Author Topic: 30-Year Passive Management Lockup  (Read 3551 times)

Steven B

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30-Year Passive Management Lockup
« on: November 08, 2016, 05:39:33 PM »
Hi All,

I've been asked to create a portfolio for a trust with one caveat; the portfolio for all intents and purposes will be locked for 30 years (the might be nuclear clauses, but as a truly nuclear option). Figured this would make for a good thought experiment. The first instinct is just put it in a S&P500 ETF, but I was wondering if there were any better options.

Thoughts?


benhacker

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Re: 30-Year Passive Management Lockup
« Reply #1 on: November 08, 2016, 05:51:50 PM »
Would strongly lean toward a total world ETF instead.  VT as an example.  Not sure of a compelling reason to pick the S&P500.

Pick a provider (Vanguard is a good example) that has a high likelihood of being mostly unchanged and around 30 years from now.

I'd buy VT or the open ended equivalent... or one of their set allocation funds.
Ben Hacker
Beaverton, Oregon - USA

no_free_lunch

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Re: 30-Year Passive Management Lockup
« Reply #2 on: November 08, 2016, 06:26:43 PM »
Why can you not change the allocation or at least the provider for 30 years?  That seems restrictive to the point of being harmful.

If you really can't change anything, then yes I would go with ben's suggestion.

Jurgis

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Re: 30-Year Passive Management Lockup
« Reply #3 on: November 08, 2016, 08:32:11 PM »
Go with Ben's suggestion even though Bogle seems to prefer US Total Market index.

I'd guess "nuclear option" includes provider changes if the choice fund disappears (or substantially changes?).
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Steven B

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Re: 30-Year Passive Management Lockup
« Reply #4 on: November 09, 2016, 12:18:28 PM »
Let me clarify by saying that the point is really for it to be as passively managed as possible and let compounding do the work instead of sector rotation and market timing (while also keeping the beneficiaries hands of the money). I suppose if I came up with some reasonable guidelines it could work, but the point is that there doesn't need to be ongoing tweaking to justify fees or the like, only when there really is a big issue.

So total world over S&P? I guess that makes sense. I guess it's safe to say that fixed-income in this scenario would be a waste of time.

Jurgis

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Re: 30-Year Passive Management Lockup
« Reply #5 on: November 09, 2016, 12:44:06 PM »
It might be worthwhile to look at what's in the total world index and how it's composed country-wise and weight-wise. I haven't looked at it. Some international indexes are really screwed up in terms of composition though (e.g. tons of Japan, no China/other-Asia, etc.). So do some DD. It might be worthwhile to do US Total Market index + International index at some weight. Although same caveat applies to International index.

It might not matter long term... or it might ... e.g. if China ascends and there's zero China in portfolio.

Good luck.
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rukawa

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Re: 30-Year Passive Management Lockup
« Reply #6 on: November 09, 2016, 09:39:26 PM »
If you know its going to be 30 years why not just do small cap value index. Over that long a time period it should outperform.

chrispy

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Re: 30-Year Passive Management Lockup
« Reply #7 on: November 10, 2016, 05:16:38 AM »
The small cap idea makes quite a bit of sense for at least some of the portfolio.  It does outperform over the long term it just may make you sick to your stomach occasionally...  I guess this would be captured in a total stock market index (US) though. 

In the interview posted recently Bogle mentioned that he probably would not want to be in an international index right now.  See the list below of the top 5 holdings:

1. Japan
2. UK
3. Canada
4. France
5. Germany

A betting man would probably put the most of their eggs in the US... Even with Trump's ideas, US companies have so much international exposure that you are getting international companies with any major US index.

Jurgis

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Re: 30-Year Passive Management Lockup
« Reply #8 on: November 10, 2016, 06:31:58 AM »
In the interview posted recently Bogle mentioned that he probably would not want to be in an international index right now.  See the list below of the top 5 holdings:

1. Japan
2. UK
3. Canada
4. France
5. Germany

That's my concern with international index compositions too. There might be better international indexes if you look around though.
"Before you can be rich, you must be poor." - Nef Anyo
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"American History X", "Milk", "The Insider", "Dirty Money", "LBJ"

LC

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Re: 30-Year Passive Management Lockup
« Reply #9 on: November 10, 2016, 07:49:05 AM »
I'd go with US exposure. While other countries are improving, the US has (I think) the most "pure" form of capital allocation.
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