Bogleheads.org

I vote for:

How to combine asset class funds for better returns and less risk

I would love to know how to increase return for lower risk, i.e. a more efficient portfolio, how it worked in the past and why it should work in the future.

I am a typical three-funder but I've read a lot of your stuff on small cap value and am always intrigued.

Look at total return, not a price chart.

Total assets minus total liabilities = net worth.

If that number is $1 million or greater, you're a millionaire.

My wife and I know our financials. Nobody else does.

If paying cash doesn't make you strapped for cash, I'd pay cash.

On another note, your second pro really isn't a pro because if you don't pay cash, you have it all sitting there to pay the mortgage, so quitting your job really isn't a factor at all here.

tibbitts wrote: ↑Thu Feb 23, 2023 12:17 pm

Triple digit golfer wrote: ↑Sun May 08, 2022 9:06 pm It proves how futile it is to try to say what's going to happen in real time. Imagine how many times people called the bottom during a 3 year peak to trough. Staying the course and simply investing and ignoring it all worked out great.

Except for the not-insignificant number of people who had no income due to job losses at that time.

That's where a reasonable asset allocation comes into play. The U.S. bond market had 5.5% annual REAL returns from 2000-03.

I invest in whatever my predetermined plan calls for. I pay no attention to any "scenarios" or "environments."

cjcerny wrote: ↑Mon Feb 20, 2023 2:07 pm Mutual funds are much less of a hassle than ETF's, in my experience.

This is my reasoning.

I set aside whatever I can. The pot is for retirement, lumpy expenses, new cars, and whatever else I will need that isn't paid out of monthly cash flow.

I remember that post. Maybe you've posted it before, or referenced it. It's so well written.

This is why I'm so confident in my three fund approach of total market index funds. I realize that it isn't perfect and that the ideal portfolio can only be known in hindsight. I am confident that the three fund approach, along with a solid savings rate and living within our means, will allow my wife and me to reach our goals while allowing us to stay the course and sleep at night. That's what matters, not the exact percentage breakdowns or any tilts or "alternative" investments.

...Intelligence is knowing that a tomato is a fruit. Genius is knowing not to put tomatoes in a fruit salad... A friend of mine who is something of a foodie literally put (cherry) tomatoes in a fruit salad. It was good. Intelligence is knowing that a tomato is a fruit. Common sense is knowing not to put tomatoes in a fruit salad. Creativity is taking a calculated risk on violating common sense. Tomatoes can be used in sweet dishes (even cakes) provided that they are carefully selected to be sweet (a good cherry tomato can do that). Of course, I am very much guilty of “creativity” with my portfolio; that is, taking those calculated risks against common sense. Mmm. Tomato jam is purdy good. I call Tomato jam by another name, ketchup. I put i...

exodusNH wrote: ↑Mon Feb 13, 2023 7:00 pm

happyisland wrote: ↑Sun Feb 12, 2023 5:02 pm Great, thanks for the confirmation you guys! It just seems too good to be true. I had always (wrongly) assumed that we would end up paying an income tax-like rate on our LTCG.

You owe taxes on the long-term gains; you need to subtract our what you originally bought them for.

However, the 0% capital gains rate is more complicated that it seems.

https://www.kitces.com/blog/long-term-c ... in-0-rate/

Wow, that is a fantastic article. I understood this in principle but had never seen such great examples. Thanks for posting it.

Assuming the investments are all long term, you've got it backwards.

I want the slower growing stuff in tax deferred accounts because withdrawals are ordinary income. Taxable accounts are taxed at favorable capital gains rates so once my tax advantaged accounts are all filled, extra stocks go in taxable accounts.

You also get the benefit of the dividends being taxed at capital gains rates as opposed to ordinary income rates that bond income is taxed at.

I have owed between $800 and $1,000 every year for the last five years.

I believe that bonds behave more deterministically versus equities, but is it really so clear that interest rates had to rise, and on the timescale that made this a sure decision? What made it a sure decision was the pre-determined course to return to BND when it was consistently paying at least a 50% premium to stable value. If I call it a policy statement,it's not market timing, right! You have to become accustomed to BHs painting scarlet letters on you for the dreaded Market Timing. It's apparently okay to market time housing, automobile purchase, vegetables, appliances, etc., but heaven forbid you do it with securities. People market time vegetable purchases? Do you do it with tomatoes? Wait - a tomato is a fruit. An internet search pu...

TomatoTomahto wrote: ↑Sun Feb 12, 2023 9:22 am

Outer Marker wrote: ↑Sun Feb 12, 2023 7:53 am

vxdx wrote: ↑Sun Feb 12, 2023 7:48 am I believe that bonds behave more deterministically versus equities, but is it really so clear that interest rates had to rise, and on the timescale that made this a sure decision?

What made it a sure decision was the pre-determined course to return to BND when it was consistently paying at least a 50% premium to stable value. If I call it a policy statement,it's not market timing, right!

You have to become accustomed to BHs painting scarlet letters on you for the dreaded Market Timing. It's apparently okay to market time housing, automobile purchase, vegetables, appliances, etc., but heaven forbid you do it with securities.

People market time vegetable purchases?

Do you do it with tomatoes?

Wait - a tomato is a fruit.

I think if you can't pay cash, you can't afford it. I'd keep saving and do it when you can pay cash. This may be the 20s but it ain't the 1920's. We have fully transitioned in to a debt based society and current costs of labor and goods reflect it. Also, considering rampant wage stagnation there aren't any alternatives either. If we kept "saving up" for everything we'd never have anything on time (eg: affording a basement finish AFTER kids are grown up and gone). Ask those who kept saving for 20% down and then saw prices sky rocket during the pandemic. Most missed the boat on purchasing their primary residence. I'm not saying it's best practice but let's not try to impart age old wisdom that hasn't been applicable for decades at ...

I think if you can't pay cash, you can't afford it. I'd keep saving and do it when you can pay cash. This may be the 20s but it ain't the 1920's. We have fully transitioned in to a debt based society and current costs of labor and goods reflect it. Also, considering rampant wage stagnation there aren't any alternatives either. If we kept "saving up" for everything we'd never have anything on time (eg: affording a basement finish AFTER kids are grown up and gone). Ask those who kept saving for 20% down and then saw prices sky rocket during the pandemic. Most missed the boat on purchasing their primary residence. I'm not saying it's best practice but let's not try to impart age old wisdom that hasn't been applicable for decades at ...

Charles Joseph wrote: ↑Sat Feb 11, 2023 8:33 pm Thank you Taylor. I look forward to Vectors and to your reminder every month.

As do I.

Was 2022 really the 7th worst year in the last 95 for the S&P 500? I find that so surprising.

I think if you can't pay cash, you can't afford it. I'd keep saving and do it when you can pay cash.

I will only buy Hondas and Toyotas. I assume they'll last 200,000 miles. That's probably low-end, but it's what I use. If a new car is $30,000, that's $0.15 per mile. So a used car with 100,000 miles should be less than $15,000. Actually, much less because at 100,000 miles you've got significantly more maintenance ahead of you, on a per mile basis, than you do at 0 miles. In other words, if I have a choice between these three: A) New car, $30k B) Used car, $15k, 100k miles C) Used car, $8k, 120k miles D) Used car, $21k, 50k miles E) Used car, $10k, 70k miles Option B is out because it's the same as Option A, except tie (or probably anything within 15% of a tie) goes to the new car. Option C is a strong contender, with 80,000 miles left for...

Sounds like you're convinced there was fraudulent concealment. So, are you going to pursue this?

CoastLawyer2030 wrote: ↑Fri Feb 10, 2023 6:33 am

Triple digit golfer wrote: ↑Thu Feb 09, 2023 2:53 pm Weren't you talking about downsizing to a different home not long ago?

Put the home for sale and offer a credit for this issue.

My septic system will not pass inspection at the moment (unless intentionally manipulated, which I am not willing to do). I have to fix this before I can sell it, and I am not going to transfer this much of a nightmare to an unsuspecting buyer.

Obviously. That's why I said offer a credit it. Let them fix it.

enad wrote: ↑Fri Feb 10, 2023 4:25 am If you haven't read Jack Bogle's speech titled The Telltale Chart

It would be a good time as Jack discusses several "tilts" and explains them away.

Best Wishes
Enad

Totally agree. I don't tilt at all, to any styles, sectors, sizes or countries.

Yep, like arcticpineapplecorp said, max your 401(k) and Roth IRA by depleting the $80k for as long as it takes to get it to the level you want it to be.

What % out performance do people hope for (assuming the better end of historical outcomes) when tilting for SCV? Historically, it's been ~.25% increase in CAGR w/ 25% of US equities in SCV, and ~.5% increase in CAGR w/ 50% of US equities in SCV if you look from 1987 on. But if you start a decade or so further back, then it was 1%-1.75% increase in CAGR depending on 25-50% of US equities in SCV. I'd imagine most people who have performance expectations in mind are "hoping" for something in the 1-2% range as far as increased rate of return over a 50-year investment period. Thanks, very helpful. A couple of questions if you don't mind: 1. When people talk about tilt %s, how is it calculated? For example, if I hold 64% US Stock / 16%...

Thank you, esteemed Bogleheads.

I always have this irrational fear of selling and realizing capital gains. I know I have losses to offset, but I'm still using them rather than carrying them over for the future. But, I have to think that long term, this is still a better strategy than keeping cash sitting around in a taxable account.

I will only buy Hondas and Toyotas. I assume they'll last 200,000 miles. That's probably low-end, but it's what I use. If a new car is $30,000, that's $0.15 per mile. So a used car with 100,000 miles should be less than $15,000. Actually, much less because at 100,000 miles you've got significantly more maintenance ahead of you, on a per mile basis, than you do at 0 miles. In other words, if I have a choice between these three: A) New car, $30k B) Used car, $15k, 100k miles C) Used car, $8k, 120k miles D) Used car, $21k, 50k miles E) Used car, $10k, 70k miles Option B is out because it's the same as Option A, except tie (or probably anything within 15% of a tie) goes to the new car. Option C is a strong contender, with 80,000 miles left for ...

I would not do any of those options. I would start saving until I have at least a 10% down payment and a monthly PITI payment that is less than 20% of my gross income. Sounds like you've got $25k cash already, so save another $15-20k and you're there. At your income and the fact that you're single, you should be able to do this in a few months. Personally, I'd bump it to 20%, so another $55k or so, which you should be able to do in less than a year. Keep contributing to any retirement accounts that have a match at least up to the level needed to get the match. Route everything else to a savings account or money market fund, outside of retirement accounts. What are your annual expenses and how much are you saving per year? Thanks for the fe...

Weren't you talking about downsizing to a different home not long ago?

Put the home for sale and offer a credit for this issue.

I would not do any of those options. I would start saving until I have at least a 10% down payment and a monthly PITI payment that is less than 20% of my gross income. Sounds like you've got $25k cash already, so save another $15-20k and you're there. At your income and the fact that you're single, you should be able to do this in a few months. Personally, I'd bump it to 20%, so another $55k or so, which you should be able to do in less than a year.

Keep contributing to any retirement accounts that have a match at least up to the level needed to get the match. Route everything else to a savings account or money market fund, outside of retirement accounts.

What are your annual expenses and how much are you saving per year?

My wife and I are at a point where our taxable investments exceed 5 years of expenses. We're in our late 30s and in the accumulation stage, with about 12.5 years of expenses total. Our overall asset allocation is 80% equities and 20% bonds or cash. More on that below. I would like to simplify a simple portfolio even further. Currently, we have some cash sitting in a high-yield savings account earning 3.4% and about the same in I Bonds. This total is about 10 months of expenses. I don't think it's necessary to: A: Have the cash drag in general, although cash rates aren't too bad these days. B: Have the cash drag in a taxable account. Is there anything inherently wrong with setting up this approach: -Eliminate significantly all cash from the ...

Why wouldn't anybody be willing to take it to zero liabilities?

UpperNwGuy wrote: ↑Wed Feb 08, 2023 9:30 pm If it reflects reality, it is not a tilt.

Bingo.

Growth, value, small, large - it's all arbitrary. The market is neutral regardless of the numbers shown in some little 9 box Brady Bunch grid.

Yes, it is far too much. $800k is not an addition, it's a house or two or three. Either stay in the house as-is and live with it or move somewhere else and live there.

Is this something that legally has to be "disclosed" (like mold or water damage)? To my knowledge, buyers aren't required to disclose everything that may be wrong. That's why you get an inspection, which obviously didn't find this issue.

My gut says you're out of luck. Get it fixed and move on.

Five years old is pretty young, especially for a book. Plus I don't think I know of any good books about personal finance. You can, of course, get her books about physical money, which is always fun for kids... you know, ones aimed a future stamp-and-coin collectors showing the mint and the Bureau of Printing and Engraving, and stuff about the portraits on the currency. I don't need cookies, and when the Girl Scouts are selling them, I have a little goofy ritual that seems to be well-received. I walk up to the sales table when it isn't busy, and I say "I don't want cookies but I will make a $5 donation IF...." and take out the $5 bill, "you can tell me [quiz question] without asking any adults." I adapt the quiz questio...

I place international in tax sheltered accounts due to much higher dividend yield That is probably the best course of action to take. But don’t forget that foreign income taxes are withheld from your tax-free (Roth) and tax-deferred holdings of foreign stocks, which you never get back. In a taxable account you get a $ for $ credit against your federal income tax liability. This varies from year to year, but for 2022 foreign taxes withheld reduced the total return of our foreign stock holdings by about 15 basis points - not a great deal of money, but equivalent to increasing the annual fees of your foreign stock fund by .15 (from .11 to .26 for VTIAX). On the other hand, the annual fees for holding VTSAX were only .04. If we assume that the...

I'd like to teach my 5 year old daughter good money habits and have it instilled at a young age. We're already giving her a $5 weekly allowance for doing chores and allowing her to pick out toys and pay in cash. There are so many books out there. What have Bogleheads done to instill and teach good financial habits to their kids at a young age without overdoing it and boring the kids? There are diverse ideas here, but count me among those who think age 5 is too young to start an allowance, and may have the opposite of its intended effect. Model good money habits for them to see, but give them space to be a 5-year-old. My $.02. I should clarify because I misspoke in the first post. We started the allowance long after she was responsible for ...

I'd like to teach my 5 year old daughter good money habits and have it instilled at a young age. We're already giving her a $5 weekly allowance for doing chores and allowing her to pick out toys and pay in cash. There are so many books out there. What have Bogleheads done to instill and teach good financial habits to their kids at a young age without overdoing it and boring the kids? i can't believe I forgot this considering I just heard it recently. It's a planet money podcast about different books being used in a grade school (third grade) that can be useful in teaching about economics: https://www.npr.org/2023/01/05/1147069942/kids-books-economics-lessons there's also the allowance game: https://www.lakeshorelearning.com/products/games/...

visualguy wrote: ↑Sun Feb 05, 2023 11:07 am

Apathizer wrote: ↑Sun Feb 05, 2023 11:02 am

visualguy wrote: ↑Sun Feb 05, 2023 10:09 am I think you're basically making my point unless you think these new wildly successful companies will be in ex-US.

No, you seem to miss my point that chasing companies in highly speculative new technologies is unlikely to be a successful investment strategy. Investing in highly profitable, low share-price companies is more likely to be successful. Many of these companies are based outside the US.

In that case, why has indexing ex-US done so poorly relative to indexing US?

Over the last decade? Who cares?

It's hard to tell which ones will go how far. Some will fizzle out, and some will become the next ultra market cap companies. True. Efficient stock markets will price them accordingly. Suppose you are looking at 10 companies, each of which, based on the information available at the time, has a 90% chance of becoming a $0 company, and a 10% chance of being a $100 company. In efficient markets, each will be priced at $10. If you index US, you'll benefit from the rocket ships. If you index US, will buy them after they have already been priced by the markets. To continue the above example, suppose you invest $10,000 in an index of these 10 stocks priced at $10, $1000 each. Suppose 9 out of 10 of those stocks then goes to $0, but one goes to $1...

Google wasn't priced into other US companies before it existed. True. When they come, they'll show up in US, not ex-US, and drive further US outperformance relative to ex-US. This is assuming they will be mispriced as IPOs, and then continue to be mispriced as they run up to become major companies. The "fun" thing about all this is we actually saw all this before, because this was the exact theory behind the dot-com bubble. You couldn't miss with new tech stocks, because those companies were going to grow and beat non-tech stocks. The idea that growth potential should already be priced into tech stocks at the IPO stage simply fell on deaf ears. No way, look at all the money being made even if you bought after the IPO, if you were...

Why was nobody arguing for 100% U.S. and citing 100 years of favorable returns relative to ex-U.S. back in 2011?

acegolfer wrote: ↑Sun Feb 05, 2023 8:37 am

Triple digit golfer wrote: ↑Sun Feb 05, 2023 8:32 am

acegolfer wrote: ↑Sun Feb 05, 2023 8:19 am

Triple digit golfer wrote: ↑Sun Feb 05, 2023 8:07 am Are you sure about that? What are your assumptions on federal and state marginal income tax rates and whether the state allows foreign tax credit? Which year was it more tax efficient?

yes, positive as long as you are paying any federal income tax.

That's incorrect.

Perhaps, I interpreted your "both funds have the same 8% return" example differently. Regardless, I don't think analyzing your specific example is useful for this discussion. To me, this debate is not about US vs ex-US. It's about where to put ex-US.

Right, and my point is that it is unknown where it is best to put it because it depends on a lot of factors, which are not equal.

acegolfer wrote: ↑Sun Feb 05, 2023 8:19 am

Triple digit golfer wrote: ↑Sun Feb 05, 2023 8:07 am Are you sure about that? What are your assumptions on federal and state marginal income tax rates and whether the state allows foreign tax credit? Which year was it more tax efficient?

yes, positive as long as you are paying any federal income tax.

That's incorrect.

The answers others proposed seemed all to boil down to saying that ex-US is undervalued or US is overvalued for whatever reasons, which contradicts market efficiency if that's truly the case over such a long period of time. You are getting this backward. If you assume that based on the information we know today, the increase in US stock valuations from 2012-22, or 1900 to 2022 if you insist on drawing a straight line over what is actually a very up and down series, will now continue indefinitely, THAT is a violation of the efficient markets hypothesis because it assumes that the markets today have failed to reflect whatever information you are using today to reach that assumption. Meanwhile, looking back at the past, we can see US stock va...

acegolfer wrote: ↑Sun Feb 05, 2023 7:57 am

Triple digit golfer wrote: ↑Sun Feb 05, 2023 7:52 am If U.S. and international funds both return 8%, they're even in tax deferred accounts from a tax liability standpoint. So then the determining factor is the tax liability in taxable accounts, which is what people are discussing.

Correct. In this example (both 8% returns), for taxable accounts, international is better than domestic because you can lower US tax liability by foreign tax credit.

Are you sure about that? What are your assumptions on federal and state marginal income tax rates and whether the state allows foreign tax credit? Which year was it more tax efficient?

some of the above posts imply you are not paying dividend income tax in Traditional retirement accounts. That's not true. You are only deferring the tax liability to later years. There's some tax drag negative effect in taxable but it's only way to put the foreign tax withheld for good usage. Otherwise, it's just gone. You have to pay that tax in deferred accounts in future years whether it's dividend or capital growth. If U.S. and international funds both return 8%, they're even in tax deferred accounts from a tax liability standpoint. So then the determining factor is the tax liability in taxable accounts, which is what people are discussing. I think it's safe to say that nobody is speculating on which will have higher overall returns. I...

I place international in tax sheltered accounts due to much higher dividend yield Probably not a bad idea. My 401(k) doesn't have any reasonably priced international funds, or even international index funds, so my 401(k) contribution goes to U.S. funds. This means that international has to go in taxable (and IRAs) unless every contribution to taxable goes to U.S. and then I exchange from U.S. to international inside tax advantaged accounts. A bit of a wild card in favor of having both US and ex-US in taxable (if you are buying frequently) is the ability to tax loss harvest them individually in down market. e.g. I went through a bunch of cycles of international TLH in 2022. But obviously the benefits of this are *very* scenario dependent an...