The Core Four

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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abuss368
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Re: The Core Four

Post by abuss368 » Wed Jun 11, 2014 11:51 am

genefl wrote:Also, I read the post that owning real estate rentals may obviate the need for a REIT. My father feels that his rental properties act as bonds and so he is 100% in equities. Thoughts on this approach?

Thanks,

Gene


Hi Gene,

That is an individual "thing"! If your father can stand up to a 50% decrease in equities (or more) during the next sell off, then go for it. Please take goals, time frame, and the ability to handle risks into the decision.

Bond funds provide income (which is lower today than historical considerations) and safety. They also provide the ability to rebalance by buying equities during the inevitable downturns. Having that "dry powder" available to purchase equities was huge during the financial crisis.

What would concern me with your fathers plan is the combination of 100% equities and very illiquid rental properties. Without knowing the rental property specifics, what if tenants lose their jobs and move out? Can he handle the loss of cash flow from rental income? In addition, does he have additional funds to rebalance back into equities. These are some of the areas and risks that should be considered. David Swensen, Yale CIO and author of the excellent book "Unconventional Success" noted that liquidity is huge and shows up when it is least expected. This is excellent advice.

Please stop back with any additional questions you may have. You might want to consider starting a separate thread to get more detailed and potentially better responses.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Core Four

Post by HomerJ » Wed Jun 11, 2014 1:30 pm

genefl wrote:Also, I read the post that owning real estate rentals may obviate the need for a REIT. My father feels that his rental properties act as bonds and so he is 100% in equities. Thoughts on this approach?


That doesn't seem too safe to me... If we enter a major recession, stocks could go down AND his renters could lose their jobs and be unable to pay. Those two things could easily happen from the same one root cause, so only one thing has to go wrong for both his investments to go bad.

That doesn't seem like a very diverse strategy... But maybe his renters are old couples living off Social Security, and maybe there's very little correlation between a stock market crash AND him losing his rental income.

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Re: The Core Four

Post by genefl » Wed Jun 11, 2014 10:24 pm

Thanks for the responses. I'll pass the advice on to my father.

On my end, I am thinking about dollar cost averaging into the Core Four over the next 6-12 months. I don't think that I have enough room in the tax advantaged accounts. Reit in the tax advantaged and Bonds in taxable account, or vice versa?

Thanks,

Gene

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Re: The Core Four

Post by TimeRunner » Wed Jun 11, 2014 10:51 pm

Another Core4 follower. Thank you, Rick. :beer <-- We need a wine glass Smilie/emoticon.

2017 update: Retired Dec 2016. Re-evaluated this approach in Fall of 2016 and decided to move more towards a global market allocation along the lines of Vanguard Total World Stock (VT)<-- Vanguard and FIdelity holding, and iShares MSCI ACWI Index Fund (ACWI)<--- Fidelity holding, mostly in tax-deferred accounts (Roth, TIRA). I hope to have the fortitude to stick with this approach. :D

Summer 2017 update: Using VT instead of ACWI at Fidelity anyways. $4.95 commission still gives better return with VT than ACWI. Dividend reinvestment in VT does not generate a commission charge at Fido either.
Last edited by TimeRunner on Sat Aug 12, 2017 10:04 pm, edited 3 times in total.
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Re: The Core Four

Post by Zeus » Sun Aug 03, 2014 2:36 pm

Would an easier way to maintain and re-balance this portfolio be to use Vanguard LifeStrategy Growth Fund (VASGX) and buy some REIT? Or is there a downside to doing this?

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Re: The Core Four

Post by retiredjg » Sun Aug 03, 2014 2:44 pm

Zeus wrote:Would an easier way to maintain and re-balance this portfolio be to use Vanguard LifeStrategy Growth Fund (VASGX) and buy some REIT? Or is there a downside to doing this?

In theory, I don't see much of a problem as long as the REIT allocation is small enough not to throw off the other allocations by much.

In practice, it is not that simple. There could be a downside if you are using both tax-advantaged accounts and taxable accounts because neither LS or REIT belong in taxable (for best tax-efficiency). And it also does not allow for accumulating money in a 401k/403b/etc because those plans rarely (never?) offer a LifeStrategy fund. But if the only place you have available to save money is tIRA and/or Roth IRA, I suppose it could work.

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Re: The Core Four

Post by Louis Winthorpe III » Sun Aug 03, 2014 2:45 pm

Zeus wrote:Would an easier way to maintain and re-balance this portfolio be to use Vanguard LifeStrategy Growth Fund (VASGX) and buy some REIT? Or is there a downside to doing this?


That is an easier way and a good overall approach. One small downside is that you'll pay a slightly higher expense ratio using LifeStrategy than you would buying the underlying funds separately. LifeStrategy funds don't get the benefit of Admiral share classes in the underlying funds, which seems odd, but it's how Vanguard operates. The difference isn't large -- something like 8 or 9 basis points if I recall correctly. But it's enough to make me own the underlying funds directly for the time being. Eventually, I may decide to pay for LifeStrategy and chalk up the difference in fees to a premium for simplicity and automatic rebalancing.

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Re: The Core Four

Post by Louis Winthorpe III » Sun Aug 03, 2014 2:47 pm

retiredjg wrote: And it also does not allow for accumulating money in a 401k/403b/etc because those plans rarely (never?) offer a LifeStrategy fund. But if the only place you have available to save money is tIRA and/or Roth IRA, I suppose it could work.


Target retirement funds like LifeStrategy are very common in 401(k) / 403(b) plans, at least among large employers.

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Re: The Core Four

Post by retiredjg » Sun Aug 03, 2014 3:01 pm

Louis Winthorpe III wrote:
retiredjg wrote: And it also does not allow for accumulating money in a 401k/403b/etc because those plans rarely (never?) offer a LifeStrategy fund. But if the only place you have available to save money is tIRA and/or Roth IRA, I suppose it could work.


Target retirement funds like LifeStrategy are very common in 401(k) / 403(b) plans, at least among large employers.

Target funds, yes. Those are in 401k/403b plans all the time.

But I think this poster asked about The LifeStrategy series from Vanguard because it contains (essentially) only the other 3 funds that belong in the Core Fore. There is that little bit of international bonds that make it not an exact match, but close enough in my book. However, there are those points I made above about how this is only a good idea for a select few.

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Re: The Core Four

Post by Zeus » Sun Aug 03, 2014 3:32 pm

Louis Winthorpe III wrote:
Zeus wrote:Would an easier way to maintain and re-balance this portfolio be to use Vanguard LifeStrategy Growth Fund (VASGX) and buy some REIT? Or is there a downside to doing this?


That is an easier way and a good overall approach. One small downside is that you'll pay a slightly higher expense ratio using LifeStrategy than you would buying the underlying funds separately. LifeStrategy funds don't get the benefit of Admiral share classes in the underlying funds, which seems odd, but it's how Vanguard operates. The difference isn't large -- something like 8 or 9 basis points if I recall correctly. But it's enough to make me own the underlying funds directly for the time being. Eventually, I may decide to pay for LifeStrategy and chalk up the difference in fees to a premium for simplicity and automatic rebalancing.


Thanks for the feedback. I'm seeing it as potentially advantageous when using both Roth and Traditional IRAs for my wife and I. Instead of checking the allocations and re-balancing between 4 different accounts, I could do it much more easily (and automatically) with LifeStrategy. Another downside, however, is that I don't control the timing of the re-balancing. Maybe that is a good thing, though, in retrospect.

Just so I understand, are the LifeStrategy fees in addition to those of the underlying Investor class share funds?

Thanks

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Re: The Core Four

Post by Louis Winthorpe III » Sun Aug 03, 2014 3:44 pm

retiredjg wrote:
Louis Winthorpe III wrote:
retiredjg wrote: And it also does not allow for accumulating money in a 401k/403b/etc because those plans rarely (never?) offer a LifeStrategy fund. But if the only place you have available to save money is tIRA and/or Roth IRA, I suppose it could work.


Target retirement funds like LifeStrategy are very common in 401(k) / 403(b) plans, at least among large employers.

Target funds, yes. Those are in 401k/403b plans all the time.

But I think this poster asked about The LifeStrategy series from Vanguard because it contains (essentially) only the other 3 funds that belong in the Core Fore. There is that little bit of international bonds that make it not an exact match, but close enough in my book. However, there are those points I made above about how this is only a good idea for a select few.


I doubt that the difference between LifeStrategy funds and the equivalent from T. Rowe Price or Fidelity or whoever would be meaningful. If the stock and bond allocations are similar, performance will be similar.

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Life Strategy fee.

Post by Taylor Larimore » Sun Aug 03, 2014 3:45 pm

Just so I understand, are the LifeStrategy fees in addition to those of the underlying Investor class share funds?

No.

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

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Re: The Core Four

Post by Louis Winthorpe III » Sun Aug 03, 2014 3:48 pm

Zeus wrote:
Thanks for the feedback. I'm seeing it as potentially advantageous when using both Roth and Traditional IRAs for my wife and I. Instead of checking the allocations and re-balancing between 4 different accounts, I could do it much more easily (and automatically) with LifeStrategy. Another downside, however, is that I don't control the timing of the re-balancing. Maybe that is a good thing, though, in retrospect.

Just so I understand, are the LifeStrategy fees in addition to those of the underlying Investor class share funds?

Thanks


The LifeStrategy fees are not in addition to the underlying investor class share fund fees. If you buy the underlying funds and hold investor share classes, you will pay exactly the same as someone who owns the LifeStrategy fund. There is only a cost difference if you can buy the underlying funds at the Admiral share class level because the LifeStrategy funds don't get the cost reduction benefit of Admiral shares.

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Re: The Core Four

Post by retiredjg » Sun Aug 03, 2014 4:07 pm

Louis Winthorpe III wrote:
retiredjg wrote:
Louis Winthorpe III wrote:
retiredjg wrote: And it also does not allow for accumulating money in a 401k/403b/etc because those plans rarely (never?) offer a LifeStrategy fund. But if the only place you have available to save money is tIRA and/or Roth IRA, I suppose it could work.


Target retirement funds like LifeStrategy are very common in 401(k) / 403(b) plans, at least among large employers.

Target funds, yes. Those are in 401k/403b plans all the time.

But I think this poster asked about The LifeStrategy series from Vanguard because it contains (essentially) only the other 3 funds that belong in the Core Fore. There is that little bit of international bonds that make it not an exact match, but close enough in my book. However, there are those points I made above about how this is only a good idea for a select few.

I doubt that the difference between LifeStrategy funds and the equivalent from T. Rowe Price or Fidelity or whoever would be meaningful. If the stock and bond allocations are similar, performance will be similar.

I don't disagree with that. But I don't think that is what the poster is asking.

I think the poster is asking if s/he can make a Core Four Portfolio using LifeStrategy combined with REIT.

You might get the same performance with other "allocation funds" but it would not be the Core Four (Total Stock, Total International, Total Bond, REIT) unless those other allocation type funds contain the right 3 underlying funds.

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Re: The Core Four

Post by Louis Winthorpe III » Sun Aug 03, 2014 4:23 pm

retiredjg wrote:\

I think the poster is asking if s/he can make a Core Four Portfolio using LifeStrategy combined with REIT.

You might get the same performance with other "allocation funds" but it would not be the Core Four (Total Stock, Total International, Total Bond, REIT) unless those other allocation type funds contain the right 3 underlying funds.


I read his post to be about the Core Four generally, and I don't believe you have to invest solely in Vanguard funds to do a Core Four portfolio. Pick any company's total stock market index / S&P 500 index, any all world ex-us index, any total bond index and any good REIT index fund, and you're there. If Core Four means only Vanguard funds, then you're correct, but I'm guessing that Rick Ferri used Vanguard's funds as an example because they are good choices with very low expenses. Would Rick view the equivalent portfolio at T. Rowe Price or Fidelity as something other than Core Four? No idea, but it would seem like a distinction without a difference.

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Re: The Core Four

Post by retiredjg » Sun Aug 03, 2014 4:58 pm

Louis Winthorpe III wrote:I read his post to be about the Core Four generally, and I don't believe you have to invest solely in Vanguard funds to do a Core Four portfolio.

I don't either. I just don't think there are many other companies that have an allocation type fund made of just (or nearly only) total stock, total international, and total bond. I know Fido has one (they call it Four in One) but it only comes in one stock to bond ratio (85/15).


Would Rick view the equivalent portfolio at T. Rowe Price or Fidelity as something other than Core Four? No idea, but it would seem like a distinction without a difference.

I can't speak for Rick, but I doubt it. I just don't think there are many of these funds available (other than the Four in One already mentioned above) and I don't think they are available very often in a plan at work...which I thought is what we were talking about. Could be wrong though. :happy

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Re: The Core Four

Post by Barry Barnitz » Sun Aug 03, 2014 6:15 pm

Hi:

The Core four portfolios resonate with at least one Spanish investor:

Tópico: Super PPR - Como ficar rico? (Tópico de ETFs) (Lida 64390 vezes)


Aqui fica um artigo sobre os retornos históricos mantendo um simples portfolio de 4 fundos/ETFs de gestão passiva:

Core Four Portfolios

"Retornos passados não são garantia de retornos futuros"


regards,
Image | blb | December Birthday Celebration: Ludwig van Beethoven

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Re: The Core Four

Post by Zeus » Sun Aug 03, 2014 9:04 pm

Thanks for the information. I decided that it makes sense to buy the Vanguard LifeStrategy Growth Fund in my case. I'll buy this fund and then also hold the REIT index and balance quarterly. With 4 different retirement accounts, this makes life a lot easier and I view the automatic re-balancing as an offset for the increased expense of 6 basis points.

One thing I haven't considered is how to replicate the Core Four in a taxable account. As has been discussed, LS funds aren't the most tax efficient vehicles. Any recommendations on how to implement this portfolio in a taxable account while optimizing tax efficiency? Thank you.

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Re: The Core Four

Post by jpmitchell » Mon Aug 04, 2014 8:10 am

Louis Winthorpe III wrote:
Zeus wrote:
Thanks for the feedback. I'm seeing it as potentially advantageous when using both Roth and Traditional IRAs for my wife and I. Instead of checking the allocations and re-balancing between 4 different accounts, I could do it much more easily (and automatically) with LifeStrategy. Another downside, however, is that I don't control the timing of the re-balancing. Maybe that is a good thing, though, in retrospect.

Just so I understand, are the LifeStrategy fees in addition to those of the underlying Investor class share funds?

Thanks


The LifeStrategy fees are not in addition to the underlying investor class share fund fees. If you buy the underlying funds and hold investor share classes, you will pay exactly the same as someone who owns the LifeStrategy fund. There is only a cost difference if you can buy the underlying funds at the Admiral share class level because the LifeStrategy funds don't get the cost reduction benefit of Admiral shares.


Not quite.

It is actually a bit cheaper to own the LifeStrategy Fund than it is to own the underlying investor class funds. Let's take the LifeStrategy Moderate Growth Fund (VSMGX) as an example:

Fund//% allocation//ER
VSMGX//100%// 0.16%

INVESTOR
VTSMX//42.20%//0.17%
VGTSX//17.90%//0.22%
VBMFX//32.00% //0.20%
VTIBX//7.90%//0.23%
TOTAL//100%// 0.19%

ADMIRAL
VTSAX//42.20%//0.05%
VTIAX//17.90%//0.14%
VBTLX//32.00%//0.08%
VTABX//7.90%//0.20%
TOTAL//100%// 0.09%

So, unless you can afford the minimums on the Admiral shares you are actually better off with the LS or TR funds. Heck, I think a strong case can me made that 7 basis points is a small price to pay for simplification and a lot of folks would be better off with LS or TR funds regardless.

-jpmitchell

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Re: The Core Four

Post by N52570 » Mon Aug 04, 2014 10:00 am

I'm all for simplicity but, don't you lose the possible "rebalancing" bonus by using one of these preset AA funds? I presume these LS and TD funds are rebalanced often (daily?,weekly?,monthly?) to maintain their advertised AA. I was under the impression that there is some evidence that rebalancing should only be done annually (or longer) Or, possibly when a predetermined percentage of imbalance is reached before that. What am I missing?
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Re: The Core Four

Post by jpmitchell » Mon Aug 04, 2014 10:57 am

N52570 wrote:I'm all for simplicity but, don't you lose the possible "rebalancing" bonus by using one of these preset AA funds? I presume these LS and TD funds are rebalanced often (daily?,weekly?,monthly?) to maintain their advertised AA. I was under the impression that there is some evidence that rebalancing should only be done annually (or longer) Or, possibly when a predetermined percentage of imbalance is reached before that. What am I missing?


My understanding is that the rebalancing bonus is largely a myth. We rebalance to keep our investments inline with our risk tolerance, not to capture any magical return. There is no free lunch. In fact, Jack Bogle does not rebalance at all (see the third question down)

http://johncbogle.com/wordpress/category/ask-jack/

There is a tax advantage to rebalancing less when talking about taxable accounts, and I believe that's where the annual rebalancing type rules of thumb come from. When dealing with tax-advantaged accounts, in my opinion it just does not matter enough to discourage the use of LS or TR funds.

-jpmitchell

*Edited for grammar*
Last edited by jpmitchell on Mon Aug 04, 2014 12:43 pm, edited 1 time in total.

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Re: The Core Four

Post by Tamales » Mon Aug 04, 2014 11:57 am

jpmitchell wrote:My understanding is that the rebalancing bonus is largely a myth. We rebalance to keep our investments inline with our risk tolerance, not to capture any magical return. There is no free lunch.

-jpmitchell


It's not that it's a myth, it's that it is unpredictable and inconsistent. When you compare no rebalancing to quarterly, annual, monthly, or percentage-based rebalancing, there are some periods (depending on the relative performance of the funds making up the portfolio) when it gives better total return and some where no rebalancing is better, and some where it makes little difference at all. Change the interval and it can change the result.

There are always sales and/or purchases involved so definitely not a free lunch. I suppose if you always have a pool of money you could rebalance with purchases only, to minimize tax impact. Easier to do that with a small number of holdings. So the main reason as you note is to keep your AA at what you elected, for risk tolerance reasons. If your interval is at least a year and a day you at least avoid short term cap gains (or only sell specific older shares).

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Re: The Core Four

Post by abuss368 » Wed Aug 06, 2014 8:57 pm

Bogleheads,

The Core Four, as recommended by investment expert Rick Ferri is an excellent portfolio that many investors would do well to own.

An investor may be able do better, but they definitely can do a lot worse.

Thank you Rick!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Core Four

Post by abuss368 » Wed Aug 06, 2014 8:58 pm

I just noticed that Rick penned the original post in this thread almost 7 years ago - December 2007!

Awesome indeed!
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Re: The Core Four

Post by Taylor Larimore » Wed Aug 06, 2014 9:09 pm

abuss368 wrote:Bogleheads,

The Core Four, as recommended by investment expert Rick Ferri is an excellent portfolio that many investors would do well to own.

An investor may be able do better, but they definitely can do a lot worse.


Abuss:

I agree.

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

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Re: The Core Four

Post by abuss368 » Thu Aug 07, 2014 9:52 am

Taylor Larimore wrote:
abuss368 wrote:Bogleheads,

The Core Four, as recommended by investment expert Rick Ferri is an excellent portfolio that many investors would do well to own.

An investor may be able do better, but they definitely can do a lot worse.


Abuss:

I agree.

Thank you and best wishes.
Taylor


Hi Taylor,

Thanks! I have always said my two favorite portfolio recommendations are the "Three Fund Portfolio" and "The Core Four".

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Core Four

Post by abuss368 » Thu Aug 07, 2014 9:54 am

Does anyone know, and perhaps Rick or Taylor will be able to provide an answer, if "The Core Four" allows the Total Bond Index to be substituted with Intermediate Term Tax Exempt for bonds in a taxable account?

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Core Four

Post by Rick Ferri » Thu Aug 07, 2014 10:15 am

There isn't a four-4 taxable w/REITs for investors in a high tax bracket. In a taxable account, you would substitute a tax-expmpt fund for the taxable one and leave out REITS, and you might split bonds to include TIPS, which would give you a core-4 again.

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Re: The Core Four

Post by Mouro_Emprestado » Thu Aug 07, 2014 4:35 pm

Barry Barnitz wrote:Hi:

The Core four portfolios resonate with at least one Spanish investor:

Tópico: Super PPR - Como ficar rico? (Tópico de ETFs) (Lida 64390 vezes)


Aqui fica um artigo sobre os retornos históricos mantendo um simples portfolio de 4 fundos/ETFs de gestão passiva:

Core Four Portfolios

"Retornos passados não são garantia de retornos futuros"


regards,


I don't want to hijack this thread, but I'm not a Spanish investor (that forum is actually Portuguese :twisted: :wink: )

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Re: The Core Four

Post by abuss368 » Fri Aug 08, 2014 12:37 pm

Rick Ferri wrote:There isn't a four-4 taxable w/REITs for investors in a high tax bracket. In a taxable account, you would substitute a tax-expmpt fund for the taxable one and leave out REITS, and you might split bonds to include TIPS, which would give you a core-4 again.

Rick Ferri


Hi Rick,

TIPS in a taxable account provide state tax benefits!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Core Four

Post by Morik » Wed Dec 03, 2014 5:37 pm

Hey so I've been reading through this thread... I am essentially using the 3-fund portfolio in my tax-advantaged accounts.
Are REITs still massively underweighted in the TSM compared to real estate in the US economy?

How similar/different are the returns of REIT funds vs the returns of Real Estate as a whole?

I guess what I'm asking is:

1) How highly correlated are REIT funds and the (massively under-represented) US real estate business?
2) Is real estate still underrepresented in the TSM compared to its proportion of the economy? (Would most people expect it to continue to be under-represented?)

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Re: The Core Four

Post by Rick Ferri » Thu Dec 04, 2014 11:09 am

About 45% of busiiness in the US is conducted by publically traded companies. REITs represent only 4% of the commercial real estate market in the US and only 3% of the stock market. So, you can see that real estate based on REITS capitalization is significantly under represented in the TSM. This alone is not a reason to own more REITs, but if you want your portfolio to structured more like the US economy than the stock market, you could add about 10% REITS to your equity portfolio.

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Re: The Core Four

Post by Morik » Thu Dec 04, 2014 11:51 am

Thanks Rick--I appreciate the response.
One more question--why is real estate so under-represented? Is this something to do with real estate business models? Or is this under-representation common across many different sectors, and real estate is singled out due to perceived differences (in terms of correlation) between real estate businesses and other businesses?

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Re: The Core Four

Post by abuss368 » Fri Dec 05, 2014 3:25 pm

Morik wrote:Thanks Rick--I appreciate the response.
One more question--why is real estate so under-represented? Is this something to do with real estate business models? Or is this under-representation common across many different sectors, and real estate is singled out due to perceived differences (in terms of correlation) between real estate businesses and other businesses?


The "Core Four" thread is a great source of information.

To answer your question, a lot of real estate is on company Balance Sheets as assets. Apple, Walmart, etc. own a lot of real estate but are not classified as real estate companies. McDonald's is practically a real estate company and not a burger and fries company if one reads the financial statements.
Last edited by abuss368 on Sun Jan 04, 2015 10:01 pm, edited 1 time in total.
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Re: The Core Four

Post by abuss368 » Wed Dec 10, 2014 4:32 pm

This has been an excellent thread. This thread combined with the "Three Fund Portfolio" are my favorites.

Thank you Rick and Taylor!
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Re: The Core Four

Post by LadyGeek » Sat Jun 20, 2015 3:28 pm

Thanks to a suggestion by TimeRunner in Suggestions for the Wiki, the wiki has been updated to incorporate Rick Ferri's revised international asset allocation.

See: Lazy portfolios (Core four portfolios)
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Re: The Core Four

Post by fortyofforty » Sun Jun 21, 2015 10:22 am

How would a two fund portfolio with the Vanguard Balanced Index Admiral (VBIAX) along with Vanguard Total International (VTIAX) work? You could hold them at 80/20, for a high proportion of international, or at 85/15 for less international exposure.
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Re: The Core Four

Post by mskern77 » Sat Aug 27, 2016 9:45 pm

Bumping this topic to see if we can get some current comments on using- Vanguard Target fund and add REIT to the mix to simplify the portfolio selection for the Core 4 or is individual ETF/fund selection still the way to go?

Thanks,

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Re: The Core Four

Post by TimeRunner » Sat Aug 27, 2016 10:00 pm

mskern77 wrote:Bumping this topic to see if we can get some current comments on using- Vanguard Target fund and add REIT to the mix to simplify the portfolio selection for the Core 4 or is individual ETF/fund selection still the way to go?

Thanks,
One problem with simplification, at least in a taxable account, is losing "tax loss harvesting (TLH)" opportunities. Four investments is easy to track and manage in a Google Sheet or Excel, at least until an overwhelming doddering mental state consumes. :)
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Re: The Core Four

Post by digit8 » Sat Aug 27, 2016 10:01 pm

mskern77 wrote:Bumping this topic to see if we can get some current comments on using- Vanguard Target fund and add REIT to the mix to simplify the portfolio selection for the Core 4 or is individual ETF/fund selection still the way to go?

Thanks,


Not optimal but potentially workable if that's the way it has to be due to workplace plan options or whatever. It seems like it would require a lot more futzing around with then intended for any lazy portfolio (for example, I guess you'd have to periodically move to a different target fund as the glide path adjusted and your REIT contributions increased)but since we're talking a half hour a couple times a year instead of 15 minutes once a year it's not exactly a showstopper.
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Re: The Core Four

Post by retiredjg » Sun Aug 28, 2016 6:25 am

mskern77 wrote:Bumping this topic to see if we can get some current comments on using- Vanguard Target fund and add REIT to the mix to simplify the portfolio selection for the Core 4 or is individual ETF/fund selection still the way to go?

In theory, it could be fine because the amount of REIT is not going to throw your stock to bond or US to foreign ratios off too much. For example, setting it up like this might work fine.

401k
Target Fund

Roth IRA
Target Fund (if needed)
REIT

But putting this into practice might not work out well if you plan to put any of it into a taxable account. REIT does not belong in taxable at all (unless placed there for steady income) and it is often better to avoid Target funds in a taxable account for a couple of reasons.

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Re: The Core Four

Post by Rick Ferri » Sun Aug 28, 2016 8:32 pm

I posted this on another conversation and will repeat it here to add some clarity behind this conversation as my Core-4 portfolio has become quite popular over the years.

There is a difference between investment philosophy and portfolio strategy. We're all Bogleheads', which means we all believe in low-cost passive investing. This is our "philosophy" and it's universal. "Strategy" is how we implement this belief and it is personal. Strategy includes asset allocation and the funds we select to represent that allocation plus things like tax-management and rebalancing method. Although we're all of the same philosophy, I doubt there are two Bogleheads who have the exact same strategy.

Many people have adopted my Core-4 portfolio as their base strategy and that's fine. My reason for introducing this portfolio several years ago wasn't to say "this is the one." I did it to provide a base allocation from which you could tailor to your needs. The portfolio covers all the basic asset classes in a basic allocation and it is not overly complex.

We have many conversations about the nuances of strategy on this forum, and that's a good thing. These conversations are best approached from the view of what's best for a particular member's situation. Strategy conversations can become convoluted and of little use when they become about determining which mix of funds will provide the optimal return in the future. That we cannot know.

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Re: The Core Four

Post by Gadget » Sun May 21, 2017 4:25 pm

I'm debating adding REITS to my current 3 fund portfolio. Are there any links/threads I missed that show the analysis of the historical difference between having the 10% equity REIT allocation vs not having it? I like its diversification (I think), but am trying to figure out if the extra REITS are worth the re-balancing trouble. I know past performance doesn't predict future performance, but I'm curious what a 10% REIT tilt has provided in the past over 20-40 years.

I'd have probably already added REITS, but am mostly debating because I see myself eventually needing most all of my tax advantaged space filled up with bonds. I think I could easily fit REITS in my IRAs currently, but in a few years might find myself running out of 401k/roth IRA/HSA space.

Is there any harm with having a REIT tilt that starts at 10% equities and glides downwards as I run out of tax advantaged space over the years? I can currently only get REITS in my Roth IRA and my wife's 401k. Or would that make tax loss harvesting simpler because my Roth IRAs would never match my taxable accounts? I could turn IRA dividend reinvestment back on in my IRAs if I did that I suppose.

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Re: The Core Four

Post by Dominic » Sun May 21, 2017 5:11 pm

Gadget wrote:I'm debating adding REITS to my current 3 fund portfolio. Are there any links/threads I missed that show the analysis of the historical difference between having the 10% equity REIT allocation vs not having it? I like its diversification (I think), but am trying to figure out if the extra REITS are worth the re-balancing trouble. I know past performance doesn't predict future performance, but I'm curious what a 10% REIT tilt has provided in the past over 20-40 years.


A comparison with a 60/40 portfolio, ignoring taxes and expenses.

Looks like adding the REIT slice increased return and reduced risk slightly. For such a small portion of a portfolio, I don't think it's worth the effort.

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Re: The Core Four

Post by NiceUnparticularMan » Sun May 21, 2017 6:15 pm

Here is a backtest just looking at the equity side, which I think is worth doing since the bond side is a separate variable for most people:

https://www.portfoliovisualizer.com/bac ... 6&REIT2=10

Was it a big deal? No. Did it help improve the portfolio efficiency a bit? Yes. And really not bad for just a 10% change.

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Re: The Core Four

Post by Gadget » Sun May 21, 2017 6:55 pm

Thanks. That's what I was looking for. Still undecided, but that's what I was looking for.

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Re: The Core Four

Post by willthrill81 » Sun May 21, 2017 7:00 pm

NiceUnparticularMan wrote:Here is a backtest just looking at the equity side, which I think is worth doing since the bond side is a separate variable for most people:

https://www.portfoliovisualizer.com/bac ... 6&REIT2=10

Was it a big deal? No. Did it help improve the portfolio efficiency a bit? Yes. And really not bad for just a 10% change.


The apparent reason for the portfolio's improved performance was REITs higher returns (9.66%) than either U.S. (9.28%) or international equities (4.91%) over that period, albeit REITs had higher volatility as well.
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Re: The Core Four

Post by NiceUnparticularMan » Mon May 22, 2017 5:31 am

willthrill81 wrote:The apparent reason for the portfolio's improved performance was REITs higher returns (9.66%) than either U.S. (9.28%) or international equities (4.91%) over that period, albeit REITs had higher volatility as well.


Yep, but there was enough lack of correlation to have the overall portfolio decrease in volatility. Incidentally, you can walk through various start dates and REITs usually improve returns and Sharpe Ratios, and mostly but not quite always reduce volatility. Same deal walking through end dates, although during the dot com boom they slightly reduce returns but still reduce volatlity and improve Sharpe Ratios.

Personally, I hold REITs for a somewhat more fundamental reasons, but to the extent people are curious about backtesting results, they have indeed largely worked over the period available for study in Portfolio Visualizer.

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Re: The Core Four

Post by goingup » Mon May 22, 2017 9:10 am

If you want to own REITs you can always build your position over time. Roth IRAs are a good place for them. If they're cheap enough in your 401K, that's good too. You don't have to begin immediately with a 10% slice--you can add each year with IRA contributions.

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Re: The Core Four

Post by NoleBlooded » Thu May 25, 2017 2:49 am

Great thread, thank you to all. I plan to consider the reit addition in the near future

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