Model Portfolio #6: Merriman’s FundAdvice
(This is the sixth in my series of Model Portfolio Comparisons.)
Paul Merriman also runs his own money management firm. He also writes at FundAdvice.com, which has a lot of interesting articles about investing in no-load mutual funds, with and without market timing. Here is the breakdown of their “Vanguard balanced buy-and-hold portfolio”.
Asset Allocation For 60% Stocks/40% Bonds
6% S&P 500
6% US Large Value
6% US Small
6% US Small Value
6% REIT
12% International Developed (Pacific + Europe)
12% Int’l Value
6% Emerging Markets
20% Intermediate Term Bonds
12% Short Term Bonds
8% Inflation-Protected Securities (TIPS)
They have other suggested buy-and-hold portfolios for different brokerages, which vary slightly but are still very similar. I find it interesting that the stock portion is perfectly 50/50 domestic/international.
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February 3rd, 2007 at 7:16 am
Does Vanguard’s international value fund actually give you international small/mid cap exposure?
It’s a huge problem w/ index funds and I’m not sure if that’s correct.
February 3rd, 2007 at 7:49 am
Thanks this realy helps me out I was looking for a no load plan. Now if I could just sell all this real-estate. What firm do you keep your accounts at?
February 3rd, 2007 at 11:38 am
No, I don’t think VTRIX does. Their International Explorer fund is closed to new investors. Merriman’s other portfolios do advocate Int’l small, so that’s why I included it on the pie chart as an alternative option.
You’re right, it’s very hard to find an Int’l Small index fund, just like it’s really hard to find a Micro-cap index fund. Maybe we need less index fund investors
February 7th, 2007 at 12:20 pm
The S&P 500 is a strange choice for this portfolio. They already have Large Cap Value, so why get a Large Cap Blend? I would think Large Cap Growth would make more sense if the goal is to diversify.
February 9th, 2007 at 11:11 pm
I think Fidelity offers FSCOX and FISMX as Fidelity Internation Small cap funds. FSCOX was open when I invested last year.
February 16th, 2007 at 2:44 pm
The goal is not to diversify but to overweight in Value because Value has historically outperformed Growth by 4%-5%.
March 7th, 2007 at 4:26 pm
In a recent post (link), Paul Merriman advised a reader to use Wisdom Tree’s Internatinional Small Cap Dividend fund (DLS) which is an exchange-traded-fund for the all important International Small/Mid Cap/Value asset classes. It’s style box looks like this:
01 00 01
26 28 13
17 11 04
It’s 62.32% Mid/Small Value and 36.08% Mid/Small Growth. It’s an excellent replacement for Vanguards (now closed) International Explorer (VINEX) fund.
If you purchase DLS through Vanguard’s Brokerage Services (VBS), you can have them set it up so that dividends are automatically reinvested without incurring a transaction cost for reinvesting which is a plus.
To get around rebalancing, I paired DLS with Forward International’s Small Companies (PISRX) fund (which is NTF through VBS). I use a ratio of 10-33% PISRX & 67-90% DLS for the International Mid/Small Value/Core asset class. I increase/decrease shares of PISRX if I need to rebalance my portfolio.
For the US micro cap, I use John Montgomery’s Bridgeway Ultra-Small Company Market (BRSIX) in combination with Vanguard’s NAESX for my small cap allocation.
The rest of my portfolio is based on the Buy-and-Hold Vanguard Strategy that Paul lists on his website. In other FundAdvice articles Paul suggests going outside of Vanguard to fill the International Small Cap asset classes since VINEX closed.
He added REIT’s recently but in the article mentioned that if you have a well diversified portfolio his research shows that in the 1970-2006 year period REIT’s only added 0.03% to their widely diversified portfolio.
I also substitute VGTSX (Vanguard Total Stock Market Index) in-lieu of VDMIX (Vanguard Developed Market Index) & VEIEX (Vanguard Emerging Market Index) since VEIEX charges a 0.5% Purchase/Redemption fee (that’s not a load but still it’s 0.5% out of your pocket). That works out well since VGTSX has 58.4% Euro, 26.2% Pacific, & 15.4% EM and VTRIX has 58% Euro, 22.4% Pacific & 17.2% EM & 2.4% other (i.e., almost evenly matched) and you’re not short in EM in this portfolio.
FYI. VINEX’s style box looks like this:
03 03 01
20 26 21
10 08 09
The combination of (25% PISRX and 75% DLS) style box looks like this:
01 00 01
24 26 19
14 11 05
The combo is similar to VINEX with a little more value & SC exposure which are good things.
September 11th, 2007 at 3:51 pm
I put together an excel spreadsheet to help me rebalance my portfolio to be inline with merriman’s suggested portfolio.. If you’re interested, it’s available here: http://helix.fantasyland.com/gravybt/
September 18th, 2007 at 9:31 pm
In the errata for Paul’s book “Live it up without outliving your money”, Paul offers two alternatives to investors who don’t have access to the International Small Cap/Value funds: (1) Reduce International equities from 50% to 30% or (2) add a fund outside of Fidelity. In a blog at his website, he answers a readers question for Vanguard by letting them know that they could add the Wisdom Tree DLS ETF. In an earlier post, I suggested pairing DLS with PISRX to get around the rebalancing issue and that has worked well for me. It’s odd that his Vanguard Portfolio still shows a 50% International Equity position despite having an International Small Cap/Value fund. Hopefully he updates it one day or adds a footnote.