Post by Admin/YBB on Oct 10, 2023 18:39:21 GMT -6
Portfolio Allocation With 3 ETFs
There is a diverse mix of stock and bond ETFs available now that can be used for portfolio allocations with only 3 ETFs. Select one from each group and use appropriate allocations. Start with nominal-equity first and then refine with effective-equity. Use some rebalancing strategy - either related to significant deviations from the desired allocations or annual rebalancing; frequent rebalancing isn't recommended. Note that there are 2 bond groups, the ultra short-term bond ETFs and multisector bond ETFs; these together cover a wide range of bonds (sovereigns, corporates, HYs, EMs) and also a range of duration. Unfortunately, backtesting (with Portfolio Visualizer, etc) isn't possible as some of the ETFs are quite new, but the related categories have existed for a long time; sample PV runs from 1/1/12 are possible with VFINX, PIMIX, FCNVX (see Example below).
Group 1 - Stock
SP500 IVV, SCHB, SPY, VOO
SP500 Equal-Weight RSP
Large-Cap Dividend/Value SCHD, TCAF (active)
Group 2 - Ultra Short-Term Bond (Active) ICSH (active), JPST (active), USFR
Group 3 - Multisector Bond BINC (active), PYLD (active)
This slice-and-dice with 3 ETFs can be a good alternative to traditional allocation/balanced funds or multi-asset funds. Dozens of combinations (42 distinct, with range of allocations for each) are possible to accommodate a variety of investment styles. On the other hand, Bogleheads portfolios of total stock market and total bond market (really, total investment-grade bond market) are too constrained in style.
Example - PV Run from 1/1/12 - 9/30/23, PV LINK.
Portfolio 1 - 62% VFINX, 20% PIMIX, 18% FCNVX; nominal-equity 61.56%, effective-equity 66.67%; bonds-HY 16.79%; SWR 15.15%, PWR 6.77%
Portfolio 2 - VWENX; nominal-equity 63.40%, effective-equity 66.95%; bonds-HY 0.00%; SWR 14.67%, PWR 5.87%
Portfolio 3 - VTMFX; nominal-equity 48.09%, effective-equity 54.86%; bonds-HY 3.69%; SWR 13.51%, PWR 4.82%
Benchmark (SP500) - nominal-equity 100%, effective-equity 100%; bonds 0.00%; SWR 17.98%, PWR 9.76%
SWR - Safe Withdrawal Rate as defined by PV
"Safe withdrawal rate is the percentage of the original portfolio balance that can be withdrawn at the end of each year with inflation adjustment without the portfolio running out of money (dollar amount withdrawal)."
PWR - Perpetual Withdrawal Rate as defined by PV
"Perpetual withdrawal rate is the percentage of portfolio balance that can be withdrawn at the end of each year while retaining the inflation adjusted portfolio balance (percentage withdrawal)."
Edit/Add. PV Run with Portfolio 3 as PRWCX,
PRWCX; nominal-equity 60.47%, effective-equity 68.83%; bonds-HY 60.66%; SWR 16.31%, PWR 8.26%
www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=3jeYbAIKicJiIkw7MfDMEq
Edit/Add2, 10/16/23. Additional PV runs in the context of an approximation of PRWCX with TCAF + PYLD + USFR are found at MFO. Evaluations are with similar mutual funds that have existed longer.
MFO1, @msf www.mutualfundobserver.com/discuss/discussion/comment/168537/#Comment_168537
MFO2, @bee www.mutualfundobserver.com/discuss/discussion/comment/168543/#Comment_168543
There is a diverse mix of stock and bond ETFs available now that can be used for portfolio allocations with only 3 ETFs. Select one from each group and use appropriate allocations. Start with nominal-equity first and then refine with effective-equity. Use some rebalancing strategy - either related to significant deviations from the desired allocations or annual rebalancing; frequent rebalancing isn't recommended. Note that there are 2 bond groups, the ultra short-term bond ETFs and multisector bond ETFs; these together cover a wide range of bonds (sovereigns, corporates, HYs, EMs) and also a range of duration. Unfortunately, backtesting (with Portfolio Visualizer, etc) isn't possible as some of the ETFs are quite new, but the related categories have existed for a long time; sample PV runs from 1/1/12 are possible with VFINX, PIMIX, FCNVX (see Example below).
Group 1 - Stock
SP500 IVV, SCHB, SPY, VOO
SP500 Equal-Weight RSP
Large-Cap Dividend/Value SCHD, TCAF (active)
Group 2 - Ultra Short-Term Bond (Active) ICSH (active), JPST (active), USFR
Group 3 - Multisector Bond BINC (active), PYLD (active)
This slice-and-dice with 3 ETFs can be a good alternative to traditional allocation/balanced funds or multi-asset funds. Dozens of combinations (42 distinct, with range of allocations for each) are possible to accommodate a variety of investment styles. On the other hand, Bogleheads portfolios of total stock market and total bond market (really, total investment-grade bond market) are too constrained in style.
Example - PV Run from 1/1/12 - 9/30/23, PV LINK.
Portfolio 1 - 62% VFINX, 20% PIMIX, 18% FCNVX; nominal-equity 61.56%, effective-equity 66.67%; bonds-HY 16.79%; SWR 15.15%, PWR 6.77%
Portfolio 2 - VWENX; nominal-equity 63.40%, effective-equity 66.95%; bonds-HY 0.00%; SWR 14.67%, PWR 5.87%
Portfolio 3 - VTMFX; nominal-equity 48.09%, effective-equity 54.86%; bonds-HY 3.69%; SWR 13.51%, PWR 4.82%
Benchmark (SP500) - nominal-equity 100%, effective-equity 100%; bonds 0.00%; SWR 17.98%, PWR 9.76%
SWR - Safe Withdrawal Rate as defined by PV
"Safe withdrawal rate is the percentage of the original portfolio balance that can be withdrawn at the end of each year with inflation adjustment without the portfolio running out of money (dollar amount withdrawal)."
PWR - Perpetual Withdrawal Rate as defined by PV
"Perpetual withdrawal rate is the percentage of portfolio balance that can be withdrawn at the end of each year while retaining the inflation adjusted portfolio balance (percentage withdrawal)."
Edit/Add. PV Run with Portfolio 3 as PRWCX,
PRWCX; nominal-equity 60.47%, effective-equity 68.83%; bonds-HY 60.66%; SWR 16.31%, PWR 8.26%
www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=3jeYbAIKicJiIkw7MfDMEq
Edit/Add2, 10/16/23. Additional PV runs in the context of an approximation of PRWCX with TCAF + PYLD + USFR are found at MFO. Evaluations are with similar mutual funds that have existed longer.
MFO1, @msf www.mutualfundobserver.com/discuss/discussion/comment/168537/#Comment_168537
MFO2, @bee www.mutualfundobserver.com/discuss/discussion/comment/168543/#Comment_168543