selftalk wrote:Your suggestion is fine but I understand from reading much material ie. lazy portfolios by paul farrell at marketwatch.com, coffeehouse investor by bill schultheis and paul merriman, all well known and respected in the investing business that larger returns over time are gotten by adding other index classes such as large value, small cap, small value, reits from the USA and the same allocation in the international segment of a portfolio with bond allocations. Doing it that way these people indicate that the overall returns will beat the VTSMX and VFINX with a bond allocation. And these portfolios allow for a good portion of a bond allocation and in most cases 40%. What do you think about this approach?
Bonds happened to have done just as well, if not better, than stocks during the periods reported at that website. Their purpose is not to compete with stocks, rather to diversify and stabilize a portfolio according the willingness, need and/or tolerance for risk of the individual. When considering any of the lazy portfolios, I would first consider an appropriate amount of bonds for my situation, and then probably adjust the portfolio accordingly, instead of going with whatever high or low amount of bonds the portfolio dictates.
One of the most eye-opening things you can do on this forum is prepare a "portfolio help requested"-type thread, including the information recommended here for asking portfolio questions
. I highly recommend it.
There are certain things one can do by which the bulk of one's returns will be obtained. I am referring to those things that have the largest impact on retirement. The perfect combination of funds that will create the highest possible returns (all else being equal and if such a combination can be known ahead of time) is still no match, and cannot outperform the impact of other decisions from which a portfolio evolves (because all things are not
equal and such a combination cannot
be known ahead of time).
Some portfolios may add a small amount to returns, the bulk of which are already achievable via a 3-fund portfolio. That means that all the study and work and potential complexity in order to push beyond a simple, broad-index based portfolio will only mostly
achieve what the simple portfolio can do without even breaking a sweat. In other words, it's easy to get caught up in which recipe will result in the most icing, but relative to the cake the icing will always be a small part of the end result.
So, I'll pull a few items out of order from The Bogleheads Investment Philosophy that I believe will have a bigger impact on portfolio choice and even on one's returns:a. Invest early and often
. No portfolio can overcome one's rate of savings. Save little, have little. Additionally, Bogleheads know that increasing one's savings rate by 0.5% can have the same outcome as eking out an additional 0.5% in returns. Spending time reducing living expenses or raising income potential can be more meaningful to one's rate of savings and
lifestyle. And if raising income potential also results in the creation of additional tax-advantaged
space to save the money (say, from a side business) the impact is greater. And saving more creates zero
additional risk to one's portfolio.b. Minimize taxes
. One is typically better off investing in a lousy
401k to prevent taxes from ravaging returns. Often the only tolerable option in that lousy 401k is an S&P 500 Index fund, so the bulk of one's investment dollars end up there, which makes S&P 500-beating portfolios irrelevant. Often the portfolio one desires is not the best portfolio
for one's situation because such a portfolio would require a crippling level of taxation.c. Keep costs low
. Efficiently distributing a single portfolio across multiple accounts can result in other meaningful improvements to a portfolio. If I save 0.5% on portfolio costs and add that to my 0.5% savings increase, that's a long-term 1% improvement in my returns (guaranteed!) that requires no additional complexity or risk.
Philosophically, there are those who are not convinced that a simple portfolio of broad-index funds can be outdone, except when one mines data from the past (which can never predict the future, anyway). If that is not your philosophy or belief system, pick the portfolio that makes the most sense to you; one that is appropriately doable in your circumstances.
Those lazy portfolios are fine portfolios, regardless. The most good will come from staying the course in those asset classes. The most good will come from the cake, not the icing, which is achievable from a 3-fund or other lazy portfolio. Do what makes sense to you, because when the next market apocalypse tries your faith, you'll want to have a portfolio that you really believe in so you'll stay the course.
I haven't done much, if any reading on the Lazy Portfolios you mention, but if it were me (and I'm no expert):The Aronson Family Taxable
doesn't make sense (to me) for all (or mostly) taxable investments, if for no other reason than the problems with rebalancing which will have tax implications every time you do it. It is also very complicated. Even assuming all tax-advantaged space, I don't particularly care for separate Pacific, European and Emerging Markets funds, but I realize that Rick Ferri and some others might. I consider a little High Yield to be okay, but unnecessary. I personally am not comfortable with Long-Term bonds unless they're a part of VG Total Bond. That's just me.FundAdvice's Ultimate Buy and Hold
is also very complicated. Trev H ingeniously figured out what makes the UBH tick and brilliantly reduced it to 4 equity funds instead of an unwieldy 8 in the following thread: Ultimate Buy and Hold 8 funds vs 4
. Definitely read the thread.Dr. Bernstein's Smart Money
makes more sense to me, but I'm still not crazy about separate Pacific-Euro-Emerging funds. With all of these portfolios, keep in mind that even big believers in the diversification of REITs (Bernstein, Ferri to name a couple) consider them to be overgrazed at this point, so they continue to have high risk profiles with lower than historically average expected returns. (I seem to recall their current expected returns are no different those of the S&P 500.)The Coffee House
makes more sense to me than the first three.Yale U's Unconventional
makes a lot of sense to me except
that the REIT portion seems too high for my liking, but I might feel differently when I finally read Swensen's work; I've already mentioned that I'd rather have Total Bond or an Intermediate Term bond fund than LT Treasuries. I would also consolidate the Developed and Emerging Markets funds into Total International for the following reasons: (1) Total Int'l already holds Developed and Emerging Markets in the same 3-to-1 proportion; (2) Total Int'l is more diversified than the other two because it includes all Lg, Md and Sm asset classes; (3) Total Int'l would be more tax-efficient if money must be in a taxable account; (4) Simplicity of one fund instead of 2. Basically I'd end up making the portfolio more like the Rick Ferri Core Four Portfolio
.Dr. Bernstein's No Brainer
is not so different than a 3 (in this case 4) fund portfolio, but it has me scratching my head: why would anyone use a European Stock fund as their sole international fund, versus VG Total International? Knowing me, I'd also probably use Total U.S. Stock instead of the S&P 500. I also might replace the Small Blend fund with an Extended Market fund, or go with Small Value. Not sure.Margaritaville
is a 3 fund portfolio, but with TIPS instead of the typical Total Bond.Second Grader's Starter
is also a 3 fund portfolio.
You'll find more Lazy Portfolios in the Bogleheads Wiki: Wiki Lazy Portfolios
All the best!