Simplicity is beautiful.

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gordon9775
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Simplicity is beautiful.

Post by gordon9775 »

In the Fund of Funds wiki we read ...
Often, the best way to start an IRA is with the appropriate Vanguard target retirement funds; you can always change to a more complicated portfolio later.
Despite being a longtime Vanguard investor and Bogle admirer, I find myself going the opposite direction - from complexity to simplicity. I guess I was one of those people who thought they were keeping it simple in time wound up in more funds than they could practically keep up with. Mid-cap this, small-cap that. Meanwhile, my wife, who continues to work, happily, giving her sturdy tripod a fourth leg as it were, she was never invested in more than two funds. She was 100% in STAR Fund for years, and now is 50/50 TR and Wellesley.

I always played by a different rulebook. Maybe it was the fact that my employer didn't offer a comprehensive, one-fund solution (until it adopted the TRs shortly before I quit). Maybe it was that, being younger than her, I associated simplicity with a more conservative approach. Whatever the reason, I was in no fewer than 11 funds most of my 15 years of employment.

Now, with no debt and modest needs for cashflow, I am in the process of radically reducing my portfolio to four funds ... the same four funds used by Target Retirement.

When my father died two years ago, I had a cash account, a traditional IRA and a 401(k), soon joined by an Inherited IRA and, because I'm indecisive, a Roth IRA. Since then I have quit my job and the house has sat on the market. Today, my sister informs me that the house proceeds are on their way.

As I sat down to allocate my newly enlarged portfolio over five accounts and 11 funds, I realized it was way more than my little brain could handle, even with an aptly-named spreadsheet at my disposal.

Reading through the Bogleheads wiki anew, I came to question my approach/saw the light (take your pick).

So, I set up a spreadsheet and did trial and error until I got my money into boxes that matched these ratios that I think are suitable for a 50yo in my situation.
VBTLX 22.7% + VTABX 5.7% = 28% bonds
VTSAX 50.2% + VTUAX 21.4% = 72% stocks (Update: I meant VTIAX! :oops: Thanks niceguy7376)

I printed these figures out and looked at them, spread over five accounts (soon to be four, once I get that 401 moved over). All but one will be in Admiral class funds, and as of Jan. 2, 2014, the Roth will be Admiral as well. Gone are the mid-cap this and the small-cap that. Two of my 11 funds say "Total" in the title currently; soon, all four will be Total index funds.

Looking them over, I just wonder why I didn't do this a lot sooner. Thanks Bogleheads. Comments welcome; this plan is not finalized.
Last edited by gordon9775 on Mon Nov 25, 2013 3:26 pm, edited 4 times in total.
‘Well done, good and faithful servant. You have been faithful over a little; I will set you over much.’ Matthew 25:21
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Re: Simplicity is beautiful.

Post by abuss368 »

As Jack Bogle so often notes: "Simplicity is the master key to financial success."

Thank you Mr. Bogle!
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Simplicity is beautiful.

Post by ieee488 »

gordon9775 wrote:Looking them over, I just wonder why I didn't do this a lot sooner.
I did not find the way until 2010. I was unemployed at the time, so it was a good time to unload the non-index and simplify into index.
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Re: Simplicity is beautiful.

Post by staythecourse »

Everyone has their own viewpoint, but I think the biggest advantage to simplicity is it helps you stay the course. The more complicated your portfolio the more likely you will try to tweak certain aspects at the worst time. So I don't think it is simplicity, but staying the course that is important.

Good luck.
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Re: Simplicity is beautiful.

Post by fire5soon »

I'm torn between the two strategies. I'm pulled by the simplicity of, say, a LifeStrategy fund and my reality of an uninterested (but much more intelligent than I) spouse. But then I read about the likely (but not guaranteed) higher returns of small & value... the Merriman/Swedroe/Bernstein portfolios... and I find myself right back to the more complex allocations.

Pro Simplicity
Easy to manage
Can prevent behavioral mistakes
Easy for heirs in case of early/unexpected demise

Pro "Complex"
Potential for higher returns
Can fine tune based on specific situations


I'm sure there are more, but I'm supposed to be working 8-) and time is limited to respond. As more time goes by I'm tempted to move toward balanced funds as much as I can, but the possiblity of higher returns over the long run keep pulling me back. What's a poor investor to do...? :greedy
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Re: Simplicity is beautiful.

Post by niceguy7376 »

I assume you meant to say VTIAX instead of VTUAX
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Re: Simplicity is beautiful.

Post by gordon9775 »

fire5soon wrote:But then I read about the likely (but not guaranteed) higher returns of small & value...
Thank you for this - because it reminds me of why I really went the simple way. I realized I no longer care about incremental gains in return. I don't mean to belittle the very real difference that percentage points can make over time. But after riding out 2008, doing nothing more than plowing 10% of my pay into my portfolio (then 11% ... then 12%), and getting all my money back and then some, it occurred to me one day that I had saved myself years of effort of trying to find investments with higher returns because I had just stayed the course with the investments I had.

YMMV of course.
‘Well done, good and faithful servant. You have been faithful over a little; I will set you over much.’ Matthew 25:21
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Re: Simplicity is beautiful.

Post by bertilak »

I also moved from complexity to simplicity.

In the not-to-distant past I had a mish-mash of stocks, funds (closed- and open-ended) , MLPs, options and even a variable annuity. All of these while with a "Wealth Manager" at one of the full service brokerages.

Next I left that brokerage to go it on my own but still hadn't found Bogleheads so ended up digging a deeper hole with additional stocks and more complex option schemes (straddles, etc.) at a discount brokerage. I thought I could stock-pick and market-time as well as my "Wealth Manager." Turns out I was right -- we both stink at it.

Eventually I found Bogleheads and Vanguard but was enchanted by all the slice-and-dice strategies so had a 6-8 fund portfolio with a complex, spreadsheet-driven, re-balancing scheme. That didn't last long ...

Now I am down to two balanced funds. Two so I can combine them to get the 50/50 AA I want. That AA will drift around a bit, but not by much so I won't bother with re-balancing unless I notice a big discrepancy and even then I will think hard about it.

My opinion is that super fine-tuning, re-balancing thresholds, and slicing/dicing six or eight different funds MAY give you some extra returns but then again maybe not. I think the precision of the claimed extra returns (a few basis points here and there) is probably not justified by all the unknowns, assumptions and variations of the data used to calculate those extra returns. So why bother?

Life is so much simpler now.
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Re: Simplicity is beautiful.

Post by Mel Lindauer »

Now that you're simplifying, I wonder why you didn't just go all the way and simply (pun intended) invest in the single TR fund you're attempting to replicate with your spreadsheet.

Remember, your portfolio will have to be rebalanced (more complexity for you), whereas the TR fund is automatically rebalanced on a daily basis.
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Re: Simplicity is beautiful.

Post by mhc »

You say you quit your job and on Jan 2, 2014, your Roth will then be admiral fund(s). Do you plan on making a contribution to your Roth? Do you have earned income?

No income, no Roth contribution, right?
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Re: Simplicity is beautiful.

Post by Tyrobi »

abuss368 wrote:As Jack Bogle so often notes: "Simplicity is the master key to financial success."

Thank you Mr. Bogle!
+1

Simplicity also helps my family since my wife has no interest in managing our financial. It's so much easier to explain to her and to stay the course.
Three-fund portfolio | "Simplicity is the master key to financial success." John C. Bogle
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Re: Simplicity is beautiful.

Post by gordon9775 »

Mel Lindauer wrote:Now that you're simplifying, I wonder why you didn't just go all the way
Good question. The reasoning is that because one-quarter of my portfolio is in cash, and TR is one-third tax-inefficient, and if we need emergency money we will more likely dip into the thrifty wife's funds ... it therefore made sense to treat all my funds as if retirement, because I don't plan to touch them for a long time.

Now that you've mentioned it, though, I wonder if I should put some of my cash into, say, TR Income, to give us an option for emergency cash. She'd probably like that.
mhc wrote:No income, no Roth contribution, right?
Sorry, yes, I should have said that I am earning some scratch doing something I love doing, enough to qualify for the maximum Roth contribution.
‘Well done, good and faithful servant. You have been faithful over a little; I will set you over much.’ Matthew 25:21
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Re: Simplicity is beautiful.

Post by gkaplan »

Simplicity often isn't that simple, and complexity isn't necessarily that complex.
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Re: Simplicity is beautiful.

Post by Mel Lindauer »

gordon9775 wrote:
Mel Lindauer wrote:Now that you're simplifying, I wonder why you didn't just go all the way
Good question. The reasoning is that because one-quarter of my portfolio is in cash, and TR is one-third tax-inefficient, and if we need emergency money we will more likely dip into the thrifty wife's funds ... it therefore made sense to treat all my funds as if retirement, because I don't plan to touch them for a long time.

Now that you've mentioned it, though, I wonder if I should put some of my cash into, say, TR Income, to give us an option for emergency cash. She'd probably like that.
mhc wrote:No income, no Roth contribution, right?
Sorry, yes, I should have said that I am earning some scratch doing something I love doing, enough to qualify for the maximum Roth contribution.
There's always the option to do a conversion from the TIRA to the Roth in low-income, low-tax years.
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Re: Simplicity is beautiful.

Post by stemikger »

I am a big fan of simplicity and the one fund portfolio. I saw an interview where John Bogle was asked what is the least amount of funds one could safely invest in and his quick answer was one. The one fund he recommended without hesitation was the Vanguard Balanced Index Fund.

I don't like the fact that Vanguard has changed the allocation in the Target Date Funds, then changed their international percentage and I really hated the fact that they added international bonds.

So my default fund is the simple, plain vanilla balanced index fund. John Bogle saves money for his family in that one fund. It's as simple as it gets. The Total Stock Market and the Total Bond Market. That's all anyone really needs, the rest is (IMHO) just added complexity.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
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Re: Simplicity is beautiful.

Post by abuss368 »

staythecourse wrote:Everyone has their own viewpoint, but I think the biggest advantage to simplicity is it helps you stay the course. The more complicated your portfolio the more likely you will try to tweak certain aspects at the worst time. So I don't think it is simplicity, but staying the course that is important.

Good luck.
This speaks to me. Excellent point to consider when building a portfolio.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Simplicity is beautiful.

Post by abuss368 »

stemikger wrote:I am a big fan of simplicity and the one fund portfolio. I saw an interview where John Bogle was asked what is the least amount of funds one could safely invest in and his quick answer was one. The one fund he recommended without hesitation was the Vanguard Balanced Index Fund.

I don't like the fact that Vanguard has changed the allocation in the Target Date Funds, then changed their international percentage and I really hated the fact that they added international bonds.

So my default fund is the simple, plain vanilla balanced index fund. John Bogle saves money for his family in that one fund. It's as simple as it gets. The Total Stock Market and the Total Bond Market. That's all anyone really needs, the rest is (IMHO) just added complexity.
Do you hold this fund in a taxable account too? If so, how does that work out at tax time considering the Total Bond Market Index allocation?
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Simplicity is beautiful.

Post by Taylor Larimore »

Gordon:

You titled your Opening Post: "Simplicity is beautiful." You are not alone:

Why I chose the majesty of simplicity

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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stemikger
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Re: Simplicity is beautiful.

Post by stemikger »

abuss368 wrote:
stemikger wrote:I am a big fan of simplicity and the one fund portfolio. I saw an interview where John Bogle was asked what is the least amount of funds one could safely invest in and his quick answer was one. The one fund he recommended without hesitation was the Vanguard Balanced Index Fund.

I don't like the fact that Vanguard has changed the allocation in the Target Date Funds, then changed their international percentage and I really hated the fact that they added international bonds.

So my default fund is the simple, plain vanilla balanced index fund. John Bogle saves money for his family in that one fund. It's as simple as it gets. The Total Stock Market and the Total Bond Market. That's all anyone really needs, the rest is (IMHO) just added complexity.
Do you hold this fund in a taxable account too? If so, how does that work out at tax time considering the Total Bond Market Index allocation?
No abuss368. I hold my an emergency fund in my capitalone360 account and instead of having more money in a taxable account, I paid off my mortgage. The rest of my portfolio is in my 401K and I have a small IRA with vanguard that simply holds the total stock market index, so that is not an issue for me at this point.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
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Re: Simplicity is beautiful.

Post by FFFollower »

I am starting more and more to listen to Taylor. I am slowly moving towards a two or three fund portfolio. The main reason for this is that I found out great news that I will be starting a family in about 7 months. That got me very worried about life insurance, and sustainability of my portfolio. I realized that there was very little chance that my wife would have the interest to learn to manage my slice-n-dice portfolio. So I have begun the process of consolidation and simplification. I may end up with a 5 fund portfolio of:

VT - Total World
IJS - US Small Value
VWO - Emerging Markets
VSS - International Small
AGG - Total Bond

I have also noticed that I tend to "tweak" - as another poster pointed out - my portfolio too much the more funds I have.
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Re: Simplicity is beautiful.

Post by Calm Man »

FFFollower wrote:I am starting more and more to listen to Taylor. I am slowly moving towards a two or three fund portfolio. The main reason for this is that I found out great news that I will be starting a family in about 7 months. That got me very worried about life insurance, and sustainability of my portfolio. I realized that there was very little chance that my wife would have the interest to learn to manage my slice-n-dice portfolio. So I have begun the process of consolidation and simplification. I may end up with a 5 fund portfolio of:

VT - Total World
IJS - US Small Value
VWO - Emerging Markets
VSS - International Small
AGG - Total Bond

I have also noticed that I tend to "tweak" - as another poster pointed out - my portfolio too much the more funds I have.
FF, I would suggest doing something on paper and I bet that there is no difference or a difference so trivial that you can't detect it:
Do the above portfolio.
Then, recognizing that the 2nd fund is US and the 3rd and 4th fund are international, take whatever would be in those 3 funds and add them to Total World.
Then compare the results. I bet they are literally identical.

Then for even more fun, take the Total world and total bond and find the life strategy fund with percentages closest to it and compare. I bet it is also essentially identical......
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Re: Simplicity is beautiful.

Post by abuss368 »

FFFollower wrote:I am starting more and more to listen to Taylor. I am slowly moving towards a two or three fund portfolio. The main reason for this is that I found out great news that I will be starting a family in about 7 months. That got me very worried about life insurance, and sustainability of my portfolio. I realized that there was very little chance that my wife would have the interest to learn to manage my slice-n-dice portfolio. So I have begun the process of consolidation and simplification. I may end up with a 5 fund portfolio of:

VT - Total World
IJS - US Small Value
VWO - Emerging Markets
VSS - International Small
AGG - Total Bond

I have also noticed that I tend to "tweak" - as another poster pointed out - my portfolio too much the more funds I have.
After a long time of thinking, re-thinking the portfolio, etc. and looking at asset classes and allocations from a gazillion different ways, we settled with 5 funds max. To us anything more than 5 funds is really diminishing returns and involves to much effort, rebalancing, and the potential to not stick with certain funds in a downturn. Fewer funds with more material balances.

Keep investing simple.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Simplicity is beautiful.

Post by gordon9775 »

It is interesting to scroll through this thread - and I am grateful to all for their responses, and wow, Taylor even dropped by! - and see that what struck a chord with many respondents was, "I simplified for my wife's sake."

I simplified because I figured what was good for her was good for me, but that's saying almost the same thing. :idea:
‘Well done, good and faithful servant. You have been faithful over a little; I will set you over much.’ Matthew 25:21
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Re: Simplicity is beautiful.

Post by abuss368 »

gordon9775 wrote:It is interesting to scroll through this thread - and I am grateful to all for their responses, and wow, Taylor even dropped by! - and see that what struck a chord with many respondents was, "I simplified for my wife's sake."

I simplified because I figured what was good for her was good for me, but that's saying almost the same thing. :idea:
That is a very important consideration - the ability and willingness of spouses to understand or "step in" if/when needed.

The older I get, the more I realzie that fact.

Simplicity is the master key to financial success.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Simplicity is beautiful.

Post by robertalpert »

bertilak wrote: Now I am down to two balanced funds. Two so I can combine them to get the 50/50 AA I want. That AA will drift around a bit, but not by much so I won't bother with re-balancing unless I notice a big discrepancy and even then I will think hard about it.

.......


Life is so much simpler now.

This idea is quite appealing. Do you also have a short-term bond fund for purposes of check-writing?
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Re: Simplicity is beautiful.

Post by bertilak »

robertalpert wrote:Do you also have a short-term bond fund for purposes of check-writing?
I have two VG accounts -- my IRA and a Trust for my mother.

So far I have not been spending from the IRA so no check writing there. My pension and SS go into a checking account unrelated to VG and all day-to-day transactions are from there (and credit cards).

I need to pay my mother's expenses out of her investments. In her trust I maintain a balance in a MM fund (so I actually have three funds for her). Her account is set up as a VG Advantage account which has check writing capability as well as on-line bill pay. She also has a Credit Card we use to buy the stuff she needs. Her pension and SS get deposited into the VG advantage account's MM fund. That keeps it topped up for a while and occasionally I sell something off to keep it going.
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Re: Simplicity is beautiful.

Post by bullspooker »

I was a financial advisor at one point and am very analytical (read: over-estimation of personal ability). But, I have finally moved to lifecyce 2040 in my TSP and VG LifeStrategy Growth in my Roth. This is my opening statement in my IPS:

"I do not have the emotional ability to stick with a plan; I am too eager to reassess and try a new method thereby reducing the ability to stay the course. The only option is to invest in lifecycle or strategy (AA) type funds that do it for me and leave it alone so I don’t worry about it and keep messing with it."

Now I am much more relaxed. :beer
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Re: Simplicity is beautiful.

Post by 853211 »

gordon9775 wrote:It is interesting to scroll through this thread - and I am grateful to all for their responses, and wow, Taylor even dropped by! - and see that what struck a chord with many respondents was, "I simplified for my wife's sake."

I simplified because I figured what was good for her was good for me, but that's saying almost the same thing. :idea:
Same here, I asked for help a few months back on here and got told to make it as easy as possible for her and that she wanted each account to look the same [no holding asset classes in one and not the other] so she wouldn't have complicated math to do if someone happened to me.

Had it not been for the ER difference between the indexes and the target dates, we would have done target dates.
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Re: Simplicity is beautiful.

Post by Gort »

“If you can't explain it to a six year old, you don't understand it yourself.”
― Albert Einstein

My simple portfolio (age 60, retiring soon).
50% Total Bond Market
25% Total Stock Market
25% Total International Market.
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Re: Simplicity is beautiful.

Post by abuss368 »

Gort wrote:“If you can't explain it to a six year old, you don't understand it yourself.”
― Albert Einstein

My simple portfolio (age 60, retiring soon).
50% Total Bond Market
25% Total Stock Market
25% Total International Market.
That is a very nice and simple portfolio. Total Bond and then the equities are split 50% US and 50% International.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Simplicity is beautiful.

Post by lostdog »

I wanted to revive this thread. Simplicity is beautiful when I think about my portfolio. I am thankful for the collective wisdom of bogleheads. The wisdom I learned from here over the years has protected me from the predatory "noise" we are constantly bombarded with when it comes to investing our money. I made a lot of mistakes early on but I am glad I landed here.

http://www.kiplinger.com/article/invest ... folio.html

Vanguard Total World Index
Vanguard Total Bond Index
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Re: Simplicity is beautiful.

Post by fatlever »

Vanguard LifeStrategy Growth Fund at Vanguard

and

Fidelity Four-in-One Index Fund at Fidelity

I fell into the slicing and dicing rabbit hole a few years ago and don't ever want to fall in again.
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Re: Simplicity is beautiful.

Post by spdoublebass »

lostdog wrote:I wanted to revive this thread. Simplicity is beautiful when I think about my portfolio. I am thankful for the collective wisdom of bogleheads. The wisdom I learned from here over the years has protected me from the predatory "noise" we are constantly bombarded with when it comes to investing our money. I made a lot of mistakes early on but I am glad I landed here.

http://www.kiplinger.com/article/invest ... folio.html

Vanguard Total World Index
Vanguard Total Bond Index
BlackRock S&P 500 Index (Wife 401(k))
I openly admit I'm new to the investing world, but I like your fund choices. I wonder how many more people do the Total World + Total Stock Market combination for equities? I think it's great. Obviously, if you want world weight, then just go with Total World, but if you want US bias do 50/50 Total World/Total Stock (or SP500) and you sit at about 75/25 US international. People of course make the usual arguments, you could just use Total International, but what I like about Total World is whats inside of it. One example BRK.B isn't in VOO (sp500) or VTI (TSM), but is .43% of VT, and BRK.A is .25% of VT, while .08% of VOO and .04% of VTI.

All I mean is I like VT a lot, but personally I am not sold on the world weight as of yet, so to me VT in combination with a SP500 or TSM is beautiful.
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