(PUB) Investing 2015

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17 Morningstar FundInvestor September 2015
portfolio includes next to nothing in small-value
stocks, which have tended to outperform large-cap
and growth stocks over long periods of time, I added
a slice of dedicated small-cap-value exposure via the
firm’s index fund.
On the international-equity side, I’ve employed two
fine actively managed funds—Vanguard Interna-
tional Growth VWIGX and Vanguard International
Value VTRIX—that complement one another well.
Here again, an investor could reasonably use a total
international-stock fund in lieu of the active offerings.
Because the time horizon for this portfolio is so long,
it includes but a tiny slice of fixed-income exposure.
And while Morningstar’s Lifetime Allocation Indexes
call for a small stake in commodities, Vanguard fields
no such fund. The closest approximation is Vanguard
Precious Metals and Mining VGPMX, which has
historically had a much closer correlation with the
equity market than metals’ prices. I’ve steered that
position to stocks instead, though investors in search
of extra diversification plus, potentially, an inflation
hedge might also consider Vanguard Global ex-U.S.
Real Estate Index VGXRX.
Moderate Vanguard Retirement-Saver Portfolio
Anticipated Time Horizon to Retirement: 20 Years
Even though it’s geared toward an investor in
his 40s with a 20-year time horizon, this portfolio is
also stock-heavy, with an 85% allocation to U.S.
and foreign stocks. The key variance with the aggres-
sive portfolio is that this one is lighter on foreign
stocks and has a slightly heavier fixed-income position,
including a small allocation to Vanguard’s hedged
foreign-bond index fund.
Conservative Vanguard Retirement-Saver Portfolio
Anticipated Time Horizon to Retirement: 5 Years
With a substantially shorter time horizon, this port-
folio is meaningfully more conservative than the
aggressive and moderate portfolios. But given that
the retirement saver’s real time horizon is his life
expectancy, it includes a sizable allocation of 55% to
equities. Because the bond stake of the
conservative portfolio is substantially larger than the
other two portfolios’, it also makes sense to diversify
it further.
Investors should become more attuned to inflation
protection as retirement draws near and they’ll
rely on their portfolios to supply their “paychecks”;
thus, it makes sense to build out a position in an
inflation-protected bond fund. Because investors with
five years until retirement will still have many years
in retirement, I’ve included Vanguard Inflation-
Protected Securities VIPSX , which has a long dura-
tion of 8.0 years. Investors who are concerned about
interest-rate-related volatility could use Vanguard
Short-Term Inflation-Protected Securities Index
VTIPX instead. I also included a core short-term
fund, as soon-to-retire investors should begin thinking
about how to stage their portfolios for drawdown.
It’s too early for those using the “bucket” approach to
begin raising cash, but a high-quality short-term
fund is appropriate.
Because the equity piece is relatively smaller, I reduced
some of the smaller actively managed positions but
left the stake in Vanguard Equity-Income in place. It’s
a fine in-retirement holding, as is Vanguard Dividend
Growth VDIGX, which is the core equity holding in my
Vanguard “bucket” (in-retirement) portfolios.
How to Use
As with all of the model portfolios, the key goal is to
depict sound asset-allocation and portfolio-manage-
ment principles. That means investors can and should
plug in another fund in the same category if one
of the funds I’ve named here is unavailable or if I’ve
omitted one of their favorites. (I would have loved
to include one of the Primecap-managed offerings,
for example.) Alternatively, an all-index portfolio is
perfectly appropriate.
Also, in keeping with the philosophy behind the
bucket portfolios, I’ll employ a strategic (that is,
long-term and hands-off) approach to asset alloca-
tion; I’ll make changes to the holdings only when
individual holdings encounter fundamental problems
or changes. K
Contact Christine Benz at
Retirement-Saver
Conservative
25% Vanguard Total Stock Mkt Idx
10% Vanguard Equity-Income
5% Vanguard Small Cap Value Idx
10% Vanguard Intl Growth
5% Vanguard International Value
23% Vanguard Tot Bd Mkt Index
7% Vanguard Sht-Trm Bd Idx VBISX
9% Vanguard Infl-Prot Sec VIPSX
6% Vanguard Tot Intl Bd Mkt VTIBX
Time Horizon to Retirement:5 yrs
Retirement-Saver
Moderate
30% Vanguard Total Stk Mkt
10% Vanguard Equity-Income
5%Vanguard Mid Cap Growth
10% Vanguard Selected Value
5%Vanguard Sm Cap Value Idx
15% Vanguard Intl Growth
10% Vanguard International Value
12% Vanguard Tot Bd Mkt Index
3% Vanguard Tot Intl Bd Mkt VTIBX
Time Horizon to Retirement:20 yrs
Retirement-Saver
Aggressive
30% Vanguard Tot Stk Mkt VTSMX
10% Vanguard Eq-Inc VEIPX
5% Vanguard Mid Cap Gr VMGRX
10% Vanguard Sel Value VASVX
5% Vanguard Sm Cap Value VISVX
20% Vanguard Intl Growth VWIGX
15% Vanguard Intl Value VTRIX
5% Vanguard Tot Bd Mkt Index
Time Horizon to Retirement:40 yrs