Is your portfolio powered with value?

From: "Sound Investing" <info@PROTECTED>
Subject: Is your portfolio powered with value?
Date: June 8th 2017
June 8, 2017

“Thanks to your hard work educating us, taking control of my retirement portfolio has given me so much confidence and relief that my financial future as secure as can be, risk adjusted of course.”
- Lloyd C.


Dear Friends,

We are delighted that AAII has chosen to publish in the AAII Journal an article written by Rich Buck and me, Power Your Portfolio With Value. In this article, I outline the Ultimate Equity Portfolio, consider the outsized role value stocks play in it, and make the case for why some investors may want to go one step further with an all-value approach. Please feel free to share this link with family, friends and associates.  

On May 20, I addressed some 125 attendees at AAII Puget Sound Chapter meeting at Mercer Island. I’ve been speaking to this group since 1984 and it’s always a pleasure to return.

Many thanks to Brian Livingston, President of the chapter, for creating a pdf of my seminar handout, including the presentation on robo investing. Plus, you can read Brian’s whitepaper on how to improve the return from my Ultimate Buy-and-Hold Portfolio. For links to these documents, click here.

More resources

Stan the Annuity Man has done it again!  There is no better source of educational material on annuities in the industry, and it’s completely free. Get your copy of the Fixed Index Annuity Owner’s Manual, a new publication devoted to pros and mostly cons of index annuities. Anyone about to invest in an index annuity must read this publication and, as I used to say to my kids, “and I’m not kidding!”  

I promise Stan won’t call you.  He knows that anyone who reads his material on annuities is likely to contact him for a quote just to be sure they are getting a fair deal.  Stan has told me to check his prices and then check with Vanguard because sometimes his are better, and often he is better.  The point about doing business with Stan is it always feels like he wants the investor to find the best deal, even if you do the business with somebody else.

Another great source:  I suspect all of our readers/listeners use calculators to help them plan for the future.  Not all calculators are equal.  Some are just wrong!  Feed the Pig is a source of calculators I trust, as they come from the American Institute of CPAs (AICPA).  I also think any investor still exploring decisions around saving, paying off debt, buying a house, buying insurance, etc. will find their guidance helpful.


I was recently notified by Michael Gerber, a friend and board member of Feed the Hungry, that one of our team has been hired as their communications consultant. Congratulations to Berenice “Bere” Parra, our stalwart social media manager for five years. I’m pleased she will continue doing her good work for The Merriman Financial Education Foundation while serving this important San Miguel de Allende organization that provides nutritious food to extremely poor children in that part of central Mexico.

Questions & Answers

Below are answers to some recent questions. You can find hundreds of Q&A’s archived here. FAQ’s for Motif Investing can be found here.

To your success,

Q:  To work out what I can expect with compounding of my mutual funds at Vanguard, at what intervals does a compound occur – daily, monthly, bi-annually or annually? I am making fortnightly investments of the same amount.

A:  My source of mutual fund results is  It reports daily year-to-date (YTD) returns.  At the end of the year, the return includes the increase or decrease in price plus reinvestment of all dividends and capital gains. The reinvestment of dividends and capital gains are tracked based on reinvesting on a day dictated by the fund. That final annual number becomes the annual return from which the long-term compound rate of return is determined.  Morningstar also reports 10 short-to-long-term compound rates of return (from one day to 15 years) on a daily basis. 

Q:  How can I plan for the long term if I have no idea what rate of return I can expect?  What rate of return would you use to build a investment plan for a 27-year-old investor?

A:  I hope you will listen to my upcoming podcast on this topic. The answer could be a range of returns, or the worst expected outcome.  I favor the approach of “hope for the best but prepare for the worst.”  If you are building a long-term “glide path,” your return will be based on both the equity and fixed income portions of your portfolio. The return also will be impacted by assumed expenses. In my Fine Tuning Tables I have built-in a 1% management fee, on top of the assumed expenses of managing the mutual funds.  For planning purposes you might use the returns in the Fine Tuning Tables, less 2%.  That’s probably not the worst long-term return, but close to it.

Q:  I have two questions as they relate to my annual investment into a Vanguard Roth IRA I just started for my 22-year-old daughter: 1) for the 2-value fund portfolio, do you recommend 50-50 small cap to large cap or some other ratio? 2) Thinking of this for the next 20-30 years, would you recommend (as of now – I know things can change) VIOV or VISVX (for small) and VONV or VIVAX (for large) or perhaps a fund and ETF for both caps?

A:  I prefer VIOV over VISIX, as the average size company in VIOV is half the size company as VISIX and they both have the same ratio of Price-to-Book.  I prefer VIOV over VIVAX as it has a lower Price-to-Book (more value orientation) and a smaller average size company. I think a 50/50 small and large value allocation will produce a 10 to 12 percent return over the long term.

Q:  What do you suggest as a mechanism of dollar-cost averaging with ongoing ETF purchases in a brokerage account?

I would like to move about $36K from my Roth IRA with Vanguard into brokerage ETF’s using your best of class recommendations. (Since I don’t have enough invested in this account yet to purchase Admiral Shares of the recommended mutual funds). Might it be simpler to contribute the annual allowance of $5,500 and buy shares as a lump sum during a yearly rebalance?

A: Your idea to fund your Roth IRA at the first of the year is the best approach. Making your contribution the first of the year is the best dollar-cost-average discipline I know.  It keeps your commissions to a minimum and your investment starts growing the first day of the year.  If you want to make a monthly contribution, I suggest you purchase one ETF each month.  

Q:  Which state’s 529 Plan do you recommend? 

The whole family (grandmas, grandpas, aunts and uncles) are going to put money into a 529 plan for our new daughter.

A:  I’m pleased you are making this a family project. Doing this once may encourage the family members to use this account for special occasions.  New York and Utah are both good choices, but the state you reside in might make a difference in terms of tax implications.  Check out details. This site will personalize information for several important variables.

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