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Post by klucsamj on Aug 19, 2022 22:16:50 GMT
I have read FD's freeform Generic comments thread and on his advice to his wife when he can no longer manage their portfolio. He uses 3 funds VWINX, VWEHX, VSMGX at around 40
%,30%,30%. I put these in Portfolio visualizer and over 27 years of data portfolio had a CAGR of 7.38%, SD of 6.95, maxDD of -25.05%, Sharp of .75. I put several other funds He has advocated using through backtesting found 2 funds PRBLX and DODIX in a 30%, 70% would have yielded the follwing: CAGR 7.40%, SD 5.36%, MAX DD of- 12.82% and Sharp of .96
FD you always advocate using less rather than more funds , what do you think of the two funds I have shown above as another possibility?
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Post by FD1000 on Aug 26, 2022 22:01:08 GMT
I have read FD's freeform Generic comments thread and on his advice to his wife when he can no longer manage their portfolio. He uses 3 funds , VWEHX, VSMGX at around 40 %,30%,30%. I put these in Portfolio visualizer and over 27 years of data portfolio had a CAGR of 7.38%, SD of 6.95, maxDD of -25.05%, Sharp of .75. I put several other funds He has advocated using through backtesting found 2 funds PRBLX and DODIX in a 30%, 70% would have yielded the follwing: CAGR 7.40%, SD 5.36%, MAX DD of- 12.82% and Sharp of .96 FD you always advocate using less rather than more funds , what do you think of the two funds I have shown above as another possibility? I explained it on my site ( site) In order to make my wife investment decisions easier, I set up a written plan for her to invest in only 3 funds. I only trust 2 choices indexes + Vanguard funds managed by Wellington. Wellington management is the oldest, it's conservative, team style and not one dominate manager, with very cheap expense ratio.
All you got to do now is find managed funds with expense ratio that matches these 3 funds, which is under 0.2%, considering all 3. |
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Post by klucsamj on Aug 29, 2022 21:16:31 GMT
FD:
I looked at Vanguard funds managed by Wellington and found these 3 Funds outperformed the Mrs. FD Portfolio. VGHCX,40% , VFIIX 55%, VGENX 5%, over the 27 years of data in Portfolio visualizer the above outperforms the VWINX, VSMGX, VWELX at roughly the same expense. .26 for VGHCX,VFIIX, VGENX versus .20 MRS. FD Portfolio Statistics are as follows:
Portfolio Returns
Portfolio performance statistics
Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio Market Correlation
Portfolio 1 $10,000 $110,888 9.11% 6.10% 32.21% -5.56%. -12.28% 1.13 1.89. 0.74
Portfolio 2 $10,000 $71,206 7.38% 6.95% 25.69% -18.27%. -25.05%. 0.75 1.12. 0.88
An interesting note if you substitute VDIGX in place of VGHCX( VDIGX @ 45%) you'd still outperform the MRs FD portfolio as follows at .24 ER : CAGR 7.46%,Final Balance $72,706,Sharpe .82
Portfolio 3 $10,000 $72,706 7.46% 6.43% 25.10% -10.04% -17.15% 0.82 1.32 0.80.
The use of VDIGX is less of a sector portfolio.
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Post by FD1000 on Aug 31, 2022 20:50:35 GMT
FD: I looked at Vanguard funds managed by Wellington and found these 3 Funds outperformed the Mrs. FD Portfolio. VGHCX,40% , VFIIX 55%, VGENX 5%, over the 27 years of data in Portfolio visualizer the above outperforms the VWINX, VSMGX, VWELX at roughly the same expense. .26 for VGHCX,VFIIX, VGENX versus .20 MRS. FD Portfolio Statistics are as follows: Portfolio Returns Portfolio performance statistics Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio Market Correlation Portfolio 1 $10,000 $110,888 9.11% 6.10% 32.21% -5.56%. -12.28% 1.13 1.89. 0.74 Portfolio 2 $10,000 $71,206 7.38% 6.95% 25.69% -18.27%. -25.05%. 0.75 1.12. 0.88 An interesting note if you substitute VDIGX in place of VGHCX( VDIGX @ 45%) you'd still outperform the MRs FD portfolio as follows at .24 ER : CAGR 7.46%,Final Balance $72,706,Sharpe .82 Portfolio 3 $10,000 $72,706 7.46% 6.43% 25.10% -10.04% -17.15% 0.82 1.32 0.80. The use of VDIGX is less of a sector portfolio. Let me guess, you looked for the best funds for the last 25-30 years. Let's try again, all funds, especially stock funds, must must be WIDE RANGE funds, no sector/categories allowed. No reasonable financial adviser will invest 40% in one stock category for the next 20-30 years. Remember, as long as I can do it, I don't use any of the above longer term. Since 2000, only great risk-adjusted funds, and I don't care about the expense ratio up to a reasonable %. |
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Post by Mustang on Sept 1, 2022 10:38:08 GMT
I am also moving to three funds but I have chosen funds with a longer history than 27 years. 27 years only includes a long term boom not a long term bust like the stagflation years of the 70s. No one expects the next 30 years to be like the last 27. I have read that the period 1990-2020 would have supported a 7.5% initial withdrawal. Those using Monte Carlo simulations, like Morningstar, are suggesting that moving forward a 3.3% initial withdrawal is more appropriate because of low bond returns. That is a huge difference.
Averages cannot be used during the withdrawal phase. Long term averages do not calculate in the sequence of returns. Breaking a 30-year retirement into thirds, returns of 5%, 10% and 15% will have a completely different outcome than returns of 15%, 10% and 5% even though the overall average is the same. The first 10 years are the most critical. Low returns during the first 10 years can cause a retirement portfolio to fail because the retiree has to withdraws living expenses even when returns don't support it. Inflation is also a portfolio killer. Like sequence of returns the first 10 years are critical because larger and larger withdrawals cause the balance to drop even faster.
When Bengen wrote his 1994 paper retirement advisors were suggesting a 7% or more initial withdrawal based upon averages. Later studies have shown that with a 50/50 stock to bond asset allocation that had around a 25% chance of success. (Wade Pfau's 2018 update of the Trinity study.) With a 75/25 asset allocation the chances of success went up to 48%. Still not very good.
Based on the worst case scenario Bengen's conclusion was that the initial withdrawal should be between 4% and 5%. (His point estimate was something like 4.15%.) This was confirmed by the 1998 Trinity study and it became known as the 4% rule. Based on historical data these studies determined that the worst time to retire wasn't 1929 but 1968. Many now believe that our future could be worse than the 70s because of low bond returns. That's why Morningstar reduced the initial withdrawal from 4% to 3.3% for a 30-year retirement.
I believe the withdrawal method should determine the funds selected. There are fixed withdrawal methods that provide a stable income and variable or dynamic methods that protect the portfolio but give less than planned income half the time. The 4% rule is an inflation adjusted fixed withdrawal method. Required minimum distributions (RMDs) are a variable withdrawal method. Fixed withdrawals should be used for needs and variable withdrawals should be used for wants. Other income sources are important when picking a withdrawal method. Social security, pensions and annuities provide a stable income lessening the need for a fixed withdrawal method.
The three funds I plan to use are American Funds Balanced Fund, Vanguard Wellington and Vanguard Wellesley. RMDs will be used to take money from AF Balanced Fund (traditional IRAs) which has an asset allocation of around 65/35. Wellington and Wellesley are in taxable accounts. Investing equally in both funds should provide a 50/50 asset allocation. The 4% Rule withdrawal method will be used. The use of balanced funds reduced the need for annual re-balancing. Professional managers will do that.
I have tested Wellington and Wellesley over two 30-year retirement periods; 1971-2000 and 1991-2020. Wellesley outperformed Wellington during the first and Wellington outperformed Wellesley during the second. The future is unknown that is why I decided equal investments in both was best. The cash withdrawal will come from the fund with the highest end of year balance. Testing showed the funds automatically re-balance every two to three years.
There are a lot of factors that go into picking funds for someone who doesn't trade. There may be funds that have recently outperformed the funds I selected but how did they do during the stagflation years? History doesn't repeat itself exactly the same but looking at how a fund's management philosophy performed during the worst retirement years is better than throwing darts in the dark and hoping for the best.
Bottom line: The fund with the highest average return is not always the best fund. The best funds depend upon the retiree's specific goals and needs.
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Post by FD1000 on Sept 1, 2022 13:18:04 GMT
Mustabg,
I checked ABALX vs VWELX since the 70s for every decade, and I don't see any significant difference. In most cases, VWELX had better performance. ABALX is more flexible but it doesn't guarantee better results. My wife told me she wants to learn. In that case, I'm telling her to use PRWCX, as long as David R. Giroux is in charge. My LT best ideas are PRWCX for moderate allocation and VWIAX/VWINX for conservative allocation, but I still want my portfolio to have only about 40% (maybe 45%) in stocks.
I could be surprised and my wife may like my system. She loves processes.
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