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Re: Please Help me understand 3-fund portfolio

Can a case be made for 100% investment in a US Stock Index Fund for people in their 20s and 30s who plan to work for at least another 30 years of their life? As long as the fund is not sold at any point over at least a 30 year period and money is invested into the fund each year, could a case be ma...
by longinvest
Wed Apr 16, 2014 3:21 pm
 
Forum: Investing - Theory, News & General
Topic: Please Help me understand 3-fund portfolio
Replies: 21
Views: 2211

Re: Please Help me understand 3-fund portfolio

Can a case be made for 100% investment in a US Stock Index Fund for people in their 20s and 30s who plan to work for at least another 30 years of their life? As long as the fund is not sold at any point over at least a 30 year period and money is invested into the fund each year, could a case be ma...
by longinvest
Wed Apr 16, 2014 1:26 pm
 
Forum: Investing - Theory, News & General
Topic: Please Help me understand 3-fund portfolio
Replies: 21
Views: 2211

Re: Portfolio for Young Investors: High Bonds and Risky Equi

My comments was intended to scare so if it did I am sorry. I just think it is important to think about where we me might be in the interest rate cycle. Interest rates appear to move in large trending cycles and we appear to be at the low end of that cycle now. The last time we had a situation like ...
by longinvest
Sun Apr 13, 2014 5:41 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio for Young Investors: High Bonds and Risky Equities
Replies: 30
Views: 2015

Re: Portfolio for Young Investors: High Bonds and Risky Equi

The other side of coin is how would feel if you lost 50% of your portfolio in real terms (this is pre-tax so after tax it is even worse) because that is what happened to bonds from 1940 to 1980. That is the risk of bonds. [...] Here are the real returns of stocks, bonds (50% 10-year gov. bonds, 50%...
by longinvest
Sun Apr 13, 2014 5:09 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio for Young Investors: High Bonds and Risky Equities
Replies: 30
Views: 2015

Re: Portfolio for Young Investors: High Bonds and Risky Equi

Notice the draw-down of 1973 and 1974. The Stock-only portfolio suffered a loss of 46%, while the balanced portfolio suffered a loss of 28%. That's a significant difference. Just to clarify: A loss of 46% requires a subsequent gain of 85% to recover par value. A loss of 28% requires a subsequent ga...
by longinvest
Sun Apr 13, 2014 3:52 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio for Young Investors: High Bonds and Risky Equities
Replies: 30
Views: 2015

Re: Portfolio for Young Investors: High Bonds and Risky Equi

The other side of coin is how would feel if you lost 50% of your portfolio in real terms (this is pre-tax so after tax it is even worse) because that is what happened to bonds from 1940 to 1980. That is the risk of bonds. [...] Here are the real returns of stocks, bonds (50% 10-year gov. bonds, 50%...
by longinvest
Sun Apr 13, 2014 3:45 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio for Young Investors: High Bonds and Risky Equities
Replies: 30
Views: 2015

Re: Big VWO (Emerging Markets) tracking error

Those difference are likely an artifact of fair-value pricing. The gaps you are seeing aren't there is you look at returns through 3/31: https://personal.vanguard.com/us/funds/snapshot?FundId=0964&FundIntExt=INT#tab=1 Thanks! I had not noticed that the tracking error was temporary. The tracking...
by longinvest
Sun Apr 13, 2014 2:25 pm
 
Forum: Investing - Theory, News & General
Topic: Big VWO (Emerging Markets) tracking error
Replies: 3
Views: 660

Re: If not dollar cost averaging...then what?

I'd forget the phrase "DCA", it's misused and confusing. Instead, remember this phrase: "The sooner I put my money to work, the greater my expected returns" . As soon as you get funds tagged for long term investing, invest them. I Agree. The term Dollar Cost Averaging means diff...
by longinvest
Sun Apr 13, 2014 1:36 pm
 
Forum: Investing - Theory, News & General
Topic: If not dollar cost averaging...then what?
Replies: 15
Views: 788

Big VWO (Emerging Markets) tracking error

Is it possible that Vanguard goofed up its transition from MSCI to FTSE, or am I missing something? Every year, I check the tracking error of ETFs I invest in. In 2013, VWO (Vanguard FTSE Emerging Markets ETF) had a NAV total return of -5.00%, while the index it tracked (Spliced Emerging Markets Ind...
by longinvest
Sun Apr 13, 2014 12:26 pm
 
Forum: Investing - Theory, News & General
Topic: Big VWO (Emerging Markets) tracking error
Replies: 3
Views: 660

Re: I'm buying more equities now. Going for 95-98%

You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up. Hi Claver, Could you provide an exact quotation from one of Mr. Siegel's books (with book title and page number)? Did he actually write: "[...] stocks are safer ...
by longinvest
Sun Apr 13, 2014 10:46 am
 
Forum: Investing - Theory, News & General
Topic: Stock markets in free fall?
Replies: 92
Views: 6561

Re: Stock markets in free fall?

If you look on page 33 & 37 Figures 2-4 and 2-6 of the Third Edition of Stocks for the Long Run you will see the standard deviation of annual real returns for stocks is less than bonds for 20 and 30 year holding periods. The data is from 1802 to 2001. Packer I asked for a quotation . Can you pr...
by longinvest
Sun Apr 13, 2014 10:32 am
 
Forum: Investing - Theory, News & General
Topic: Stock markets in free fall?
Replies: 92
Views: 6561

Re: Stock markets in free fall?

If you look on page 33 & 37 Figures 2-4 and 2-6 of the Third Edition of Stocks for the Long Run you will see the standard deviation of annual real returns for stocks is less than bonds for 20 and 30 year holding periods. The data is from 1802 to 2001. Packer I asked for a quotation . Can you pr...
by longinvest
Sun Apr 13, 2014 9:36 am
 
Forum: Investing - Theory, News & General
Topic: Stock markets in free fall?
Replies: 92
Views: 6561

Re: I'm buying more equities now. Going for 95-98%

You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up. Hi Claver, Assuming that Mr. Siegel actually meant what you wrote (see my previuous post), this still says nothing about the relative safety of stocks to a mix of sto...
by longinvest
Sun Apr 13, 2014 9:33 am
 
Forum: Investing - Theory, News & General
Topic: Stock markets in free fall?
Replies: 92
Views: 6561

Re: I'm buying more equities now. Going for 95-98%

You should read his book: his extensive data strongly indicates that stocks are safer than bonds over periods of 12-14 years and up. Hi Claver, Could you provide an exact quotation from one of Mr. Siegel's books (with book title and page number)? Did he actually write: "[...] stocks are safer ...
by longinvest
Sun Apr 13, 2014 9:22 am
 
Forum: Investing - Theory, News & General
Topic: Stock markets in free fall?
Replies: 92
Views: 6561

Re: Asset location strategies for taxes are OK; but not grea

I should specify that I am Canadian; we do not have Step-up In Basis to readjust the value of appreciated assets upon inheritance. Instead, at death, all assets are deemed disposed of and taxes on capital gains are due. This important difference between US and Canadian tax laws does change the adva...
by longinvest
Fri Apr 11, 2014 11:53 pm
 
Forum: Investing - Theory, News & General
Topic: Asset location strategies for taxes are OK; but not great
Replies: 27
Views: 2637

Re: Asset location strategies for taxes are OK; but not grea

Disclosure: I use an equal location strategy with a simple portfolio. I should specify that I am Canadian; we do not have Step-up In Basis to readjust the value of appreciated assets upon inheritance. Instead, at death, all assets are deemed disposed of and taxes on capital gains are due. This impo...
by longinvest
Thu Apr 10, 2014 7:30 am
 
Forum: Investing - Theory, News & General
Topic: Asset location strategies for taxes are OK; but not great
Replies: 27
Views: 2637

Re: What is risk tolerance?

Imagine that you have a salary of 75K/year. You have 10K in investments. You have 35 years of investing ahead of you before retirement. How would you feel if you lost 5K tomorrow (that's 50% of your portfolio)? You would probably be OK, knowing that you are likely to add more than twice this amount ...
by longinvest
Wed Apr 09, 2014 3:12 pm
 
Forum: Investing - Theory, News & General
Topic: What is risk tolerance?
Replies: 12
Views: 553

Re: Asset location strategies for taxes are OK; but not grea

I think that the complexity of a portfolio enters into the equation. I think that a simple 3-funds portfolio can be a good candidate for an equal location strategy. As soon as one adds many funds (small, value, reit, tips, munis, etc.), the duplication is likely to make the portfolio overly complex ...
by longinvest
Mon Apr 07, 2014 7:04 pm
 
Forum: Investing - Theory, News & General
Topic: Asset location strategies for taxes are OK; but not great
Replies: 27
Views: 2637

Re: Three-fund portfolio returns and variance drain

LadyGeek wrote:The wiki has been updated: Variance drain

Cool!
by longinvest
Sun Apr 06, 2014 8:46 pm
 
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 39
Views: 2471

Re: Three-fund portfolio returns and variance drain

According to this paper (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2027471), variance drain can be quantified through a simple equation. The theory does not rely on any specific distribution of returns. The "defect" in Jensen's Inequality, is given an exlicit formula in terms of ...
by longinvest
Sun Apr 06, 2014 10:48 am
 
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 39
Views: 2471

Re: Three-fund portfolio returns and variance drain

According to this paper (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2027471), variance drain can be quantified through a simple equation. The theory does not rely on any specific distribution of returns. The well-known approximation of the difference between the arithmetic average and geomet...
by longinvest
Sun Apr 06, 2014 10:20 am
 
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 39
Views: 2471

Re: Three-fund portfolio returns and variance drain

It seems correct to me. But the way I see it is: Your expected return is not what you expect. (That would have been a terrific thread title). Does this make sense?
by longinvest
Thu Apr 03, 2014 8:42 am
 
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 39
Views: 2471

Three-fund portfolio returns and variance drain

I just read the latest Bogleheads blog entry which discusses Three-fund portfolio returns . In addition to compound returns (CAGR) and standard deviation, it reports on the variance drain (compound return minus arithmetic return) of different asset allocations (80/20, 60/40,40/60, and 20/80). In the...
by longinvest
Thu Apr 03, 2014 7:52 am
 
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 39
Views: 2471

Re: The Three Fund Portfolio

No, I wasn't surprised by the performance of the two funds as far as how much they earned. I was surprised by their performance relative to their actively managed peers. Let me try another way. Let's divide the market in two parts: passively managed funds, and the rest. By construction, the passive...
by longinvest
Sun Mar 09, 2014 6:49 pm
 
Forum: Investing - Theory, News & General
Topic: The Three Fund Portfolio
Replies: 748
Views: 258114

Re: The Three Fund Portfolio

Yeah, I get that. But one would think that after 15 years (pick a rolling period, doesn't matter) that one would really start to see a divergence between active and passive performance. I was just surprised that the Total Bond and Total International didn't beat active management by more of a margi...
by longinvest
Sun Mar 09, 2014 2:35 pm
 
Forum: Investing - Theory, News & General
Topic: The Three Fund Portfolio
Replies: 748
Views: 258114

Re: Japan, 1989

My sources are listed here: [...] Most of the sources go back to the early 1970s at least. (Japanese CPI to 1970, Japanese 1-year bonds to 1974.) The TOPIX returns come from the Tokyo Stock Exchange . Unfortunately, those returns do not go back before 1989. An alternative might be to use the MSCI w...
by longinvest
Sun Mar 02, 2014 8:17 pm
 
Forum: Investing - Theory, News & General
Topic: Japan, 1989
Replies: 106
Views: 22355

Re: Japan, 1989

bpp,

Do you have data going back before 1989? What is your data source?

I would be interested to add this data into the VPW spreadsheet for back-testing.

Thanks
by longinvest
Fri Feb 28, 2014 6:25 pm
 
Forum: Investing - Theory, News & General
Topic: Japan, 1989
Replies: 106
Views: 22355

Re: Variable Percentage Withdrawal (VPW)

Of course ideally, if you had the real estate, would be to show both nominal and Real..... Personally, I prefer nominal. I have some options with inflation. Most retirees do. If housing prices soar, most of us already own our home. I could create the real estate by splitting back the main sheet int...
by longinvest
Fri Feb 28, 2014 6:17 pm
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 336
Views: 28293

Re: Variable Percentage Withdrawal (VPW)

Hi, For the bond portion could one substitute the G fund from the Thrift Savings Plan? I don't see a reason not to. As the G fund is a short-term bond fund, I would lower the long-term growth trend of the bond allocation to 0.5 or 1.0: On the Table sheet, change Override to Yes for Long-Term Real G...
by longinvest
Fri Feb 28, 2014 3:35 pm
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 336
Views: 28293

Re: Variable Percentage Withdrawal (VPW)

EDIT: After playing with this new version, I am thinking you are losing a lot of information with displaying these values in nominal rather than real. Can you tell us why you think that nominal values were your choice? While, I think it is very handy to know the biggest nominal drop of a portfolio,...
by longinvest
Fri Feb 28, 2014 2:59 pm
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 336
Views: 28293

Re: Variable Percentage Withdrawal (VPW)

Hi, For the bond portion could one substitute the G fund from the Thrift Savings Plan? I don't see a reason not to. As the G fund is a short-term bond fund, I would lower the long-term growth trend of the bond allocation to 0.5 or 1.0: On the Table sheet, change Override to Yes for Long-Term Real G...
by longinvest
Fri Feb 28, 2014 2:44 pm
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 336
Views: 28293

Re: huge discrepency in retirement spending models

when you use firecalc, which spending model do you use? constant spending power does seem to ignore the obvious -- that very few people blindly withdraw at a fixed rate from retirement until death. but is that the point? to give you a worst case scenario? Not answering your question directly, but h...
by longinvest
Fri Feb 28, 2014 1:09 pm
 
Forum: Investing - Theory, News & General
Topic: huge discrepency in retirement spending models
Replies: 10
Views: 899

Re: For Canadian Bogleheads/Buffettheads

That's terrific! We don't often get Canadian editions of financial books. Thanks Larry.

I found that the Canadian epub edition is available on kobo.com (but for 30% more than the Kindle version :annoyed ).
by longinvest
Fri Feb 28, 2014 9:51 am
 
Forum: Investing - Theory, News & General
Topic: For Canadian Bogleheads/Buffettheads
Replies: 4
Views: 482

Re: Boglehead quotes

In viewtopic.php?f=10&t=133400#p1969264:

Rick Ferri wrote:There is an article in today's WSJ by Joe Light titled Small Investors Jump Back Into the Trading Game

I have a theory: As bull markets lengthen, memories shorten.

Rick Ferri
by longinvest
Sat Feb 22, 2014 3:35 pm
 
Forum: Investing - Theory, News & General
Topic: Boglehead quotes
Replies: 23
Views: 2099

Re: Retirement percentage advice in question

We've been tracking all our expenses in GnuCash for the last 10 years. This allows us to have a pretty clear picture of our fixed and variable expenses. From there, we go in reverse to estimate our retirement income needs. Starting from our expenses, we compute the required before-tax amount. We add...
by longinvest
Sat Feb 22, 2014 3:29 pm
 
Forum: Investing - Theory, News & General
Topic: Retirement percentage advice in question
Replies: 9
Views: 887

Re: Fund location ?

We personally held taxable bonds in our IRAs and tax-efficient equity funds in our taxable account for many years and have saved many thousands of dollars in taxes by so doing. The biggest savings will be at my death when ALL the capital gains in my taxable account will be waived by the IRS. That's...
by longinvest
Thu Feb 20, 2014 5:48 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds go in taxable (whitecoatinvestor aka EmergDoc article)
Replies: 96
Views: 5898

Re: Bonds go in taxable (whitecoatinvestor aka EmergDoc arti

The rational solution, for me, is to admit that I can't guess future returns and tax law changes. My solution simplifies rebalancing and doesn't require any calculation to tax-adjust my asset allocation. I use a mirrored asset allocation across accounts. It is NOT a behavioral mistake; it is a logic...
by longinvest
Thu Feb 20, 2014 8:48 am
 
Forum: Investing - Theory, News & General
Topic: Bonds go in taxable (whitecoatinvestor aka EmergDoc article)
Replies: 96
Views: 5898

Re: Bonds go in taxable (whitecoatinvestor aka EmergDoc arti

I guess I'm failing to appreciate the risk you are concerned about by moving to a tax-optimal asset location strategy. Can you explain the risk you see? Is it the risk that you might leave a bunch of taxable money to heirs? Or might end up donating those shares? LTCG taxes going down? Or what? If I...
by longinvest
Wed Feb 19, 2014 8:24 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds go in taxable (whitecoatinvestor aka EmergDoc article)
Replies: 96
Views: 5898

Re: Bonds go in taxable (whitecoatinvestor aka EmergDoc arti

Why be so quick to recommend extreme asset locations (100% of bonds located tax-advantaged or taxable, if possible), while also recommending balanced asset allocations (admitting that the future is unknown)? The total after tax return of money invested in tax-advantaged accounts is not trivial to c...
by longinvest
Wed Feb 19, 2014 7:28 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds go in taxable (whitecoatinvestor aka EmergDoc article)
Replies: 96
Views: 5898

Re: Bonds go in taxable (whitecoatinvestor aka EmergDoc arti

Why be so quick to recommend extreme asset locations (100% of bonds located tax-advantaged or taxable, if possible), while also recommending balanced asset allocations (admitting that the future is unknown)? The total after tax return of money invested in tax-advantaged accounts is not trivial to co...
by longinvest
Wed Feb 19, 2014 6:54 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds go in taxable (whitecoatinvestor aka EmergDoc article)
Replies: 96
Views: 5898

Re: Bonds go in taxable (whitecoatinvestor aka EmergDoc arti

When I started investing in taxable (due to filled tax-advantaged space), I decided that it was too speculative to guess the future impact of locating my assets in taxable or tax-advantaged. It was very dependent on: future assets return, future tax laws, etc. So, I went for simplicity with a mirror...
by longinvest
Wed Feb 19, 2014 3:30 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds go in taxable (whitecoatinvestor aka EmergDoc article)
Replies: 96
Views: 5898

Re: In the long run which is better CDs or Fixed Index Annui

So the payback from A is $3500 and the growth rate is 8.71%. The expected value of the payback from B is $3500 and the expected value of the growth rate is 7.58%. Which has the better return, A or B? Is it even possible to say? If I got it right, the expected payback froom B is $2994. Nisiprius was...
by longinvest
Sun Feb 16, 2014 5:57 pm
 
Forum: Investing - Theory, News & General
Topic: In the long run which is better CDs or Fixed Index Annuities
Replies: 23
Views: 1402

Re: Why Own Bonds at All?

1- Do you claim that 100% equities will definitely achieve a higher return than, let say, 75% stocks / 25% bonds in 20, 25, and 30 years from now? 2- Do you claim that it always did so in the past? 3- Do you want all of us to blindly trust your interpretation of a couple of papers and move all our ...
by longinvest
Sun Feb 16, 2014 4:42 pm
 
Forum: Investing - Theory, News & General
Topic: Why Own Bonds at All?
Replies: 492
Views: 28502

Re: Why Own Bonds at All?

Claver, You are really good at evading my questions. Are you afraid to put some skin in the game and answer them? Let me repeat my four questions to you. Hint: The answer to each of the first three questions should start with Yes, No, or anything in between, then may be followed by explanations and ...
by longinvest
Sun Feb 16, 2014 1:32 pm
 
Forum: Investing - Theory, News & General
Topic: Why Own Bonds at All?
Replies: 492
Views: 28502

Re: Why Own Bonds at All?

longinvest, If you read Blanchett et al.'s paper, they are saying stocks are actually safer both because their likelihood of producing more wealth is a better and safer guarantee against inflation and real loss of purchasing ability than is the case for bonds and also because they are safer than bo...
by longinvest
Sun Feb 16, 2014 12:38 pm
 
Forum: Investing - Theory, News & General
Topic: Why Own Bonds at All?
Replies: 492
Views: 28502

Re: Why Own Bonds at All?

I am trying to help you understand what you appear to be missing. Bonds can be less "safe" than stocks while a mix of stocks and bonds can be safer than both. I believe this is what is missing from your understanding. Virtually every expert you have identified supporting the risk of bonds...
by longinvest
Sun Feb 16, 2014 11:52 am
 
Forum: Investing - Theory, News & General
Topic: Why Own Bonds at All?
Replies: 492
Views: 28502

Re: Variable Percentage Withdrawal (VPW)

I've uploaded a new version of the VPW spreadsheet. As usual, you can find the download link on the Variable percentage withdrawal Wiki page.

CHANGES
  • I've updated the long-term growth trends using data from the Credit Suisse Global Investment Yearbook 2014.
by longinvest
Sun Feb 16, 2014 11:10 am
 
Forum: Investing - Theory, News & General
Topic: Variable Percentage Withdrawal (VPW)
Replies: 336
Views: 28293

Re: The Three Fund Portfolio

It would be interesting to see the 1, 5, 10 year returns for this portfolio against others. Looks like it would be about12% for a 60/40 portfolio. Tim http://www.bogleheads.org/forum/viewtopic.php?f=10&t=132189 Here's the Wiki page for these reports: http://www.bogleheads.org/wiki/Madsinger_mon...
by longinvest
Sat Feb 15, 2014 8:26 pm
 
Forum: Investing - Theory, News & General
Topic: The Three Fund Portfolio
Replies: 748
Views: 258114

Re: Why Own Bonds at All?

longinvest writes. I think that readers of this thread have read and understood both sides (for 100% stocks, for 100% liability matching). I don't know of anyone on this thread who has proposed 100% liability matching. I certainly haven't. On the other side several posters have advocated 100% stock...
by longinvest
Sat Feb 15, 2014 7:53 pm
 
Forum: Investing - Theory, News & General
Topic: Why Own Bonds at All?
Replies: 492
Views: 28502

Re: Why Own Bonds at All?

OK guys. Let's get back to basics. Bonds are a promise to pay interest and return the principal on maturity. Stocks are certificates of partial ownership of companies that borrow money (emitting bonds), use that capital to earn money selling products, and use profits to pay dividends to share holder...
by longinvest
Sat Feb 15, 2014 7:36 pm
 
Forum: Investing - Theory, News & General
Topic: Why Own Bonds at All?
Replies: 492
Views: 28502
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