(PUB) Investing 2015

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A Bucket Portfolio for Vanguard Tax-Deferred Accounts Portfolio Matters | Christine Benz

For each portfolio, I’ve included an anticipated time horizon—the investor’s number of years to retirement. However, as with any off-the-shelf asset-allocation guidance, investors should take into account their own situations before implementing these allocations. Investors who are nearing retirement and who expect to be able to rely on nonportfolio assets like a pension to fund their in-retirement living expenses may well want a more aggressive allocation than the one fea- tured in the conservative portfolio, for example. Mean- while, nervous investors who have retreated from equities in times of market stress or who are investing for nearer-term goals as well as retirement may well want to downplay stocks relative to the weightings of the aggressive and moderate portfolios. It’s also worth noting that stocks aren’t especially cheap right now, so investors who have a substantial amount of money to invest will want to dollar-cost average to avoid buying stocks (or bonds!) at a high point. Aggressive Vanguard Retirement-Saver Portfolio Anticipated Time Horizon to Retirement: 40 Years This portfolio is anchored by a sizable position in a total stock market index fund that covers the water- front. (Indexers could reasonably use that fund as their sole U.S. equity position and call it a day.) I’ve augmented it with some of our analysts’ favorite actively managed funds to give the total portfolio a slight tilt toward the value side of the Morningstar Style Box. Vanguard Equity-Income VEIPX provides active exposure to value stocks; both of its manage- ment teams favor firms with above-average dividend yields as well as other attractive characteristics, such as low valuations. Vanguard Selected Value VASVX provides exposure to mid-cap value (as well as mid-cap blend) stocks, employing three distinct management teams with different spins on a value- investing strategy. Unfortunately, all of Vanguard’s actively managed large-growth-leaning funds are closed to new investors, including the superb Primecap-managed offerings. To keep the portfolio from skewing too heavily toward value stocks, I’ve also included a posi- tion in Vanguard Mid Cap Growth VMGRX , an actively managed fund. Finally, because the resultant

Vanguard is easy to recommend as a destination for investors aiming to simplify their financial lives by investing with a single firm. Morningstar’s analyst team gives the firm an A rating for steward- ship, owing to its strong corporate culture and ultra-low-cost products. It also fields the largest number of Morningstar Medalist funds of any fund firm. If anything, the biggest challenge for investors who are already sold on what Vanguard has to offer is winnowing down the firm’s standout lineup into a reasonably compact portfolio. One way for retire- ment savers to do so is to buy one of the firm’s target- date funds; the funds in the series receive Gold ratings—one of only two target-date lineups to do so. For investors who would like more nuance in their portfolios—for example, the chance to own some of the firm’s standout actively managed funds—I’ve created Vanguard-specific portfolios. Here are my retirement-saver portfolios designed for Vanguard- centric investors who are in the process of accumu- lating assets for retirement. This group of portfolios is geared toward investors in tax-deferred accounts, meaning that they’re not designed for tax efficiency. Portfolio Basics As with the other model portfolios, I’ve used the weightings of Morningstar’s Lifetime Allocation Indexes to guide the portfolios’ baseline allocations. To populate the portfolios, I leaned on Morningstar Medalist funds and input from Morningstar’s analyst team. I specified the lowest-minimum share class for these portfolios, but investors who can avail them- selves of cheaper share classes with higher mini- mums should obviously do so.