Spent some time this weekend reading many of the articles at FundAdvice.com. The website is the educational arm of Merriman Capital Management, an investment management firm that is heavily into DFA funds. They promote no-load, asset-specific, low-cost funds (which often end up as index funds), and have a lot of interesting things to say on both active and passive investing.
I naturally gravitated towards the passive investing articles, and favorite article so far is ‘The ultimate buy-and-hold strategy‘, which agrees with why I want to slice-and-dice my portfolio. I was also intrigued by their ideas for investors with small portfolios. Instead of picking an all-in-one fund or a cash fund until you have enough to invest, they advise you to pick the asset class with the most potential return but highest volatility (U.S. small-cap value to begin with) and build upwards.
I don’t know about that, but I do like their Vanguard model portfolio:
|VANGUARD EQUITY – BUY-AND-HOLD
|12.5%||Vanguard 500 Index||(VFINX)|
|12.5%||Vanguard Value Index||(VIVAX)|
|12.5%||Vanguard Small Cap Index||(NAESX)|
|12.5%||Vanguard Small Cap Value Index||(VISVX)|
|20.0%||Vanguard Developed Markets Index||(VDMIX)|
|20.0%||Vanguard International Value||(VTRIX)|
|10.0%||Vanguard Emerging Market Index||(VEIEX)|
(For bonds, he pretty much recommends a short-term bond fund.)
I don’t know why, but that portfolio above just looks nice. Maybe it’s just the nice even proportions, like the nice 50/50 balance between domestic/international. I couldn’t find why he doesn’t consider REITs as an asset class to be included, though. My current portfolio isn’t as heavy on the international stocks – I agree somewhat with Bogle that nowadays most corporations are multi-national, so you are getting some international exposure even with “domestic” funds. But maybe my 75/25 split is too domestic. And I probably listen to everyone and keep my bonds conservative with the short-term bonds vs. reaching with the intermediate-term ones.
It’s been less than 4 months since setting up this portfolio, maybe I’ll wait until the 6-month mark to start tweaking again As Jack Bogle (and the Prussian General Karl von Clausewitz) says:
“The greatest enemy of a good plan is the dream of a perfect plan.”
As for the active management side, their market-timing articles use a similar technique to the one proposed in “Yes, You Can Beat The Market!” by Stein and Demuth [my book review]. But instead of comparing against a 15-year moving historical average, they propose a much shorter timeframe of 100 to 200 days. The method still suffers from the same drawbacks however – you have to calculate that moving average constantly, you have to be in cash for extended amounts of time, and stick to the plan during long periods of underperformance. It just takes way too much effort and discipline with not enough payoff for me.