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“Do you still recommend the model portfolios you put
out a few years ago?”
I’ve received variations on this general question
over the past several months. The short answer? Yes.
By giving the model portfolios a permanent home
with their own landing page on Morningstar.com, the
idea is that they can readily be accessed. As such,
the portfolios should be up to date at any given point
in time. If a material change at one of the holdings
has resulted in a change in its Morningstar Analyst
Rating, or if I’ve changed my thinking on its suit-
ability in the portfolio, you can expect to see those
changes reflected in short order.
That said, readers shouldn’t expect to see frequent
changes in the portfolios for a few reasons. For
one thing, my approach to asset allocation with these
portfolios is strategic and hands-off: I employed
Morningstar’s Lifetime Allocation Indexes to help guide
the portfolios’ exposures to the major asset classes,
and these indexes don’t change frequently. Moreover,
I relied on Morningstar Medalist ratings for the
portfolios’ investment choices, and one of the implicit
goals for the medalists is stability. In the spirit of
Warren Buffett, Morningstar’s manager research ana-
lysts like to recommend funds and exchange-traded
funds that you could hold “forever.”
Nonetheless, many of these portfolios are two years
old or more, so it’s a good time to review their
positioning and holdings. I’ll review the various mutual
fund and
ETF
“bucket” portfolios that I’ve created
for people who are already retired—or getting ready
to. Note that all of the portfolios discussed below
are free-range—that is, they pick and choose among
holdings from multiple providers. Investors who
prefer to do business with a single firm—say Vanguard
or Schwab—can find company-specific portfolios
on the model portfolios’ main page.
Mutual Fund Bucket Portfolios
(Aggressive, Moderate, Conservative)
Original Launch Date:
August/September
2012
Changes:
These three portfolios, which consist of
traditional mutual funds and are geared toward taxable
accounts, have undergone a few changes since
their initial creation. The most significant was swap-
ping
T. Rowe Price Short-Term Bond
PRWBX
for
Fidelity Short-Term Bond
FSHBX
following the former
fund’s Analyst Rating downgrade to Neutral in early
2015
. Of course, the raw materials for strong results in
the short-term bond Morningstar Category are
limited, given today’s ultralow yields, and the T. Rowe
Price fund is unlikely to flame out. But the Silver-
rated Fidelity fund looks appealing in a bond market
environment where more can go wrong than right;
it’s conservatively positioned, with a higher credit quality
and shorter duration than its typical peer. As such,
it’s appropriate to serve as “next-line” reserves in a
bucket strategy, meaning that it can be tapped if
the cash piece of the portfolio is empty but the retiree
needs additional cash.
Additionally, while my original bucket portfolios relied
on
Harbor Real Return
HARRX
to provide exposure to
Treasury Inflation-Protected Securities, I switched to
Vanguard Short-Term Inflation-Protected Securities
Index
VTIPX
in early
2014
. While
PIMCO Real
Return
PRRDX
, of which Harbor Real Return is a near-
clone, is a solid Silver-rated fund, I’m compelled
by the Vanguard fund’s short-term focus. Although the
returns of Vanguard Short-Term Inflation-Protected
Securities have lagged those of some longer-term
TIPS
funds, including
Vanguard Inflation-Protected
Securities
VIPSX
, I like that the short-term fund pro-
vides purer inflation protection without a lot of
interest-rate-related volatility.
An Update on Model Portfolios
Portfolio Matters
|
Christine Benz