3 fund portfolio for retirees

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Always passive
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3 fund portfolio for retirees

Post by Always passive »

Are there any examples of how to implement the 3 fund portfolio for retirees. It is obvious what to use for the stocks portion, but I suspect that the Total bond by itself cannot be adequate. Can anyone address this issue.
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vineviz
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Re: 3 fund portfolio for retirees

Post by vineviz »

Always passive wrote: Fri Jun 05, 2020 1:22 pm Are there any examples of how to implement the 3 fund portfolio for retirees. It is obvious what to use for the stocks portion, but I suspect that the Total bond by itself cannot be adequate. Can anyone address this issue.
I would say that total bond alone is more than adequate for retirees. My view is that although it isn't optimal in any dimension, it's also not terrible on any dimension.

For US investors nearer to the beginning of retirement than the end, a combination of Vanguard Inflation-Protected Securities Fund (VAIPX) and Vanguard Long-Term Bond Index Fund (VBLAX) — or preferably the ETF equivalents — would provide a reasonable balance of yield and inflation protection.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Brit
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Re: 3 fund portfolio for retirees

Post by Brit »

This article describes the Three Fund Portfolio and gives some specific examples of Vanguard funds:

https://www.bogleheads.org/wiki/Three-fund_portfolio
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
You're not limited to Vanguard funds, Fidelity (which I use) has equvalent ones.

I'd also highly recommend the book The Three Fund Portfolio by Taylor Larimore:

https://www.amazon.com/gp/product/11194 ... UTF8&psc=1

Its a short, concise and extremely practical book that I've personally given to friends and family -- the reviews say it all.

You'll get specific fund recommendations and specific reasons behind them there. Also
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Leif
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Re: 3 fund portfolio for retirees

Post by Leif »

For me, as a retiree, it is all about choice for withdrawal. So I have many funds to choose from. For fixed income my largest position is the TBM. However, I also have a short term Treasury fund and TIPS in my tIRA to withdraw from when I reach my RMD age.
delamer
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Re: 3 fund portfolio for retirees

Post by delamer »

At a minimum, keep several years of net expenses (total expenses minus Social Security, pensions, other income) in cash equivalents and then the rest of your bond allocation in Total Bond.

This allows you to take withdrawals from your portfolio without “selling low” if bonds and/or stocks are down.
kabob
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Re: 3 fund portfolio for retirees

Post by kabob »

Yes, Three fund portfolio is workin well for me in retirement, in fact am doin even better in retirement!
But as mentioned that depends on how well ya followed your Bogleplan plan in workin yrs and ones pension and SS.
I never made Big bucks, usually around FICA cutoff(which aint bad but not BigTime), and always fed retirement,company contributions, supplements,401,ESOP & such - and lived a non extravagant lifestyle. Plus learned/strived to get the house paid off ASAP, thats really a BigHelp!! (Nobody really goes anywhere,FinancialFreedomWise, till they get the Debt paid off!)

Now the 3 funds + pension & SS are workin Very Well - with a Modified BoglePlan (but still 3 funds), just not the std BogleFunds.
My IPS has always been to buy and accumulate the best Growth and Income index funds rather than the normal whole Market index funds. As example even now my three funds are VUG,VGT, VCLT(or Admin equivalent) - all getting among the best Performance/Interest available. (at least what i currently think to be the Best Growth, Best Sector, Best Interest yielding Bonds - and it's really worked well the last decade or so)
And I rebalance my AA per my IPS as frequently as needed on each equity's individual performance basis (not whole Market Timing)
An Equity's performance falls off and it's immediately reallocated to interest bearing Bonds(quickly), and as Equity performance returns upward Bond Allocations will be reallocated to a well preforming Equity as cycles change...
How I do it is with specific Indicators and rigid/disciplined risk tolerance, defined by my IPS. (Hows that for BogleSpeak).
The only real additional requirement to Bogleism and BogleRules in retirement is: Ya gotta watch your Equities, there's only a limited time for recovery in retirement... (so LossAdvoidance is paramount)
But its Fun, and your life now - They'll keep growing if ya watch em and re balance as needed. It's your New Job!
(there's no rest for the wicked, only the good die young, and i'm gonna live Forever, so far it's workin)
It's Friday and the Market's ALL GREEN!
Last edited by kabob on Sat Jun 06, 2020 7:16 am, edited 1 time in total.
dbr
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Re: 3 fund portfolio for retirees

Post by dbr »

Certainly total bond is adequate. But it just isn't a "violation" of the idea to hold some other bond fund. Intermediate Treasuries comes to mind and so does that plus a TIPS fund. Holding everything in CDs would also be fine.

Actually it is the stock part that may be less simple judging by the non-ending debate about how much to allocate to international stocks and the consternation that no one can get Mr. Buffet to say total stock market really is just as good as S&P 500.

But the point is that recommending three specific funds for a "three fund portfolio" makes the idea simple and actionable without side-tracking the conversation and it is a shame if that is taken to say that only total bond works and every other bond fund will result in disaster, similarly if one does or doesn't choose total stock instead of S&P 500 or vice-versa. It is all a lesson that good investing involves thoughtful ideas and not formulas.

It would be a good exercise to make a list of what the good ideas in the three fund portfolio are without actually naming what the funds are.
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22twain
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Re: 3 fund portfolio for retirees

Post by 22twain »

Always passive wrote: Fri Jun 05, 2020 1:22 pmI suspect that the Total bond by itself cannot be adequate.
Why?

If you tell us what your concerns are, people here can try to help you deal with them.
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booch221
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Re: 3 fund portfolio for retirees

Post by booch221 »

Always passive wrote: Fri Jun 05, 2020 1:22 pm Are there any examples of how to implement the 3 fund portfolio for retirees. It is obvious what to use for the stocks portion, but I suspect that the Total bond by itself cannot be adequate. Can anyone address this issue.
Are you sticking to three funds?
nanameg
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Re: 3 fund portfolio for retirees

Post by nanameg »

dbr wrote: Fri Jun 05, 2020 4:38 pm Certainly total bond is adequate. But it just isn't a "violation" of the idea to hold some other bond fund. Intermediate Treasuries comes to mind and so does that plus a TIPS fund. Holding everything in CDs would also be fine.

Actually it is the stock part that may be less simple judging by the non-ending debate about how much to allocate to international stocks and the consternation that no one can get Mr. Buffet to say total stock market really is just as good as S&P 500.

But the point is that recommending three specific funds for a "three fund portfolio" makes the idea simple and actionable without side-tracking the conversation and it is a shame if that is taken to say that only total bond works and every other bond fund will result in disaster, similarly if one does or doesn't choose total stock instead of S&P 500 or vice-versa. It is all a lesson that good investing involves thoughtful ideas and not formulas.

It would be a good exercise to make a list of what the good ideas in the three fund portfolio are without actually naming what the funds are.
Thank you for this and your other posts in this vein. I followed a “ formula” ...somewhat between the 4 fund formula in TDF’s 2020 and 2025 and didn’t really understand why I was doing it except that it was recommended. When the market dipped so quickly and deeply in March I panicked ...I couldn’t “stay the course “ because I hadn’t thought it through for myself.
Lazareth
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Re: 3 fund portfolio for retirees

Post by Lazareth »

After 30+ years of active investing I have evolved to three funds for our $1.4 million in total taxable and IRA savings at Schwab. I am very happy with the Schwab US Aggregate Bond Index Fund SWAGX for about 50% of our savings. We hold the bond fund mostly in the two traditional IRA's. Low fees and broad participation across the fixed-income markets.
a/66, retired, married, enjoy p/t employment.
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Always passive
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Re: 3 fund portfolio for retirees

Post by Always passive »

22twain wrote: Fri Jun 05, 2020 5:26 pm
Always passive wrote: Fri Jun 05, 2020 1:22 pmI suspect that the Total bond by itself cannot be adequate.
Why?

If you tell us what your concerns are, people here can try to help you deal with them.
Because the total bond fund has a volatility of about 3.5 or so, and I think that one cannot count on it to fund the short term, day to day expenses. I was curious to know how many years in cash or equivalents people hold in addition to the fund.
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Leif
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Re: 3 fund portfolio for retirees

Post by Leif »

Always passive wrote: Fri Jun 05, 2020 10:05 pm Because the total bond fund has a volatility of about 3.5 or so, and I think that one cannot count on it to fund the short term, day to day expenses. I was curious to know how many years in cash or equivalents people hold in addition to the fund.
I hold 1-2 years of expenses not covered by income. It was in money market funds, but with their yield at 0% I've switched to FDIC insured "high yield" savings account (currently at 1.15% for me). As I need I transfer cash to my money market fund that pays my expenses. I have a CD ladder where a CD comes due each year. That replenishes my savings.
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onthecusp
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Re: 3 fund portfolio for retirees

Post by onthecusp »

Always passive wrote: Fri Jun 05, 2020 10:05 pm
22twain wrote: Fri Jun 05, 2020 5:26 pm
Always passive wrote: Fri Jun 05, 2020 1:22 pmI suspect that the Total bond by itself cannot be adequate.
Why?

If you tell us what your concerns are, people here can try to help you deal with them.
Because the total bond fund has a volatility of about 3.5 or so, and I think that one cannot count on it to fund the short term, day to day expenses. I was curious to know how many years in cash or equivalents people hold in addition to the fund.
Occasionally that volatility will be inversely correlated to your other investments. So volatility is not bad in and of itself. Expecting to be able to fund spending for x years from one fund requires a certain level of market timing.

"Passive" maintenance of an asset allocation is going to sell some stock funds during moderately poor markets. Maybe in really bad markets you will sell only from a bond fund, but it is because it has become a much larger fraction of the portfolio.
dbr
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Re: 3 fund portfolio for retirees

Post by dbr »

Always passive wrote: Fri Jun 05, 2020 10:05 pm
22twain wrote: Fri Jun 05, 2020 5:26 pm
Always passive wrote: Fri Jun 05, 2020 1:22 pmI suspect that the Total bond by itself cannot be adequate.
Why?

If you tell us what your concerns are, people here can try to help you deal with them.
Because the total bond fund has a volatility of about 3.5 or so, and I think that one cannot count on it to fund the short term, day to day expenses. I was curious to know how many years in cash or equivalents people hold in addition to the fund.
The general idea of using a portfolio of stocks and bonds from which withdrawals are taken for income is that the portfolio indeed fluctuates in value all the time, sometimes by a lot. At the same time what one wants and needs to withdraw may fluctuate with time, also sometimes a lot. If the overall average rate of withdrawals over periods of years is not too large and does not produce an excessive rate of drawdown of assets, then the assets will last as long as you need them to. This is not an exercise in which money needed this week is matched to some source in your assets that will have "not gone down" this week. I think there is a huge amount of misunderstanding about this whole idea on this forum.

From a practical point of view there is such a thing as household money management that has nothing to do with investing. Just about anyone will keep some amount of cash in checking accounts and/or accessible savings accounts or even money market accounts. In our household almost all "day to day" expenses are made on credit cards so that is already a "slush" fund or a "damper" on how to have money available. Some people prefer the opposite extreme of carrying around a "roll" of a few hundred to a couple of thousand dollars in their pocket. But these things have nothing to do with investing.
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CyclingDuo
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Re: 3 fund portfolio for retirees

Post by CyclingDuo »

dbr wrote: Sat Jun 06, 2020 9:12 amSome people prefer the opposite extreme of carrying around a "roll" of a few hundred to a couple of thousand dollars in their pocket. But these things have nothing to do with investing.
I would just advocate that we are now fully in the age of contactless payments. Get thee a smart phone and watch - and pay using contactless methods. No need for credit cards or wads of rolled up cash in the pocket/purse.

:sharebeer

CyclingDuo
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dbr
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Re: 3 fund portfolio for retirees

Post by dbr »

CyclingDuo wrote: Sat Jun 06, 2020 9:52 am
dbr wrote: Sat Jun 06, 2020 9:12 amSome people prefer the opposite extreme of carrying around a "roll" of a few hundred to a couple of thousand dollars in their pocket. But these things have nothing to do with investing.
I would just advocate that we are now fully in the age of contactless payments. Get thee a smart phone and watch - and pay using contactless methods. No need for credit cards or wads of rolled up cash in the pocket/purse.

:sharebeer

CyclingDuo
Indeed, I don't use anything that is not contactless any more, but there still has to be some reservoir of assets from which those payments are drawn and it won't have anything to do with whether or not some fund in his portfolio gained or lost some money today.

Also, doesn't ApplePay charge against a credit or debit card or a bank account directly or indirectly. The format is different from swiping or tapping a credit card but the money management is not different. I personally would prefer purchases of most things go through a credit type account than a cash account.

I actually have two smart phones and an iPAD mini that I could pay with but they are too awkward to carry around so I don't. The current smart phone design is one of the most appallingly non-ergonomic devices imaginable. I don't wear a watch either.
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CyclingDuo
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Re: 3 fund portfolio for retirees

Post by CyclingDuo »

dbr wrote: Sat Jun 06, 2020 10:06 am
CyclingDuo wrote: Sat Jun 06, 2020 9:52 am
dbr wrote: Sat Jun 06, 2020 9:12 amSome people prefer the opposite extreme of carrying around a "roll" of a few hundred to a couple of thousand dollars in their pocket. But these things have nothing to do with investing.
I would just advocate that we are now fully in the age of contactless payments. Get thee a smart phone and watch - and pay using contactless methods. No need for credit cards or wads of rolled up cash in the pocket/purse.

:sharebeer

CyclingDuo
Indeed, I don't use anything that is not contactless any more, but there still has to be some reservoir of assets from which those payments are drawn and it won't have anything to do with whether or not some fund in his portfolio gained or lost some money today.

Also, doesn't ApplePay charge against a credit or debit card or a bank account directly or indirectly. The format is different from swiping or tapping a credit card but the money management is not different. I personally would prefer purchases of most things go through a credit type account than a cash account.

I actually have two smart phones and an iPAD mini that I could pay with but they are too awkward to carry around so I don't. The current smart phone design is one of the most appallingly non-ergonomic devices imaginable. I don't wear a watch either.
There are no fees to use ApplePay. Yes, it has to be linked to a card - but why not link it to your debit card at the bank to avoid any and all fees? This is a separate discussion from the OP's three fund portfolio, but I am a big advocate for ApplePay and the use of debit cards. Assuming the household financial picture is well under control and your bank account is set up with enough in the fund where the debit card is withdrawing - or you have a separate savings account that you can easily transfer funds into the primary checking/debit account - one should be golden.

Other options would be if one is really focused on getting 1%, 2%, or 3% cash back on purchases with various credit cards - again, you could use those card(s) via ApplePay without incurring any additional charges from ApplePay. Insert plug for the Apple Card here as there are no fees for the AppleCard: __________________________. :mrgreen:

However, some merchants may charge you the same traditional credit card transaction fee as if you were handing them a credit card for the purchase - that all depends on the card and the individual merchant.

https://thepointsguy.com/news/your-comp ... apple-pay/
https://thepointsguy.com/2015/09/should ... with-fees/

Nothing wrong with cash or debit cards or credit cards and carrying them around in one's pocket or purse, but I do advocate for contactless payment.

CyclingDuo
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dbr
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Re: 3 fund portfolio for retirees

Post by dbr »

CyclingDuo wrote: Sat Jun 06, 2020 10:45 am
. . . but I do advocate for contactless payment.
So do I. Some places there isn't any other way to make the payment. But this is awfully far away from how any of us might be affected by owning the total bond fund in a three fund portfolio.
Rudedog
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Re: 3 fund portfolio for retirees

Post by Rudedog »

I have a CD ladder, several year's expenses held in CD's, in addition to Vanguard Funds. If the market takes a dive like it did a few months ago, I sleep well knowing I will have cash available from maturing CDs.
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CyclingDuo
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Re: 3 fund portfolio for retirees

Post by CyclingDuo »

dbr wrote: Sat Jun 06, 2020 11:01 am
CyclingDuo wrote: Sat Jun 06, 2020 10:45 am
. . . but I do advocate for contactless payment.
So do I. Some places there isn't any other way to make the payment. But this is awfully far away from how any of us might be affected by owning the total bond fund in a three fund portfolio.
Correct.

Unless of course, the monthly coupon from the bond fund went directly to the bank account each month and was transferred and loaded up to AppleCash and the same for the quarterly dividends for VTI and VXUS... 8-)

I plan on setting up some form of automation in various phases of retirement that we need for expenses beyond the other streams of income (SS and pension).
"Save like a pessimist, invest like an optimist." - Morgan Housel
desiBogleHeads
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Re: 3 fund portfolio for retirees

Post by desiBogleHeads »

There is no cookie-cutter solution for asset allocation as each individual has a different situation and risk tolerance.
My three fund solution for 5 million which gives me peaceful sleep at night is as follows:

Vanguard Wellington Fund Admiral Shares (VWENX)   : 2 Million
Vanguard Wellesley Income Fund Investor Shares (VWINX) : 2 Million
Vanguard Short-Term Corporate Bond Index Fund Admiral Shares (VSCSX)   : 1 Million

You can come with your own 3 fund solution for your risk tolerance and situation and analyze the portfolio at PORTFOLIO VISUALIZER to fine-tune the same.
https://www.portfoliovisualizer.com/

Good luck.
delamer
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Re: 3 fund portfolio for retirees

Post by delamer »

Always passive wrote: Fri Jun 05, 2020 10:05 pm
22twain wrote: Fri Jun 05, 2020 5:26 pm
Always passive wrote: Fri Jun 05, 2020 1:22 pmI suspect that the Total bond by itself cannot be adequate.
Why?

If you tell us what your concerns are, people here can try to help you deal with them.
Because the total bond fund has a volatility of about 3.5 or so, and I think that one cannot count on it to fund the short term, day to day expenses. I was curious to know how many years in cash or equivalents people hold in addition to the fund.
Seems that 3 to 5 years is about right. However, you could adopt Bill Bernstein’s suggestion of keeping 25 years or so (length of retirement) in cash equivalents and that rest in stocks.
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