Swedroe’s book had a couple of surprises for me when I read it. The first surprise is that he does not recommend Vanguard’s Total Bond Fund (VBMFX) because it holds 33% mortgage backed securities (MBS). My understanding is that VBMFX mirrors the Lehman Brothers Bond Index, so Larry must be saying the Lehman Brothers Bond Index itself is flawed……because I assume the index has 33% MBS also. Maybe this a wrong assumption on my part.
I already knew that Larry is a fan of the commodities asset class, and Rick is not. From Larry’s book, I found out he is also not a fan of high yield (junk) bonds and emerging market bonds.
I thought it might be interesting to contrast and compare the differences between Larry’s and Rick’s recommended asset classes for asset allocation. Based upon reading their books and their postings to the Bogleheads, I constructed the chart below. My approach was to list the asset classes and Vanguard funds that Larry and Rick agree and disagree with. I used Vanguard funds because most people do not have access to DFA funds. I also used traditional mutual funds because I do not have all the ETF’s memorized yet. From what I can determine, Larry and Rick disagree on 4 asset classes or funds which are highlighted in yellow below:
Of course the percentage allocations to each asset class vary depending on risk tolerance and whether you want simplicity or a complex slice-n-dice approach.
I really enjoy Larry’s saying in his book……and on the Boglehead’s web site…..
Do Not Take More Risk Than You Have the Ability, Willingness, or Need to Take.
I have found this saying to be very useful when trying to determine the stock to bond ratio of my own portfolio.