Core Four portfolios- 2019 update

Core four portfolios are simple indexed portfolios that allocate assets across four asset class mutual or exchange-traded funds.

The 2019 performance of the core four portfolio based on Vanguard’s life strategy and target date portfolio allocations, and of Rick Ferri’s classic core four portfolio, are tabulated below. The portfolios assume using admiral share funds.

Portfolio 80/20 60/40 40/60 20/80
Vanguard 23.26% 19.63% 15.91% 12.19%
Rick Ferri 24.00% 20.18% 16.36% 12.53%

Vanguard core four portfolios

Starting February 6, 2013, Vanguard began offering investors four fund portfolios, invested in four “total market” index funds through the firm’s series of low cost target date and target risk (called LifeStrategy) balanced index funds. Furthermore, the firm’s on-line portfolio allocation tools now suggest similar four fund allocations.

The Vanguard target date and LifeStrategy portfolios allocate investments across the following asset class index funds:

  • Vanguard Total Stock Market Index Fund, holding approximately 3600 stocks.
  • Vanguard Total International Stock Index Fund, holding approximately 7400 stocks.
  • Vanguard Total Bond Market Index Fund, holding approximately 9000 bonds.
  • Vanguard Total International Bond Index Fund, holding approximately 6100 bonds.

Vanguard allocates 40% of a portfolio’s stock allocation to international stocks and allocates 30% of a portfolio’s bond allocation to international bonds. The charts below show the portfolio allocations for four stock/bond allocation splits.

Expense

The four portfolio constituents have the following expense ratios.

Expense ratios

Fund Admiral shares ETF shares
Total Market 0.04% 0.03%
Total International Stock 0.11% 0.09%
Total Bond 0.05% 0.035%
Total International Bond 0.11% 0.09%

Historical returns

The portfolio has a six-year performance history. The portfolio returns reflect using investor share funds from 2014 – 2017 and admiral shares thereafter (Vanguard’s 2018 reduction in admiral class minimums means that almost all investors can now use admiral shares for portfolio allocations). Returns will differ for different international stock and bond allocations.

Vanguard Four Fund portfolio returns

Portfolio 80/20 60/40 40/60 20/80
2019 23.26% 19.63% 15.91% 12.19%
2018 -6.93% -4.98% -3.03% -1.63%
2017 19.50% 15.41% 11.32% 7.23%
2016 8.13% 6.89% 5.64% 4.40%
2015 -1.15% -0.74% -0.32% 0.10%
2014 6.04% 6.13% 6.31% 6.50%

Compound returns

The table below provides 3-year compound returns and volatility statistics for the Vanguard core four allocation.

Portfolio 80/20 60/40 40/60 20/80
CAGR 11.12% 9.47% 7.76% 5.97%
STdev 16.49% 13.16% 9.88% 6.17%
Sharpe ratio 0.63 0.64 0.65 0.68
The table below provides 5-year compound returns and volatility statistics for the Vanguard core four allocation.
Portfolio 80/20 60/40 40/60 20/80
CAGR 7.96% 6.84% 5.67% 4.46%
STdev 12.97% 10.41% 7.88% 5.41%
Sharpe ratio 0.59 0.61 0.64 0.70

Rick Ferri Core Four

Investment author and advisor Rick Ferri proposes a four fund portfolio that adds a US equity REIT fund to a portfolio consisting of US stocks, International stocks, and US bonds.The asset allocation menu holds the following positions:

  • A US total market index fund.
  • An international total market index fund.
  • A US REIT index fund.
  • A US total bond market fund

Rick proposes that investors first determine their bond allocation. With the remaining funds, allocate 60% to US stock, 30% to international and 10% to REITs. For example, this formula would provide the following allocations.

Using Vanguard funds

Rick suggests using these Vanguard index funds/etfs for implementing the Core Four portfolio.
Core-4 Admiral Class share funds are:

Fund Ticker Expense ratio
Vanguard Total Stock Market Index Fund Admiral Shares VTSAX 0.04%
Vanguard Total International Stock Index Fund Admiral Shares VTIAX 0.11%
Vanguard REIT Index Fund Admiral Shares VGSLX 0.12%
Vanguard Total Bond Market Admiral Shares VBTLX 0.05%

Core-4 Investor ETF Class share funds are:

Fund Ticker Expense ratio
Vanguard Total Stock Market ETF VTI 0.03%
Vanguard Total International Stock ETF VXUS 0.09%
Vanguard REIT ETF VNQ 0.12%
Vanguard Total Bond Market ETF BND 0.035%

Equity REITS

The rationale for adding equity REITs to a portfolio is quite simply the size of commercial real estate as an asset class in the economy. Advice on investing in real property is as old as the ancient Talmud: “Let every man divide his money into three parts, and invest a third in land, a third in business, and let him keep a third in reserve” and as current as David Swensen, the investment manager for the Yale endowment fund, who advises investors to include commercial real estate in his model portfolio.

If you work in the real estate business, or if you are already directly own and manage real estate rental properties, you may not want or need added exposure to equity real estate.

Historical returns

The following tables provide return data for Rick Ferri’s Core Four portfolio. Return figures assume investment in Vanguard investor share index funds through 2017. Beginning with 2018, returns reflect investment in admiral shares. Keep in mind that past returns are no guarantee of future returns, but the history reveals how each portfolio allocation has performed over both the 2000 – 2002 and 2008 bear markets and ensuing recoveries.

Rick Ferri Core Four portfolio returns

Year 80/20 60/40 40/60 20/80
2019 24.00% 20.18% 16.36% 12.53%
2018 -6.43% -4.83% -3.23% -1.63%
2017 17.76% 14.18% 10.61% 7.03%
2016 8.30% 6.85% 5.40% 3.95%
2015 -0.67% -0.43% -0.19% 0.06%
2014 8.51% 7.82% 7.14% 6.45%
2013 19.35% 13.95% 8.55% 3.14%
2012 14.37% 11.79% 9.31% 6.63%
2011 -0.84% 1.26% 3.36% 5.46%
2010 14.42% 12.42% 10.42% 8.42%
2009 26.14% 21.09% 16.04% 10.96%
2008 -30.32% -21.46% -12.63% -3.79%
2007 6.43% 6.55% 6.67% 6.80%
2006 17.50% 14.19% 10.88% 7.58%
2005 8.04% 6.63% 5.22% 3.81%
2004 14.32% 11.80% 9.28% 6.76%
2003 28.36% 22.27% 16.17% 10.07%
2002 -11.73% -6.73% -1.73% 3.26%
2001 -7.43% -3.46% 0.50% 4.47%
2000 -4.43% -0.48% 3.48% 7.43%
1999 18.13% 13.41% 8.69% 3.96%

Compound returns

The tables below provide 3-year, 5-year, 10-year, 15-year and 20-year compound returns and volatility statistics for each Rick Ferri Core Four allocation.

80/20 allocation

  3-year 5-year 10-year 15-year 20-year
CAGR 10.97% 8.01% 9.46% 7.44% 6.25%
STDev 16.07% 12.58% 9.94% 14.17% 14.58%
Sharpe ratios 0.63 0.61 0.95 0.49 0.37

60/40 allocation

  3-year 5-year 10-year 15-year 20-year
CAGR 9.31% 6.80% 8.07% 6.79% 6.12%
STDev 13.06% 10.25% 7.73% 10.74% 10.82%
Sharpe ratios 0.63 0.62 1.02 0.55 0.44

40/60 allocation

  3-year 5-year 10-year 15-year 20-year
CAGR 7.59% 5.55% 6.62% 6.00% 5.83%
STDev 10.07% 7.94% 5.69% 7.41% 7.18%
Sharpe ratios 0.63 0.62 1.11 0.64 0.57

20/80 allocation

  3-year 5-year 10-year 15-year 20-year
CAGR 5.82% 4.27% 5.13% 5.07% 5.40%
STDev 7.14% 5.67% 4.08% 4.43% 4.03%
Sharpe ratios 0.62 0.66 1.16 0.82 0..86

Return figures are calculated using Rick Ferri’s Core Four portfolio google drive spreadsheet.

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