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Fund selection for 2003 Portfolio - my choices (Link to original thread reproduced here)

Fund selection for 2003 Portfolio - RRK Choices - Can be for any time period :-)

From: RRK (Original Message) Sent: 9/28/2003 12:12 AM
60/40 allocation portfolio recommendations.

One fund portfolio:
Vang STAR 100%

Two fund portfolio:
TSM 60%
ST corp 40%

Three fund portfolio:
TSM 40%
S V 20%
ST corp 40%

Four fund portfolio:
TSM 30%
S V 10%
International 20%
ST corp 40%

Five fund portfolio:
TSM 30%
S V 10%
International 20%
ST corp 25%
TBM 15%

Six fund portfolio:
TSM 30%
S V 10%
International 20%
ST corp 20%
TBM 10%
Inflation protected 10%

Seven fund portfolio:
TSM 25%
S V 8%
VGSIX 7%
International 20%
ST corp 20%
TBM 10%
Inflation protected 10%

Eight fund portfolio:
TSM 25%
S V 8%
REIT 7%
International 16%
Intl explorer 4%
ST corp 20%
TBM 10%
Inflation protected 10%

Nine fund portfolio:
TSM 25%
S V 7%
REIT 4%
Precious Metal 4%
International 16%
Intl explorer 4%
ST corp 20%
TBM 10%
Inflation protected 10%

Ten fund portfolio:
TSM 25%
S V 7%
REIT 4%
Precious Metal 4%
International 12%
Intl explorer 4%
India Nifty Index (NSE50) 4%
ST corp 20%
TBM 10%
Inflation protected 10%


Stocks
Total Stock = VTSMX, VTI
International = VGTSX, EFA
Small value = VISVX, IJS
REIT = VGSIX, IYR

Bonds:
ST corp = VFSTX
Total Bond = VBMFX
Inflation protected = VIPSX, I bonds, TIPS

Balanced:
Vang STAR = VGSTX

From: indian Sent: 9/28/2003 12:22 AM
What is S V ?

From: sesh Sent: 9/28/2003 5:39 PM
RRK
that was very useful. could you also mention the criteria to have a 1fund portfolio or a 10 fund portfolio. based on the available finance? whats the cutoff amt recommended for each case?

thanks

From: ss180r2i Sent: 9/29/2003 7:35 AM
RRK
Your suggestion is very helpful for all of us.
I have a question though, about the location of the funds you had in mind when you created this list.
For eg. I am in assumtion that Small Cap Value (VISVX) is better to be in Tax deffered A/Cs and as well REITs(VGSIX).
Will you shed some light on this ? I also assume Bonds are going to Tax deffered A/Cs always !
TIA
ss180r2i

From: RRK Sent: 9/29/2003 8:26 AM
1. yes, SV is small cap value
2. asset size and fund count : There is no mathematical relationship there. One can start diversifying once the asset size grows more than 20-25K. Until then STAR is fine. 25K$-Bill Gates$ can fit in any of this choices. Most of us are well off with 5-6 fund choices.
The number of funds chosen should be based on your goals, time horizon, risk tolerance, investment knoweledge, time available to manage etc.,
3. better to put the tax efficient funds in taxable accounts and tax inefficient funds in tax exempt accounts like IRA and 401k
4. Usually bond funds, REIT, Value funds are tax inefficient. I bonds are good in taxable account.

From: vinod281 Sent: 9/29/2003 11:58 AM
RRK,

In your three fund potfolio I think you meant 20% international and not SV.

REIT only in tax deferred and if cannot, would increase amount in SV a little and avoid REIT.

With the new indexes Vanguard small value has a very high % of REIT, something like 15% I think.

Vinod

From: patnababu Sent: 9/29/2003 12:07 PM
ST Corp = Short term corporate bonds ???
patnababu

BTW,
Please name a Vanguard fund which represens the ST Corp?
patnababu

From: vinod281 Sent: 9/29/2003 12:25 PM
ST Corp - VFSTX Vanguard Short term corporate bond

Vinod

From: RRK Sent: 9/29/2003 12:35 PM
vinod #7,
you are right, sorry for the typo.

Three fund portfolio:
TSM 40%
International 20%
ST corp 40%

From: learn Sent: 9/29/2003 12:52 PM
Very helpful. Such "summaries" help !

From: das Sent: 9/30/2003 12:57 PM
Attached is a sheet, that shows the returns for the top 9 plans, did not have NITFY index returns, but looks like Vanguard Star fund is the Star beats others in 3, 5, 10 year category.

r2i_doc.xls

From: RRK Sent: 9/30/2003 1:14 PM
Das,
It is not surprising.
The diversification only reduce the risk and not return. To increase the return we should change the AA from 60/40 to 70/30 or 80/20.

Thanks for your time in analyzing these portfolio options. Appreciate it very much.
International explorer and Precios Metals have a large impact in AA. This is why I dont want them to go beyond 4%.

Formula in D63 could be simplified to be
"=SUMPRODUCT(D54:D62,$B$54:$B$62)/100" and copied across from D63 to H63. It is a simple way to compute the same.

From: rdeshp72 Sent: 9/30/2003 1:47 PM
Am I missing something here.
All the funds which are mentioned here have returned nothing (close to 0% ore less) in last five years. Why will someone choose these funds?

From: RRK Sent: 9/30/2003 2:02 PM
#16, so, tell us which funds we should be investing now ?
or you can join the discussion here,
why stock picking is not good investment ?

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From: rdeshp72 Sent: 9/30/2003 2:56 PM
reco.s:

VGHCX
ETHSX
PARNX
MISVX
SAGYX

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From: RRK Sent: 9/30/2003 2:59 PM
Interesting.
How do you go about selecting these funds ?
Is this based on past performance or future performance ?

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From: rdeshp72 Sent: 9/30/2003 3:09 PM
I have these for past 5-10 years.
Good returns except MISVX.
Selections were based on a fin. advisor from ML.

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From: Desibabu19 Sent: 9/30/2003 4:13 PM
Oh my gosh, my jaw just dropped.

rdeshp72, I hope you know how much load and annual expenses you are paying.

Forget the returns of these funds, I can double my money at balckjack in a few minutes. That easily beats these funds. The point is the RISK one takes and I hope you understand the risk you are taking. Two of your five funds are in health sector. Sector funds are risky because your fortunes are now controlled by the health of one sector, in this case health care.

on MISVX alone, even though there is no load, on a 10000 investment your expenses after 10 years are $3964 - do you understand the significance of that?

I would have suggested to you to read the AAP links and Vinod's article on the lef t, but for you that will not be sufficient. Read Bogle's "Common Sense on mutual Funds". You will be an informed investor.

Desi

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From: RRK Sent: 9/30/2003 8:10 PM
rdeshp,
I feel sorry for you. Time to find a new FP.

Is he a FP or Health professional ?

You can find Pfizer, Johnson & Johnson, Amgen in all the porfolios. He might have sold them when Health sector was hot. Now when it is cold, you are holding them.

All your funds are very narrow and undiversified. You would be better of holding few stocks than holding these funds ? why ? there is no front load in buying stocks and no expense ratio to pay ?

There is one fund with just 11 stocks, with front load of 3.75%. Only a kinder garden kid would buy that. PARNX.

Have you heard about M* box like below. Check all your funds are shown in one box. Rest of the 8 boxes are empty. With all these funds you have only Large growth exposure.

Morningstar Style Box





**RRK

From: RRK Sent: 9/30/2003 8:13 PM
Vanguard Health Care VGHCX Total Number of Stock Holdings 104 Annual Turnover % 25
Total Number of Bond Holdings 0 Yield % 0.82
% Assets in Top 10 Holdings 37.12



Eaton Vance Worldwide Health Sci A ETHSX
Front load:5.75% Expense ratio : 1.67%
Total Number of Stock Holdings 36 Annual Turnover % 24
Total Number of Bond Holdings 0 Yield % 0
% Assets in Top 10 Holdings 53.40

Parnassus PARNX

Front load :3.75%, Expense :1%

Total Number of Stock Holdings 11 Annual Turnover % 142
Total Number of Bond Holdings 0 Yield % 1.05
% Assets in Top 10 Holdings 20.74




MFS Strategic Value I MISVX

Front load :none, Expense :1.1%

Total Number of Stock Holdings 57 Annual Turnover % 78
Total Number of Bond Holdings 0 Yield % 0
% Assets in Top 10 Holdings 31.05

Smith Barney Aggressive Growth Y SAGYX

Front load :none, Expense :0.82%

Total Number of Stock Holdings 73 Annual Turnover % 1
Total Number of Bond Holdings 0 Yield % 0
% Assets in Top 10 Holdings 46.62


There is only one good fund - Vanguard health but it is too risky too hold more than 3% in a portfolio.

One way you can save money is just keep visiting the board and accumulate some knoweledge to counter your FP in next session. We have to save one Indian at a time !!

**RRK

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From: sesh Sent: 9/30/2003 10:07 PM
pardon my ignorance. why again would one want to hold more funds when STAR fund seems to perform better than the rest and with less effort to maintain.

if we have more than one fund in the portfolio, wouldn't the sum of the expense ratios cost+mgmt fees almost add up the cost of holding just STAR fund? there may be only a marginal difference isn't it?

could someone please clarify why is STAR better only for portfolios ~< 20K

thanks
Sesh


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From: Desibabu19 Sent: 9/30/2003 10:19 PM
Sesh,

Star is not optimal from a tax perspective. Star has a mix of equities and bonds. From an optimal tax perspective,you want current income funds such as bonds in tax deferred accounts and equity funds in which you pay capital gains only at the time of sale in taxable accounts. Thsi is the reason you want multiple funds placed appropriately in optimal vehicles.

When the total portfolio is small, the minimum investment requirement violations and charges for that can cost money and it can get difficult to do proper AAP if the small portfolio is distributed between taxable and non taxable. A Star fund in that case is a much better choice.

Desi

Parnassus fund is sitting with 78% of portfolio in cash. So that fund is market timing like crazy. Cash must be earning 0.5% and charging something like 1% plus in expenses.

Rdeshp - Do read what has been suggested to you and in the long run you will be better off. Return is one part of the equation and risk is another.

Desi

From: Old-spice2 Sent: 9/30/2003 11:08 PM
Parnassus PARNX has 11 funds and turnover of 142%. Looks like the fund manager is a day trader. Any $$ leftover for the investors after the bid/ask spread and transaction fees?

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From: srini234 Sent: 10/1/2003 2:17 AM
RRK et all

There are more experts than me here. Few interesting observations.

1) How come no one talks about Vanguard Life strategy funds (growth/moderate/conservative)
2) Scot burns preferred approach , which works is
- VBMFX 50%
- TSM 50%

BTW, what is wrong with ST corp. I have been investing with ST corp.... I don't see much of happenings in ST corp. Is it due to Instituation is downgraded on and off by moody's others or S&P status.

srini


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From: RRK Sent: 10/1/2003 11:54 AM
srini,
I am a big fan of LS series. My favourite was LS (Mod Growth).
Later, I dropped that and started recommending Vang STAR. There was an exchange between me and Vinod on this. Finally Vinod convinced me STAR is better option for beginners. 1) more value tilt 2) no dynamic allocation - LS series disadvantage is Asset Allocation fund. This was added by Bogle. I guess it is a mistake. Eventhough the fund performed better than what was expected.

Scott Burns approach is good and suitable for most of us. It is called couch-potato portfolio. Just 2 funds in Vangaurd and balance every year. Gives you more time in couch to watch TV. I am a big fan of him.

Couple of calls made by TBM manager went wrong. I lost interest in that fund. I think ST corp is better in many aspects.

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From: bsirpatil Sent: 10/1/2003 1:30 PM
Hello,

Do take a look at DODGX. Its large cap value fund.
I find DODGX has good returns and low expense ratio and very good 10 year history. How does it compare with vang star?

brijesh

From: Luvi Sent: 10/1/2003 2:30 PM
RRK,

How do you rate VBISX compare to VFSTX. Would it not be more viabel to invest in ST bond index ? I am liitle confused here now.

Luvi

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From: vinod281 Sent: 10/1/2003 3:21 PM
brijesh

Dodge and Cox is one of the best funds around and have only good things to say about the management. This is infact an example of how an active fund should be run. Low expenses, low turnover, a team management approach, a consistent philosophy and ethical behavior.

The problems are

1. Taxes. Active management by definition incurs turnover that result in taxes each year - even a good fund like this causes a drag of 1%-1.5% on average per year over an index fund.

2. Size. This fund is so successful that it now around $20 billion. So for the company to invest say 2% of the funds in an attractive opportunity would mean buying $400 million in stock of a single company. Since it is diffcult to buy a large amount of stock without driving up its price the fund is limited to small set of large companies only. A 5% of total company stock is a reasonable limit so the fund is limited to companies with market cap above $8 billion. A related problem is the performance drag caused by fund buying and selling such large amounts which impact the price of the stock.

3. Risk. This fund holds only 80 stocks, while this would mitigate a lot of the unsystematic risk, it is still much more than an index fund.

4. Monitoring. As with all active funds you need to monitor the fund for consistency periodically - no buy and forget. What if the managers suffer bad health/accident? What if the fund company is sold to a fidelity or merril lynch, etc?

5. Tracking error. Almost all funds periodically go through poor performance you should have the faith to stick to the fund and not panic.

In light of all these I would avoid this.

Vinod

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From: vinod281 Sent: 10/1/2003 3:35 PM
srini,

Asset Allocation fund in LS series has the flexibility to go from 0% stocks to 100% stocks. There are several times when it was at 100% stocks so the investor is exposed to a wide range of stock risk. One never knows if the allocation is 50/50 stock/bond or 75/25 stock/bond. Asset Allocation fund consistitutes 25% of the LS fund.

Correction: DODGX is $15 billion not $20 billion as of 6/30.

Thanks

Vinod