a demanding, complex portfolio construction. Just the numerical size of your portfolio would overwhelm me. If fact, the primary reason I defected from a portfolio of individual stock ownership a number of years ago was that I just couldn’t stay current on 50 stock holdings. I wish you continued good luck and much success.

    You might consider working on your hesitant cash holder friends to change their losing ways. You would be doing them an invaluable service. You might want to show them the referenced chart. I've now closed the circle of my post.

    Best Wishes.
  • Bee,I think you make good points on balanced funds going forward. But the individual investor has to contend with the same total return concerns outline by Ed Studzinski and yourself. My guess is 10 years from now, the amateur investor, which we all can be classified as, will not out-perform these well managed balanced or allocation funds. We may feel more secure to be in control and we may pick a benchmark our systems can beat, but we likely won't beat the Mairs and Power's, the Wellington group, the TRP allocation team, Romick's team and the many other well managed systems available.
  • Bond recommendations and an Interesting read:

  • edited August 2015
    Hi everyone,

    I appreciate everyone's comments. Certaintly at times one strategy will lead another just as at times active will lead over passive and at other times passive will lead over active. I think one of the most important things, for any investor, is to start early in life and if nothing more put at least seven percent of what one makes aside for the future and not to spend everything that one makes.

    I had buddies that made more than I did through the years and now seemed to have little to show for it now that we are in our sixties. Some have said to me from time-to-time I know I made more than you did ... but, now you seem to have little concerns when it comes to money ... and, well I seem to be short. How did you do it?

    It is simple ... I saved through the years and around my age of fifty my portfolio had grown in size that I was making more through investing than I was taking home from my daytime job. So, as it has turned out, investing became the best job that I ever had; and, even though I have now retired from my daytime job I am still with my investing endeavors. And, I plan to keep on keeping-on.
  • Don't understand an avoid on fixed rate corp. preferred. No recession in view.
  • beebee
    edited August 2015
    ron said:

    Don't understand an avoid on fixed rate corp. preferred. No recession in view.

    This appears just below the chart image I linked:


    He makes a distinction between fixed rate and variable rate with variable rate getting the nod going forward. This makes sense if you believe rates will slowly rise.
  • edited August 2015
    Hi @ MikeM,

    I know you are looking at top line performance which would consists of both income and capital appreciation (total return) as a major factor to pick your choices.

    One of the things that is paramount for me is income generation with now being retired. I have chosen to pick funds that have respectful total returns but kick off a good income stream if held within my income and hybrid sleeves and I moved toward these type funds many years ago after I had reached my investment goal. Even today, I still maintain a growth & income area along with a growth area within my portfolio to keep pace or exceed inflation creep.

    I have listed the yield for the funds you have made reference to. They are PRWCX with a yield of 1.23%, FBALX with a yield of 1.39%, FPACX with a yield of 0.60%, OAKBX with a yield of 0.78%, VWELX with a yield of 2.42% and MAPOX with a yield 2.42%.

    The yield on my overall portfolio is much, much higher and according to M* is about 3.2% on valuation and better than 4% on amount invested. The income and hybrid sleeves generate a yield of about 4.25%. With this, my portfolio can make its distribution needs to supplement my income requirements without having to sell any securities. When you consider the profit that has been made from my spiffs from time-to-time I have a surplus of income generation. Then factor in the capital gains distributions made time-to-time form my mutual funds and with this I am well head of my income needs and can either grow my cash position and/or reinvest into my funds with the excess income generated.

    Although top line performance is important it was not the only item I was looking for in selecting the funds that I currently hold as I was also looking for their ability to generate yield.

    Thanks again for your participation and comments.

  • edited August 2015
    I am posting below my investment sleeve management system for readers that might not be familiar with it along with my current funds held as of 07/31/2015.

    Sleeve Management System (07/31/2015)

    Here is a brief description of my sleeve system which I organized to help better manage the investments that were held in five accounts. The accounts consist of a taxable account, a self directed ira account, a 401k account, a profit sharing account and a health savings account plus two bank accounts. With this I came up with four investment areas. They are a cash area which consist of two sleeves … an investment cash sleeve and a demand cash sleeve. The next area is the income area which consists of two sleeves. … a fixed income sleeve and a hybrid income sleeve. Then there is the growth & income area which has more risk associated with it than the income area and it consist of four sleeves … a global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. An finally there is the growth area, where the most risk in the portfolio is found and it consist of four sleeves … a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve and a specialty sleeve. Each sleeve consists of three to six funds (in most cases) with the size and the weight of each sleeve can easily be adjusted, from time-to-time, by adjusting the number of funds and the amounts held. By using the sleeve system one can get a better picture of their overall investment picture and weightings by sleeve and area. In addition, I have found it beneficial to xray each fund, each sleeve, each investment area, and the portfolio as a whole monthly. Again, weightings can be adjusted form time-to-time as to how I might be reading the markets and wish to weight accordingly. All funds pay their distributions to the cash area of the portfolio with the exception being those in my 401k, profit sharing, and health savings accounts where reinvestment occurs. With the other accounts paying to the cash area builds the cash area of the portfolio to meet the portfolio’s monthly cash disbursement with the residual being left for new investment opportunity. In addition, most all buy/sell trades settle from or to the cash area with some nav exchanges taking place.

    Here is how I have my asset allocation broken out in percent ranges, by area. My neutral targets are cash 15%, income 30%, growth & income 35%, and growth 20%. I do an Instant Xray analysis of the portfolio monthly and make asset weighting adjustments as I feel warranted based upon my assessment of the market, my risk tolerance, cash needs, etc.

    Cash Area (Weighting Range 5% to 25%)
    Demand Cash Sleeve… (Cash Distribution Accrual & Future Investment Accrual)
    Investment Cash Sleeve … (Savings & Time Deposits)

    Income Area (Weighting Range 20% to 40%)
    Fixed Income Sleeve: GIFAX, LALDX, THIFX, LBNDX, NEFZX & TSIAX
    Hybrid Income Sleeve: AZNAX, CAPAX, FKINX, ISFAX, PASAX & PGBAX

    Growth & Income Area (Weighting Range 25% to 45%)
    Global Equity Sleeve: CWGIX, DEQAX, EADIX & PGUAX
    Global Hybrid Sleeve: CAIBX, IGPAX & TIBAX
    Domestic Equity Sleeve: ANCFX, CFLGX, FDSAX, INUTX, NBHAX, SPQAX & SVAAX
    Domestic Hybrid Sleeve: ABALX, AMECX, DDIAX, FRINX, HWIAX & LABFX

    Growth Area (Weighting Range 10% to 30%)
    Small/Mid Cap Sleeve: IIVAX, PCVAX & PMDAX
    Specialty Sleeve: CCMAX, LPEFX & TOLLX

    I wish all ... "Good Investing."

  • edited August 2015
    Thanks @ MJG for your comments.

    Whether one agrees with my investment style or not ... I still wear a smile on my face much the same as I did years ago with my betting style and system that I employed many, many years ago when I visited the dog tracks.

    While my betting style was not for everyone, it worked well for me. It was a simple system in which I bet historical fast dogs to win, place or show wagers when they were running in lanes that had a good probabilty of being in the money over the other lanes. Many would think that lane number one would produce a good number of money dogs; but, it did not. For me, I kept my bets mostly to fast dogs running in lanes two through seven with win, place, show betting on my best three picks.

    Thanks again for stopping by and making comment.

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