The Core Four

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Postby Rick Ferri » Thu Jan 31, 2008 11:27 pm

What was the performance of the Core Four over the previous time periods? I'd like to use the past results to make comparisons with other investing choices.


Retired2,

As you continue to read this forum and gain a deeper understanding of Boglehead concepts, I believe you will come to the conclusion that the market return is a good return. All you are trying to do with the Core Four and similar portfolios is to get your fair share of market returns. If you can do that, you will be better off than if you invested in those 'other choices'.

The italics is a quote from Jack Bogle.

Rick Ferri
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Wording

Postby Retired2 » Fri Feb 01, 2008 1:08 am

Taylor,

Thank you for your reply.

I understood what was being said and I didn't take the wording the wrong way, but thanks for being concerned.

On re-reading, I don't think I worded my question very well. If this portfolio represents market returns, my question was what were the market returns for the previous time periods?

I've been reading this board recently and M* forum for a few years. The mechanics of this board is so much easier.

I semi-retired 12 years ago and am fully retiring this month. I am composing a post in which I will be seeking advice as to how to turn my accumulated retirement assets into a bi-weekly "paycheck".

I am discovering it is not a trivial matter to shift gears from the accumulation phase of my last 40 years to the "now I'm retired phase". I mean this in a mathematical and financial sense. Emotionally I love retirement and tell everyone I should have retired right out of high school.



I even mis-signed my name: on this board I am Retired2
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Market returns?

Postby Taylor Larimore » Fri Feb 01, 2008 11:43 am

Hi Retired2:
If this portfolio represents market returns, my question was what were the market returns for the previous time periods?


That's easy. All you have to do is look at the returns for Vanguard's Total Market Index Funds. You can figure that the actual market returns were a few basis points higher (similar to the fund expense ratio).

This is a major advantage of index funds. Investors don't have to worry about poor performance (relative to their asset class).

Best wishes.
Taylor
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Core Four - Fidelity Equivalent

Postby TrueBlueNYC » Sat Feb 02, 2008 8:02 pm

Hi,
I have an IRA and a 401(k) at Fidelity. I find the simplicity of the Core Four idea very powerful and appealing and would like to implement it in my portfolio.

1. Can someone please recommend comparable products at Fidelity to the Vanguard funds recommended in the original post?

2. My 401(k) at Fidelity has a very limited selection. Currently, I do not contribute to my IRA, but only to my 401(k). This money is in a target retirement fund.

What is the best way to recreate the Core Four type portfolio given that my 401(k) is the only place where I'm contributing, and also that is not connected to my IRA? Is my only option to create two separate portfolios each with its own asset allocation according to the Core Four idea? Has anyone else encountered this situation, and how did you deal with it?

I would appreciate any feedback and advice on these questions. Thank you.
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Re: The Core Four

Postby sgr000 » Fri May 02, 2008 12:32 pm

Rick Ferri wrote:A simple way to construct a portfolio is through core holdings and extended holdings. [...]

The “Core Four” are:

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX – fee 0.19%)
Vanguard FTSE All-World ex-US Index Fund (VFWIX – fee 0.40%)
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX – fee 0.20%)

I started tracking a Core 4 portfolio on Morningstar earlier this year, mostly for use as a benchmark against my real portfolio. I set it at 80% stocks / 20% bonds, reinvesting all distributions, and using a 5/25 rebalance rule:
Code: Select all
20% VBMFX
30% VFWIX
10% VGSIX
40% VTSMX

Obviously, it had a rough ride through the first quarter of this year. Yesterday, however, it broke even for the year; no rebalances were ever triggered:
Code: Select all
20.27% VBMFX
29.39% VFWIX
11.15% VGSIX
39.19% VTSMX

I'm not sure there's any lesson here, other than the relatively deep one: a broadly diversified portfolio with low expenses and a sensible asset allocation is a good way to weather a difficult market.
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Total Market Index Fund Returns

Postby Taylor Larimore » Fri May 02, 2008 4:38 pm

"If this portfolio represents market returns, my question was what were the market returns for the previous time periods?"


This is the latest Morningstar data (Return, Period and Rank in Category) for the three Total Market Index Funds in the 4-Fund Portfolio:

Vanguard Total Stock Market Index Fund (VTSMX)

RETURN------PERIOD-----RANK
9.39%............3-years.......Top 33%
8.52%............3-years.......Top 21% (after tax)

11.98%..........5-years.......Top 25%
11.30%..........5-years.......Top 18% (after tax)

4.29%..........10-years.......Top 32%
3.85%..........10-years.......Top 23% (after tax)


Vanguard Total International Stock Index Fund (VGTSX)

18.84%...........3-years.......Top 23%
17.88%...........3-years.......Top 14% (after tax)

22.39%...........5-years.......Top 23%
21.69%...........5-years.......Top 06% (after tax)

7.59%...........10-years.......Top 14%
6.94%...........10-years.......Top 11% (after tax)


Vanguard Total Bond Market Index Fund (VBMFX)

4.89%............3-years.......Top 12%
3.07%............3-years.......Top 13% (after tax)

4.29%............5-years.......Top 20%
2.59%............5-years.......Top 20% (after tax)

5.68%..........10-years.......Top 16%
3.58%..........10-years.......Top 14% (after tax)

Best wishes.
Taylor
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Me Too

Postby Dogfather » Sat May 03, 2008 6:55 am

Hi Rick,
I am retired, have followed your posts on investing for quite some time, and appreciate the contributions you make to investors like myself. People like you, Taylor, Mel, Laura, et al provide the reassurance we need to do it ourselves.

I basically invest in your recommended four core portfolio plus have a little "fun money" in the VG energy fund and Primecap Core.

Like you, I had a trying 1st quarter and on May 1 pulled even for the year and actually went slightly ahead.

The dividends from TBM and from TSM funds are real positives... especially when the market is down.
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Postby percy » Wed Dec 31, 2008 3:40 am

I'm thinking about going with one of these. Any changes, one year later (the excerpt below is from 12/31/07)?


Rick Ferri wrote:
In review, we have put forth three simple portfolios:

The CORE FOUR

Vanguard Total Stock Market Index Fund (VTSMX – fee 0.19%)
Vanguard FTSE All-World ex-US Index Fund (VFWIX – fee 0.40%)*
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)
Vanguard Total Bond Market Index Fund (VBMFX – fee 0.20%)

Taylor's THRIFTY THREE

Vanguard Total Stock Market Index Fund (VTSMX – fee 0.19%)
Vanguard FTSE All-World ex-US Index Fund (VFWIX – fee 0.40%)*
Vanguard Total Bond Market Index Fund (VBMFX – fee 0.20%)

The DYNAMIC DUO

Vanguard Total Stock Market Index Fund (VTSMX – fee 0.19%)
Vanguard Total Bond Market Index Fund (VBMFX – fee 0.20%)

*There is a separate conversation going on comparing the Vanguard FTSE All-World ex-US Index Fund to the Total International Portfolio. The two funds are highly correlated, but there are differences in fees, taxes, and slight differences in composition.

Rick Ferri

BTW, one could probably write an on-line book about these portfolios, i.e. compare and contrast, benefits and drawbacks, fees, taxes, etc. I'm taking a break from book writing in 2008. Anyone motivated enough to write a book on this concept with all sales revenue and licencing fees going to charity? Mel, Taylor, Mike? How about a Diehards sequel?
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Postby gchan » Wed Dec 31, 2008 5:08 am

Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)

I personally would be skeptical about being so heavily invested in one sector. As discussed in other threads, some people (like myself) have many reservations about the way many REITs are run. The whole sector has gone crazy... high leverage yet mediocre earnings, huge amounts of stock being issued above book value to keep pyramid schemes running, heavy insider selling, etc. etc.
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Simple (but sophisticated) portfolios

Postby Taylor Larimore » Wed Dec 31, 2008 8:34 am

Hi gchan:

gchan wrote:
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)

I personally would be skeptical about being so heavily invested in one sector. As discussed in other threads, some people (like myself) have many reservations about the way many REITs are run. The whole sector has gone crazy... high leverage yet mediocre earnings, huge amounts of stock being issued above book value to keep pyramid schemes running, heavy insider selling, etc. etc.


I think you misunderstand. The simple (but sophisticated) portfolio's above, are not "heavily invested in any one sector." They are completely diversified over every sector. No allocations are specified--that's up to each individual investor.

Happy New Year!
"Simplicity is the master key to financial success." -- Jack Bogle
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Postby taxman » Wed Dec 31, 2008 1:11 pm

Its nice of you to advise the investing populace @ a .0% bps cost with all your knowledge Rick, Taylor, Mel, :wink: recalling your marines/army guys that have already been to hell and have a immediate "pass when you get to the pearly gates :wink:
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Postby Gregory » Wed Dec 31, 2008 1:38 pm

gchan wrote:
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)

I personally would be skeptical about being so heavily invested in one sector. As discussed in other threads, some people (like myself) have many reservations about the way many REITs are run. The whole sector has gone crazy... high leverage yet mediocre earnings, huge amounts of stock being issued above book value to keep pyramid schemes running, heavy insider selling, etc. etc.


REIT's throw off lots of income, understandably of interest to folks.
Pecuniae imperare oportet, non servire. | Fortuna vitrea est; tum cum splendit frangitur. -Syrus
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Postby Index Fan » Wed Dec 31, 2008 1:41 pm

Excellent thread- thanks, Rick! :)
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Re: The Core Four

Postby DiscoBunny1979 » Wed Dec 31, 2008 1:51 pm

Rick Ferri wrote:.
A simple way to construct a portfolio is through core holdings and extended holdings. The core holdings account for a majority of a portfolio’s risk and return characteristics. The extended holdings provide the finishing touches.

This post introduces the “Core Four” funds, and provides a brief framework for selecting extended holdings. Core funds are the cornerstones of a portfolio. They are the base from which the rest of a portfolio sits.

The “Core Four” are:

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX – fee 0.19%)
Vanguard FTSE All-World ex-US Index Fund (VFWIX – fee 0.40%)
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX – fee 0.20%)

An example of a 60% stock and 40% bond portfolio with the Core Four is:

36% VTSMX
18% VFWIX
06% VGSIX
40% VBMFX

Rick Ferri


----------------------

This also assumes someone is starting with $50,000.
6% of $50,000 is $3,000 - the minimum to Start VGSIX?

Since a newbee to investing probably doesn't have $50,000, I wonder what the comparison to this 60/40 mix compares to STAR Fund in total return over let say the past 10 years or the expected return over the next 10 years?
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Postby ddb » Wed Dec 31, 2008 2:16 pm

Rick Ferri wrote:
Why not use Vanguard Total International Stock Index Fund
VGTSX


In a tax-exempt account it is "six of one, half dozen of the other." However, in a taxable account, the Vanguard FTSE All-World ex-US Index Fund is a fund of stocks and has pass through of foreign tax credits. The Vanguard Total International Stock Index fund does not because it is a fund-of-funds. Why not? Ask the IRS.


Remember, though, that the expected value of the FTC needs to be greater than 13bps per year in order to overcome the lower expense ratio of VGTSX. Plus, VGTSX is now eligible to invest directly in foreign stocks (no longer just a fund of funds), so holders of VGTSX will benefit from some level of FTC going forward.

- DDB
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The Core Four

Postby DanHess » Wed Dec 31, 2008 9:04 pm

Rick

Great post and thanks for the Core 4.

I am a tinkerer and am wondering what your thoughts would be on:
1) Adding Emerging Markets such as VWO
2) Adding International REIT's
3) Including commodities or resources

I have enjoyed reading your ETF Book and view it as the authority on ETFs.

Dan
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Postby retiredjg » Wed Dec 31, 2008 9:13 pm

gchan wrote:
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)

I personally would be skeptical about being so heavily invested in one sector. As discussed in other threads, some people (like myself) have many reservations about the way many REITs are run. The whole sector has gone crazy... high leverage yet mediocre earnings, huge amounts of stock being issued above book value to keep pyramid schemes running, heavy insider selling, etc. etc.

It appears you may think this meant 25% in each of the core four. Not so. A frequent recommendation is to use about 5% of total portfolio for REIT. Some use 10% of equities.
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Postby Rick Ferri » Wed Dec 31, 2008 9:34 pm

It is interesting to see this post resurrected after one year. I am happy to report that since this conversation started I made no changes to any portfolio.

Discipline is the key to success in any long-term investment plan.

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Postby Gekko » Wed Dec 31, 2008 10:28 pm

REIT and FTSE should not be "Core" funds IMO. I think Bogle would agree.
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Postby Barry Barnitz » Wed Dec 31, 2008 10:47 pm

ddb wrote:
Rick Ferri wrote:
Why not use Vanguard Total International Stock Index Fund
VGTSX


In a tax-exempt account it is "six of one, half dozen of the other." However, in a taxable account, the Vanguard FTSE All-World ex-US Index Fund is a fund of stocks and has pass through of foreign tax credits. The Vanguard Total International Stock Index fund does not because it is a fund-of-funds. Why not? Ask the IRS.


Remember, though, that the expected value of the FTC needs to be greater than 13bps per year in order to overcome the lower expense ratio of VGTSX. Plus, VGTSX is now eligible to invest directly in foreign stocks (no longer just a fund of funds), so holders of VGTSX will benefit from some level of FTC going forward.

- DDB


Hi DDB:

Our very limited wiki staff attempts to keep our pages up to date with end of fiscal year updates. See Vanguard FTSE All-World ex-US Index Fund Tax Distributions, and Vanguard Total International Stock Index Fund Tax Distributions for end of FY 2008 and historical data.

Also refer to the fund pages for current expense loadings for the funds:

Vanguard Total International Index Fund.
Vanguard FTSE All-World ex-US Index Fund.

(The end of the calendar year will allow updates for returns, qualifying dividends and volatility measures for the funds. Brokerage commission expense data becomes available later in the year when the statement of additional information is updated.)

regards,
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Postby Rick Ferri » Thu Jan 01, 2009 10:20 am

Gekko wrote:REIT and FTSE should not be "Core" funds IMO. I think Bogle would agree.


I don't know if Jack would agree or not, and I do not speak for him. However, if in your opinion REITs and international stocks are not core holdings, then you should consider the Dynamic Duo Portfolio:

Vanguard US Total Stock Market Index
Vanguard Total Bond Market Index

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Postby avram53 » Thu Jan 01, 2009 11:06 am

Rick, Thanks for the excellent post.

After tax loss harvesting all of my taxable investments, which make up about 90% of my savings, I am now going to reinvest/reallocate back into the best funds for the long term which include many of the funds mentioned by Rick in the original post.

1. Would ONE international fund, like FTSE World ex US be better for a taxable account than Rick's suggested trio of Europe/Pacific/Emerging, in order to avoid cap gains when rebalancing these three funds?

2. Please remind me what the pros and cons are for investing in funds vs ETF's? (I can do free or low cost trades through VBS. Have not used ETF's before) Should I stick with funds or consider ETF's?

3. 50-55% of my portfolio will be bonds/cash. I had been using a combination of Vanguard's NY Muni MM and NY LT Muni bond fund to achieve an avg. duration of 2 yrs. since I live in NYS. (Fed tax rate 33% NY ~7%)

Should I consider alternatives to the NY LT Muni bond fund? Should I consider national intermediate muni bond funds? Pros and cons?

Best, Ave

PS I do have VIPSX, Inflation Protected Fund and REIT fund in my tax deferred accounts.
(NY/NJ/CT Bogleheads Chapter Coordinator. Simplicity works for me!)
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Postby Gekko » Thu Jan 01, 2009 11:41 am

Rick Ferri wrote:
Gekko wrote:REIT and FTSE should not be "Core" funds IMO. I think Bogle would agree.


I don't know if Jack would agree or not, and I do not speak for him. However, if in your opinion REITs and international stocks are not core holdings, then you should consider the Dynamic Duo Portfolio:

Vanguard US Total Stock Market Index
Vanguard Total Bond Market Index

Rick Ferri


now this one i can agree on. however, since i built my portfolio long ago and don't wish to change it - i will continue at -

20% VG Muni Money Market
20% VG Muni Bond
20% VG Health Care
40% VG Index 500

Happy New Year!!!
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Postby nonroom » Thu Jan 01, 2009 6:40 pm

Question#1 From this board, I have learned that REIT's in times past have had negative correlation with equities. Given that TSM already has REIT exposure, is it worthwhile to tilt 5%- 10% to REITs?

Question#2 I understand this is 'Core Four' portfolio and we are trying to keep it simple. But given that neither FTSE ex us and Total Int'l have small caps, is it worthwhile to consider the new small cap international index fund?
You cannot control the actions of others. You can only control your reactions to their actions.
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Postby gchan » Thu Jan 01, 2009 7:56 pm

Question#1 From this board, I have learned that REIT's in times past have had negative correlation with equities.

I'd point out that:

1- Past correlations may not be indicative of future correlations.

2- In the past year, REITs were not negatively correlated with equities in the way most people would have liked. Try going to Google Finance and plotting VNQ versus VTI (and VEU and VWO). They all went down.

In more normal times they aren't quite as correlated. But IMO I think most investors are more worried about huge downside movements (because that's when Bogleheads are tempted not to stay the course).
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Postby nisiprius » Thu Jan 01, 2009 9:11 pm

What the portfolio really needs is more jingly rhymes. Because a catchy name is your guarantee of investment performance.

Like:

The Safe-'n'-Sure Core Four.

The Safe-'n'-Sure Yield-More Core Four.

The Full-Bore No-Chore Safe-'n'-Sure Yield-More Never-Poor Secret-Lore Odin-Thor Al-Gore Rip-and-Roar Eagle-Soar Core Four. :D
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Postby percy » Thu Jan 01, 2009 9:34 pm

Rick Ferri wrote:It is interesting to see this post resurrected after one year. I am happy to report that since this conversation started I made no changes to any portfolio.

Discipline is the key to success in any long-term investment plan.

Rick Ferri


That's what I was wondering--if your Core Four recommendations would have changed after the recent meltdown. I guess that goes to show that is indeed a sound plan. Thanks for the information.
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Postby tommy_gunn » Wed Feb 18, 2009 8:35 pm

nisiprius wrote:What the portfolio really needs is more jingly rhymes.

The Full-Bore No-Chore Safe-'n'-Sure Yield-More Never-Poor Secret-Lore Odin-Thor Al-Gore Rip-and-Roar Eagle-Soar Core Four. :D


this is pretty damn funny i must say
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Postby deepdrive » Wed Feb 18, 2009 9:59 pm

I believe that regardless of which of these main three portfolios is used, or what minor changes are made to them, that any of them will be a good choice for any investor. The differences will be so slim.

I'm a Thrifty Three guy myself.
Investment difficulty and long-term success are perfectly negatively correlated. Keep it simple.
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Postby Sunny Sarkar » Thu Feb 19, 2009 12:25 am

nisiprius wrote:The Full-Bore No-Chore Safe-'n'-Sure Yield-More Never-Poor Secret-Lore Odin-Thor Al-Gore Rip-and-Roar Eagle-Soar Core Four. :D


You do secretly write for the NPR Cartalk brothers (the credits section in the end), don't you? :D
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Re: The Core Four

Postby grayfox » Thu Feb 19, 2009 1:14 am

Rick Ferri wrote:.The “Core Four” are:

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX – fee 0.19%)
Vanguard FTSE All-World ex-US Index Fund (VFWIX – fee 0.40%)
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX – fee 0.20%)

An example of a 60% stock and 40% bond portfolio with the Core Four is:

36% VTSMX
18% VFWIX
06% VGSIX
40% VBMFX

The above assumes 60% of the equity in VTSMX, 30% in VFWIX, and 10% in VGSIX. Is that optimal? No one knows or can know. And quite frankly, it does not make much difference is you can add a percent here or subtract a percent or two there. It will not make much difference. For example, to keep things simple by using factors of 5%:

35% VTSMX
15% VFWIX
10% VGSIX
40% VBMFX


What was the return of these portfolio in 2008?
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REIT index

Postby rm » Thu Feb 19, 2009 2:24 pm

I am not sure I understand the diversification provided by the asset class as constructured by VNQ

If the large portion is due to commercial real estate it seems to be heavily correlated with TSM. I can understand appartment building real estate.

Would be curious to understand how DFA's REIT index is created. Is it purely market cap based, as is VNQ.
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Postby muck53 » Thu Feb 19, 2009 2:55 pm

Gekko wrote:REIT and FTSE should not be "Core" funds IMO. I think Bogle would agree.


It is pretty easy for us to find out what Bogle has said regarding international, and why he thinks that way ...

Can anybody find out anything Bogle has said regarding REITs and why he might think that way?

Otherwise, my conclusion is that REITs are a product of Boglehead thinking, not of John Bogle himself.
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Re: REIT index

Postby Rick Ferri » Thu Feb 19, 2009 4:05 pm

rm wrote:I am not sure I understand the diversification provided by the asset class as constructured by VNQ. If the large portion is due to commercial real estate it seems to be heavily correlated with TSM. I can understand appartment building real estate.


REITs had very low correlation with TSM during most of this decade, and at times negative correlation. Only recently have REITs become correlated with TSM. 80% of the time REITS provide a diversification benefit. No asset class always provides diversification.

Would be curious to understand how DFA's REIT index is created. Is it purely market cap based, as is VNQ.


DFA vs. VNQ. DFA has 110 securities while VNQ has 98 securities. The 12 extra securities in DFA are micro-cap REITs. Also, the fee for DFA is 0.33, the fee for VNQ is 0.10%. Those are the only meaningful differences.

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Core 4, Thrifty 3, Dynamic Duo - VBMFX - Weak Link?

Postby Scott G » Tue Feb 24, 2009 12:15 pm

I have a concern regarding the Vanguard Total Bond Market Index for conservative investors. I just finished reading Larry Swedroe's book "The Only Guide to a Winning Bond Stategy you'll ever Need". Under the chapter on Mortgage-Backed Securites he stated that he could not recommend this fund due to an almost one-third allocation to MBS.

This made me do some research and reading to the prospectus for VBMFX which showed 40.5% invested in Goverment backed securites AND the fund can invest up to 20% in investment grade CMO's and derivatives.

I picked the fund for simplicity and the fact that the index holds over 3000 bonds, much larger than other bond indexes. However.....two questions:

1) In today's mortage lead economic crisis is this a safe conservative investment or could part of the index be a "House of Cards" in the government having to support insurance claims on Freddie and Fannie on MBS?

2) In terms of AA, would a more pure bond play like a Treasury Bond fund give a better negative correlation to the total stock market (VTSMX)?
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Re: The Core Four

Postby CCdaCE » Wed Feb 25, 2009 1:10 pm

grayfox wrote:
Rick Ferri wrote:.The “Core Four” are:

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX – fee 0.19%)
Vanguard FTSE All-World ex-US Index Fund (VFWIX – fee 0.40%)
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX – fee 0.20%)

<SNIP>

35% VTSMX
15% VFWIX
10% VGSIX
40% VBMFX


What was the return of these portfolio in 2008?


0.35 -23.71
0.15 -28.43
0.10 -23.8
0.40 3.25

If I did the math right, -13.6%. The above returns are from Vanguard's site, assuming taxes and distributions have been taken into account.

-CC
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Postby nisiprius » Wed Feb 25, 2009 11:19 pm

Sunny wrote:
nisiprius wrote:The Full-Bore No-Chore Safe-'n'-Sure Yield-More Never-Poor Secret-Lore Odin-Thor Al-Gore Rip-and-Roar Eagle-Soar Core Four. :D


You do secretly write for the NPR Cartalk brothers (the credits section in the end), don't you? :D
No, I just stole the idea from them. :oops:
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: The Core Four

Postby grayfox » Thu Feb 26, 2009 1:18 am

CCdaCE wrote:
grayfox wrote:
Rick Ferri wrote:.The “Core Four” are:

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX – fee 0.19%)
Vanguard FTSE All-World ex-US Index Fund (VFWIX – fee 0.40%)
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX – fee 0.20%)

<SNIP>

35% VTSMX
15% VFWIX
10% VGSIX
40% VBMFX


What was the return of these portfolio in 2008?


0.35 -23.71
0.15 -28.43
0.10 -23.8
0.40 3.25

If I did the math right, -13.6%. The above returns are from Vanguard's site, assuming taxes and distributions have been taken into account.

-CC


Are you sure about those returns? The S&P500 total return was -38% in 2008. How could Total Stock Market do so much better? Foreign stocks did even worse than U.S. stocks in 2008.
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Postby SurgPath » Thu Feb 26, 2009 1:37 am

So, as an "average" investor who has spent many nights perusing these forums, and this one thread in particular (great educational thread here....thanks folks) I have a question(s).

I can certainly see the logic behind both theories here (core 4/FF) thanks to the simplified explanations (again, thank you) so if one were to add SCV to their "average retirement investment" portfolio made up of TSM/VFWIX/VBIIX/AMUSX would there be enough long-term gain to justify the extra risk involved, and if so, how much of a tilt is required?

I pose my question with the knowledge that past performance is not an indicator of future returns.

What can one expect going this route (and ticking to it for 20-25 years) based on historical data.....core 4 plus SCV?

Is this a sound strategy for "Joe Six-Pack" who wants to set and forget?

Thank you
"If everybody is thinking alike, then somebody isn't thinking." George S. Patton, Jr.
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Postby bitterroot » Thu Feb 26, 2009 11:09 pm

Rick , I assume from your recent post you still believe the core four is one approiate allocation notwithstanding the past nine months.


Taylor do you still think the Thrifty Three is valid?

I think I know the answer to both questions but thought I would ask.
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The "Thrifty-Three Portfolio"

Postby Taylor Larimore » Thu Feb 26, 2009 11:51 pm

Taylor do you still think the Thrifty Three is valid?


I checked the three fund's current category returns with Morningstar:

Total Stock Market Index Fund

TOP
50% 1-year return
47% 3-year return
38% 5-year return
38% 10-year return

31% 3-year after-tax return
26% 5-year after-tax return
31% 10-year after-tax return

Total International Index Fund

TOP
58% 1-year return
30% 3-year return
24% 5-year return
30% 10-year return

22% 3-year after-tax return
18% 5-year after-tax return
23% 10-year after-tax return

Total Bond Market Index Fund

TOP
9% 1-year return
8% 3-year return
6% 5-year return
12% 10-year return

7% 3-year after-tax return
7% 5-year after-tax return
12% 10-year after-tax return

Only 1 of 21 figures is below average. So yes, I conclude the "Thrifty-Three Portfolio" is still "Valid."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The "Thrifty-Three Portfolio"

Postby deepdrive » Fri Feb 27, 2009 8:26 am

Taylor Larimore wrote:
Taylor do you still think the Thrifty Three is valid?


I checked the three fund's current category returns with Morningstar:

Total Stock Market Index Fund

TOP
50% 1-year return
47% 3-year return
38% 5-year return
38% 10-year return

31% 3-year after-tax return
26% 5-year after-tax return
31% 10-year after-tax return

Total International Index Fund

TOP
58% 1-year return
30% 3-year return
24% 5-year return
30% 10-year return

22% 3-year after-tax return
18% 5-year after-tax return
23% 10-year after-tax return

Total Bond Market Index Fund

TOP
9% 1-year return
8% 3-year return
6% 5-year return
12% 10-year return

7% 3-year after-tax return
7% 5-year after-tax return
12% 10-year after-tax return

Only 1 of 21 figures is below average. So yes, I conclude the "Thrifty-Three Portfolio" is still "Valid."


Let me add additional support. Over longer time periods, at least for the stock funds, the funds rank even better than over the last year. This goes to show you that it's very difficult to beat the market over an extended period of time.

I love my Thrifty Three portfolio. It's so simple, and I'm guaranteed to get my share of the market's return.
Investment difficulty and long-term success are perfectly negatively correlated. Keep it simple.
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Postby Chuck T » Fri Feb 27, 2009 10:31 am

Such a long thread, I don't know if anyone mentioned it but I like my Retirement Four Portfolio.

Retirement Four Portfolio

VG Total Stock Market (VTSMX)
VG FTSE All World ex-US (VFWIX)
VG Total Bond Market (VBMFX)
or
VG Intermediate Term Treasury Fund (VFITX)
VG Inflation Protected Securities (VIPSX)
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Postby DriftingDudeSC » Sat Feb 28, 2009 6:23 am

Hi Chuck T,

Such a long thread, I don't know if anyone mentioned it but I like my Retirement Four Portfolio.

Retirement Four Portfolio

VG Total Stock Market (VTSMX)
VG FTSE All World ex-US (VFWIX)
VG Total Bond Market (VBMFX)
or
VG Intermediate Term Treasury Fund (VFITX)
VG Inflation Protected Securities (VIPSX)

What % in each fund and 2008 returns? YTD returns? Sounds lik a good mix you have there.
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Postby Opponent Process » Sat Feb 28, 2009 7:15 am

Chuck T wrote:Such a long thread, I don't know if anyone mentioned it but I like my Retirement Four Portfolio.

Retirement Four Portfolio

VG Total Stock Market (VTSMX)
VG FTSE All World ex-US (VFWIX)
VG Total Bond Market (VBMFX)
or
VG Intermediate Term Treasury Fund (VFITX)
VG Inflation Protected Securities (VIPSX)


I like it too.
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37
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Postby Chuck T » Sat Feb 28, 2009 10:39 am

Drifting Dude and Opponent Process

I am retired with 40/60 AA.

TSM 30%
FTSE 10%

TBM 30%
TIPS 30%

CY 08 -14.85%

If I had held VFITX in place of TBM CY08 would have been -12.37.

Haven't looked at 09 to date, but I know I am down.

It is a simple portfolio, easy to maintain and loses quite a bit less than the market as a whole. At least that is what I keep telling myself. I am sticking with it. I don't care for REITS and there is a small amount of them in TSM.
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Postby woof755 » Sat Feb 28, 2009 4:30 pm

I'm going with the Sensational Seven:

TSM
Total Int'l
US SCV
Int'l Small Cap
REIT
Short-term Bond
TIPS

I've settled on it and do not plan to change...forever.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
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Postby Blues » Sat Feb 28, 2009 4:47 pm

Hmmm, then mine must be the Security Six*:

TSM
FTSE

TBM
TIPS
Short-Term Bond

TSP "G"

(Thanks to Larry Swedroe for helping me nail down my AA based upon the concepts of "marginal utility of wealth" and "ability, need and willingness" to take risk.)

(*The name seems especially fitting in light of my being retired from federal law enforcement. ) 8)
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Postby GammaPoint » Fri Sep 04, 2009 2:53 pm

Wow, just spent over an hour and a couple mugs of coffee reading this thread. Very useful reading :) A late thanks to all of those involved!
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Postby EvelynTroy » Sat Sep 05, 2009 8:05 am

I too have been reading through this thread - very informative.

Taylor posted in Feb. 08 -
I checked the three fund's current category returns with Morningstar:

Total Stock Market Index Fund

TOP
50% 1-year return
47% 3-year return
38% 5-year return
38% 10-year return

31% 3-year after-tax return
26% 5-year after-tax return
31% 10-year after-tax return

This might be dumb - but I would like to know where on M* you locate those Current Category Returns. I can't seem to locate them. I do not have premium M* -perhaps the data is there?
Thanks very much.
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