Bernstein's Simpleton's Portfolio

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donebyforty
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Bernstein's Simpleton's Portfolio

Post by donebyforty » Fri Aug 11, 2017 10:32 am

Hi there! Very new forum member here. I read the Boglehead's guide to investing years ago, and have been hooked ever since. I had a question about our asset allocation.

We use Bernstein's Simpleton's Portfolio, which I read about at the preface of the Intelligent Asset Allocator. As I couldn't make it through the whole book (way over my head) I figured this simple approach might be a good one:

"Bernstein suggests a “Coward’s Portfolio” comprised of eight mutual funds, but the “Simpleton’s Portfolio” described in the preface might be a nice compromise. It is equal amounts of US large company stocks, US small company stocks, foreign stocks, and US short-term bonds with annual rebalancing. A chart in the last chapter provides guidelines regarding increasing or decreasing the bond portion depending on your time horizon and risk tolerance. Bernstein estimates this simplification will cost between .5% and 1% of annualized return in the long run compared to his more elaborate Coward’s Portfolio."
https://ed-chang.com/review/

We hold four investments:

VFIAX - Vanguard 500 Index Fund Admiral Shares
VSMAX - Vanguard Small-Cap Index Fund Admiral Shares
VTIAX - Vanguard Total International Stock Index Fund Admiral Shares
VBIRX - Vanguard Short-Term Bond Index Fund Admiral Shares

My wife and I are working towards financial independence in the next couple years (but not necessarily early retirement). Still, if we do decide to stop working, we'd be looking at a 50 or 60 year retirement, potentially.

Do you have any thoughts on this asset allocation, especially if it's appropriate for a long early retirement?

In the Mr. Money Mustache forums, I see many people going 100% equities, in order to account for a very long retirement.

Beehave
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Re: Bernstein's Simpleton's Portfolio

Post by Beehave » Fri Aug 11, 2017 2:22 pm

(1) Looks to me like you have no exposure to US mid-caps. I'd suggest discontinuing contributions to US small and instead, start and continue contributions to a US "completion index" or "extended" fund which has both mid- and small-cap stocks.

(2) My feeling is that rather than 25% in bonds, you'd do better with 30% or 35% of your funds in a mix of cash and bonds. You can fund the bond cash allocation increase by cutting back on your small (or mid and small cap) allocation. Keep adequate dry powder for market pullbacks and personal emergencies.

My guess is I'm much more conservative than you and believe in "getting rich slowly." You need to do what you think is right for you and your family.

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Tyler9000
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Re: Bernstein's Simpleton's Portfolio

Post by Tyler9000 » Fri Aug 11, 2017 2:49 pm

donebyforty wrote: Do you have any thoughts on this asset allocation, especially if it's appropriate for a long early retirement?
I've also seen this called the "No-Brainer" portfolio. You might check out the portfolio data here: https://portfoliocharts.com/portfolio/n ... portfolio/

There you can see how it performed in retirement and also compare it to other options.

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David Jay
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Re: Bernstein's Simpleton's Portfolio

Post by David Jay » Fri Aug 11, 2017 2:51 pm

That is a fine portfolio. Bonds are included for one reason - to even out the volatility of stocks.

There are (2) tests for your asset allocation:
1. Can you sleep well at night? Peace of mind is priceless.
2. Can you "stay the course" in the event of a 40% turndown in the market?

If you can sleep just fine after the market has dropped 40% (and it will a few times in your investing lifetime) then you can be 100% stocks. But one should not be 100% stocks unless they have been through a 2008-type event because they don't know for sure how they will react.

I would put a minimum of 20% in bonds without any experience in a market downturn.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Taylor Larimore
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Need more information

Post by Taylor Larimore » Fri Aug 11, 2017 3:03 pm

donebyforty:

Welcome to the Bogleheads Forum!
We hold four investments:

VFIAX - Vanguard 500 Index Fund Admiral Shares
VSMAX - Vanguard Small-Cap Index Fund Admiral Shares
VTIAX - Vanguard Total International Stock Index Fund Admiral Shares
VBIRX - Vanguard Short-Term Bond Index Fund Admiral Shares
In my opinion, you have four excellent diversified funds in your portfolio. Remember Mr. Bogle's sage advice: "The enemy of a good plan is the dream of a perfect plan."

Your most important portfolio decision is your allocation between stocks and bonds. Use this link for assistance: https://investor.vanguard.com/search/?q ... stionnaire

To give you informed suggestions, please show your desired stock/bond allocation and the current percentage of each fund in your total portfolio. Also provide the type of account each fund is in (taxable, 40lk, Traditional IRA, Roth IRA, etc.). Also your ages and income tax- bracket.

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

donebyforty
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Re: Bernstein's Simpleton's Portfolio

Post by donebyforty » Fri Aug 11, 2017 4:32 pm

Beehave wrote:(1) Looks to me like you have no exposure to US mid-caps. I'd suggest discontinuing contributions to US small and instead, start and continue contributions to a US "completion index" or "extended" fund which has both mid- and small-cap stocks.

(2) My feeling is that rather than 25% in bonds, you'd do better with 30% or 35% of your funds in a mix of cash and bonds. You can fund the bond cash allocation increase by cutting back on your small (or mid and small cap) allocation. Keep adequate dry powder for market pullbacks and personal emergencies.

My guess is I'm much more conservative than you and believe in "getting rich slowly." You need to do what you think is right for you and your family.
Thanks for the quick reply, Beehave.

You're right, we're missing US midcap with this allocation. I should have mentioned that my HSA (only about $16k) is invested in Vanguard's investor midcap index, but it's a small part of our overall portfolio. FWIW, we count it as "small".

Good advice on keeping some powder dry. We sold our last home and are DCAing the proceeds over 2 years, as we approach financial independence. But if there's a big pullback, we may drop in a lot of that at once. And we're keeping a multi-month emergency fund.

donebyforty
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Re: Bernstein's Simpleton's Portfolio

Post by donebyforty » Fri Aug 11, 2017 4:34 pm

Tyler9000 wrote:
donebyforty wrote: Do you have any thoughts on this asset allocation, especially if it's appropriate for a long early retirement?
I've also seen this called the "No-Brainer" portfolio. You might check out the portfolio data here: https://portfoliocharts.com/portfolio/n ... portfolio/

There you can see how it performed in retirement and also compare it to other options.
This is amazing. I've never heard of the No-Brainer portfolio but that's exactly what we're using.

Thanks so much for the data. I may pull that into a blog post. Thanks again!

donebyforty
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Re: Bernstein's Simpleton's Portfolio

Post by donebyforty » Fri Aug 11, 2017 4:37 pm

David Jay wrote:That is a fine portfolio. Bonds are included for one reason - to even out the volatility of stocks.

There are (2) tests for your asset allocation:
1. Can you sleep well at night? Peace of mind is priceless.
2. Can you "stay the course" in the event of a 40% turndown in the market?

If you can sleep just fine after the market has dropped 40% (and it will a few times in your investing lifetime) then you can be 100% stocks. But one should not be 100% stocks unless they have been through a 2008-type event because they don't know for sure how they will react.

I would put a minimum of 20% in bonds without any experience in a market downturn.
My wife and I dropped all our available cash into a bad fund (i.e. - front-loaded at 5%) sold to us by our banker back in 2007. It wasn't a ton (maybe $65k) but it was from an inheritance my wife received, and it was a lot to us.

It immediately lost almost half its value...but we did not sell. Eventually we moved it into better funds (Vanguard index funds) but we rode it out.

Now, the numbers would be bigger now but I do believe we'd be able to ride out a major recession again. We're pretty frugal, and when the market drops, we are always trying to buy stocks on sale rather than sell.

And for now, we definitely sleep very well at night. If (when?) our portfolio drops in half, I'll report back. :)

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arcticpineapplecorp.
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Re: Bernstein's Simpleton's Portfolio

Post by arcticpineapplecorp. » Fri Aug 11, 2017 4:44 pm

welcome to the forum!

Since the Intelligent Asset Allocator was a little over your head, can I recommend one of his other, newer, shorter books called "If You Can. How Millenials Get Rich Slowly". He's generously offered it up for free here:

https://www.etf.com/docs/IfYouCan.pdf

How short? Only 16 pages long. On page one (two if you count the pages of the pdf) he offers up the three fund portfolio. I believe our own Taylor Larimore (who posted above) is credited for having come up with it (or popularized it, I'm not sure). Here it is below:

a U.S. total stock market index fund
an International total stock market index fund
a U.S. total bond market index fund.

That's it. Can't get more simple than that. Gets you 9000 (or so) stocks and 8174 bonds.

Now the percentages you put in each...that's where the rubber hits the road. You have to determine the asset allocation (percentage of stocks to bonds) and also consider how much you want your U.S. to International Stock split to be. Vanguard used to have 70/30 stock split between U.S. and international in their target date retirement funds, but changed it a few years ago and now it's a 60/40 U.S./international stock split.

Bernstein's recommendation (for millenials remember) in that book (or booklet as he calls it) is to put equal amounts in each of the three funds. That gives you 67% in stocks (half U.S. and half international) and 33% in bonds (or you can do 66% stocks and 34% bonds). Whether you want an overall 67/33 (stock to bond) ratio, only you can determine. Whether you want half of your equities in international stocks, only you can determine.

Whatever you decide stick with it and only change your allocation if you want to increase bonds and decrease stocks as you get older and get closer to retirement/spending the money/get more conservative, etc.

Oh and above all else, avoid all loads. That's a commission that doesn't benefit you. It only benefits the salesperson selling you the funds. The more you pay, the less you keep. In life you generally get what you pay for , but in investing you get to keep what you don't pay for.
Last edited by arcticpineapplecorp. on Sat Aug 12, 2017 2:31 pm, edited 1 time in total.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

donebyforty
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Re: Need more information

Post by donebyforty » Fri Aug 11, 2017 5:00 pm

Taylor Larimore wrote:donebyforty:

Welcome to the Bogleheads Forum!
We hold four investments:

VFIAX - Vanguard 500 Index Fund Admiral Shares
VSMAX - Vanguard Small-Cap Index Fund Admiral Shares
VTIAX - Vanguard Total International Stock Index Fund Admiral Shares
VBIRX - Vanguard Short-Term Bond Index Fund Admiral Shares
In my opinion, you have four excellent diversified funds in your portfolio. Remember Mr. Bogle's sage advice: "The enemy of a good plan is the dream of a perfect plan."

Your most important portfolio decision is your allocation between stocks and bonds. Use this link for assistance: https://investor.vanguard.com/search/?q ... stionnaire

To give you informed suggestions, please show your desired stock/bond allocation and the current percentage of each fund in your total portfolio. Also provide the type of account each fund is in (taxable, 40lk, Traditional IRA, Roth IRA, etc.). Also your ages and income tax- bracket.

Thank you and best wishes.
Taylor
Hi Taylor,

Great advice about the good not being the enemy of the great/perfect.

Our AA aims for equal portions of those four funds: so 25% each. (And overall: 75% stocks, 25% bonds.) We just did our annual rebalance, so this is right where we're at currently.

This is also close to what the Vanguard questionnaire spit out: 80% stocks, 20% bonds. I'd taken this before and it recommended 70% stocks, 30% bonds, so we're in the neighborhood.

All of our bonds are in our tax advantaged accounts (both the Mrs.' and my Roth IRAs, both our Traditional IRAs, and my 401k...missus is a PhD student and doesn't have a 401k/403b yet). But here's a breakdown of where the funds are:

VBIRX, Short term bond: all in IRAs & $401k, and taking up nearly all the room, too.
VFIAX - Vanguard 500 Index Fund: all in taxable account
VSMAX - Vanguard Small-Cap Index: all in taxable account (small wrinkle: in my HSA, which has limited choices, we hold VIMAX, a mid cap index, representing 2.5% of our portfolio, and we "count" this towards the 25% that's going to Small Cap)
VTIAX - Vanguard Total International Stock Index Fund: 5.6% is in my 401k, but remaining 19.4% is in taxable account.

Overall, most of our money goes into our taxable account (about 67% of portfolio currently) so we're trying to stay as tax efficient as we can with the investments there.

I am currently 37 (as of tomorrow) and my wife is 30, will be 31 next month. We're in the 25% marginal bracket now, but may slide up into the 28% bracket when my wife gets her PhD and starts working.

donebyforty
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Re: Bernstein's Simpleton's Portfolio

Post by donebyforty » Fri Aug 11, 2017 5:07 pm

arcticpineapplecorp. wrote:welcome to the forum!

Since the Intelligent Asset Allocator was a little over your head, can I recommend one of his other, newer, shorter books called "If You Can. How Millenials Get Rich Slowly". He's generously offered it up for free here:

https://www.etf.com/docs/IfYouCan.pdf

How short? Only 16 pages long. On page one (two if you count the pages of the pdf) he offers up the three fund portfolio. I believe our own Taylor Larimore (who posted above) is credited for having come up with it (or popularized it, I'm not sure). Here it is below:

a U.S. total stock market index fund
an International total stock market index fund
a U.S. total bond market index fund.

That's it. Can't get more simple than that. Gets you 9000 (or so) stocks and 8174 bonds.

Now the percentages you put in each...that's where the rubber hits the road. You have to determine the asset allocation (percentage of stocks to bonds) and also consider how much you want your U.S. to International Stock split to be. Vanguard used to have 70/30 stock split between U.S. and international in their target date retirement funds, but changed it a few years ago and now it's a 60/40 U.S./international stock split.

Bernstein's recommendation (for millenials remember) in that book (or pamphlet as it may be called) is to put equal amounts in each of the three funds. That gives you 67% in stocks (half U.S. and half international) and 33% in bonds (or you can do 66% stocks and 34% bonds). Whether you want an overall 67/33 (stock to bond) ratio, only you can determine. Whether you want half of your equities in international stocks, only you can determine.

Whatever you decide stick with it and only change your allocation if you want to increase bonds and decrease stocks as you get older and get closer to retirement/spending the money/get more conservative, etc.

Oh and above all else, avoid all loads. That's a commission that doesn't benefit you. It only benefits the salesperson selling you the funds. The more you pay, the less you keep. In life you generally get what you pay for , but in investing you get to keep what you don't pay for.
Thanks for the pdf! I'll have something fun to read on Sunday.

For us, we're really hoping not to have to change our AA drastically as 2/3rds of our investments are in taxable accounts. I'm hoping to basically be able to roll with our current AA, or perhaps fill in the gaps with future buys or exchanging within our IRAs and 401k.

For those three funds, I think the major differences are that 1) I'm mostly missing midcap, and 2) I'm in short term bonds rather than total bond fund.

Will read that pdf and think it over. Thanks!

And totally agree on avoiding fees. They're a killer.

cherijoh
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Re: Bernstein's Simpleton's Portfolio

Post by cherijoh » Fri Aug 11, 2017 6:11 pm

donebyforty wrote:We hold four investments:

VFIAX - Vanguard 500 Index Fund Admiral Shares
VSMAX - Vanguard Small-Cap Index Fund Admiral Shares
VTIAX - Vanguard Total International Stock Index Fund Admiral Shares
VBIRX - Vanguard Short-Term Bond Index Fund Admiral Shares

My wife and I are working towards financial independence in the next couple years (but not necessarily early retirement). Still, if we do decide to stop working, we'd be looking at a 50 or 60 year retirement, potentially.

Do you have any thoughts on this asset allocation, especially if it's appropriate for a long early retirement?

In the Mr. Money Mustache forums, I see many people going 100% equities, in order to account for a very long retirement.
That's the rub. A long retirement means you need to protect yourself against inflation by having sufficient equities. But too high an allocation to equities could exacerbate your sequence of return risk. My AA is currently based on "age in bonds - 10"

donebyforty
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Re: Bernstein's Simpleton's Portfolio

Post by donebyforty » Fri Aug 11, 2017 6:24 pm

Agree that sequence of returns risk in the first ten years is the scariest time.

drk
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Re: Bernstein's Simpleton's Portfolio

Post by drk » Fri Aug 11, 2017 7:51 pm

donebyforty wrote:
Beehave wrote:(1) Looks to me like you have no exposure to US mid-caps. I'd suggest discontinuing contributions to US small and instead, start and continue contributions to a US "completion index" or "extended" fund which has both mid- and small-cap stocks.
You're right, we're missing US midcap with this allocation. I should have mentioned that my HSA (only about $16k) is invested in Vanguard's investor midcap index, but it's a small part of our overall portfolio. FWIW, we count it as "small".
If you plug VSMAX/VB into Morningstar's Instant X-Ray tool, you'll actually find that it's 41% mid-caps versus 44% for VEXAX/VXF, the complement to the S&P 500 fund. So, you're tilting towards small-caps, but you aren't completely missing mid-cap exposure.

Coato
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Re: Bernstein's Simpleton's Portfolio

Post by Coato » Fri Aug 11, 2017 8:11 pm

We do that portfolio but we substitute Vanguard Small Cap Value for Small Cap.

SCV has paired better with the S&P historically. That may not continue.

For the past 30 years:
Vanguard Small Value plus S&P ... return 7.92% standard deviation 15.82
Vanguard Small plus S&P... return 7.4 Sd 16.26

So a bit better result with less volatility.

I have liked it because it is simple and it has seemed like I always get a good year from one of the two US asset classes.

We also do Intermediate Treasuries instead of short bond but that would be a big change where I mention the Small Cap Value because it is a tweak.

According to Morningstar, btw, both Vanguard Small caps are actually like 40% midcaps.

Beehave
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Re: Bernstein's Simpleton's Portfolio

Post by Beehave » Fri Aug 11, 2017 9:20 pm

drk wrote:
donebyforty wrote:
Beehave wrote:(1) Looks to me like you have no exposure to US mid-caps. I'd suggest discontinuing contributions to US small and instead, start and continue contributions to a US "completion index" or "extended" fund which has both mid- and small-cap stocks.
You're right, we're missing US midcap with this allocation. I should have mentioned that my HSA (only about $16k) is invested in Vanguard's investor midcap index, but it's a small part of our overall portfolio. FWIW, we count it as "small".
If you plug VSMAX/VB into Morningstar's Instant X-Ray tool, you'll actually find that it's 41% mid-caps versus 44% for VEXAX/VXF, the complement to the S&P 500 fund. So, you're tilting towards small-caps, but you aren't completely missing mid-cap exposure.
dbk: Thanks for the info about VSMAX - I did not know it had a significant midcap component.

donebyforty: Glad to see you are doing some dollar cost averaging in and keeping an emergency fund. Best of luck with your plans! Give some thought to your post-retirement life. The way things are progressing it surely comprise a time period lasting far, far more than your pre-retirement career!

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Taylor Larimore
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Re: Bernstein's Simpleton's Portfolio

Post by Taylor Larimore » Fri Aug 11, 2017 9:35 pm

I read the Boglehead's guide to investing years ago, and have been hooked ever since.
donebyforty:

I wish everyone who read our book ended up with a portfolio as good as yours:

* Portfolio meets your desired stock/bond allocation

* Low cost

* Diversified (bar-bell approach to stocks)

* Tax-efficient

* Simple to understand and maintain

In case you missed it, this is a link to The Three-Fund Portfolio and its many advantages.

Congratulations and best wishes !
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Dandy
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Re: Bernstein's Simpleton's Portfolio

Post by Dandy » Sat Aug 12, 2017 6:27 am

My only concern would be that "equal" allocation to the four funds gives you a 75% equity allocation. You equity allocation is probably the most critical decision you have to make with investments as it determines the lion's share of your risk and potential gain. So, if you decide to go with the 4 funds think hard about how much equity risk you can tolerate.

If I wanted to go with the 4 funds and less equity exposure I would trim small cap and international allocations a bit. Most can handle the "complexity" of allocations that don't end in 0 or a 5.

By the way there is no perfect allocation but you often have to give up something to tilt toward simplicity - most times it isn't a bad trade off.

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stemikger
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Re: Need more information

Post by stemikger » Sat Aug 12, 2017 7:33 am

Taylor Larimore wrote:donebyforty:

Welcome to the Bogleheads Forum!
We hold four investments:

VFIAX - Vanguard 500 Index Fund Admiral Shares
VSMAX - Vanguard Small-Cap Index Fund Admiral Shares
VTIAX - Vanguard Total International Stock Index Fund Admiral Shares
VBIRX - Vanguard Short-Term Bond Index Fund Admiral Shares
In my opinion, you have four excellent diversified funds in your portfolio. Remember Mr. Bogle's sage advice: "The enemy of a good plan is the dream of a perfect plan."

Your most important portfolio decision is your allocation between stocks and bonds. Use this link for assistance: https://investor.vanguard.com/search/?q ... stionnaire

To give you informed suggestions, please show your desired stock/bond allocation and the current percentage of each fund in your total portfolio. Also provide the type of account each fund is in (taxable, 40lk, Traditional IRA, Roth IRA, etc.). Also your ages and income tax- bracket.

Thank you and best wishes.
Taylor
+1

You can't go wrong listening to Dr. Bernstein. However, Bernstein himself loves to hold a lot of assets and has no problem holding over 30. He himself admits after 6 it doesn't really matter much. I think Bogleheads try to find the most optimal allocation and forget about simplicity and just being good enough. Bernstein has often said, if you don't want to do the work, the Vanguard Life Strategy Funds are a good way to go. I would look into them.

I go a step further and listen to Jack. Two funds or one fund the Total Stock Index Fund and the Total Bond Market Index Fund or just hold the Balanced Index and be done with it. I don't feel international is necessary, so I just leave it out.

The most important decision is asset allocation and finding a portfolio you can stick with through thick and thin. Especially thin.

Good Luck and Welcome!
Stay the Course!! ~ Press on Regardless!!!

Bill Bernstein
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Re: Bernstein's Simpleton's Portfolio

Post by Bill Bernstein » Sat Aug 12, 2017 1:10 pm

Good comments all.

Bottom line: the "perfect portfolio" is knowable only in hindsight, and has already been mentioned, the perfect is the enemy of the good.

What's far more important than fine tuning your allocation, whether it's 2 equity classes (US and Int'l total stock) or extreme slice and dice (a bit more than a dozen stock asset classes, not 30!) is finding the right stock/bond mix and sticking to your policy through thick and thin.

Bill

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David Jay
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Re: Need more information

Post by David Jay » Sat Aug 12, 2017 1:13 pm

stemikger wrote:
Sat Aug 12, 2017 7:33 am
Bernstein has often said, if you don't want to do the work, the Vanguard Life Strategy Funds are a good way to go.
Stemikger: Do you have a source for that? I would love to add that quote to my archive.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Bill Bernstein
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Re: Bernstein's Simpleton's Portfolio

Post by Bill Bernstein » Sat Aug 12, 2017 1:19 pm

I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.

The only difference is that with the former, you really don't have to pay too much attention as you age, since the fund automatically decreases equity allocation over the years, whereas with the latter, you may wind up being too stock-heavy after 20 or 30 years, as you near retirement, so you have to pay a smidge more attention.

Bill

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David Jay
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Re: Bernstein's Simpleton's Portfolio

Post by David Jay » Sat Aug 12, 2017 1:34 pm

Bill Bernstein wrote:
Sat Aug 12, 2017 1:19 pm
I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.

The only difference is that with the former, you really don't have to pay too much attention as you age, since the fund automatically decreases equity allocation over the years, whereas with the latter, you may wind up being too stock-heavy after 20 or 30 years, as you near retirement, so you have to pay a smidge more attention.

Bill
Thanks

I am looking at a single LS fund (entire portfolio inside a Roth) in later retirement for ultimate simplicity for my spouse (actuarially she should survive me).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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iceport
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Re: Bernstein's Simpleton's Portfolio

Post by iceport » Sat Aug 12, 2017 1:36 pm

Bill Bernstein wrote:
Sat Aug 12, 2017 1:10 pm
What's far more important than fine tuning your allocation, whether it's 2 equity classes (US and Int'l total stock) or extreme slice and dice (a bit more than a dozen stock asset classes, not 30!) is finding the right stock/bond mix and sticking to your policy through thick and thin.
That's a message worth repeating. Unless I misinterpreted the gist of it, that was the big take-away from your quote in the New York Times last year. As soon as I read it, I knew I had finally found a worthy signature line.

Thanks for all your insight and continued presence, Mr. Bernstein!
"Discipline matters more than allocation.” ─William Bernstein

WanderingDoc
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Re: Bernstein's Simpleton's Portfolio

Post by WanderingDoc » Sat Aug 12, 2017 2:20 pm

Bill Bernstein wrote:
Sat Aug 12, 2017 1:19 pm
I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.

The only difference is that with the former, you really don't have to pay too much attention as you age, since the fund automatically decreases equity allocation over the years, whereas with the latter, you may wind up being too stock-heavy after 20 or 30 years, as you near retirement, so you have to pay a smidge more attention.

Bill
I literally just finished your short booklet 30 seconds ago. Quick question, I have already read "The Millionaire Next Door". Have not read the others you recommend. If you had to recommend only one other book, for someone who has >90% of their net worth in real estate equity and cash, what would it be? I have been reading "A random walk down wall street" at my local library, not a bad book but not the most engaging either.

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arcticpineapplecorp.
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Re: Bernstein's Simpleton's Portfolio

Post by arcticpineapplecorp. » Sat Aug 12, 2017 2:36 pm

WanderingDoc wrote:
Sat Aug 12, 2017 2:20 pm
Bill Bernstein wrote:
Sat Aug 12, 2017 1:19 pm
I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.

The only difference is that with the former, you really don't have to pay too much attention as you age, since the fund automatically decreases equity allocation over the years, whereas with the latter, you may wind up being too stock-heavy after 20 or 30 years, as you near retirement, so you have to pay a smidge more attention.

Bill
I literally just finished your short booklet 30 seconds ago. Quick question, I have already read "The Millionaire Next Door". Have not read the others you recommend. If you had to recommend only one other book, for someone who has >90% of their net worth in real estate equity and cash, what would it be? I have been reading "A random walk down wall street" at my local library, not a bad book but not the most engaging either.
Not Bernstein here, but have you read Jack Bogle's "The Little Book of Commonsense Investing"? or Malkiel and Ellis's "The Elements of Investing"? Both highly recommended.

Incidentally, what are your percentages in:
1. real estate
2. equities
3. cash
?
And if you have >90% in these three (assuming these were three separate and not two "real estate equity and cash" is how you listed that. Do you mean real estate, equity, and cash?

Since that's >90 but not =100% what is the remaining 1% to 10% invested in? Bonds?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Bernstein's Simpleton's Portfolio

Post by Bill Bernstein » Sat Aug 12, 2017 2:45 pm

One book? Either "Common Sense on Mutual Funds" or the little book version.

Over the past quarter century I've never been too far from 50/50.

Aside from a smidge of REITs, I don't like commercial or residential real estate. There's nothing wrong with it investment-wise, especially if it's not your biggest asset, if you know what you're doing, which is a big if. But from a personal perspective, I don't own it; it owns me, and the less of it I have, the happier I am.


Bill

WanderingDoc
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Re: Bernstein's Simpleton's Portfolio

Post by WanderingDoc » Sat Aug 12, 2017 2:56 pm

arcticpineapplecorp. wrote:
Sat Aug 12, 2017 2:36 pm
WanderingDoc wrote:
Sat Aug 12, 2017 2:20 pm
Bill Bernstein wrote:
Sat Aug 12, 2017 1:19 pm
I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.

The only difference is that with the former, you really don't have to pay too much attention as you age, since the fund automatically decreases equity allocation over the years, whereas with the latter, you may wind up being too stock-heavy after 20 or 30 years, as you near retirement, so you have to pay a smidge more attention.

Bill
I literally just finished your short booklet 30 seconds ago. Quick question, I have already read "The Millionaire Next Door". Have not read the others you recommend. If you had to recommend only one other book, for someone who has >90% of their net worth in real estate equity and cash, what would it be? I have been reading "A random walk down wall street" at my local library, not a bad book but not the most engaging either.
Not Bernstein here, but have you read Jack Bogle's "The Little Book of Commonsense Investing"? or Malkiel and Ellis's "The Elements of Investing"? Both highly recommended.

Incidentally, what are your percentages in:
1. real estate
2. equities
3. cash
?
And if you have >90% in these three (assuming these were three separate and not two "real estate equity and cash" is how you listed that. Do you mean real estate, equity, and cash?

Since that's >90 but not =100% what is the remaining 1% to 10% invested in? Bonds?
Real estate: ~70%
- roughly 80/20 split between property equity and passive (K-1) partnerships
Equities: (incl. taxable and tax-advantaged) ~10%
Cash: ~20% (soon to be deployed in apartment syndications, and a few $10Ks for emergency fund)
Bonds: probably less than 1-2%, in 401k

WanderingDoc
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Re: Bernstein's Simpleton's Portfolio

Post by WanderingDoc » Sat Aug 12, 2017 3:02 pm

Bill Bernstein wrote:
Sat Aug 12, 2017 2:45 pm
One book? Either "Common Sense on Mutual Funds" or the little book version.

Over the past quarter century I've never been too far from 50/50.

Aside from a smidge of REITs, I don't like commercial or residential real estate. There's nothing wrong with it investment-wise, especially if it's not your biggest asset, if you know what you're doing, which is a big if. But from a personal perspective, I don't own it; it owns me, and the less of it I have, the happier I am.


Bill
Thanks Bill! I will pick up the common-sense book. For me, real estate has netted me in the mid to high six-figures of profit in a few short years, in my spare time. Great on the taxes too. The same result would not be possible with index investing, starting from $0, even with a relatively high income. Of course, RE is definitely more "hands-on". I agree with you, that is a big 'IF" :happy

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Re: Bernstein's Simpleton's Portfolio

Post by neurosphere » Sat Aug 12, 2017 4:04 pm

Bill Bernstein wrote:
Sat Aug 12, 2017 1:19 pm
I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.
Hi Bill!

In my financial planning lectures to young/new investors, the final slide in the presentation contains a variant of my signature line.

My personal portfolio is slice and dice, small and value tilted, international split into EM, EU, pacific, and some small, and my bonds are corporates, TIPS, munis, and junk bonds. But if I die, my wife's instructions are to sell it all and buy a Target Date Fund at Vanguard. And chances are, her return will have equaled or exceeded what my 12-fund portfolio would have done. :D
-- Real name: Sotirios Keros. If you have to ask "Is a Target Retirement fund right for me?", the answer is yes.

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Re: Bernstein's Simpleton's Portfolio

Post by indexonlyplease » Sat Aug 12, 2017 4:16 pm

neurosphere wrote:
Sat Aug 12, 2017 4:04 pm
Bill Bernstein wrote:
Sat Aug 12, 2017 1:19 pm
I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.
Hi Bill!

In my financial planning lectures to young/new investors, the final slide in the presentation contains a variant of my signature line.

My personal portfolio is slice and dice, small and value tilted, international split into EM, EU, pacific, and some small, and my bonds are corporates, TIPS, munis, and junk bonds. But if I die, my wife's instructions are to sell it all and buy a Target Date Fund at Vanguard. And chances are, her return will have equaled or exceeded what my 12-fund portfolio would have done. :D
Question: if that is the case why not buy the target fund now or the 3 fund portfolio??
Just wondering. I have the 3 fund and did think one day I may just move it to the target fund when we get older. But my thinking is keeping the fixed income seperate is best so you can cash them in when needed first. Specially when markets are down that year.

WanderingDoc
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Re: Bernstein's Simpleton's Portfolio

Post by WanderingDoc » Sat Aug 12, 2017 5:23 pm

I am already halfway through "The Little Book.." and I am sitting here the entire time with my jaw dropped.

I wonder what active stock and mutual fund managers would say after reading this book? The other week, I had an hour long call/sales pitch with a manager from Personal Capital, trying to convince me to give them $100K of my hard-earned money for a 0.89% AUM fee.

It appears that Bernstein himself is also a physician, which warms my heart. Collectively, we are known to be terrible money managers and investors.

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arcticpineapplecorp.
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Re: Bernstein's Simpleton's Portfolio

Post by arcticpineapplecorp. » Sat Aug 12, 2017 7:37 pm

WanderingDoc wrote:
Sat Aug 12, 2017 5:23 pm
I am already halfway through "The Little Book.." and I am sitting here the entire time with my jaw dropped.

I wonder what active stock and mutual fund managers would say after reading this book? The other week, I had an hour long call/sales pitch with a manager from Personal Capital, trying to convince me to give them $100K of my hard-earned money for a 0.89% AUM fee.
Jack has the answer for that one as well--"It's difficult to get a man to understand something when his salary depends upon his not understanding it." -- Upton Sinclair
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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arcticpineapplecorp.
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Re: Bernstein's Simpleton's Portfolio

Post by arcticpineapplecorp. » Sat Aug 12, 2017 7:44 pm

WanderingDoc wrote:
Sat Aug 12, 2017 2:56 pm
Real estate: ~70%
- roughly 80/20 split between property equity and passive (K-1) partnerships
Equities: (incl. taxable and tax-advantaged) ~10%
Cash: ~20% (soon to be deployed in apartment syndications, and a few $10Ks for emergency fund)
Bonds: probably less than 1-2%, in 401k
wow, that's a heavily tilted portfolio in real estate. You know real estate makes up only about 20% of the overall economy, right? Some people love real estate. I assume it's done well for you to have that large a stake in it. Congratulations!
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Need more information

Post by stemikger » Sat Aug 12, 2017 7:47 pm

David Jay wrote:
Sat Aug 12, 2017 1:13 pm
stemikger wrote:
Sat Aug 12, 2017 7:33 am
Bernstein has often said, if you don't want to do the work, the Vanguard Life Strategy Funds are a good way to go.
Stemikger: Do you have a source for that? I would love to add that quote to my archive.

I believe it came from the Intelligent Asset Allocator, but I will check tomorrow and give you the exact location.
Stay the Course!! ~ Press on Regardless!!!

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Re: Bernstein's Simpleton's Portfolio

Post by neurosphere » Sun Aug 13, 2017 10:10 am

indexonlyplease wrote:
Sat Aug 12, 2017 4:16 pm
neurosphere wrote:
Sat Aug 12, 2017 4:04 pm
Bill Bernstein wrote:
Sat Aug 12, 2017 1:19 pm
I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.
My personal portfolio is slice and dice, small and value tilted, international split into EM, EU, pacific, and some small, and my bonds are corporates, TIPS, munis, and junk bonds. But if I die, my wife's instructions are to sell it all and buy a Target Date Fund at Vanguard. And chances are, her return will have equaled or exceeded what my 12-fund portfolio would have done. :D
Question: if that is the case why not buy the target fund now or the 3 fund portfolio??
A substantial percentage of our investments is in employer accounts where the Target style funds are more expensive than necessary. And even with Vanguard, one can create a similar portfolio to a TD fund with somewhat lower cost by doing it oneself. Also, I've had a slice and dice tilted portfolio since the 1990s, and there is a certain amount of inertia. I also suspect there may be a possible rebalancing bonus to be had with additional slices. Finally, I currently don't mind the little bit of extra time that this more complicated portfolio requires.

That said, my portfolio is not what I would recommend to others. And I suspect if I were to have started investing today I personally would still overweight small, value, REITs and EM in my portfolio anyway.And perhaps the lower costs in my slice and dice portfolio compared to a target fund might make up for some long-term underperformance.

Now, if I were suddenly "forced" to move everything to a single target retirement or life strategy fund (or 3-fund), I would not lose a wink of sleep. :D
-- Real name: Sotirios Keros. If you have to ask "Is a Target Retirement fund right for me?", the answer is yes.

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Re: Bernstein's Simpleton's Portfolio

Post by indexonlyplease » Sun Aug 13, 2017 10:45 am

neurosphere wrote:
Sun Aug 13, 2017 10:10 am
indexonlyplease wrote:
Sat Aug 12, 2017 4:16 pm
neurosphere wrote:
Sat Aug 12, 2017 4:04 pm
Bill Bernstein wrote:
Sat Aug 12, 2017 1:19 pm
I favorably mention low-expense target date funds in If You Can. I don't recall specifically mentioning life strategy funds.
My personal portfolio is slice and dice, small and value tilted, international split into EM, EU, pacific, and some small, and my bonds are corporates, TIPS, munis, and junk bonds. But if I die, my wife's instructions are to sell it all and buy a Target Date Fund at Vanguard. And chances are, her return will have equaled or exceeded what my 12-fund portfolio would have done. :D
Question: if that is the case why not buy the target fund now or the 3 fund portfolio??
A substantial percentage of our investments is in employer accounts where the Target style funds are more expensive than necessary. And even with Vanguard, one can create a similar portfolio to a TD fund with somewhat lower cost by doing it oneself. Also, I've had a slice and dice tilted portfolio since the 1990s, and there is a certain amount of inertia. I also suspect there may be a possible rebalancing bonus to be had with additional slices. Finally, I currently don't mind the little bit of extra time that this more complicated portfolio requires.

That said, my portfolio is not what I would recommend to others. And I suspect if I were to have started investing today I personally would still overweight small, value, REITs and EM in my portfolio anyway.And perhaps the lower costs in my slice and dice portfolio compared to a target fund might make up for some long-term underperformance.

Now, if I were suddenly "forced" to move everything to a single target retirement or life strategy fund (or 3-fund), I would not lose a wink of sleep. :D
Interesting. I just finished Larry Swedroe book Winning Investment Strategy. He explain what you are doing and how it works. Someone could wonder why not do what you are doing. To me it makes sense after reading the book. Also, have stated the same. Better returns and lower standard deviation. All stuff I finally understand after reading the book.

But I wonder if someone like me with the 3 fund portfolio could make to manny mistakes that one should not attempt.

Thank You for the response.

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Re: Bernstein's Simpleton's Portfolio

Post by KyleAAA » Sun Aug 13, 2017 10:53 am

That portfolio is perfectly fine. It has exposure to the beta and size factors, but not value, momentum, or quality. I would go with IJS/VIOV rather than VSMAX and VTSMX rather than VFIAX to add value exposure and perhaps slightly more tax efficiency to an otherwise solid portfolio, but that's by no means required. As you know, this portfolio is quite aggressive and won't fair well during the next bear market.

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Re: Bernstein's Simpleton's Portfolio

Post by dcabler » Mon Aug 14, 2017 7:20 am

Coato wrote:
Fri Aug 11, 2017 8:11 pm


We also do Intermediate Treasuries instead of short bond but that would be a big change where I mention the Small Cap Value because it is a tweak.

According to Morningstar, btw, both Vanguard Small caps are actually like 40% midcaps.
Same here - we do intermediate treasuries. Morningstar is always helpful, just don't forget that everybody who creates an index (Morningstar included) has their own definitions of Large, Medium, Small, Value, Blend, Growth per their index construction rules.....

donebyforty
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Re: Bernstein's Simpleton's Portfolio

Post by donebyforty » Mon Aug 14, 2017 7:37 pm

Just want to say thanks again for everyone who commented, especially Bill Bernstein because, I mean, how does that even happen?

We'll stick with the plan and, as the Simpleton's Portfolio demands, keep it simple. :)

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Re: Bernstein's Simpleton's Portfolio

Post by bayview » Mon Aug 14, 2017 8:04 pm

donebyforty wrote:
Mon Aug 14, 2017 7:37 pm
Just want to say thanks again for everyone who commented, especially Bill Bernstein because, I mean, how does that even happen?

We'll stick with the plan and, as the Simpleton's Portfolio demands, keep it simple. :)
Bragworthy, IMO. :sharebeer
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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