Hi Fellow MFO,
I've been a long time lurker on this site and appreciate everyone's insight and knowledge on various funds and portfolio design. Briefly, my background as an investor started in the mid 90's as your typical buy hold rebalance passive index investor. Unfortunately, I was 100% equities using this approach from mid 90's until 2009 and experienced two bad bear markets. As a result, in 2009, instead of continuing with my passive index approach to investing and perhaps dialing down risk from 100% equities to a 50-50 stock-bond mix I decided to turn my portfolio over to a RIA. Needless to say the results with the RIA have not fared well and in hindsight should have stayed the course with my passive index strategy.
I realize it is not wise to constantly change investment strategies however I've recently been contemplating a portfolio overhaul and would like to seek your opinions about it.
One of my biggest concerns is what the future stock and bond market returns will look like over the next 10 years? As you are aware central banks around the world are doing new things. But this is always the case and history doesn't repeat. The problem though is that NOBODY really knows the outcome of all of this. I have seen all sorts of predictions from gold to $10,000 an ounce to LT bonds at 1% to stocks reach new highs as things go back to normal, etc.. All the explanations sound plausible but which prognosticator is correct? Some of these people will be right and look like geniuses while others will be dreadfully wrong and nobody will remember so they'll go on to predict something new. Around it goes.
But no matter what we read one needs to realize that it is very difficult to forecast the future as it is unknown so one needs to identify the true skilled managers (in advance), if that is possible? I am fearful that the Fed's efforts to smoke out the savers into chasing after yield and stock returns is that they are creating another stock market and other risk asset class bubbles. So what exactly is an investor to do? Do you invest 100% in a 50% stock, 50% bond, global passive index buy-hold rebalance portfolio? Do you invest 100% into Harry Browne's Permanent Portfolio consisting of equal weightings to gold, LT treasuries, stock and ST treasuries? Personally I do not think it's prudent to invest all into a single strategy and believe strategy diversification is necessary. So how about investing in great managers and let them make the decisions for us? The trick is to identify the managers with great skill, in advance. Is this possible?
Anyway, what do you think of the following portfolio?
Absolute go anywhere managers:
15% WF Advantage Absolute Return (GMO Team led by Inker)
10% Pimco All Asset All Authority (Arnott)
10% FPA Crescent (Romick)
Hedged Equity:
10% Gateway
Static allocation:
15% Permanent Portfolio
Healthy dose of unconstrained bond or strategic income:
10% Doubleline Total Return
10% Scout Unconstrained
10% Osterweis Strategic Income
10% Templeton Global Total Return, Matthews Strategic Income, Loomis Sayles Strategic Alpha, Met West Total Return or ?
What do you all think? Comments appreciated. Thanks
Heather
Comments
I cannot assess your Wells Fargo fund, nor do I want to. I almost want to say: "Nor do I NEED to do so."
I recognize Arnott's name. Many others in here own his stuff. They can talk to you about the money you have entrusted to him.
FPA Crescent? I have tracked it for a long time. Good reputation. But... It might just be TOO conservative for your needs.
How old are you? What are your goals with all of this money? Is most of this earmarked for retirement? What is your investing time-horizon? Kids? Do you absolutely need current income to be generated from a chunk of your money to cover ongoing monthly expenses?
Better for us to know something more about you, so we're not offering advice in a vacuum. Might as well offer advice for someone else entirely! See what I mean?
Given your circumstances, (spouse? Is spouse working? Are you BOTH working?) --- we can begin to offer you a general plan. You are very frank about getting in and out at the wrong times. Believe me, you're not the only one! And as you've already figured out, it's better to stay away from that RIA you mentioned.
You'll have some catching-up to do, but no need to panic. So, for starters, if you don't mind, please give us more information about YOU, not your money.
It is possible to find out who many of the better fund managers are by looking at their performance numbers. But don't forget about the RISK factor. Some Managers steer funds that are hotter than a pepper sprout, zooming upward. But those funds did not do that LAST year. Nor WILL they NEXT year, either. Go for consistency.
Given that the traditional pension is a dying breed, you'll HAVE TO take on a bit more risk to get anywhere near where you should be, for long-term goals. My own main focus is long-term. I do not panic over day-to-day bumps and grinds. Nevertheless, ya gotta pay attention to what's going on.
Let's see what the others can offer you, now. Keep it simple. "Kiss: Keep it simple, Stupid!" I own just 9 funds and have decided that's as complicated as I WANT it ever to get. So I don't get confronted every day with the prospect of needing to consider a change. My changes are few and deliberate, not REACTIONS. It helps to be counter-intuitive. Is everyone racing to the doors to get out in a panic? Nine times out of ten, you'll do better to hold tight and stay the course---providing you did your homework and chose reliable funds. Through the carnage in '08 and '09, I hung in. I did not exit the Market. I'm glad now!
OK, too much here already. See you later. "Break a leg!"
Thanks for taking the time for the kind reply. I'm 43, married with two young children. We are entering our peak earning years and are saving primarily for retirement which is 20+ years away. I've realized that we cannot tolerate lots of volatility so interested in obtaining a portfolio with 75-80% of upside capture with 50% or less downside capture. Not sure if this is feasible.
I would greatly appreciate any suggestions.
Also, the Wells Fargo GMO fund is managed by Ben Inker with guidance from Grantham. Two of the best investment minds in the biz, IMO. I'm surprised this fund is not discussed more at MFO. WF recently introduced this fund and it is the same as the GMO benchmark free fund that's been around quite some time.
Thanks for the info. You can't stand a lotta volatility. Understood. In your 40s, both working. Children. YOUNG children. They are a blessing, but they are a financial black hole. Don't worry, it's worth it in the end in ways that can't be counted in dollars.
Maximize tax deductions. 401k, 403b, IRA. But you knew that.
Stay mostly in equities, given your age. Others will advise you to hold less international, but I'd go with 50/50 domestic EQUITY and foreign EQUITY.
BONDS: I'd be holding no more than 30% bonds now. You need growth now, not income.
Not too hard to hold a portfolio that is not volatile. If it helps you to sleep, just don't look at it every day. And don't be so diversified that you end-up diluting your earnings. There will be downdrafts, like in the very recent past. That's always going to be part of the game.
Specific suggestions:
DOMESTIC EQUITY................... PRBLX (Large Value) MSCFX (small-cap)
Emerg. Mkt./International..............TBGVX MAPIX and/or MACSX SFGIX
DOMESTIC bonds: DODIX
Overseas bonds: MAINX, FNMIX and/or PREMX
OK. Break that other leg, now. We'll see which other recommendations you get......The folks in here know what they're talking about. If you would spend a bit of time getting familiar with some of the investing nomenclature and concepts, you could construct a portfolio and run it on your own, with little effort.
*Stick with NO-LOAD funds!
I'd suggest Marketfield, although unfortunately that fund's cheaper share class is no longer available.
I'd suggest maybe something along these lines: (just throwing something together.)
10% Wells Fargo Absolute Return
10% Pimco All/All Authority
5% Fidelity Real Estate Income
5% Pimco Commodity RR
10% Vanguard Dividend Appreciation ETF (VIG) or Yackman (YACKX)
15% FPA Crescent
15% First Eagle Overseas
10% Matthews Asian Growth/Income
10% Templeton Global TR
10% Other bond fund - maybe the Osterweis fund.
We live in interesting times - no one knows (even more than usual) what the next 5-10 years may look like. I think you have to have a global multi-asset portfolio and take on a bit of risk.
Are there any companies that you love? It's not a bad idea to invest in what you know and have a couple of long-term individual holdings to follow.
Scott,
You are right about the Wells Fargo- GMO fund. Here is the performance and it declined 12% in 2008. This is what makes me wonder if the team at GMO cannot get it right, who can? I am curious to hear your opinion of the Good Harbor and F Squared funds that I posted separately?
A link to WF
http://www.wellsfargoadvantagefunds.com/pdf/factsheets/FactSheet_AbsoluteReturn_Retail.pdf
http://www.thereformedbroker.com/2013/06/26/chart-o-the-day-the-case-for-real-diversification/
http://www.merriman.com/bestofmerriman/ultimatebuyandholdstrategy/
I think expectations are a big thing and having a long-term view is a bigger thing - I think it's good to have a diversified portfolio in terms of globally and in terms of multiple asset classes. Just know that there will be times when certain things or funds are not doing well and you have to stick with the diversification. In other words, the GMO fund is fine, but while it will feel good to have in bad times when it's losing less than most, it may not seem so great during good times. However, things like Pimco AA/AU and such funds have a place in the portfolio.
You're not going to find things that will make money every year (although some hedge funds have had remarkable records) and I think there is going to be some trial and error to get into a point where you can sleep well at night. However, go too dull and you're - as Max noted - quite possibly not going to reach long-term retirement goals.
I think tangible assets will be a good thing to have in the next decade or two. Real estate, oil wells, pipelines, timber, etc. These assets will be overvalued at times and undervalued and others, but despite periods of love and hate and tapering and not tapering, I just think productive assets (whether it be apartments or infrastructure) will continue to be popular and will hopefully continue to raise rates with inflation. Along the same lines, while people talk about a bubble in yield, I think with the amount of baby boomers reaching retirement age every day, week, month, I think you're going to continue to see a demand for various income products.
I've shifted considerably towards a dividend/income focus and while there's definite volatility, I have to say that it's been exceptionally helpful for my psychology - if I'm getting the yield I'm getting and just continuing to reinvest, if things head lower, I'll just reinvest at lower levels and compound over time. If share prices go down, it's a chance to buy more share/income on sale. Hopefully some of the companies will continue to grow the dividend. The dividend focus has really - for me at least - resulted in less focus on the day-to-day and less stress as a result. It's different for everyone, but that's helped me.
I've looked at the Good Harbor and F Squared funds; they look like funds that increase/decrease exposure based on technicals and other indicators - personally, I am a little sour on these kinds of funds because I just haven't found one that impressed me and have seen a few that have really not done very well and/or disappointed. These two funds may be great, but I would give them time before getting in if they are what they seemed like at first glance.
Pimco EQS Long/Short has worked well and did well in 2008 when it (as a hedge fund, it only became a mutual fund last year) went almost entirely to cash/cash equivalents. However, given the fund's concentrated nature, it may have on/off years. Marketfield is a fund that I like quite a great deal, but unfortunately the cheaper shares were closed to new investors when it was bought by Mainstay.
Scott- I hear what you are saying however investors appear to be in the middle of a desperate search for yield, and this has driven up the price of nearly every asset with a yield perceived to be "safe" and even many assets that aren't safe at all. Not only have "safe" stocks like J&J and Eli gone through parabolic rises over the past year, entire yield oriented sectors like utilities have done the same. In addition, yields in junk are now at historic lows showing that this hunt for yield by investors has reached such a point that the quality of the asset is far less important than the fact it has a higher yield than cash.
In the face of this, the Fed is becoming more aggressive in its pursuit of creating inflation in order to reduce the real debt burden in housing and the government, and it has a long way to go! The markets have a built in expectation of continued monetary expansion by the Fed without significant inflation, which is the main reason the S&P 500 trades at such a high valuation today. However, eventually the Fed will have to reverse its monetary expansion or significant inflation will emerge. Market valuations will fall in response. With the S&P trading with a 10 year P/E above 23, there is far more risk than potential return at this level.
Few markets look attractive at the present save for gold stocks and Japan equity. That's why I think it's prudent to invest in managers increasing cash position so they are nimble enough to buy when valuations decline. Now is not time for buy hold I do not think.
Your remarks are thoughtful and superb. I enjoyed them and I am sure it reflects the feelings of many on the board.
prinx
One thing that helped me through the years was to make sure I was not overpaying Uncle Sam in my income taxes. If you are getting large refunds each spring, adjust your withholding so that you end up close to even. That money can then be used for investing.
But I also would stick with a manager for a long time if he or she has the savvy, no matter what the press or others say. (Being 66 and forcibly semiretired, I recently sold some funds run by Heebner and Gabelli, guys intermittently unpopular and dumped on, funds which for me went from 5k ~>20 years ago to 175k, emphasizing to me the virtue of unwavering holding despite press and scuttlebut; I have invested with Tillinghast as long or longer, same thing, and nobody much mentions Flpsx on MFO.)
Anyway, some others to investigate: Glrbx, Jabax, Mapox, Icmbx (courtesy MFO), and the handy Aor and its siblings. Others have mentioned Prblx but not so much Yaffx. And yes, I have recently been exchanging into Arlsx. Not to clutter your mind, just some alternative thoughts. And another yes, <<30% in bond things for your earning years.
Personally, I believe, M* is not benchmarking this fund correctly so risk/reward comparison group might not be a good fit. I like it. Tillinghast has given small sections of portfolio to other managers in Fidelity and during his sabbatical the team managed it pretty well.
Well, within his share-price constraints.
And the guy is only 55 or so. Long may he and it prosper. It just did a new portfolio total and noticed that it's also my largest $ holding.
M* does a lot that is kinda off the mark. (And although this is OT, have you noticed that the M* fund screener (basic, free) has been broken for the last couple weeks? What the heck.)
Hey David. If you click on the Reply link on the post you are replying to (all posts except the first post of the thread have one), and type your reply in the new text box that shows up, your replies would be properly aligned and a "Reply to ..." would be placed in message. That would make the replies more obvious especially on a large thread.
Re: share-price constraint: I think this constraint is the most meaningless investment objective as stock price alone does not convey much information regarding if the stock is a good investment or not. You can split or re-reverse split to keep the price of a stock in an arbitrary range. Some pension funds will not invest in stocks that are lower than $10 and exchanges also impose restrictions for delisting. Other than price can be anything.
I think the price constraint may not be strictly applied these days. Although the prospectus says "Normally investing 80% at $35 or below", the portfolio has a bunch of stocks that are over that in the top 20. I think the escape word is "Normally" which is not defined. Rather "low-price" is interpreted as cheap in the sense of P/E, P/B, P/S, P/CF these days. Tillinghast does not over pay and I like that.
Was not defending the share price practice or the definition, am not ignorant of how pricing points are achieved, just pointing it out, since you stated all-cap. I do some KII writing as a freelancer, so am aware of common usage of 'normally'. Your point is taken nonetheless, but note that some large Flpsx holdings met the constraint earlier and then rose (behavior over the last year of Seagate, e.g.).
David- any comments?
I might as well throw my $.02 in too. Given that you are over 20 years from retirement, I would be less concerned on the income side and downside capture, unless you simply cannot stand to watch the gyrations. There are many good funds out there that are well run and that can give you long term returns that will make you happy. I'm sure that since you have been reading the many posts on this wonderful site, that you know which ones they are. I can only provide what I have done, which is to divide my portfolio into a combination of stocks, etfs, funds and individual bonds, just one short duration bond fund, MWLDX. I have 15 funds, 16 stocks and 12 etfs with a 38% bonds and cash, 22% funds, 22% stocks and 18% in etfs. My largest holdings are ODVYX (there are numerous classes, this is the institutional share class), PKW (without doubt my favorite etf, it beats the S+ P most years), IYW, VDIGX, McDonalds, and WAGTX. I've rarely seen any but VDIGX mentioned on the board, but these are my favs. I do work with a fee only advisor, but many of my holdings were my choices, we work together as a team. I am newly retired early 60s, but still look for growth, Im planning on being around for at least 25 more years, you cannot grow the portfolio on income funds alone. Hope this helps.
It’s sad that the MFO respondents to your simple question did not satisfy your high aspirations.
You presented a 9 element candidate portfolio and simply asked “what do you all think”? Your solicitation collected over 800 views and numerous opinions from a cadre of persistent MFO contributors. Those are not bad statistics.
The advice proffered was straightforward, well intentioned, and honest. It is a fair representation of the type and style of advice normally delivered by the MFO membership. That membership is a mix of mostly amateur investors sprinkled with a few professionals. To paraphrase from a John Stewart song: “We’re just a lot of people doing the best we could”.
Sorry that the opinions and alternatives seriously offered did not reach your expectations. That happens.
I seldom, if ever, reply to a portfolio construction request because I never understand enough about the goals, the timeframe, the risk profile, the investment experience, the education, the portfolio size, the time commitment, and a host of other unknowns that are necessary to make a meaningful assessment and recommendation. Many MFO participants are much more adventurous in this arena than I am. A portfolio is a very personal matter.
My own interpretation is that, taken as a whole, the responders did make some cogent recommendations that differed substantially from your baseline portfolio. Many alternate allocations and specific fund options were proposed.
For example, several of the replies endorsed a more heavily weighted equity position, like approaching a 70 % commitment. That’s a meaningful departure from your “straw-man” portfolio. Given your specific investment philosophy and circumstances, you get to evaluate and decide if it is a useful recommendation. It was surely offered in good faith.
Based on your exchanges with individual responders, indeed even from your initial submittal, it is clear that you are not a neophyte investor. Your individual fund assessments, your macroeconomic perspective, and your references demonstrate a level of sophistication that is usually only accumulated with considerable market experience and study.
My basis for that judgment is the early reference you made to founder Harry Browne in conjunction with the Permanent Portfolio mutual fund. Harry was a great guy, but likely not 10 % of current investors would recognize him as the inspiration behind that wealth preservation fund concept.
So, I believe the MFO Board tried their absolute best to address your original question. They invested precious time to provide you with a number of viable options. Apparently your hurdle standards are high, especially given the rather casual and informal nature of the Internet.
Your ho-hum summarily dismissal of their postings is unwarranted, unnecessary, and unkind. It was done in far too a cavalier manner. It could dampen any future enthusiasm to exchange investment wisdom with you. I was not surprised by their responses; I was impressed with your exchanges but disappointed in your final reply.
I do hope you remain an active participant in the MFO board discussions. I’m certain you will be rewarded with a few worthwhile perspectives, and more than a few “atta-girl” acknowledgements.
Best Regards.
This is my opinion and my style which may or may not be suitable for you.
MJG,
My apologies if I came across as critical as I certainly appreciate this forum and those that participate. I'm concerned that many investors buy into equities without regard to fundamentals and valuations. As I've stated previously the current environment does not lend itself well to great equity returns.
From the portfolios that I've seen mentioned here I can honestly say IMO that most here would benefit by adopting the PP for 100% of their portfolio however I would not condone going all in on a single strategy whether it be the PP or global stock-bond buy hold (aka Bogleheads).
In fact one segment that I have not seen mentioned here is direct lending. Disclosure: Since I am so concerned about future returns of stock and bonds I have invested 10% of my portfolio in Lending Club (generating 15% returns which I expect to drop to 12%) as well as a few other short term debt private funds that are fully collateralized. This is truly a time for investors to think outside the box and look at alternatives like short term private debt.
Peace
The Good Harbor and F Squared funds have been operating as managed funds for years. The mutual fund is simply a new wrapper but same exact investment strategy. They both excelled in 2008!
Very well done. Astutely observed and diagnosed. Just a touch of the knife but with a excellent chance to fully heal.
Derf
Among the funds you have noted in your discussions; Good Harbor, F Squared and PRPFX, I do believe you have answered your original question regarding a portfolio mix. You have noted your high regard for all of these funds and with the apparent mix of asset areas among these funds; the only decision remaining for your house is to determine the % of allocation.
Fifty percent to PRPFX and the remaining 50% split between Good Harbor and F Squared funds should provide for your requirements with providing a static and dynamic blend for your assets, eh?
Regards,
Catch