Friday, January 24, 2014

150 Funds

White Coat Investor Dr. Jim Dahle writes about how he gave up making large donations to investment grifters and started handling his own investments.

... I am a practicing, full-time, board-certified emergency physician just a few years out of residency. Although I’ve always been interested in personal finance and investing, I really started diving into the field as a resident when I finally got sick of financial professionals ripping me off. In fact, most of my first few encounters with financial professionals ended badly for me. ...

If nothing else, my 24 years of formal education taught me how to teach myself new things. I searched the internet, participated in forums, and visited the library and used book store across the street from my home. I talked to everyone I knew who knew anything about money. I read book after book, some good, many bad. Eventually I realized this financial stuff is far simpler than practicing any medical specialty. Unlike medicine, however, there is no one out there willing to teach it to you without sending you through the school of hard knocks. As a general rule, those who know even a little of this stuff use their superior knowledge to take advantage of you to make a buck.

It is your job to determine how much income to save in any given year. It is your job to decide how to allocate your assets to reduce risk of loss and maximize rate of return. It is your job to negotiate the salaries of those who perform financial tasks for you. And it will be your job to deal with the consequences of any financial catastrophes caused by your own bad decisions or ill luck. ...

As Dr. Dahle explains, investing doesn't have to be complicated. And he walks us through a wide range of different do-it-yourself investment plans:

150 Portfolios Better Than Yours

Portfolios 10-21: Target Retirement 2025 Fund

100% Vanguard Target Retirement 2025 Fund

Don’t like a static asset allocation? Don’t want to have to make the decision of when to change from one Life Strategy Fund to the next? Consider a Target Retirement Fund where Vanguard makes that decision for you. For a cost of just 17 basis points, the 2025 Fund uses the same 4 funds that the Life Strategy funds use (in a 70/30 allocation), but gradually makes the asset allocation less aggressive as the years go by. The portfolios range from 90/10 (2040 and higher) to 30/70 (Income). 2015 and newer add a short term TIPS fund to the mix.

Portfolio 39-48: The Couch Potato Portfolio

50% Vanguard Total Stock Market Index Fund
50% Vanguard Inflation-Protected Securities Fund (TIPS)

Guess who else will tell you what do? Scott Burns will. He offers 9 portfolios, ranging from 2 funds to 10 funds. You just have to choose how much complexity you’re willing to deal with for some additional diversification. If there are 5 funds, each fund makes up 1/5 of the portfolio and so forth. He likes TIPS, international bonds, and energy stocks.

Portfolio 49-52: The Ultimate Buy And Hold Portfolio

6% Vanguard 500 Index Fund
6% Vanguard Value Index Fund
6% Vanguard Small Value Index Fund
6% Vanguard REIT Index Fund
6% Total International Stock Market Index Fund
6% Vanguard International Value Fund
6% Vanguard International Small Cap Index Fund
6% An International Small Cap Value Fund
6% Bridgeway Ultra-Small Market Fund
6% Vanguard Emerging Markets Index Fund
40% Vanguard Short (or intermediate) Term Bond Index Fund

Paul Merriman will also tell you what to do. 10 equity asset classes and 1 fixed income asset class. Will it work? Sure. Will it be a pain to rebalance and allocate across all your accounts? Absolutely. Will it beat some of the simpler options above over your investment horizon? No one knows. In case you don’t like the “Ultimate” portfolio, Paul has three others that are equally complicated, ranging from 100% stocks in 9 assets classes to 40% stock in 12 asset classes.

Portfolio 150: The White Coat Investor Portfolio

17.5% Vanguard Total Stock Market Index Fund
10% TSP S Fund
5% Vanguard Value Index Fund
5% Vanguard Small Value Index Fund
7.5% Vanguard REIT Index Fund
5% Bridgeway Ultra Small Company Market Fund (BRSIX)
15% Vanguard Total International Stock Market Fund/TSP I Fund
5% Vanguard Emerging Markets Index Fund
5% Vanguard International Small Index Fund
10% Schwab TIPS ETF
10% TSP G Fund
5% Peer 2 Peer Lending Securities (mostly Lending Club)

I’m more than willing to admit that it is unlikely that this portfolio will be the best of the 150 portfolios listed here over my investment horizon. However, since my crystal ball is cloudy, and since I’m convinced that sticking with any good portfolio matters far more than which good portfolio you pick, I’m going to stick with it (and have with minimal changes in the last decade, leading me to an annualized after-tax, after-expense return of around 9.5% [as of 1/11/2013]). A good portfolio is broadly diversified, low-cost, mostly or completely passively managed, regularly rebalanced, and consistent with its owner’s need, ability, and desire to take risk. Every portfolio in this post meets those qualifications. Pick one you like, or design your own. Just don’t go looking for the best one. As Prussian General Karl Von Clausewitz said, “The enemy of a good plan is the dream of a perfect plan.” ...

This is the second investment post in the last few days, but we've got reasons.

Members of the Animation Guild are blessed with a Defined Benefit Pension Plan, a Defined Contribution Plan, and the Animation Guild 401(k) Plan. The three taken together means that nobody under our seamless cloak of benefits will have to resort to Alpo in their "gray hair and bifocals" years. In fact, some veterans in the cartoon biz have earned themselves a benefit of several thousand a month in the Motion Picture Industry Defined Benefit Plan, and $500,000 to $650,000 in Defined Contributions (the sum totals of the Motion Picture Industry's Individual Account Plan and TAG's 401(k) Plan.)

But you have to participate in the earning of benefits to receive the benefits. The Defined Benefit Plan and Defined Contribution Plan are automatic when you work at a TAG signature studio. The 401(k) Plan (like ROTH IRAs) are optional, and require members' money.

Starting next week, TAG rolls out the first 2014 401(k) enrollment meetings, hosted by moi. And we strongly urge you to attend. The late afternoon lifestyle you improve will be your own.

TAG 401(k) Enrollment Meetings

Tuesday, Jan. 28th, 2 p.m. -- Disney TVA, Empire Center, Room 5223

Thursday, Jan. 30th, 2 p.m. -- Starz/Film Roman, "Glass" conference room ...

401(k) enrollment meetings will be happening through the month of February. Watch this space for dates, times and locations.


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