Hello, erryl, and others. After getting back into the market in May-07 (with help from here), I got out in October through March because the dip highlighted my discomfort with having decreasing NAV's without having any payouts.  I had chosen not badly, but not well-enough for my retired (& poorer) temperment.  Taking heart in a possible TA turn-around (despite my wife saying "where's the light, I don't see it"), I'm trying again. 

Here's my half-done portfolio - I anticipate increasing dollars in these funds rather than buying different ones, as the (hopeful) recovery proceeds.  I hope to end with a 40/50/10 stocks/bonds/cash, and a div+cg payout of about 6%/year.  Your comments are invited.

DODBX - 3.6%
VWINX - 3.6%
VWELX - 7.4%
FBALX - 3.6%
PRFDX - 3.6%
PRDGX - 3.6%
JAGIX - 3.6%
FEQIX - 3.6%
VEIPX - 3.6%

FFVFX - 0.9%

PREMX - 0.9%
FSICX - 6.8%
FNMIX - 3.6%
LSBRX - 7.0%
VIPSX - 1.1%
MERKX - 0.9%

FDRXX - 41.5%
FCASH - 1.1%

Don't know if it would give you the dividends/cap gain payout you are looking for, but Vanguard's Wellesley fund would give you a 40% stock/60% bond fund with one fund.  The stock portion is large cap value oriented.

 Does anyone know if Fidelity has a fund set up like Wellesley?  I"m not aware if they do. 

 Hope this is helpful.

Kelly

You didn't notice that VWINX is among those I selected.  It and VWELX are models of what I'd like, but I'm trying to pay service to diversification.  I haven't put it through Xray yet to see if I have too much individual stock exposure.

Gator: Maybe this diversification card has been overplayed. I think you are already in retirement (if my memory serves me correctly). And the LCs have generally lagged in performance prior to 2006. The Callan periodic table of returns suggests that the SCs are more likely to lag LCs than the other way around. Plus, SCs are more risky than LCs. Thus, an LC oriented portfolio (like VWELX, VWINX) may not be too "UN"diversified. So, in such a case, I can easily argue that 3 to 4 well selected LC funds may be sufficient diversification, especially for us older folks who have a shorter time horizons (than the young'ins) and a lower degree of risk tolerance.

There is an older poster named "ToniB" on the Hands-On forum. She has a 3 fund portfolio for the last 20++ years, and Vang Windsor & Wellesly are 2 of the 3. The third one I think is Vang Explorer, but you can find out about her experiences on the monthly Hands-on tracking posts. Their only bond holdings come from Wellesley's bond holdings. It is quite illuminating that she and her husband have done well sticking to this 3 fund portfolio thru thick & thin. I find their steadfastness & discipline quite inspiring. You may want to read thru some of those posts. Best wishes .... Anil

Anil-
Would you explain to me why the Callan periodic table indicates that LC's are likely to outreturn SC?

Gator-
What kind of comment were you looking for?  You have good funds.  I have no idea why you have them in the weighting you have chosen... or why you have so many funds.

I believe in diversification, but I don't believe in owning things for diversification's sake.  I own SC/MC, because it outperforms LC over the long term and I believe that the small investor has a better chance of outperforming the professional money managers in smaller, less widely covered stocks.

erryl

Thank you.  The reason I'm over-weighted in LC is that I believe LC traditionally leads out of a recession.  I couldn't (briefly) make heads or tails out of the "Callen Periodic Table"; I'll look in depth later.

I'm glad to hear the views on lesser # of fund holdings.  As I said earlier, I haven't Xray'd it yet - I guess I don't really mind being "over"-diversified at this point, I'm not really sure what is the down-side to that except it may "average" the various fund manager's performance to be equal to an index... so I might as well have a LC index at lower cost???

Does anyone know an LC index that pays-out 6%?

Hi Gator: You can find the Callan periodic table of returns here. It shows investment returns of a number of asset classes (though not all asset classes) over the last ten years. What is striking is to compare the relative position of the returns of each asset class by a ranking. The boxes for each year are based on best performing asset class to least.

I ranked each asset class returns by giving them a ranking: 1 for the best performer and 8 for the worst performer. If looked at it that way, then we can look at the "relative" ranking of SC (Russell 2000) index of 3.2 in the last 10 years (1998-2007 reletive rankings). This means SCs had performed better than average for most of those ten years. The LCs (represented by S&P500) on the other hand, have an average ranking of 4.2 over the same last 10 years, even though they included some of the better years (late 90s) for LCs. That is the LCs were slightly less than average in rankings of assets classes. Thus, the SCs have had a somewhat better relative performance than LCs in the past 10 years.

The relative rankings suggest that each asset classes' ranking keeps rising and falling, meaning no asset class has relative outperformance all the time or even most of the time, but that they keep shifting from outperformance to underperformance. So, it appears that after a period of relative underperformance (by LCs), one should expect a period of outperformance (vs SCs). Thus, I concluded that going forward for a few more years, it appears that SCs have a lesser chance of outperformance than LCs.

Erryl: See my qualitative eyeballing of the SC vs LC relative performance. Of course, I am not implying that LCs will outperform, but that for a retired person with less time for recovery and waiting, LCs may be give a better chance for outperformance with lower risk than SCs. Best wishes ...... Anil

Oh yeah, I remember this now.  I had eyeballed it once before to reach the same basic conclusions as Anil.

Anil is also correct in that I am anticipating LC outperformance only for the current short-term (say, 5 years or so).  If I can "survive" these next 5 years, I feel I will be in a better position to survive the following 15 years (due to being able to release home-equity funds by down-sizing, and invest them in income producing funds).

SC is a little more volatile than LC, but, of course, I wasn't recommending that someone put 100% of their portfolio in SC.  What I am recommending is that you diversify your portfolio with SC, because a diversified portfolio with LC and SC is less risky than a portfolio that is 100% LC.  I don't think that this is "over diversification."  I consider buying 100% in energy, ag, emerging markets, and commodities (which is really 100% in commodities) being under-diversified.  They have been great investments and I own some, but if you throw everything out of your portfolio that has under-performed, pretty soon you are non-diversified and under-performance awaits you in the future... unless you are confident that you can trade securities successfully.  There isn't a lot of evidence that most people can do that.

The above paragraphs equates volatility and risk.  The assumption is that the investor is more likely to sell out at a loss (and lock in losses that cause you to fail to meet your goal) if the asset class is more volatile.  I think that this is only true if you focus too much on the performance of your individual secturities, instead of the performance of your diversified portfolio.

The proper balance imho between over and under diversiification is to buy (only) investments that have good fundamentals (and fundamentals include growth rate) and valuations, but buy them from a variety of asset classes.  Right now, a lot of SC's are dirt cheap.   (in the 90's, many argued that foreign wasn't needed).

Look at the valuation ratios of RZV... (SCV ETF)

Valuations and Growth Rates	Stock Portfolio	Rel to S&P 500
Price/Prospective Earnings	12.2	0.9
Price/Book	0.9	0.4
Price/Sales	0.3	0.2
Price/Cash Flow	5.2	0.6
Dividend Yield	3.9	1.7
Long-Term Earnings	14.2	---
Historical Earnings	-12.5	-1.4
Sales Growth	0.2	0.0
Cash-Flow Growth	-12.1	-1.8
Book-Value Growth	-2.1	-0.7

These stocks have been beaten down, because their short term earnings have disappointed... but look at P/S... 0.3?  Anything under 1.0 is normally considered value.  Many large caps have a P/S of 5, 6, or even double digits for growth companies. A dividend yield of 3.9% from SC's?  P/B's less than half the S&P500.  SC's have been punished... and they are cheap.  That doesn't mean that you should buy nothing but SC right now, but you shouldn't buy all expensive LC stocks, either. 

This is no time to abandon your SC investments... the real lesson of the Callan Tables is that there are different asset classes outperforming and under-performing over time.  It is a sales brochure for diversification imho...

erryl

Does anyone know a LC index that pays-out 6%?  I don't know what you mean by "pays-out"?  If you mean dividends, the answer is no.

You anticipate that LC will outperform for the next 5 years... I don't know what will outperform for the next month, year, or 5 years.  I think that the longer your view point, the more predictable returns become... but no amount of time rises to the level where you can say that "I know this will outperform..."  If I had to guess (and it is a guess), I would say that foreign is likely to outperform for the next 5 years.  With that, should you buy all foreign and sell all your US stocks?  Of course not!!  Should you sell all your SC and buy only LC?  Of course not!!!  Stay diversified... it may not be helping you a lot in this trading range market... it will never outperform THE hot sector... but it will help a lot in a bear market.

erryl

Erryl : I know SC asset class is a favorite of yours because it tends to outperform over the Looooong term (defined typically by 30+ years). I agree there. However, there were distinct periods of 5 to 10 years when SCs clearly underperformed LCs. If one has their druthers, like our friend Gator, maybe a little less emphasis on SCs may be OK.

The Callan table shows to me that an asset class can have relative underperformance for quite a while (like LCs in early 2000s). It is also true that sticking to LCs may not be that bad in retirement as older folks tend to get worried quickly (at least it is true of yours truly) and could sell a volatile stock or fund at just the wrong time. In that sense, volatility becomes risk (even though in theory they are different).

I also hear your viewpoint that this is no time to abandon SCs. I agree with it if you already own them. However, if you don't own them, one can avoid buying new SC positions for a few years and one might still be OK. Hope that clarifies my comments .... Anil

If you are starting from scratch... you are either a market timer or you have received a windfall.

If you are a market timer (went to cash at some point in the past when you thought that the market was going to be weak), then I have no advice for you... good luck.  I couldn't help you when you got out and I can't help you on when and how to get back in.

If you have a windfall, I think that you will do better if you diversify your portfolio, but if you are going to over-weight something, buy what is out of favor and represents a good value... that would certainly include SC.

I have about equal weightings in domestic LC and domestic (SC+MC)... I think the person that has a lot more of either is over-weighting, not me.

erryl

I noticed that you had Wellington but I missed that you had Wellesley. 

 For me, and maybe for me alone, having a few balanced funds I can buy/hold over the long term, whether the market is going up/down/sideways, is a lot simpler and less anxiety provoking than trying to figure out and tweak a lot of individual funds and all the complexity that brings.

 So my thought/idea was maybe just settling into a few quality funds that matched the allocations you are wanting (like another poster mentioned re: the people who had held 3 funds for the long term and had done fine) and letting it be.   Would be less nerve racking that trying to figure out when to get out, get in, what to overweight, underweight, etc.

Just my thoughts.  Hope they are of some help.

Kelly

I still have a goodly % of cash left to invest; perhaps I shall decide to look at some SC/MC as erryl suggests - but not for growth.  As mentioned in my 1st post, my primary thrust is to achieve (consistent) div+cg payout , not overall growth of my portfolio.  I will be satisfied to get about 6% payout at this point, with just normal fluctuation in total portfolio NAV.  I can live on that payout (+ other fixed income) for the 5 years I think it will take before the housing market levels-out & I can affordably downsize.

I have so many funds because I'm not certain of the consistency of payout of any specific equity fund.  I researched at least the last 2 years of data payout, but that obviously isn't sufficient.  You might say that I'm looking for a "bond-fund-type" payout result without the effect of rising interest rates on bond-fund NAV's.

I'd consider individual bonds with high coupons, except a) I don't trust the integrity of the bond market right now, and b) I'm not sure I can live long enough to cash-in a high-coupon bond at maturity (to avoid the price decrease during increasing rates).  I do have some bond funds now, but they are somewhat specialized.

What do you think of Vanguard's three Managed Payout funds??

Gator: I think this is a redefinition of the problem in that you have some spare cash to invest PLUS you need managed distributions to tide you over the next 5 years. I don't know anything about Vang MD (Managed Distrn) funds but I do know a number of MD Closed End Funds (CEFs) that worth looking into. CEFs have the added benefit of not getting tied up with the wrong type of fund in case the MD fund does not pan out.

Many of the MD CEFs would be dividend oriented equity or preferred stock funds that will provide you with 6-10% divvies + CG in a MD way (managed distribution). For example, an energy oriented fund like BGR (trades like a stock, but is a Managed Distr fund with a very stable 3/4 year payout history) or ETO or any of the equity funds in the following link:

http://www.nuveen.com/etf/products/dailyPricing.aspx

What you need to know about CEFs is the following:

1. Never buy them in an IPO, you pay a premium (selling costs) that you will unlikely recover,

2. Buy CEFs at a double digit discount to NAV & trade them out when the discount gets narrow to less than 5% (too many people are chasing this CEF),

3. There is a huge number of CEF offerings that cater to all different strategies, but be careful to buy CEFs that have a reasonable trading volume (at least 30K shares a day),

4. Lastly choose CEFs based on their total returns data availble at ETFConnect.com. Looking just at the distributions could lead you astray and perhaps could land you in a lemon.

Good luck ..... Anil

Thanks, anil .   It's not that I have "spare" cash, it's only that I didn't wish to invest it all at one time, this go-around.  I intend to have a cash cushion of about 8% in the portfolio for emergencies, so I have about 30% cash waiting to be invested.

I looked at some ETF/CEF, but my lack of experience there made me shy away.  I'll take another look.

It's not that I want Managed Distribution as a method of simply distributing my capital to myself - I'm not that much of a dummy.  I'd also like preservation of capital; I'm not sure how well ETF/CEF MD's are capable in this regard.  I simply have not studied them enough.

I also have not studied Immediate Annuities enough - I might like one when I have new cash-out from downsizing.

The spending phase is definitely different from the accumulating phase.  I find that paper profits don't thrill me, and paper losses depress me.  "Show me the money!" (credit to the 1996 Jerry Maguire character)

edited to add:  Just so I get the picture, I'd like HPI "type" of payouts, but with less volatility - do I just search "ETF-Connect" till I find such, or is there a quicker way?  ETF-Connect doesn't provide multiple search criteria in same search.

Ooops - it looks like CEF's have credit-crunch problems from leveraging, just like the investment banks:
http://www.marketwatch.com/news/story/john-hancock-announces-refinancing-redemption/story.aspx?guid=%7BBEBC4DFD%2DA6CF%2D4889%2D9D02%2D4C279BDC1ACA%7D&dist=TQP_Mod_pressN I guess I'll take my time researching this.