Bill Sharpe's preferred portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

The March 2018 end-of-quarter numbers are out for the indexes that Sharpe mentions in the video.
So to keep the portfolio allocations up-to-date for anyone who is interested, here are the numbers (in millions of USD):

27,139,040 - US stocks - CRSP US Total Market Index
24,838,130 - ex US stocks - FTSE Global All-Cap Index minus US
18,890,430 - US bonds - Citigroup US Broad Investment-Grade Index
19,331,390 - ex US bonds - Citigroup World Broad Investment-Grade Index minus US

So that equates to allocation percentages of:

30.09% US stocks
27.54% ex US stocks
20.94% US bonds
21.43% ex US bonds
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

With the announcement from Vanguard about their new Total World Bond ETF, Sharpe's preferred portfolio should get easier to implement.

So, with the two big indexes currently having these market caps:
FTSE Global All-Cap stock index: $51,878,881 million USD
FTSE World Broad Investment-Grade Bond Index (WorldBIG): $37,971,940 million USD

That would equate to a two Vanguard ETF portfolio of:
57.74% VT
42.26% Vanguard Total World Bond ETF (no ticker yet)
User avatar
aj76er
Posts: 1178
Joined: Tue Dec 01, 2015 10:34 pm
Location: Austin, TX

Re: Bill Sharpe's preferred portfolio

Post by aj76er »

CyberBob wrote: Mon May 21, 2018 11:02 am With the announcement from Vanguard about their new Total World Bond ETF, Sharpe's preferred portfolio should get easier to implement.

So, with the two big indexes currently having these market caps:
FTSE Global All-Cap stock index: $51,878,881 million USD
FTSE World Broad Investment-Grade Bond Index (WorldBIG): $37,971,940 million USD

That would equate to a two Vanguard ETF portfolio of:
57.74% VT
42.26% Vanguard Total World Bond ETF (no ticker yet)
Thanks for posting, it is the first I've heard of the new ETF. That really does make implementation of the Sharpe's WBS portfolio very easy!
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
pascalwager
Posts: 2311
Joined: Mon Oct 31, 2011 8:36 pm

Re: Bill Sharpe's preferred portfolio

Post by pascalwager »

Regarding the stocks portion of the WBS, I last readjusted back in October 2017 and I decided to calculate* the error** today. In October, I had attempted to set the (same) market ratio of US/int'l in each account.

The result was 1.3%, the average error over three VG accounts (individual, rollover and Roth). The US portion showed a positive error and the int'l portion a negative error.

*Using the June 29, 2018 index market values and Yahoo Finance Historical Returns fund adjusted closing prices
**error = current market % minus portfolio %
VT 60% / VFSUX 20% / TIPS 20%
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

The June 2018 end-of-quarter numbers are out for the indexes that Sharpe mentions in the video.
So to keep the portfolio allocations up-to-date for anyone who is interested, here are the numbers (in millions of USD):

27,900,058 - US stocks - CRSP US Total Market Index
23,739,777 - ex US stocks - FTSE Global All-Cap Index minus US
19,066,930 - US bonds - Citigroup US Broad Investment-Grade Index
18,463,300 - ex US bonds - Citigroup World Broad Investment-Grade Index minus US

So that equates to allocation percentages of:

31.29% US stocks
26.62% ex US stocks
21.38% US bonds
20.71% ex US bonds


Or, with the announcement from Vanguard about their new Total World Bond ETF, which is supposed to be out August-ish, the simpler two total-world asset class index numbers would be:

51,639,835 - FTSE Global All-Cap stock index
37,530,230 - Citi World Broad Investment-Grade Bond Index (WorldBIG)

So that equates to allocation percentages of:

57.91% World stocks (VT ETF)
42.09% World bonds (Vanguard Total World Bond ETF. No ticker yet)
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: Bill Sharpe's preferred portfolio

Post by nedsaid »

pascalwager wrote: Thu Feb 01, 2018 6:44 pm
Valuethinker wrote: Thu Feb 01, 2018 11:03 am
CyberBob wrote: Thu Feb 01, 2018 9:16 am
pascalwager wrote: Wed Jan 31, 2018 7:14 pm You'll notice that Bob's AA entries are rounded, but Sharpe carries the AA percentages out to two decimal points. So I think Sharpe leans toward precision and always doing the quarterly exchanges.
Yeah, I'll have to stop rounding, because you're absolutely right about Sharpe's precision. In fact, in the video, he mentions doing a rebalance in his own portfolio of one-third of one percent (0.33%).

So in the spirit of Sharpe's more exactness, the 2017 end-of-year numbers look like:

30.34% US stocks
27.66% ex-US stocks
21.22% US bonds
20.77% ex-US bonds
I wonder if it is just coincidence that these proportions are 50/50 US/ foreign equities and US/ foreign bonds, and 59% stocks, 41% bonds?

Other than a slight underweighting of the USA, those numbers seem so remarkably like a 60/40 portfolio with equity fully diversified globally?
Yes, 60/40 is pure coincidence. The portfolio proportions are determined by the individual market values of four indexes, so the stock/bond ratio is not fixed. In August 2015, for example, the ratio was 55/45.
It might be coincidence but it is close enough. An all-World portfolio seems to do pretty well over time. My impression was that the World Bond Markets were larger than the World Stock Markets and that an All World Portfolio would be about 40% stocks/60% bonds. Perhaps the quantitative easing all over the world floated stock markets around the world and reversed the stock/bond ratio. Comments?

It is weird but 60% stocks/40% bonds is a time tested investing formula that works well. I don't think anyone really knows why for sure, my theory is that it is a good round number that intuitively makes sense. Somebody tried such a portfolio, found that it worked, got written up in trade publications, and became conventional wisdom. Those are my thoughts, anyway. You look at the performance numbers of any decent balanced fund and you can't help but be impressed. A lot of Bogleheads just love the 60/40 Wellington and the 40/60 Wellesley balanced funds at Vanguard. A simple strategy that almost anyone can implement and yet is better than the more complex portfolios.
A fool and his money are good for business.
drk
Posts: 3927
Joined: Mon Jul 24, 2017 10:33 pm

Re: Bill Sharpe's preferred portfolio

Post by drk »

nedsaid wrote: Sun Jul 22, 2018 11:23 am My impression was that the World Bond Markets were larger than the World Stock Markets and that an All World Portfolio would be about 40% stocks/60% bonds.
That index only covers investment-grade bonds, defined as BBB- or Baa3 or above. If there's a good index of global non-investment-grade bonds, you could supplement with that to find out if your impression is correct.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
User avatar
spdoublebass
Posts: 889
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: Bill Sharpe's preferred portfolio

Post by spdoublebass »

CyberBob wrote: Sun Jul 22, 2018 11:03 am
27,900,058 - US stocks - CRSP US Total Market Index
23,739,777 - ex US stocks - FTSE Global All-Cap Index minus US
19,066,930 - US bonds - Citigroup US Broad Investment-Grade Index
18,463,300 - ex US bonds - Citigroup World Broad Investment-Grade Index minus US

I agree with everything above except the Global all cap ex US.
I found that number to be 21,532,624
found here in this fact sheet:
https://www.ftse.com/Analytics/factsheets/home/search

Which would bring the numbers to:
US STOCK= 32.08%
INT STOCK= 24.76%
US BOND = 21.93%
INT BOND = 21.23%
I'm trying to think, but nothing happens
User avatar
asset_chaos
Posts: 2628
Joined: Tue Feb 27, 2007 5:13 pm
Location: Melbourne

Re: Bill Sharpe's preferred portfolio

Post by asset_chaos »

nedsaid wrote: Sun Jul 22, 2018 11:23 am It is weird but 60% stocks/40% bonds is a time tested investing formula that works well. I don't think anyone really knows why for sure, my theory is that it is a good round number that intuitively makes sense.
I hypothesize that it's based on a fallacy of equivalence. US stocks have done better on average than US bonds over short time periods (one quarter or one year) between 60-65% of the periods at least from the beginning of last century. (I had cause to look up quarterly data starting from the early 90s, and Schiller's book has a graph showing the more remote one year period average.) I think people could observe that stocks beat bonds about 60% of the short intervals that might stick in someone's mind, and made the---probably logically erroneous---conclusion that a long term portfolio of 60% stocks should be good. But really, it's a speculation because I have no evidence of where the 60:40 conventional wisdom came from.
Regards, | | Guy
User avatar
Taylor Larimore
Posts: 32839
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

THE 60/40 SOLUTION by Peter Bernstein

Post by Taylor Larimore »

asset_chaos wrote;
I have no evidence of where the 60:40 conventional wisdom came from.
THE 60/40 SOLUTION by Peter Bernstein

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Fclevz
Posts: 651
Joined: Fri Mar 30, 2007 11:28 am

Re: Bill Sharpe's preferred portfolio

Post by Fclevz »

spdoublebass wrote: Sun Jul 22, 2018 2:26 pm I agree with everything above except the Global all cap ex US.
I found that number to be 21,532,624
In your link it shows the global number as 51,639,835 and the US as 27,505,578

51,639,835 - 27,505,578 = 24,134,257
Where did you get the 21,532,624 number?
User avatar
spdoublebass
Posts: 889
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: Bill Sharpe's preferred portfolio

Post by spdoublebass »

Fclevz wrote: Sun Jul 22, 2018 10:14 pm
spdoublebass wrote: Sun Jul 22, 2018 2:26 pm I agree with everything above except the Global all cap ex US.
I found that number to be 21,532,624
In your link it shows the global number as 51,639,835 and the US as 27,505,578

51,639,835 - 27,505,578 = 24,134,257
Where did you get the 21,532,624 number?
Ok. First, you do not have to subtract anything for the stocks.

You use the CRSP index for he US Stocks. Which is 27,900,058
The FTSE Global EX US index is 21,532,624
The USBIG INDEX is 19,066,930
The World BIG-USBIG = 18,463,300 (Here, for bonds, you subtract)

Which equals:
US STOCK 32.08%
INT STOCK 24.76%
US BOND 21.93%
INT BOND 21.23%
I'm trying to think, but nothing happens
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

spdoublebass wrote: Sun Jul 22, 2018 10:20 pm
Fclevz wrote: Sun Jul 22, 2018 10:14 pm
spdoublebass wrote: Sun Jul 22, 2018 2:26 pm I agree with everything above except the Global all cap ex US.
I found that number to be 21,532,624
In your link it shows the global number as 51,639,835 and the US as 27,505,578

51,639,835 - 27,505,578 = 24,134,257
Where did you get the 21,532,624 number?
Ok. First, you do not have to subtract anything for the stocks.

You use the CRSP index for he US Stocks. Which is 27,900,058
The FTSE Global EX US index is 21,532,624
The USBIG INDEX is 19,066,930
The World BIG-USBIG = 18,463,300 (Here, for bonds, you subtract)

Which equals:
US STOCK 32.08%
INT STOCK 24.76%
US BOND 21.93%
INT BOND 21.23%
The 21 number is for the All-World ex-us index, which is large and mid-cap only. Doing the subtraction from the Global index series gets you small-cap too, and so is a more complete number.
User avatar
spdoublebass
Posts: 889
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: Bill Sharpe's preferred portfolio

Post by spdoublebass »

CyberBob wrote: Sun Jul 22, 2018 10:34 pm
spdoublebass wrote: Sun Jul 22, 2018 10:20 pm
Fclevz wrote: Sun Jul 22, 2018 10:14 pm
spdoublebass wrote: Sun Jul 22, 2018 2:26 pm I agree with everything above except the Global all cap ex US.
I found that number to be 21,532,624
In your link it shows the global number as 51,639,835 and the US as 27,505,578

51,639,835 - 27,505,578 = 24,134,257
Where did you get the 21,532,624 number?
Ok. First, you do not have to subtract anything for the stocks.

You use the CRSP index for he US Stocks. Which is 27,900,058
The FTSE Global EX US index is 21,532,624
The USBIG INDEX is 19,066,930
The World BIG-USBIG = 18,463,300 (Here, for bonds, you subtract)

Which equals:
US STOCK 32.08%
INT STOCK 24.76%
US BOND 21.93%
INT BOND 21.23%
The 21 number is for the All-World ex-us index, which is large and mid-cap only. Doing the subtraction from the Global index series gets you small-cap too, and so is a more complete number.

I deleted my post. I was wrong about info.

Your number is right. I was using the wrong factsheet by mistake. Thank you for catching that.

There is a fact sheet for FTSE Global All Cap Ex US
Last edited by spdoublebass on Sun Jul 22, 2018 10:48 pm, edited 1 time in total.
I'm trying to think, but nothing happens
columbia
Posts: 3023
Joined: Tue Aug 27, 2013 5:30 am

Re: Bill Sharpe's preferred portfolio

Post by columbia »

Closest Vanguard approximation would be VSMGX (60/40 Life Strategy). One could do a lot worse over 30-50 years.
User avatar
spdoublebass
Posts: 889
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: Bill Sharpe's preferred portfolio

Post by spdoublebass »

CyberBob wrote: Sun Jul 22, 2018 10:34 pm
The 21 number is for the All-World ex-us index, which is large and mid-cap only. Doing the subtraction from the Global index series gets you small-cap too, and so is a more complete number.
I realize I was using the wrong index.

But just so I understand, why do you have to subtract it from the Global index?
There is a FTSE Global ALl Cap Ex US index, Why not just use that and the CRSP?
I'm trying to think, but nothing happens
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

spdoublebass wrote: Sun Jul 22, 2018 11:03 pm
CyberBob wrote: Sun Jul 22, 2018 10:34 pm
The 21 number is for the All-World ex-us index, which is large and mid-cap only. Doing the subtraction from the Global index series gets you small-cap too, and so is a more complete number.
I realize I was using the wrong index.

But just so I understand, why do you have to subtract it from the Global index?
There is a FTSE Global ALl Cap Ex US index, Why not just use that and the CRSP?
The subtraction is only necessary because I always wind up looking at the main Global index page, which doesn’t break out ex-US.

The reason I look at the main Global index page is that is shows the US number which is a second source to compare to the CRSP US number. They’re always close.

But your way is easier and better because of no potential math errors.
pascalwager
Posts: 2311
Joined: Mon Oct 31, 2011 8:36 pm

Re: Bill Sharpe's preferred portfolio

Post by pascalwager »

columbia wrote: Sun Jul 22, 2018 10:48 pm Closest Vanguard approximation would be VSMGX (60/40 Life Strategy). One could do a lot worse over 30-50 years.
This may be someone's preferred portfolio, but the world portfolio may be something like 30/70 US/non-US in the future. In that case, would 60/40 still be a good approximation? Many US investor's would probably answer in the affirmative, so Sharpe's portfolio is actually totally irrelevant to them in the general sense.
VT 60% / VFSUX 20% / TIPS 20%
User avatar
asset_chaos
Posts: 2628
Joined: Tue Feb 27, 2007 5:13 pm
Location: Melbourne

Re: THE 60/40 SOLUTION by Peter Bernstein

Post by asset_chaos »

Taylor Larimore wrote: Sun Jul 22, 2018 8:18 pm asset_chaos wrote;
I have no evidence of where the 60:40 conventional wisdom came from.
THE 60/40 SOLUTION by Peter Bernstein

Best wishes.
Taylor
That's a good article, which I've read before, but it doesn't say where 60:40 comes from, just that 60:40 "was so popular in the era before the bull market of the ’90s" and that it "seemed like a good compromise for the long-run average balance between maximizing return and minimizing risk". 50:50 also balances return and risk but is not the received wisdom. The point of Bernstein's article is to stick with a diversified portfolio, which 60:40 is, but it does not say where the cachet of the specific 60:40 balance comes from.
Regards, | | Guy
dekecarver
Posts: 696
Joined: Mon Feb 22, 2010 9:24 am

Re: THE 60/40 SOLUTION by Peter Bernstein

Post by dekecarver »

asset_chaos wrote: Mon Jul 23, 2018 3:42 am
Taylor Larimore wrote: Sun Jul 22, 2018 8:18 pm asset_chaos wrote;
I have no evidence of where the 60:40 conventional wisdom came from.
THE 60/40 SOLUTION by Peter Bernstein

Best wishes.
Taylor
That's a good article, which I've read before, but it doesn't say where 60:40 comes from, just that 60:40 "was so popular in the era before the bull market of the ’90s" and that it "seemed like a good compromise for the long-run average balance between maximizing return and minimizing risk". 50:50 also balances return and risk but is not the received wisdom. The point of Bernstein's article is to stick with a diversified portfolio, which 60:40 is, but it does not say where the cachet of the specific 60:40 balance comes from.
Could be from numerous backtesting models?
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

There has been an interesting development regarding the indexes that Sharpe has been using for this portfolio. The Citi bond indexes are now FTSE Russell indexes.

This means that it is now possible to get numbers for all four portfolio components from FTSE. This would presumably give a bit more consistency than getting numbers from three different index providers. The U.S. stock number can also now be found from FTSE as an individual breakdown number for the U.S. in the FTSE Global All-Cap index number.

Another benefit of using all FTSE numbers is that they come out monthly, rather than quarterly.


So, using August 31st FTSE numbers (in millions of USD):

29,273,216 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
24,099,318 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
19,619,750 - U.S. bonds - FTSE US Broad Investment-Grade index
18,400,980 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

32.07% US stocks (VTSAX)
26.40% ex US stocks (VTIAX)
21.49% US bonds (VBTLX)
20.04% ex US bonds (VTABX)

Or,
58.47% world stocks (VT)
41.53% world bonds (BNDW)

Edit: fixed typo for U.S. bond capitalization number.
Last edited by CyberBob on Wed Sep 12, 2018 9:00 am, edited 1 time in total.
hdas
Posts: 1395
Joined: Thu Jun 11, 2015 8:24 am

[Deleted]

Post by hdas »

[Deleted]
Last edited by hdas on Tue Jan 28, 2020 5:49 pm, edited 1 time in total.
....
User avatar
asset_chaos
Posts: 2628
Joined: Tue Feb 27, 2007 5:13 pm
Location: Melbourne

Re: Bill Sharpe's preferred portfolio

Post by asset_chaos »

CyberBob wrote: Tue Sep 11, 2018 10:19 am 19,509,800 - U.S. bonds - FTSE US Broad Investment-Grade index
Why the par amount instead of market value? Not that they are very different now. Aug 31 factsheet says 19,619.75 for market value.
Regards, | | Guy
pascalwager
Posts: 2311
Joined: Mon Oct 31, 2011 8:36 pm

Re: Bill Sharpe's preferred portfolio

Post by pascalwager »

CyberBob wrote: Tue Sep 11, 2018 10:19 am There has been an interesting development regarding the indexes that Sharpe has been using for this portfolio. The Citi bond indexes are now FTSE Russell indexes.

This means that it is now possible to get numbers for all four portfolio components from FTSE. This would presumably give a bit more consistency than getting numbers from three different index providers. The U.S. stock number can also now be found from FTSE as an individual breakdown number for the U.S. in the FTSE Global All-Cap index number.

Another benefit of using all FTSE numbers is that they come out monthly, rather than quarterly.


So, using August 31st FTSE numbers (in millions of USD):

29,273,216 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
24,099,318 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
19,509,800 - U.S. bonds - FTSE US Broad Investment-Grade index
18,400,980 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

32.07% US stocks (VTSAX)
26.40% ex US stocks (VTIAX)
21.37% US bonds (VBTLX)
20.16% ex US bonds (VTABX)
Interesting. Seems like it might be an improvement, but that depends mainly on the indices components and similarity to the Barclay indices.

Note: the new VG (Barclay-benchmarked) Global Bond ETF shows 53% int'l for 9/11/2018, so still may be some difference between Barclay and FTSE proportional market values. FTSE indices show 48% int'l bonds as of 9/10/2018.
VT 60% / VFSUX 20% / TIPS 20%
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

asset_chaos wrote: Tue Sep 11, 2018 3:40 pm
CyberBob wrote: Tue Sep 11, 2018 10:19 am 19,509,800 - U.S. bonds - FTSE US Broad Investment-Grade index
Why the par amount instead of market value? Not that they are very different now. Aug 31 factsheet says 19,619.75 for market value.
Oops, typo. Fixed it in the original post. Thanks for catching it. :thumbsup
cjking
Posts: 2039
Joined: Mon Jun 30, 2008 4:30 am

Re: Bill Sharpe's preferred portfolio

Post by cjking »

If I remember what I've previously read about the Global Market Portfolio correctly, you need to mix it with the appropriate amount of leverage or safe assets to get to your desired risk level. It would be nice if Vanguard offered a base fund, then several derivative funds with weightings from 50% to maybe 200% in the base fund. (The base fund would be named as the 100% fund.)

This was already linked up-thread, repeated for convenience.

https://www.forbes.com/sites/phildemuth ... 081e4770d1
Once we own the Global Market Portfolio, the only other thing we need is cash. If we are conservative, we water it down with cash to suit our risk tolerance. If we are high rollers, we borrow money to leverage our bet. Either way, we remain hard-riding cowboys on the efficient frontier.
pascalwager
Posts: 2311
Joined: Mon Oct 31, 2011 8:36 pm

Re: Bill Sharpe's preferred portfolio

Post by pascalwager »

Personally, I totally abandoned the bonds part of the WBS portfolio at Vanguard. After reading about the nature of the int'l fund investors and govt coercion for European banks to buy large amounts of low-yielding bonds, I decided that I was not an average investor (large entities). In other words, unlike the banks, I'm not in a position that requires me to succumb to coercion to buy, so why do it?

Also, I didn't like the longer maturity. So I decided to just use a US low-cost bond index fund of my preferred duration.

I still follow the stocks part of the WBS, but I'm not rebalancing to any particular ratio of stocks/bonds. I'm just letting the bond money do what it will for the time being.

I have a pension, so following the current WBS would not necessarily be unwise in my case, but I have a younger heir with only SS to think about. But, if you also have TIPS/pension to cover living expenses, then again, the WBS might well be suitable.

And 2/3 of my investments are at DFA with no total market funds to build a WBS portfolio.
VT 60% / VFSUX 20% / TIPS 20%
User avatar
whodidntante
Posts: 13089
Joined: Thu Jan 21, 2016 10:11 pm
Location: outside the echo chamber

Re: THE 60/40 SOLUTION by Peter Bernstein

Post by whodidntante »

asset_chaos wrote: Mon Jul 23, 2018 3:42 am
Taylor Larimore wrote: Sun Jul 22, 2018 8:18 pm asset_chaos wrote;
I have no evidence of where the 60:40 conventional wisdom came from.
THE 60/40 SOLUTION by Peter Bernstein

Best wishes.
Taylor
That's a good article, which I've read before, but it doesn't say where 60:40 comes from, just that 60:40 "was so popular in the era before the bull market of the ’90s" and that it "seemed like a good compromise for the long-run average balance between maximizing return and minimizing risk". 50:50 also balances return and risk but is not the received wisdom. The point of Bernstein's article is to stick with a diversified portfolio, which 60:40 is, but it does not say where the cachet of the specific 60:40 balance comes from.
I don't know where it comes from either but certain ideas are kind of obvious, so I don't assume it had to come from anywhere.
pascalwager
Posts: 2311
Joined: Mon Oct 31, 2011 8:36 pm

Re: THE 60/40 SOLUTION by Peter Bernstein

Post by pascalwager »

whodidntante wrote: Sat Sep 15, 2018 4:58 pm
asset_chaos wrote: Mon Jul 23, 2018 3:42 am
Taylor Larimore wrote: Sun Jul 22, 2018 8:18 pm asset_chaos wrote;
I have no evidence of where the 60:40 conventional wisdom came from.
THE 60/40 SOLUTION by Peter Bernstein

Best wishes.
Taylor
That's a good article, which I've read before, but it doesn't say where 60:40 comes from, just that 60:40 "was so popular in the era before the bull market of the ’90s" and that it "seemed like a good compromise for the long-run average balance between maximizing return and minimizing risk". 50:50 also balances return and risk but is not the received wisdom. The point of Bernstein's article is to stick with a diversified portfolio, which 60:40 is, but it does not say where the cachet of the specific 60:40 balance comes from.
I don't know where it comes from either but certain ideas are kind of obvious, so I don't assume it had to come from anywhere.
If we're maximizing returns at 100/0 and minimizing risk at 0/100, then 50/50 would seem to be the balance point (like Moskowitz used for his own portfolio). Then 60/40 could be viewed as a popularly desired tilt toward more returns (and more risk).

Note: Something like 20/80 is the equal risk portfolio, but with low returns.
VT 60% / VFSUX 20% / TIPS 20%
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

October 31st FTSE numbers (in millions of USD):

27,114,191 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
22,090,263 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
19,567,750 - U.S. bonds - FTSE US Broad Investment-Grade index
17,781,160 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

31.33% US stocks (VTSAX)
25.52% ex US stocks (VTIAX)
22.61% US bonds (VBTLX)
20.54% ex US bonds (VTABX)

Or,
56.85% world stocks (VT)
43.15% world bonds (BNDW)
snailderby
Posts: 1421
Joined: Thu Jul 26, 2018 11:30 am

Re: Bill Sharpe's preferred portfolio

Post by snailderby »

CyberBob wrote: Thu Nov 08, 2018 8:43 am October 31st FTSE numbers (in millions of USD):

27,114,191 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
22,090,263 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
19,567,750 - U.S. bonds - FTSE US Broad Investment-Grade index
17,781,160 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

31.33% US stocks (VTSAX)
25.52% ex US stocks (VTIAX)
22.61% US bonds (VBTLX)
20.54% ex US bonds (VTABX)

Or,
56.85% world stocks (VT)
43.15% world bonds (BNDW)
Very interesting. Thanks for posting this. So for stocks, as of 2018-10-31, market weight would be:

55.1% domestic
44.9% international
pascalwager
Posts: 2311
Joined: Mon Oct 31, 2011 8:36 pm

Re: Bill Sharpe's preferred portfolio

Post by pascalwager »

BNDW is a fund of two funds: A US bond fund and an int'l bond fund.

Some of the data on the BNDW screens is confusing. They show TBM (US) component as 46.70% and elsewhere show US allocations as 59.4%. Also, last month, a VG article mentioned something like 56/44 int'l/US for BNDW.

I wonder if Vanguard plans to use the two bond index market values to ratio the two bond components or maybe go with a home bias like they do in the LS and TD funds?

At this point I'd want some clarifications before investing in BNDW.
VT 60% / VFSUX 20% / TIPS 20%
longinvest
Posts: 5672
Joined: Sat Aug 11, 2012 8:44 am

Re: Bill Sharpe's preferred portfolio

Post by longinvest »

pascalwager wrote: Thu Nov 08, 2018 5:40 pm BNDW is a fund of two funds: A US bond fund and an int'l bond fund.

Some of the data on the BNDW screens is confusing. They show TBM (US) component as 46.70% and elsewhere show US allocations as 59.4%. Also, last month, a VG article mentioned something like 56/44 int'l/US for BNDW.

I wonder if Vanguard plans to use the two bond index market values to ratio the two bond components or maybe go with a home bias like they do in the LS and TD funds?

At this point I'd want some clarifications before investing in BNDW.
This seems clear enough to me (I've underlined the important part):
https://investor.vanguard.com/etf/profi ... folio/bndw
Vanguard Total World Bond ETF seeks to track the performance of a broad, market-weighted index that measures the investment return of investment-grade U.S. bonds and investment-grade non-U.S. dollar-denominated bonds.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
User avatar
asset_chaos
Posts: 2628
Joined: Tue Feb 27, 2007 5:13 pm
Location: Melbourne

Re: Bill Sharpe's preferred portfolio

Post by asset_chaos »

pascalwager wrote: Thu Nov 08, 2018 5:40 pm BNDW is a fund of two funds: A US bond fund and an int'l bond fund.

Some of the data on the BNDW screens is confusing. They show TBM (US) component as 46.70% and elsewhere show US allocations as 59.4%. Also, last month, a VG article mentioned something like 56/44 int'l/US for BNDW.

I wonder if Vanguard plans to use the two bond index market values to ratio the two bond components or maybe go with a home bias like they do in the LS and TD funds?

At this point I'd want some clarifications before investing in BNDW.
I hadn't realized total world bond index (et)fund was live yet. Thanks for the reminder.

I suspect the number differences are due to being taken from different 'as of' dates.

I don't think Vanguard are planning to set the ratio of US to non-US bonds. The Vanguard page for BNWD lists as the first thing, "Seeks to track the performance of the Bloomberg Barclays Global Aggregate Float Adjusted Composite Index." I do though find it a little odd that you have to go to the footnotes to find out that non-US bonds are hedged to US dollars, i.e. [The index followed is] "A market-weighted index designed to track the global investment-grade bond market, composed of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index and the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged)." But the footnote does confirm the fund follows a market-weighted index.

I wonder too if the fund of funds structure will give way in a few years to a single fund. If memory serves, didn't total international also start as a fund of funds?
Regards, | | Guy
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

November 30, 2018 FTSE numbers (in millions of USD):

27,519,857 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
22,250,385 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
19,633,480 - U.S. bonds - FTSE US Broad Investment-Grade index
17,823,240 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

31.55% US stocks (VTSAX)
25.51% ex US stocks (VTIAX)
22.51% US bonds (VBTLX)
20.43% ex US bonds (VTABX)

Or,
57.06% world stocks (VT)
42.94% world bonds (BNDW)
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: Bill Sharpe's preferred portfolio

Post by Valuethinker »

CyberBob wrote: Mon Dec 17, 2018 1:00 pm November 30, 2018 FTSE numbers (in millions of USD):

27,519,857 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
22,250,385 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
19,633,480 - U.S. bonds - FTSE US Broad Investment-Grade index
17,823,240 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

31.55% US stocks (VTSAX)
25.51% ex US stocks (VTIAX)
22.51% US bonds (VBTLX)
20.43% ex US bonds (VTABX)

Or,
57.06% world stocks (VT)
42.94% world bonds (BNDW)
I will have to look back to search through the thread to see where this data comes from, but extracting it here is very valuable - thank you.
OkieIndexer
Posts: 468
Joined: Sun Aug 23, 2009 1:10 pm
Location: Kayaking in Colorado

Re: Bill Sharpe's preferred portfolio

Post by OkieIndexer »

"TIPS to taste"

I like that phrase. :P A dash of TIPS, a sprinkle of REITS, and a fine Chianti. :mrgreen:
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

Valuethinker wrote: Tue Dec 18, 2018 5:03 am I will have to look back to search through the thread to see where this data comes from, but extracting it here is very valuable - thank you.
For stocks, click the Global All Cap link under the Factsheets section here: https://www.ftse.com/products/indices/g ... 1524324838

For bonds, check out the WorldBIG and USBIG indexes here: https://www.yieldbook.com/m/indices/browse.shtml
PlateVoltage
Posts: 15
Joined: Thu Mar 29, 2018 5:01 pm

Re: Bill Sharpe's preferred portfolio

Post by PlateVoltage »

Any idea why your bond numbers differ from Vanguard Total World Bond ETF (BNDW)? They put international at 52.8%.

https://investor.vanguard.com/etf/profi ... folio/bndw
pascalwager
Posts: 2311
Joined: Mon Oct 31, 2011 8:36 pm

Re: Bill Sharpe's preferred portfolio

Post by pascalwager »

PlateVoltage wrote: Wed Dec 26, 2018 9:56 pm Any idea why your bond numbers differ from Vanguard Total World Bond ETF (BNDW)? They put international at 52.8%.

https://investor.vanguard.com/etf/profi ... folio/bndw
Yes, and I raised that question earlier (above). Bill Sharpe's method seems to produce a different market ratio between US and foreign bonds.
VT 60% / VFSUX 20% / TIPS 20%
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

PlateVoltage wrote: Wed Dec 26, 2018 9:56 pm Any idea why your bond numbers differ from Vanguard Total World Bond ETF (BNDW)? They put international at 52.8%.

https://investor.vanguard.com/etf/profi ... folio/bndw
Two possible reasons. First, different index providers. Sharpe suggests Citi indexes (now part of FTSE) since the numbers are publicly available. The Bloomberg Barclay's index that Vanguard isn't publicly available.

The second may be in the actual holdings of the funds. The 52.8% BNDX holding of BNDW doesn't mean 52.8% in international bonds, since BNDX actually holds some U.S. bonds (and vice versa for BND).

Although, the holdings look pretty screwy if you check the rest of Vanguard's BNDW page. It's currently showing a lot less than 52.8% international:

Image
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

December 31 2018 FTSE numbers (in millions of USD):

24,755,128 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
21,226,260 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
20,005,980 - U.S. bonds - FTSE US Broad Investment-Grade index
18,167,100 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

29.42% US stocks (VTSAX, VTI, ITOT)
25.22% ex US stocks (VTIAX, VXUS, IXUS)
23.77% US bonds (VBTLX, BND, AGG)
21.59% ex US bonds (VTABX, BNDX, IAGG)

Or, alternatively:

54.64% world stocks (VT)
45.36% world bonds (BNDW)
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

28 February 2019 FTSE numbers (in millions of USD):

27,703,759 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
23,189,088 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
20,064,990 - U.S. bonds - FTSE US Broad Investment-Grade index
18,682,060 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

30.91% US stocks (VTSAX,VTI,ITOT)
25.87% ex US stocks (VTIAX,VXUS,IXUS)
22.38% US bonds (VBTLX,BND,AGG)
20.84% ex US bonds (VTABX,BNDX,IAGG)

Or, alternatively:

56.77% world stocks (VT,VTWAX)
43.23% world bonds (BNDW)
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

30 April 2019 FTSE numbers (in millions of USD):

29,060,787 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
23,825,053 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
20,786,120 - U.S. bonds - FTSE US Broad Investment-Grade index
18,465,210 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

31.54% US stocks (VTSAX,VTI,ITOT)
25.86% ex US stocks (VTIAX,VXUS,IXUS)
22.56% US bonds (VBTLX,BND,AGG)
20.04% ex US bonds (VTABX,BNDX,IAGG)

Or, alternatively:

57.40% world stocks (VT,VTWAX)
42.60% world bonds (BNDW)


Interesting development:
The stock numbers are from the FTSE Global All-Cap index. This index covers about 98% of world market cap and consists of about 8,000 stocks. It's also the index that Vanguard follows in their Total World Stock Index Fund/ETF (VTWAX/VT).

FTSE also now has a Global Total-Cap index, which adds micro-caps and more than doubles the number of stocks to around 16,500, and increases the coverage of world market-cap from 98% to 99%.
lostdog
Posts: 5361
Joined: Thu Feb 04, 2016 1:15 pm

Re: Bill Sharpe's preferred portfolio

Post by lostdog »

CyberBob wrote: Wed May 29, 2019 6:44 pm 30 April 2019 FTSE numbers (in millions of USD):

29,060,787 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
23,825,053 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
20,786,120 - U.S. bonds - FTSE US Broad Investment-Grade index
18,465,210 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

31.54% US stocks (VTSAX,VTI,ITOT)
25.86% ex US stocks (VTIAX,VXUS,IXUS)
22.56% US bonds (VBTLX,BND,AGG)
20.04% ex US bonds (VTABX,BNDX,IAGG)

Or, alternatively:

57.40% world stocks (VT,VTWAX)
42.60% world bonds (BNDW)


Interesting development:
The stock numbers are from the FTSE Global All-Cap index. This index covers about 98% of world market cap and consists of about 8,000 stocks. It's also the index that Vanguard follows in their Total World Stock Index Fund/ETF (VTWAX/VT).

FTSE also now has a Global Total-Cap index, which adds micro-caps and more than doubles the number of stocks to around 16,500, and increases the coverage of world market-cap from 98% to 99%.
Is it quite possible that Vanguard could switch the index tracking for Total World Stock to FTSE Total Cap Index?
Stocks-80% || Bonds-20% || VTI/VXUS/AOR
User avatar
asset_chaos
Posts: 2628
Joined: Tue Feb 27, 2007 5:13 pm
Location: Melbourne

Re: Bill Sharpe's preferred portfolio

Post by asset_chaos »

lostdog wrote: Sun Aug 11, 2019 6:54 am
CyberBob wrote: Wed May 29, 2019 6:44 pm Interesting development:
The stock numbers are from the FTSE Global All-Cap index. This index covers about 98% of world market cap and consists of about 8,000 stocks. It's also the index that Vanguard follows in their Total World Stock Index Fund/ETF (VTWAX/VT).

FTSE also now has a Global Total-Cap index, which adds micro-caps and more than doubles the number of stocks to around 16,500, and increases the coverage of world market-cap from 98% to 99%.
Is it quite possible that Vanguard could switch the index tracking for Total World Stock to FTSE Total Cap Index?
Possible, but seems highly unlikely they would do full replication. The smallest thousands of companies are disproportionately costly to trade compared to the largest thousands of companies. Total world started with low assets and sampled a less comprehensive index. It's only been a couple of years that assets have grown to allow full replication of the current more comprehensive index. Even if Vanguard did switch to the even more comprehensive index for total world, it seems likely that they would fully replicate the first 8000 or so companies they do now and sample another thousand, say, of the next 8000 or so. I don't believe it would make any noticeable difference either way. I would prefer to stick with 98% and continue total world lowering costs, rather than add another percent of market cap and have fund costs rise. Of course, if they can do both, I'm all for it.
Regards, | | Guy
lostdog
Posts: 5361
Joined: Thu Feb 04, 2016 1:15 pm

Re: Bill Sharpe's preferred portfolio

Post by lostdog »

asset_chaos wrote: Sun Aug 11, 2019 8:35 pm
lostdog wrote: Sun Aug 11, 2019 6:54 am
CyberBob wrote: Wed May 29, 2019 6:44 pm Interesting development:
The stock numbers are from the FTSE Global All-Cap index. This index covers about 98% of world market cap and consists of about 8,000 stocks. It's also the index that Vanguard follows in their Total World Stock Index Fund/ETF (VTWAX/VT).

FTSE also now has a Global Total-Cap index, which adds micro-caps and more than doubles the number of stocks to around 16,500, and increases the coverage of world market-cap from 98% to 99%.
Is it quite possible that Vanguard could switch the index tracking for Total World Stock to FTSE Total Cap Index?
Possible, but seems highly unlikely they would do full replication. The smallest thousands of companies are disproportionately costly to trade compared to the largest thousands of companies. Total world started with low assets and sampled a less comprehensive index. It's only been a couple of years that assets have grown to allow full replication of the current more comprehensive index. Even if Vanguard did switch to the even more comprehensive index for total world, it seems likely that they would fully replicate the first 8000 or so companies they do now and sample another thousand, say, of the next 8000 or so. I don't believe it would make any noticeable difference either way. I would prefer to stick with 98% and continue total world lowering costs, rather than add another percent of market cap and have fund costs rise. Of course, if they can do both, I'm all for it.
Makes sense. Thanks for the explanation. :)
Stocks-80% || Bonds-20% || VTI/VXUS/AOR
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

30 November 2019 FTSE numbers (in millions of USD):

30,668,188 - U.S. stocks - FTSE Global All-Cap index, U.S. breakdown
24,591,817 - ex U.S. stocks - FTSE Global All-Cap index minus U.S.
22,522,290 - U.S. bonds - FTSE US Broad Investment-Grade index
19,350,730 - ex U.S. bonds - FTSE World Broad Investment-Grade index minus U.S.

So that equates to allocation percentages of:

31.57% US stocks (VTSAX,VTI,ITOT)
25.32% ex US stocks (VTIAX,VXUS,IXUS)
23.19% US bonds (VBTLX,BND,AGG)
19.92% ex US bonds (VTABX,BNDX,IAGG)

Or, alternatively:

56.89% world stocks (VT,VTWAX)
43.11% world bonds (BNDW)
no simpler
Posts: 116
Joined: Sat Jul 13, 2019 4:54 pm

Re: Bill Sharpe's preferred portfolio

Post by no simpler »

CyberBob wrote: Mon Apr 17, 2017 1:16 pm I looked up the indexes mentioned by Sharpe in the video.

CRSP US Total Market Index
Market cap: $24,541,947 million

FTSE Global All-Cap minus US
Market cap: $21,356,625 million

Note: The FTSE Global All-Cap index (the index followed by Vanguard's Total World Stock Index fund) actually shows the global total, as well as breaking out the number for the US. So, one could use that index for both US and ex-US numbers. I'm assuming Sharpe mentioned the CRSP index for the US number since that's the index that Vanguard actually tracks. Either way, the numbers are similar.

Citigroup US Broad Investment-Grade Index
Market cap: $18,348,310 million

Citigroup World Broad Investment-Grade minus US
Market cap: $16,993,990 million

Note: For the bond indexes, I used the market-value numbers rather than the par-value numbers.

Total Market-Cap
$81,240,872 million

So, that would give you a four-fund Vanguard portfolio of:
30% Total US Stock
26% Total International (ex-US) Stock
23% Total US Bond
21% Total International (ex-US) Bond

Sharpe only mentioned the four big Vanguard Total funds. But to tweak it even further, I noticed that the Vanguard Total International Bond fund doesn't actually include all of the emerging markets bonds. So, adding that in:

Citigroup Emerging Markets Broad Bond
Market cap: $1,690,300 million

Gives you a five-fund Vanguard Portfolio of:
30% Total US Stock
26% Total International (ex-US) Stock
22% Total US Bond
20% Total International (ex-US) Bond
2% Emerging Markets Government Bond

Not too much difference. Probably just easier to stick with the four big 'Total' funds.
This is actually one of the most theoretically sound portfolios you could construct, in a discipline that is still ruled largely by ad hoc heuristics and outright superstitions. It would also make more sense to use very modest amounts of leverage on this portfolio for young investors than to shift to all US equities, particularly in the context of maintaining an optimal out of sample sharpe ratio.
User avatar
CyberBob
Posts: 3387
Joined: Tue Feb 20, 2007 1:53 pm

Re: Bill Sharpe's preferred portfolio

Post by CyberBob »

no simpler wrote: Wed Dec 18, 2019 9:35 pm This is actually one of the most theoretically sound portfolios you could construct, in a discipline that is still ruled largely by ad hoc heuristics and outright superstitions...
Along that line of thought, I was recently reading the book The Intelligent Portfolio by Christopher L. Jones, CIO of William Sharpe's Financial Engines (although I don't believe Sharpe is affiliated with Financial Engines anymore. Maybe not Jones either, as the book is from 2008).

But interestingly, Jones had this to say about a market portfolio:
  • Since the market proportions represent the market's consensus view of the value of each asset class, a fixed-proportion strategy like the 70 percent equity and 30 percent bond portfolio is inherently a market timing bet.

    If you believe in the market consensus, then when equities go up in proportion relative to bonds you should be willing to hold a little higher proportion of equities. If you sell the equities to maintain the original 70 percent proportion, then you are implicitly stating that you believe equities to be overvalued and bonds to be undervalued.

    By pursuing the contrarian strategy of rebalancing to fixed proportions you are actually making market timing bets on the relative value of asset classes that are different than the market consensus expectations. While there may be times when you intend to make such bets, in general most advisors and individual investors are not even aware that such strategies imply a market timing bet. Making a bet on the relative value of an asset class that is different from the market consensus may be ill-advised, but making an unintended bet is clearly a bad idea.
Post Reply