The obvious next topic to turn to in discussing early retirement and investment theory is how to design a well balanced portfolio that will deliver us to financial independence at a ripe young (to middle) age.
We’ve now covered the main building blocks for success: The crucial importance of low-cost passively managed funds, the only free lunch (diversification), the difficult but necessary discipline of rebalancing, and the “factors” that have been shown to increase returns over time (beta, size, value, and momentum.)
So we’ve really got a pretty complete toolbox.
Now we’ve just got to put all of these goodies together. This is where asset allocation and portfolio design come into play.
But before we delve into the enticing playground of model portfolios, let’s take a little detour.
I’d like to introduce you to one of my favorite pages on the Internet.
This understated site is called Altruist Investor. And the specific page is entitled Vanguard vs. DFA.
http://www.altruistfa.com/dfavanguard.htm
(Now would be a good time to open the link in a new tab.)
From what I can gather from the website, this is the webpage for a fee-only investment advisor in Michigan, Eric Haas.
In addition to being a financial wizard, and altogether ethical guy, it appears that this dude is a former nuclear submarine officer.
“Borodin please to bring financial prospectus, and vodka…”
If I were in the market for someone else to manage my money, Eric would be one of the first professionals whom I would call. (along with Larry Swedroe, Rick Ferri, and William Bernstein.) and the only reason I say that is because I love his website so damned much.
When I’m designing model portfolios, this is the first place I look. Why? Because he’s got an exhaustive list of funds that he recommends for each niche within a modern portfolio.
This particular page compares funds from Vanguard to funds from DFA (The two leading investment houses for passively managed index funds.) But you will note that in the last column there is a link to a whole list of funds, within the category of interest, from many more fund providers.
All of these funds are passively managed, inexpensive, and suitable candidates for inclusion in a modern portfolio.
And the list is rank ordered based on Mr. Haas’ preference, from best to worst.
What a powerful tool. Let’s say your 401(k) offers a smattering of funds from Schwab. You can search within the list to find an included fund to capture a sector of the market that you’re interested in.
As an example: let’s say you want 40% of your stock funds to be in a domestic large cap value fund.
Scan down the first column until you find the category “large-cap value.”
The next two columns show the corresponding funds from both DFA and Vanguard along with their ticker symbols, and expense ratios.
But if we turn our attention to the final column, we see that Mr. Haas’ favored fund is from neither DFA nor Vanguard. It is Guggenheim S&P 500 pure value(RPV).
But wait, there’s more! Now click on the hyperlink over the word “here” above (RPV).
This takes us to a lengthy discussion of domestic large-cap value funds with a rank list of funds for both retirement as well as taxable accounts.
You’ll probably find a fund that is available for your 401(k) on this exhaustive list. (perhaps Schwab US Large Cap Value ETF?)
There are also links to academic articles describing different investment concepts if you want to read primary source material.
This is a powerful tool for the individual investor. It speaks extremely well of Mr. Haas to have open sourced his research for all of the public to view.
And if you’re wondering, I have zero conflict of interest in regards to this post. My only connection to Altruist Investor, or Mr. Haas, is that I absolutely love this webpage, and frequently use it in my own portfolio modeling.
