Wanted to do 4 fund...but is 3 just fine? anything missing?

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NewInvestor306
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Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by NewInvestor306 »

I saw the Bogle Post about the 4 funds -Total Stock, International, Bonds and REITS.

I am with Schwab and the total market fund I like SWTSX includes Real Estate. With this I could drop the VNQ fund i was considering.
So it would really be

SWTSX - Total Market
SWISX / SCHE - For International and Emerging
SWAGX - 10% for Bonds.

should i invest in TIPS?
UpperNwGuy
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by UpperNwGuy »

That's a good three-fund portfolio. As for adding TIPS, that depends on whether or not you think inflation will exceed expectations, and on how much of your portfolio you are willing to devote to TIPS.

People here will tell you to get TIPS, but bogleheads probably fear inflation more than any other group of people I know.
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retired@50
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by retired@50 »

NewInvestor306 wrote: Tue Jun 08, 2021 7:27 pm should i invest in TIPS?
I would skip the TIPS unless you're over (or near) 60 years old.

In that case you could invest a portion of your bond money in TIPS.

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This is one person's opinion. Nothing more.
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retired@50
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by retired@50 »

NewInvestor306 wrote: Tue Jun 08, 2021 7:27 pm SWISX / SCHE - For International and Emerging
Why not use the VXUS ETF? One fund, instead of two?

Regards,
This is one person's opinion. Nothing more.
dbr
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by dbr »

NewInvestor306 wrote: Tue Jun 08, 2021 7:27 pm
should i invest in TIPS?
You could but there is no particular reason why you should.

In my opinion owning four funds in the literal sense is still a "three fund" portfolio since bonds are bonds. It is also not a stretch to not own international stocks and still own what amounts to 90% of what is important about a three fund idea.

What is going on here is taking a set of sound ideas and making them specific by actually listing three particular funds. But the sound ideas can be implemented with lots of different lists of funds. The problem there is that people get confused and get focused on picking funds rather than following principles. The three fund listed do the job, so that is enough.

The deal with REITs is not whether or not a person owns some but whether or not one holds a larger proportion than is already in the market. I don't think people need to go there, but because it is possible there will always be questions the same as there are questions regarding every other thing a person is allowed to do.
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by dbr »

retired@50 wrote: Tue Jun 08, 2021 8:12 pm
NewInvestor306 wrote: Tue Jun 08, 2021 7:27 pm SWISX / SCHE - For International and Emerging
Why not use the VXUS ETF? One fund, instead of two?

Regards,
That too, but another example of a difference that is not a difference.
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NewInvestor306
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by NewInvestor306 »

dbr wrote: Tue Jun 08, 2021 8:18 pm
NewInvestor306 wrote: Tue Jun 08, 2021 7:27 pm
should i invest in TIPS?
You could but there is no particular reason why you should.

In my opinion owning four funds in the literal sense is still a "three fund" portfolio since bonds are bonds. It is also not a stretch to not own international stocks and still own what amounts to 90% of what is important about a three fund idea.

What is going on here is taking a set of sound ideas and making them specific by actually listing three particular funds. But the sound ideas can be implemented with lots of different lists of funds. The problem there is that people get confused and get focused on picking funds rather than following principles. The three fund listed do the job, so that is enough.

The deal with REITs is not whether or not a person owns some but whether or not one holds a larger proportion than is already in the market. I don't think people need to go there, but because it is possible there will always be questions the same as there are questions regarding every other thing a person is allowed to do.
Very well explained. As someone new the confusion is "well which 3 are the best" as no one wants to worry about a big decision like this and choosing the wrong funds. But for myself and like many others eventually, you realize there really isn't a right or wrong answer and many of the recommended funds all end up performing pretty close to the same. I guess the bigger question then boils down to how much allocation one puts towards what funds as this is where the impact could come into play.
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NewInvestor306
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by NewInvestor306 »

retired@50 wrote: Tue Jun 08, 2021 8:12 pm
NewInvestor306 wrote: Tue Jun 08, 2021 7:27 pm SWISX / SCHE - For International and Emerging
Why not use the VXUS ETF? One fund, instead of two?

Regards,
I could. Ill look into that. I am with Schwab so I was just going to go with Schwab funds and i knew their international fund didn't include emerging markets.
Da5id
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by Da5id »

NewInvestor306 wrote: Tue Jun 08, 2021 7:27 pm I saw the Bogle Post about the 4 funds -Total Stock, International, Bonds and REITS.

I am with Schwab and the total market fund I like SWTSX includes Real Estate. With this I could drop the VNQ fund i was considering.
So it would really be

SWTSX - Total Market
SWISX / SCHE - For International and Emerging
SWAGX - 10% for Bonds.

should i invest in TIPS?
I'd skip the TIPS. Particularly since your bonds are only 10% of portfolio, it won't matter much either way. If you get to a higher percentage of bonds as you get nearer to retirement (if TIPs are still around) you can read about the issues and maybe get some. If you are still tempted to buy TIPs you should also read about I-bonds though and consider which is better for your situation.

It is also really important, whatever you pick, that you understand and believe in what you buy. Don't pick a portfolio because someone said these things are good. If that is the extent of your research, when US or international outperforms for a while, or REITs underperform, or people start saying you should drop bonds due to negative real yields, you will have trouble staying the course.
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by retired@50 »

Da5id wrote: Wed Jun 09, 2021 8:00 am It is also really important, whatever you pick, that you understand and believe in what you buy. Don't pick a portfolio because someone said these things are good. If that is the extent of your research, when US or international outperforms for a while, or REITs underperform, or people start saying you should drop bonds due to negative real yields, you will have trouble staying the course.
This is solid advice ^^^.

When thinking about the portfolio you can calmly decide which asset classes you want, which is really what the 3 funds represent. US Stock / International Stock / Fixed Income (aka Bonds). Deciding to include (or skip) any one asset class is a much bigger decision than deciding which "total US market" fund you will use (VTI / ITOT / or a Schwab mutual fund).

Regards,
This is one person's opinion. Nothing more.
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NewInvestor306
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by NewInvestor306 »

retired@50 wrote: Wed Jun 09, 2021 8:34 am
Da5id wrote: Wed Jun 09, 2021 8:00 am It is also really important, whatever you pick, that you understand and believe in what you buy. Don't pick a portfolio because someone said these things are good. If that is the extent of your research, when US or international outperforms for a while, or REITs underperform, or people start saying you should drop bonds due to negative real yields, you will have trouble staying the course.
This is solid advice ^^^.

When thinking about the portfolio you can calmly decide which asset classes you want, which is really what the 3 funds represent. US Stock / International Stock / Fixed Income (aka Bonds). Deciding to include (or skip) any one asset class is a much bigger decision than deciding which "total US market" fund you will use (VTI / ITOT / or a Schwab mutual fund).

Regards,
Great advice from the two of you. I saw what funds Bogle suggested, then compared them to other ones people had mentioned and looked at past performance etc and these were the funds I ended up with. Now I am just working on figuring out the exact allocation amount for my age and how much risk I want to take on.
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by dogagility »

NewInvestor306 wrote: Wed Jun 09, 2021 7:51 am As someone new the confusion is "well which 3 are the best" as no one wants to worry about a big decision like this and choosing the wrong funds. But for myself and like many others eventually, you realize there really isn't a right or wrong answer and many of the recommended funds all end up performing pretty close to the same. I guess the bigger question then boils down to how much allocation one puts towards what funds as this is where the impact could come into play.
Bingo!

There are new posts by the hour (minute?!) on Bogleheads discussing asset allocation. This choice will be the driver of your portfolio returns.
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by ruralavalon »

NewInvestor306 wrote: Tue Jun 08, 2021 7:27 pm I saw the Bogle Post about the 4 funds -Total Stock, International, Bonds and REITS.

I am with Schwab and the total market fund I like SWTSX includes Real Estate. With this I could drop the VNQ fund i was considering.
So it would really be

SWTSX - Total Market
SWISX / SCHE - For International and Emerging
SWAGX - 10% for Bonds.

should i invest in TIPS?
What is your age? About how many years until e expected retirement?

I don't favor a TIPS fund unless retired or very close to retirement, if then. In my opinion, when younger and still working your inflation protection is your earning capacity and a relatively high equity allocation.

A REIT fund like Vanguard Real Estate ETF (VNQ) has a relatively low correlation with the rest of the stock market so can provide some diversification benefit, and also can give some inflation protection.

For greater simplicity I also suggest a single fund for international stocks, like either Vanguard Total International Stock ETF (VXUS) or iShares Core MSCI Total International Stock ETF (IXUS).
Last edited by ruralavalon on Wed Jun 09, 2021 2:51 pm, edited 1 time in total.
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by gwe67 »

This is Vanguard's suggestion:

Image

and:

Image

Some people (me) think that non-US bonds are unnecessary. Including a REIT is redundant.
VTI 48%, VXUS 12%, BND 40%
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by nisiprius »

REITs are controversial. I don't use a separate REIT fund. I don't think a separate REIT fund is needed. The purpose of the post is just to make sure you understand what people are talking about.

1) "Real estate" includes land, buildings, etc. When people talk about investing in "real estate" they often mean direct investing in real estate; for example, owning a house to be rented to tenants. That's "residential real estate." There is also "commercial real estate" such as office buildings. Most "real estate" is not on the stock market and has nothing much to do with the stock market. Therefore you will see some enthusiasts arguing that people should invest directly in real estate instead of stocks, for example by buying income properties.

2) There are companies that are in the business of owning real estate and renting it out. Some of these businesses issue a special kind of stock called a real estate investment trust (REIT). REITs have special rules, notably a requirement to distribute 90% of its taxable income to stockholders as dividends, so they are a kind of high-dividend stock. There are also companies in the business of real estate management. This is mostly commercial real estate.

Companies and stocks are classified into sectors in a system called the GICS standard. One of the sectors is real estate. So some stocks are in the real estate sector, just as others are in the industrial sector or the financial sector or the healthcare sector.

Mutual fund companies offer specialized mutual funds and ETFs, sector funds, that include only stocks in a single sector. Among them are "real estate" and "REIT" sector funds and ETFs.

3) It is true that Total Stock includes everything. However, not very much of it is invested in real estate:

Image

People who say you should invest in "a REIT mutual fund" or "a real estate mutual fund" usually mean that you should invest much more in REITS than 3.48%. What is usually meant is a separate holding a fund like VGSLX or an ETF like VNQ--perhaps as much as 15% of your total investment in stocks. Since I don't agree with this I'm not a good person for explaining it, but the claim is that REITS make about as much money as the rest of the market, but because real estate's business fluctuations are so different from the rest fo the market, and because of the special characteristics of REITs, there is a slight tendency to moderate the fluctuation of the rest of the market.

4) If you do invest in a real estate or REIT fund, be aware that you are not investing in every kind of real estate. You are investing only in real estate companies that issue stock. I found this chart but I have no idea what half the things on this list are. I think "specialized REITS" are things like companies that operate chains of cell phone towers, or something like that.

Image
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Re: Wanted to do 4 fund...but is 3 just fine? anything missing?

Post by csei21 »

could. Ill look into that. I am with Schwab so I was just going to go with Schwab funds and i knew their international fund didn't include emerging markets.
I am funding a taxable account at Schwab and posted a question recently about whether there is any advantage to having multiple int'l funds at Schwab. I was advised the main advantage would be better ability to engage in tax loss harvesting. There is an online calculator on this site to rebalance the Schwab funds, but I think VXUS is the better choice if you want to maximize simplicity.
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