Jack Bogle - Two Fund Portfolio

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Triple digit golfer
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Re: Jack Bogle - Two Fund Portfolio

Post by Triple digit golfer »

Marseille07 wrote: Sun Jun 06, 2021 8:15 pm
LadyGeek wrote: Sun Jun 06, 2021 8:07 pm We often recommend asset allocations in 5% steps. It's a lot simple to manage for little added benefit.
Yes, thank you. This was exactly my thinking of considering 95/5. Practically we can't do 100/0 if we include checking in AA, thus the next logical step sounded like 95/5.
You're a tinkerer. I'd say if you want to have a minimum and all stocks outside of that, just pick a dollar amount and let the percentages be what they'll be. If you want a fixed income or cash allocation that you'll buy, hold, and rebalance then do 5% or whatever, but then you have to be willing to buy more.
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Triple digit golfer wrote: Sun Jun 06, 2021 8:26 pm
Marseille07 wrote: Sun Jun 06, 2021 8:15 pm
LadyGeek wrote: Sun Jun 06, 2021 8:07 pm We often recommend asset allocations in 5% steps. It's a lot simple to manage for little added benefit.
Yes, thank you. This was exactly my thinking of considering 95/5. Practically we can't do 100/0 if we include checking in AA, thus the next logical step sounded like 95/5.
You're a tinkerer. I'd say if you want to have a minimum and all stocks outside of that, just pick a dollar amount and let the percentages be what they'll be. If you want a fixed income or cash allocation that you'll buy, hold, and rebalance then do 5% or whatever, but then you have to be willing to buy more.
A dollar amount was exactly how I derived 97/3. It was the highest bill I've received (low 6-figures) and I calculated the percentage of that against my "number."

I'm now aiming for 95/5 and yes, I will rebalance as necessary.
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Re: Jack Bogle - Two Fund Portfolio

Post by LadyGeek »

This thread has run its course and is locked (topic exhausted, no progress - same points continually rehashed by the same members). See: Locked Topics
Moderators or site admins may lock a topic (set it so no more replies may be added) when a violation of posting policy has occurred. Occasionally, even if there are no overt violations of posting policy, a topic (or thread) will reach a point where the information content of the discussion has been essentially exhausted and further replies are much more likely to cause distress to the community than add anything of value.
Update: See below.
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Re: Jack Bogle - Two Fund Portfolio

Post by LadyGeek »

By member request, the discussion which derailed this thread has been removed.

This thread is now unlocked to continue the discussion.
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Re: Jack Bogle - Two Fund Portfolio

Post by abuss368 »

I sent a request to Ladygeek earlier today regarding the status of the Jack Bogle - Two Fund Portfolio thread.

This thread, started in 2016, is one of the most engaging on the forum with a post count of over 2,200.

I would like to thank Ladygeek and the forum moderators for considering the request and reopening the thread.

Bogleheads will do our best to stay on topic and engage in enlightened debates.

Best.
Tony
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Taylor Larimore
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Re: Jack Bogle - Two Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

I am pleased to see that this very important two-fund topic has been reopened. The Two-Fund Portfolio was Jack Bogle's favorite portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Deep down, I remain absolutely confident that the vast majority of American families would be well served by owning their equity holding in a Standard & Poor's 500 Index fund (or a total stock market index fund) and holding their bonds in a total bond market index fund." (Investors in high tax brackets, however, would instead own a very low-cost quasi-index portfolio of high-grade intermediate-term municipal bonds.)
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Jack Bogle - Two Fund Portfolio

Post by 1789 »

Taylor Larimore wrote: Thu Jun 17, 2021 8:18 pm Bogleheads:

I am pleased to see that this very important two-fund topic has been reopened. The Two-Fund Portfolio was Jack Bogle's favorite portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Deep down, I remain absolutely confident that the vast majority of American families would be well served by owning their equity holding in a Standard & Poor's 500 Index fund (or a total stock market index fund) and holding their bonds in a total bond market index fund." (Investors in high tax brackets, however, would instead own a very low-cost quasi-index portfolio of high-grade intermediate-term municipal bonds.)
Hi Taylor/all

What do you think about Bogle’s general approach to total bond index? He clearly was a fan of total market index but not so much for the total bond. Actually, he clearly mentioned in a few interviews that Barclay’s aggregate bond index must be reconstructed as there is not much of a investment corporate bonds. Can you say Bogle’s favorite bond fund was intermediate term bond index (50/50) rather than total bond? One another data point is: I Just finished reading his “Investment vs Speculation”, there he also talked about this and recommend 2/3 corporate and 1/3 treasury short to intermediate terms. Thoughts?
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Re: Jack Bogle - Two Fund Portfolio

Post by Taylor Larimore »

1789 wrote:What do you think about Bogle’s general approach to total bond index? He clearly was a fan of total market index but not so much for the total bond. Actually, he clearly mentioned in a few interviews that Barclay’s aggregate bond index must be reconstructed as there is not much of a investment corporate bonds. Can you say Bogle’s favorite bond fund was intermediate term bond index (50/50) rather than total bond? One another data point is: I Just finished reading his “Investment vs Speculation”, there he also talked about this and recommend 2/3 corporate and 1/3 treasury short to intermediate terms. Thoughts?
1789:

Jack has recommended Total Bond Market and investment-grade intermediate-term corporate bond fund. Personally, I like Total Bond Market for its greater diversification plus a heavier weighting in Treasury bonds. We have owned it since 1986. Its worst annual return was -2.7% in 1994 (it gained +16.0% in 1995).

There is more than one road to Dublin.

Taylor
Jack Bogle's Words of Wisdom: "Bond Index (Lehman total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Jack Bogle - Two Fund Portfolio

Post by Sandtrap »

abuss368 wrote: Thu Jun 17, 2021 8:16 pm I sent a request to Ladygeek earlier today regarding the status of the Jack Bogle - Two Fund Portfolio thread.

This thread, started in 2016, is one of the most engaging on the forum with a post count of over 2,200.

I would like to thank Ladygeek and the forum moderators for considering the request and reopening the thread.

Bogleheads will do our best to stay on topic and engage in enlightened debates.

Best.
Tony
Great job!
Such an important topic promoted by Mr. Bogle should endure as a foundation discussion for all to share and learn from.

Thanks, Tony, for your hard work and contributions.
Aloha
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Re: Jack Bogle - Two Fund Portfolio

Post by anon_investor »

Taylor Larimore wrote: Thu Jun 17, 2021 9:15 pm
1789 wrote:What do you think about Bogle’s general approach to total bond index? He clearly was a fan of total market index but not so much for the total bond. Actually, he clearly mentioned in a few interviews that Barclay’s aggregate bond index must be reconstructed as there is not much of a investment corporate bonds. Can you say Bogle’s favorite bond fund was intermediate term bond index (50/50) rather than total bond? One another data point is: I Just finished reading his “Investment vs Speculation”, there he also talked about this and recommend 2/3 corporate and 1/3 treasury short to intermediate terms. Thoughts?
1789:

Jack has recommended Total Bond Market and investment-grade intermediate-term corporate bond fund. Personally, I like Total Bond Market for its greater diversification plus a heavier weighting in Treasury bonds. We have owned it since 1986. Its worst annual return was -2.7% in 1994 (it gained +16.0% in 1995).

There is more than one road to Dublin.

Taylor
Jack Bogle's Words of Wisdom: "Bond Index (Lehman total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
I feel like what Jack Bogle described for bonds is basically the Vanguard Intermediate Bond Index fund (VBILX). It has more corporates the Vanguard Total Bond Market Index fund (VBTLX).

Personally, would prefer to hold only treasuries and have a lower fixed income asset allocation (more VTSAX!). But I think that VBTLX and VBILX are close enough in terms of performance and composition that it is like comparing VTSAX (Total Stock Market Index) and VFIAX (S&P500 Index).
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

anon_investor wrote: Thu Jun 17, 2021 11:43 pm I feel like what Jack Bogle described for bonds is basically the Vanguard Intermediate Bond Index fund (VBILX). It has more corporates the Vanguard Total Bond Market Index fund (VBTLX).

Personally, would prefer to hold only treasuries and have a lower fixed income asset allocation (more VTSAX!). But I think that VBTLX and VBILX are close enough in terms of performance and composition that it is like comparing VTSAX (Total Stock Market Index) and VFIAX (S&P500 Index).
What about Mr. Buffett's advice when he said "Put 10% of the cash in short-term government bonds"? Which fund / ETF would this be?
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Re: Jack Bogle - Two Fund Portfolio

Post by anon_investor »

Marseille07 wrote: Fri Jun 18, 2021 12:05 am
anon_investor wrote: Thu Jun 17, 2021 11:43 pm I feel like what Jack Bogle described for bonds is basically the Vanguard Intermediate Bond Index fund (VBILX). It has more corporates the Vanguard Total Bond Market Index fund (VBTLX).

Personally, would prefer to hold only treasuries and have a lower fixed income asset allocation (more VTSAX!). But I think that VBTLX and VBILX are close enough in terms of performance and composition that it is like comparing VTSAX (Total Stock Market Index) and VFIAX (S&P500 Index).
What about Mr. Buffett's advice when he said "Put 10% of the cash in short-term government bonds"? Which fund / ETF would this be?
Probably Vanguard Short-Term Treasury Index Fund Admiral Shares (VSBSX/VGSH), though now a days the yield (around 0.1%) is so low probably better to keep cash at Ally or Marcus and get 0.5%.
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

anon_investor wrote: Fri Jun 18, 2021 12:08 am
Marseille07 wrote: Fri Jun 18, 2021 12:05 am
anon_investor wrote: Thu Jun 17, 2021 11:43 pm I feel like what Jack Bogle described for bonds is basically the Vanguard Intermediate Bond Index fund (VBILX). It has more corporates the Vanguard Total Bond Market Index fund (VBTLX).

Personally, would prefer to hold only treasuries and have a lower fixed income asset allocation (more VTSAX!). But I think that VBTLX and VBILX are close enough in terms of performance and composition that it is like comparing VTSAX (Total Stock Market Index) and VFIAX (S&P500 Index).
What about Mr. Buffett's advice when he said "Put 10% of the cash in short-term government bonds"? Which fund / ETF would this be?
Probably Vanguard Short-Term Treasury Index Fund Admiral Shares (VSBSX/VGSH), though now a days the yield (around 0.1%) is so low probably better to keep cash at Ally or Marcus and get 0.5%.
I see. I need to look at VGSH more. I poked around a bit and the chart looked *very* flat; it's risen like 3% in 12 years. Savings might be better indeed.
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Re: Jack Bogle - Two Fund Portfolio

Post by 1789 »

Marseille07 wrote: Fri Jun 18, 2021 12:05 am
anon_investor wrote: Thu Jun 17, 2021 11:43 pm I feel like what Jack Bogle described for bonds is basically the Vanguard Intermediate Bond Index fund (VBILX). It has more corporates the Vanguard Total Bond Market Index fund (VBTLX).

Personally, would prefer to hold only treasuries and have a lower fixed income asset allocation (more VTSAX!). But I think that VBTLX and VBILX are close enough in terms of performance and composition that it is like comparing VTSAX (Total Stock Market Index) and VFIAX (S&P500 Index).
What about Mr. Buffett's advice when he said "Put 10% of the cash in short-term government bonds"? Which fund / ETF would this be?
FUMBX - Short term treasury index fund
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

1789 wrote: Fri Jun 18, 2021 12:36 am
Marseille07 wrote: Fri Jun 18, 2021 12:05 am
anon_investor wrote: Thu Jun 17, 2021 11:43 pm I feel like what Jack Bogle described for bonds is basically the Vanguard Intermediate Bond Index fund (VBILX). It has more corporates the Vanguard Total Bond Market Index fund (VBTLX).

Personally, would prefer to hold only treasuries and have a lower fixed income asset allocation (more VTSAX!). But I think that VBTLX and VBILX are close enough in terms of performance and composition that it is like comparing VTSAX (Total Stock Market Index) and VFIAX (S&P500 Index).
What about Mr. Buffett's advice when he said "Put 10% of the cash in short-term government bonds"? Which fund / ETF would this be?
FUMBX - Short term treasury index fund
Thank you. This seems like a good option as the ER is super low at 0.03%.
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Re: Jack Bogle - Two Fund Portfolio

Post by anon_investor »

Marseille07 wrote: Fri Jun 18, 2021 12:38 am
1789 wrote: Fri Jun 18, 2021 12:36 am
Marseille07 wrote: Fri Jun 18, 2021 12:05 am
anon_investor wrote: Thu Jun 17, 2021 11:43 pm I feel like what Jack Bogle described for bonds is basically the Vanguard Intermediate Bond Index fund (VBILX). It has more corporates the Vanguard Total Bond Market Index fund (VBTLX).

Personally, would prefer to hold only treasuries and have a lower fixed income asset allocation (more VTSAX!). But I think that VBTLX and VBILX are close enough in terms of performance and composition that it is like comparing VTSAX (Total Stock Market Index) and VFIAX (S&P500 Index).
What about Mr. Buffett's advice when he said "Put 10% of the cash in short-term government bonds"? Which fund / ETF would this be?
FUMBX - Short term treasury index fund
Thank you. This seems like a good option as the ER is super low at 0.03%.
Short term treasuries are probably not worth it right now because of super low interest rates, their yields are less than high yield online savings accounts as 0.1% < 0.5%.
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Re: Jack Bogle - Two Fund Portfolio

Post by Munir »

anon_investor wrote: Fri Jun 18, 2021 12:08 am
Marseille07 wrote: Fri Jun 18, 2021 12:05 am
anon_investor wrote: Thu Jun 17, 2021 11:43 pm I feel like what Jack Bogle described for bonds is basically the Vanguard Intermediate Bond Index fund (VBILX). It has more corporates the Vanguard Total Bond Market Index fund (VBTLX).

Personally, would prefer to hold only treasuries and have a lower fixed income asset allocation (more VTSAX!). But I think that VBTLX and VBILX are close enough in terms of performance and composition that it is like comparing VTSAX (Total Stock Market Index) and VFIAX (S&P500 Index).
What about Mr. Buffett's advice when he said "Put 10% of the cash in short-term government bonds"? Which fund / ETF would this be?
Probably Vanguard Short-Term Treasury Index Fund Admiral Shares (VSBSX/VGSH), though now a days the yield (around 0.1%) is so low probably better to keep cash at Ally or Marcus and get 0.5%.
Remember that Marcus pays 0.6% for one or two years if you are an AARP member.
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Re: Jack Bogle - Two Fund Portfolio

Post by Sandtrap »

abuss368 wrote: Thu Jun 17, 2021 8:16 pm I sent a request to Ladygeek earlier today regarding the status of the Jack Bogle - Two Fund Portfolio thread.

This thread, started in 2016, is one of the most engaging on the forum with a post count of over 2,200.

I would like to thank Ladygeek and the forum moderators for considering the request and reopening the thread.

Bogleheads will do our best to stay on topic and engage in enlightened debates.

Best.
Tony
Okay. Onward then. . .

This scenario and dilemma?

2 Fund Portfolio (LMP hybrid).
No Tips.

Question:

Where is "safe haven" going forward to at least make up for inflation?

Change underlying funds?
Tilt?
Change A/A?
etc?

Inquiring minds want to know.
j :D
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Re: Jack Bogle - Two Fund Portfolio

Post by midareff »

Sandtrap wrote: Fri Jun 18, 2021 10:52 am
abuss368 wrote: Thu Jun 17, 2021 8:16 pm I sent a request to Ladygeek earlier today regarding the status of the Jack Bogle - Two Fund Portfolio thread.

This thread, started in 2016, is one of the most engaging on the forum with a post count of over 2,200.

I would like to thank Ladygeek and the forum moderators for considering the request and reopening the thread.

Bogleheads will do our best to stay on topic and engage in enlightened debates.

Best.
Tony
Okay. Onward then. . .

This scenario and dilemma?

2 Fund Portfolio (LMP hybrid).
No Tips.

Question:

Where is "safe haven" going forward to at least make up for inflation?

Change underlying funds?
Tilt?
Change A/A?
etc?

Inquiring minds want to know.
j :D
FOBO retirees, I think that the determination of inflation susceptibility to the individual family or lifestyle must first be determined. Drive less, fuel costs less impact, car replacement less impact. Food, full impact. Home.. no but maintenance yes, yard boy yes, insurance yes, .. and on and on. TIPS could/may be ideal in a ladder but not so much in a fund when you start at these interest rates and effective duration's. Better idea is LMP X2 which can be drained as you age.
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Re: Jack Bogle - Two Fund Portfolio

Post by AlwaysLearningMore »

Sandtrap wrote: Fri Jun 18, 2021 10:52 am This scenario and dilemma?

2 Fund Portfolio (LMP hybrid).
No Tips.

Question:

Where is "safe haven" going forward to at least make up for inflation?

Change underlying funds?
Tilt?
Change A/A?
etc?

Inquiring minds want to know.
j :D
Are you looking to equities to deal with inflation?

"It is no longer a secret that stocks, like bonds, do poorly in an inflationary environment."

" For many years, the conventional wisdom insisted that stocks were a hedge against inflation. The proposition was rooted in the fact that stocks are not claims against dollars, as bonds are, but represent ownership of companies with productive facilities. These, investors believed, would retain their Value in real terms, let the politicians print money as they might."

"Stocks... are perpetual. They have a maturity date of infinity. Investors in stocks are stuck with whatever return corporate America happens to earn."

"Which brings us to the crucial question – the inflation rate. No one knows the answer on this one – including the politicians, economists, and Establishment pundits, who felt, a few years back, that with slight nudges here and there unemployment and inflation rates would respond like trained seals."

Warren Buffett How Inflation Swindles the Equity Investor
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Re: Jack Bogle - Two Fund Portfolio

Post by JDave »

Ah, good ol' recency bias.
A total stock market fund is basically a large cap growth fund.
Large cap grow has led the way the past decade.
Large cap grow lost money the previous decade.
It's all about the recency.
Just don't mistake a cap-weighted total stock market fund with a broadly diversified fund.
Last edited by JDave on Fri Jun 18, 2021 4:02 pm, edited 1 time in total.
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Re: Jack Bogle - Two Fund Portfolio

Post by UpperNwGuy »

JDave wrote: Fri Jun 18, 2021 3:58 pm Ah, good ol' recency bias.
A total stock market fund is basically a large cap growth fund.
Large cap grow has led the way the past decade.
Large cap grow lost money the previous decade.
It's all about the recency.
So you don't believe in market weight?
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Re: Jack Bogle - Two Fund Portfolio

Post by JDave »

Cap weighted funds result in a narrowly diversified portfolio. If that's what you want, go for it. If you want a broadly diversified portfolio, you need to look elsewhere. Apple, Microsoft, Amazon, Alphabet, Facebook, and Tesla - that's what you're loading up on when you buy a cap weighted fund. They've done great the past decade. Want to bet the farm they will do great the next decade? Then buy a cap weighted fund.
Last edited by JDave on Fri Jun 18, 2021 4:07 pm, edited 1 time in total.
Triple digit golfer
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Re: Jack Bogle - Two Fund Portfolio

Post by Triple digit golfer »

JDave wrote: Fri Jun 18, 2021 4:03 pm Cap weighted funds result in a narrowly diversified portfolio. If that's what you want, go for it. If you want a broadly diversified portfolio, you need to look elsewhere.
What would you recommend for a broadly diversified portfolio?
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Re: Jack Bogle - Two Fund Portfolio

Post by JDave »

The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
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Re: Jack Bogle - Two Fund Portfolio

Post by UpperNwGuy »

JDave wrote: Fri Jun 18, 2021 4:11 pm The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
Sounds to me like "stock picking."
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Re: Jack Bogle - Two Fund Portfolio

Post by Triple digit golfer »

JDave wrote: Fri Jun 18, 2021 4:11 pm The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
Large, small, value, growth are all just arbitrary labels.

How much in total market is acceptable?

How much small value would you add and why use cap weighing in that fund?

How much international do you recommend?
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Re: Jack Bogle - Two Fund Portfolio

Post by index245 »

JDave wrote: Fri Jun 18, 2021 4:03 pm Cap weighted funds result in a narrowly diversified portfolio. If that's what you want, go for it. If you want a broadly diversified portfolio, you need to look elsewhere. Apple, Microsoft, Amazon, Alphabet, Facebook, and Tesla - that's what you're loading up on when you buy a cap weighted fund. They've done great the past decade. Want to bet the farm they will do great the next decade? Then buy a cap weighted fund.
To be fair, the cap weighted US market is more "top heavy" than perhaps another cap weighted fund (ie Total World Stock). You get a little less concentration, although that doesn't fit in this thread (US only).

Disclaimer, I own International, Small Cap Value, S&P500, bonds and cash. I do not adhere to the 2-fund portfolio.
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Re: Jack Bogle - Two Fund Portfolio

Post by 1789 »

JDave wrote: Fri Jun 18, 2021 4:11 pm The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
Why do you think adding a SCV makes a portfolio makes it more diversified? Whats the reason you have it Is it because it has done well historically? To my knowledge even the founders of the theory didn't say it increases diversification of the market portfolio.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

1789 wrote: Fri Jun 18, 2021 7:24 pm
JDave wrote: Fri Jun 18, 2021 4:11 pm The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
Why do you think adding a SCV makes a portfolio makes it more diversified? Whats the reason you have it Is it because it has done well historically? To my knowledge even the founders of the theory didn't say it increases diversification of the market portfolio.
Small Cap Value adds diversification because it captures a different source of risk that tends to be less correlated to the overall market
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Re: Jack Bogle - Two Fund Portfolio

Post by 1789 »

Nathan Drake wrote: Sat Jun 19, 2021 2:39 am
1789 wrote: Fri Jun 18, 2021 7:24 pm
JDave wrote: Fri Jun 18, 2021 4:11 pm The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
Why do you think adding a SCV makes a portfolio makes it more diversified? Whats the reason you have it Is it because it has done well historically? To my knowledge even the founders of the theory didn't say it increases diversification of the market portfolio.
Small Cap Value adds diversification because it captures a different source of risk that tends to be less correlated to the overall market
Not necessarily. The reason why most add SCV to a portfolio is not the diversification it is because of an expectation for a little juicy returns. It has worked in the past and thats the reason. If it wouldn’t no one would add a SCV tilt. A globally diversified portfolio is already diversified w/o adding SCV.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 2:39 am
1789 wrote: Fri Jun 18, 2021 7:24 pm
JDave wrote: Fri Jun 18, 2021 4:11 pm The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
Why do you think adding a SCV makes a portfolio makes it more diversified? Whats the reason you have it Is it because it has done well historically? To my knowledge even the founders of the theory didn't say it increases diversification of the market portfolio.
Small Cap Value adds diversification because it captures a different source of risk that tends to be less correlated to the overall market
If you're holding the total US market, SCV is already included. You can *choose* to increase concentration, but that's not going to add diversification.
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Re: Jack Bogle - Two Fund Portfolio

Post by anon_investor »

Marseille07 wrote: Sat Jun 19, 2021 10:24 am
Nathan Drake wrote: Sat Jun 19, 2021 2:39 am
1789 wrote: Fri Jun 18, 2021 7:24 pm
JDave wrote: Fri Jun 18, 2021 4:11 pm The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
Why do you think adding a SCV makes a portfolio makes it more diversified? Whats the reason you have it Is it because it has done well historically? To my knowledge even the founders of the theory didn't say it increases diversification of the market portfolio.
Small Cap Value adds diversification because it captures a different source of risk that tends to be less correlated to the overall market
If you're holding the total US market, SCV is already included. You can *choose* to increase concentration, but that's not going to add diversification.
Treasury bonds are a better diversifier than any kind of equity tilt.
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

anon_investor wrote: Sat Jun 19, 2021 10:33 am Treasury bonds are a better diversifier than any kind of equity tilt.
I don't disagree, but I think the posters are discussing how to diversify the equities portion of the Two Fund Portfolio.
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

Marseille07 wrote: Sat Jun 19, 2021 10:24 am
Nathan Drake wrote: Sat Jun 19, 2021 2:39 am
1789 wrote: Fri Jun 18, 2021 7:24 pm
JDave wrote: Fri Jun 18, 2021 4:11 pm The simplest way to diversify would be to add a small cap value fund. Small cap value did terrible 2010-2020. Then it took off, and about doubled the past year. That's the market for you. Yes, you get SOME small cap value in a total stock market fund, but only a tiny amount - not enough to make a difference.
Why do you think adding a SCV makes a portfolio makes it more diversified? Whats the reason you have it Is it because it has done well historically? To my knowledge even the founders of the theory didn't say it increases diversification of the market portfolio.
Small Cap Value adds diversification because it captures a different source of risk that tends to be less correlated to the overall market
If you're holding the total US market, SCV is already included. You can *choose* to increase concentration, but that's not going to add diversification.
Diversification is not a cap weighted concept

I want diversification of expected returns. I am not primarily investing in SCV for the premium, though that is a nice bonus.

If you invest in just the S&P 500, which is dominated by large large cap tech, that’s not very diversified as many here like to believe.

With P/E levels approaching the 40s similar to 2000, there’s more risk of a longer and deeper correction for 10-15+ years. Yet, during the 00-09 period, SCV did phenomenally well.

Diversification in action. That’s why I hold US TSM, exUS, SCV, EM. It’s also why I think investing in just one source of equities that are highly concentrated like the S&P 500 is a bad idea
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 11:36 am Diversification is not a cap weighted concept

I want diversification of expected returns. I am not primarily investing in SCV for the premium, though that is a nice bonus.

If you invest in just the S&P 500, which is dominated by large large cap tech, that’s not very diversified as many here like to believe.

With P/E levels approaching the 40s similar to 2000, there’s more risk of a longer and deeper correction for 10-15+ years. Yet, during the 00-09 period, SCV did phenomenally well.

Diversification in action. That’s why I hold US TSM, exUS, SCV, EM. It’s also why I think investing in just one source of equities that are highly concentrated like the S&P 500 is a bad idea
I said US TSM, not S&P500 though. S&P500 + SCV is fine because there's no overlap. US TSM + SCV overlap because US TSM already contains SCV. I'm guessing exUS + EM also overlap, though I don't hold exUS and I'm not 100% sure on this.
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

Marseille07 wrote: Sat Jun 19, 2021 11:44 am
Nathan Drake wrote: Sat Jun 19, 2021 11:36 am Diversification is not a cap weighted concept

I want diversification of expected returns. I am not primarily investing in SCV for the premium, though that is a nice bonus.

If you invest in just the S&P 500, which is dominated by large large cap tech, that’s not very diversified as many here like to believe.

With P/E levels approaching the 40s similar to 2000, there’s more risk of a longer and deeper correction for 10-15+ years. Yet, during the 00-09 period, SCV did phenomenally well.

Diversification in action. That’s why I hold US TSM, exUS, SCV, EM. It’s also why I think investing in just one source of equities that are highly concentrated like the S&P 500 is a bad idea
I said US TSM, not S&P500 though. S&P500 + SCV is fine because there's no overlap. US TSM + SCV overlap because US TSM already contains SCV. I'm guessing exUS + EM also overlap, though I don't hold exUS and I'm not 100% sure on this.
The amount of small cap value in US TSM is negligible and won’t change your result in a meaningful way.

It’s not adding much diversification of return at all.
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 11:51 am The amount of small cap value in US TSM is negligible and won’t change your result in a meaningful way.

It’s not adding much diversification of return at all.
OK, if that's your stance then I don't understand how you can advocate world cap weight by the same token.
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

Marseille07 wrote: Sat Jun 19, 2021 11:52 am
Nathan Drake wrote: Sat Jun 19, 2021 11:51 am The amount of small cap value in US TSM is negligible and won’t change your result in a meaningful way.

It’s not adding much diversification of return at all.
OK, if that's your stance then I don't understand how you can advocate world cap weight by the same token.
World cap weight adds more diversification that DOES meaningfully change the characteristics of your portfolio, and moves away from a large sector-bet that currently exists in US TSM.

That's just a good starting point. I slice/dice across factors/regions for more equities that have less long-term correlation of returns, but generally have the same EXPECTED return over the VERY long-term. I do this because I'm much happier when my equities positively perform over 5, 10 year periods than having performance that may be really high one decade, and then horrible for a decade or more. This leads to both better accumulation outcomes and better sequence of return risk when pulling money out of investments.

It's not for everyone, and I'm not suggesting it's right for every investor. It does add more risk in the case of SCV and likely EM. But I like the characteristics of how such a portfolio generally performs through rolling periods.

I'm just mostly pointing out that those that are 100% exposed to US TSM or S&P 500 are NOT as well diversified as they think they are.
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 12:11 pm World cap weight adds more diversification that DOES meaningfully change the characteristics of your portfolio, and moves away from a large sector-bet that currently exists in US TSM.

That's just a good starting point. I slice/dice across factors/regions for more equities that have less long-term correlation of returns, but generally have the same EXPECTED return over the VERY long-term. I do this because I'm much happier when my equities positively perform over 5, 10 year periods than having performance that may be really high one decade, and then horrible for a decade or more. This leads to both better accumulation outcomes and better sequence of return risk when pulling money out of investments.

It's not for everyone, and I'm not suggesting it's right for every investor. It does add more risk in the case of SCV and likely EM. But I like the characteristics of how such a portfolio generally performs through rolling periods.

I'm just mostly pointing out that those that are 100% exposed to US TSM or S&P 500 are NOT as well diversified as they think they are.
I suppose smoothing out the expected return is one way to go about it, but generally in Bogleheads people seem to prefer to achieve the same effect at the portfolio level by holding fixed income.
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

Marseille07 wrote: Sat Jun 19, 2021 12:15 pm
Nathan Drake wrote: Sat Jun 19, 2021 12:11 pm World cap weight adds more diversification that DOES meaningfully change the characteristics of your portfolio, and moves away from a large sector-bet that currently exists in US TSM.

That's just a good starting point. I slice/dice across factors/regions for more equities that have less long-term correlation of returns, but generally have the same EXPECTED return over the VERY long-term. I do this because I'm much happier when my equities positively perform over 5, 10 year periods than having performance that may be really high one decade, and then horrible for a decade or more. This leads to both better accumulation outcomes and better sequence of return risk when pulling money out of investments.

It's not for everyone, and I'm not suggesting it's right for every investor. It does add more risk in the case of SCV and likely EM. But I like the characteristics of how such a portfolio generally performs through rolling periods.

I'm just mostly pointing out that those that are 100% exposed to US TSM or S&P 500 are NOT as well diversified as they think they are.
I suppose smoothing out the expected return is one way to go about it, but generally in Bogleheads people seem to prefer to achieve the same effect at the portfolio level by holding fixed income.
You don't achieve the same effect though. US TSM and US bond market are both priced at historically VERY high levels. It is not unheard of to have a scenario where both do extremely poorly, materially impacting SORR.

It's generally not the case that almost every single large source of equity-like or bond-like returns performs in the same manner for every region or factor. One region may have a dead decade, or low returns, another may have extremely high returns. The money is always out there, it's just changing into different classes due to the whims of investor sentiment which is not static at all.

I think those advocating this particular bet on two funds that have had very outsized levels of performance over a very long period of time leading to extreme levels of valuation or pricing bubbles will be in a rude awakening of inflationary trends ever materialize in a meaningful way, and even THAT isn't a requirement to have a gray/black swan type event.
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 12:22 pm You don't achieve the same effect though. US TSM and US bond market are both priced at historically VERY high levels. It is not unheard of to have a scenario where both do extremely poorly, materially impacting SORR.

It's generally not the case that almost every single large source of equity-like or bond-like returns performs in the same manner for every region or factor. One region may have a dead decade, or low returns, another may have extremely high returns. The money is always out there, it's just changing into different classes due to the whims of investor sentiment which is not static at all.

I think those advocating this particular bet on two funds that have had very outsized levels of performance over a very long period of time leading to extreme levels of valuation or pricing bubbles will be in a rude awakening of inflationary trends ever materialize in a meaningful way, and even THAT isn't a requirement to have a gray/black swan type event.
Personally I'm not too concerned about SORR because we can deploy a percentage-based withdrawal method. This way, you're hammering your portfolio by the same amount (relatively) every time. It avoids the issue of having to dump tons of equities at the bottom and failing to bounce back later.

Now, this means our withdrawals won't be stable; but the simple truth is that if the markets aren't cooperating then quite simply our spending has to bend, because the markets won't bend for you.

It doesn't appear that you aren't interested in the Two Fund Portfolio and that's okay. It's not for everyone.
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

Marseille07 wrote: Sat Jun 19, 2021 12:32 pm
Nathan Drake wrote: Sat Jun 19, 2021 12:22 pm You don't achieve the same effect though. US TSM and US bond market are both priced at historically VERY high levels. It is not unheard of to have a scenario where both do extremely poorly, materially impacting SORR.

It's generally not the case that almost every single large source of equity-like or bond-like returns performs in the same manner for every region or factor. One region may have a dead decade, or low returns, another may have extremely high returns. The money is always out there, it's just changing into different classes due to the whims of investor sentiment which is not static at all.

I think those advocating this particular bet on two funds that have had very outsized levels of performance over a very long period of time leading to extreme levels of valuation or pricing bubbles will be in a rude awakening of inflationary trends ever materialize in a meaningful way, and even THAT isn't a requirement to have a gray/black swan type event.
Personally I'm not too concerned about SORR because we can deploy a percentage-based withdrawal method. This way, you're hammering your portfolio by the same amount (relatively) every time. It avoids the issue of having to dump tons of equities at the bottom and failing to bounce back later.

Now, this means our withdrawals won't be stable; but the simple truth is that if the markets aren't cooperating then quite simply our spending has to bend, because the markets won't bend for you.

It doesn't appear that you aren't interested in the Two Fund Portfolio and that's okay. It's not for everyone.
I think the two fund portfolio does less damage in accumulation than it could in retirement, but it can still have long-term detrimental effects for either in terms of concentrated portfolio risks and people have not priced that in based upon a relatively cheery recent past. The Japan scenario easily comes to mind.

The two funders generally like to point out "but US TSM returned 13.9% vs 5% on exUS" this decade, but someone that had a mixture of both, even if it was at global market cap weight for US vs exUS still returned a healthy near 10% annualized return. I would rather have a relatively consistent 8-10% return than 13% for one decade and -1% the next. The fact that my portfolio has done less than a more concentrated one is a feature; not a bug.
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 12:36 pm I think the two fund portfolio does less damage in accumulation than it could in retirement, but it can still have long-term detrimental effects for either in terms of concentrated portfolio risks and people have not priced that in based upon a relatively cheery recent past. The Japan scenario easily comes to mind.

The two funders generally like to point out "but US TSM returned 13.9% vs 5% on exUS" this decade, but someone that had a mixture of both, even if it was at global market cap weight for US vs exUS still returned a healthy near 10% annualized return. I would rather have a relatively consistent 8-10% return than 13% for one decade and -1% the next. The fact that my portfolio has done less than a more concentrated one is a feature; not a bug.
Well, I don't want to turn this thread into US vs ex-US, that's why I was focused on equities vs fixed income and withdrawal methods.

In terms of Two Fund Portfolio, an interesting question is if someone considers holding VTWAX / VT as their equities portion of their two funder. Strictly speaking, it doesn't have to be US TSM does it?
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

Marseille07 wrote: Sat Jun 19, 2021 12:42 pm
Nathan Drake wrote: Sat Jun 19, 2021 12:36 pm I think the two fund portfolio does less damage in accumulation than it could in retirement, but it can still have long-term detrimental effects for either in terms of concentrated portfolio risks and people have not priced that in based upon a relatively cheery recent past. The Japan scenario easily comes to mind.

The two funders generally like to point out "but US TSM returned 13.9% vs 5% on exUS" this decade, but someone that had a mixture of both, even if it was at global market cap weight for US vs exUS still returned a healthy near 10% annualized return. I would rather have a relatively consistent 8-10% return than 13% for one decade and -1% the next. The fact that my portfolio has done less than a more concentrated one is a feature; not a bug.
Well, I don't want to turn this thread into US vs ex-US, that's why I was focused on equities vs fixed income and withdrawal methods.

In terms of Two Fund Portfolio, an interesting question is if someone considers holding VTWAX / VT as their equities portion of their two funder. Strictly speaking, it doesn't have to be US TSM does it?
I don't have an issue holding one target date fund. The number of funds don't matter. What the fund invests in does matter, and I don't believe only investing in US TSM and US Bonds (this portfolio) is adequately diversified.
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 12:54 pm
Marseille07 wrote: Sat Jun 19, 2021 12:42 pm
Nathan Drake wrote: Sat Jun 19, 2021 12:36 pm I think the two fund portfolio does less damage in accumulation than it could in retirement, but it can still have long-term detrimental effects for either in terms of concentrated portfolio risks and people have not priced that in based upon a relatively cheery recent past. The Japan scenario easily comes to mind.

The two funders generally like to point out "but US TSM returned 13.9% vs 5% on exUS" this decade, but someone that had a mixture of both, even if it was at global market cap weight for US vs exUS still returned a healthy near 10% annualized return. I would rather have a relatively consistent 8-10% return than 13% for one decade and -1% the next. The fact that my portfolio has done less than a more concentrated one is a feature; not a bug.
Well, I don't want to turn this thread into US vs ex-US, that's why I was focused on equities vs fixed income and withdrawal methods.

In terms of Two Fund Portfolio, an interesting question is if someone considers holding VTWAX / VT as their equities portion of their two funder. Strictly speaking, it doesn't have to be US TSM does it?
I don't have an issue holding one target date fund. The number of funds don't matter. What the fund invests in does matter, and I don't believe only investing in US TSM and US Bonds (this portfolio) is adequately diversified.
I don't think anyone disagrees with that. And people are making a conscious decision to purposely pick US as opposed to world cap weight or SCV + EM concentration like you're having.
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

Marseille07 wrote: Sat Jun 19, 2021 1:07 pm
Nathan Drake wrote: Sat Jun 19, 2021 12:54 pm
Marseille07 wrote: Sat Jun 19, 2021 12:42 pm
Nathan Drake wrote: Sat Jun 19, 2021 12:36 pm I think the two fund portfolio does less damage in accumulation than it could in retirement, but it can still have long-term detrimental effects for either in terms of concentrated portfolio risks and people have not priced that in based upon a relatively cheery recent past. The Japan scenario easily comes to mind.

The two funders generally like to point out "but US TSM returned 13.9% vs 5% on exUS" this decade, but someone that had a mixture of both, even if it was at global market cap weight for US vs exUS still returned a healthy near 10% annualized return. I would rather have a relatively consistent 8-10% return than 13% for one decade and -1% the next. The fact that my portfolio has done less than a more concentrated one is a feature; not a bug.
Well, I don't want to turn this thread into US vs ex-US, that's why I was focused on equities vs fixed income and withdrawal methods.

In terms of Two Fund Portfolio, an interesting question is if someone considers holding VTWAX / VT as their equities portion of their two funder. Strictly speaking, it doesn't have to be US TSM does it?
I don't have an issue holding one target date fund. The number of funds don't matter. What the fund invests in does matter, and I don't believe only investing in US TSM and US Bonds (this portfolio) is adequately diversified.
I don't think anyone disagrees with that. And people are making a conscious decision to purposely pick US as opposed to world cap weight or SCV + EM concentration like you're having.
And that's fine. That strategy won't protect you against grayswan or blackswan events that impact the US particularly harshly, and it will be more prone to prolonged periods of significant underperformance.

I suspect that whenever SCV, exUS or EM significantly outperforms the US TSM index that many of those that thought they could stay the course with 100% US TSM find out that they can't and that in hindsight would have been much better served having a more diversified portfolio.

The last 5 minutes or so of this podcast on DFA's latest book are particularly important, IMHO:

https://podcasts.google.com/feed/aHR0cH ... IBBAF&ep=6
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 3:23 pm And that's fine. That strategy won't protect you against grayswan or blackswan events that impact the US particularly harshly, and it will be more prone to prolonged periods of significant underperformance.

I suspect that whenever SCV, exUS or EM significantly outperforms the US TSM index that many of those that thought they could stay the course with 100% US TSM find out that they can't and that in hindsight would have been much better served having a more diversified portfolio.

The last 5 minutes or so of this podcast on DFA's latest book are particularly important, IMHO:

https://podcasts.google.com/feed/aHR0cH ... IBBAF&ep=6
I use 2000~2008 as the baseline and measure how bad withdrawals would have gotten if I had retired in 2000. 100% US TSM doesn't mean you can't sell stocks, it just means you need to sell in a controlled manner. As mentioned previously, a percentage-based withdrawal method lets you achieve exactly this.
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Re: Jack Bogle - Two Fund Portfolio

Post by Nathan Drake »

Marseille07 wrote: Sat Jun 19, 2021 3:35 pm
Nathan Drake wrote: Sat Jun 19, 2021 3:23 pm And that's fine. That strategy won't protect you against grayswan or blackswan events that impact the US particularly harshly, and it will be more prone to prolonged periods of significant underperformance.

I suspect that whenever SCV, exUS or EM significantly outperforms the US TSM index that many of those that thought they could stay the course with 100% US TSM find out that they can't and that in hindsight would have been much better served having a more diversified portfolio.

The last 5 minutes or so of this podcast on DFA's latest book are particularly important, IMHO:

https://podcasts.google.com/feed/aHR0cH ... IBBAF&ep=6
I use 2000~2008 as the baseline and measure how bad withdrawals would have gotten if I had retired in 2000. 100% US TSM doesn't mean you can't sell stocks, it just means you need to sell in a controlled manner. As mentioned previously, a percentage-based withdrawal method lets you achieve exactly this.
Which is basically why I suggest those using a 100% US strategy aim for a 2% SWR, because the percentage based withdrawal method will be particularly bad during a prolonged downturn. There's only so much people can realistically cut from their budget.

This isn't optimal of course because who wants to save far more than they have to if they only had more diversification?
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Re: Jack Bogle - Two Fund Portfolio

Post by Marseille07 »

Nathan Drake wrote: Sat Jun 19, 2021 3:54 pm Which is basically why I suggest those using a 100% US strategy aim for a 2% SWR, because the percentage based withdrawal method will be particularly bad during a prolonged downturn. There's only so much people can realistically cut from their budget.

This isn't optimal of course because who wants to save far more than they have to if they only had more diversification?
I'm not sure where you got the 2% from, but I'm not aware of studies projecting lower SWR for US TSM than a mixture of US & international.
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