Boglehead Portfolio vs. All Other Possible Investments

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willthrill81
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Sun May 28, 2017 1:55 pm

stemikger wrote:
willthrill81 wrote:
stemikger wrote:While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite. The rationale for a 100-percent-index-fund portfolio remains as solid as a rock. It's all about common sense.

CMH - The Cost Matters Hypothesis.
If there are indeed infinite investment strategies, then the same could be said of any investment strategy.
Possibly, but I doubt any of them concentrate on simplicity for the average main street investor. In fact, it seems 99% of the other strategies claim their cutting edge practices are proprietary which is why you need them to implement said methods. Some do beat the market but some don't and you can guarantee you will pay the price either way.

When all else fails fall back on simplicity ~ John C. Bogle
Simplicity is a definite advantage of the three-fund portfolio. And it will likely outperform a number of other popular portfolios over the long-term. But the claim, which has been made before you, that "the number of investment strategies that are worse is infinite" is hollow and potentially misleading.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Phineas J. Whoopee
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Phineas J. Whoopee » Sun May 28, 2017 6:15 pm

willthrill81 wrote:...
Simplicity is a definite advantage of the three-fund portfolio. And it will likely outperform a number of other popular portfolios over the long-term. But the claim, which has been made before you, that "the number of investment strategies that are worse is infinite" is hollow and potentially misleading.
If taken as a claim about math, then yes the problems you note arise, calculus and more is called for, and results are often counterintuitive to the uninitiated.

I don't think the statement in this context is meant to be taken mathematically, any more than the boast I'll eat my hat is meant to be taken gastronomically.

I agree it's best to be clear in one's writing on a public forum, and that reasoning by analogy is fraught with danger.

PJW

chinto
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by chinto » Sun May 28, 2017 10:52 pm

It seems logical that if you have a big enough portfolio, you can logically do better by creating your own index of individual stocks with a buy and hold mentality with activist moments for tax loss harvesting plus substitution. The advantages:

Save the management fee (so on a 2.5 million dollar stock portfolio(I think that is an easy goal for Bogleheads) at a low .04% ER that still is 1K a year you save. If you are planning to live off of just dividends (estimated at 2%)...that equates to 2% a year management fee relative to income derived(1000/50,000=.02)

Tax loss harvesting...this can be so very beneficial.

If the portfolio is large enough you can achieve the benefits of diversification (i.e. eliminating most unsystematic risk) . Academics argue the number all the time but the numbers tend to range from 12 to 70 stocks, with 30-40 being very widely excepted.

When you combine the advantage of no ER and tax loss harvesting, it seems that yes indeed you can likely do better than the normal 2-3 fund index portfolios.

If you move your portfolio to a place like Fidelity you can establish your stock holding for free with the free trades they give you or even at $4.95 a trade you are likely talking $150 or so to set it up and then no on-going costs.

A note:

Some of us are not comfortable with a 2% withdraw rate....I myself am targeting a 1.6% withdraw rate so the math changes. That 1k ER savings over a cheap passive index (.04%) on a 1.6% withdraw changes the picture quite a bit (1000/40000 = .025%) resulting in a 2.5% ER on the 40K cash flow from a 2.5 Million equity portfolio.
Last edited by chinto on Sun May 28, 2017 11:25 pm, edited 1 time in total.

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JoMoney
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by JoMoney » Sun May 28, 2017 11:24 pm

chinto wrote:It seems logical that if you have a big enough portfolio, you can logically do better by creating your own index of individual stocks with a buy and hold mentality with activist moments for tax loss harvesting plus substitution. The advantages:

Save the management fee (so on a 2.5 million dollar stock portfolio(I think that is an easy goal for Bogleheads) at a low .04% ER that still is 1K a year you save...
I want to point out that the 'Expense Ratio' doesn't tell the whole story, Vanguard funds also participate in a securities lending program and returns all the income from that to the fund, and is also able to utilize better institutional trading and cross-trading to reduce other frictional costs that an individual may not have access to.
Over the past 20 years, the overall cost of Vanguard's 500 fund relative to index has only been about .02%, and only .01% over the past decade. The super low cost Institutional Class fund actually beats the index [Growth Chart].
There may be benefits to an individual stock portfolio, but the case for doing it because of costs relative to a broad market index fund is getting very tenuous. It also makes for more work/complexity in the portfolio, and I think a tendency for behavioral issues. Opportunities for tax loss/gain harvesting may come up, but it's not necessarily certain that they will, and it's not an easy thing to disentangle and figure what the benefit might be relative to whatever returns might have otherwise been... and the portfolio at some point could hit a wall where there the cost basis is too low to harvest any losses from and you just pushed the tax liability down the road.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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stemikger
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by stemikger » Mon May 29, 2017 8:44 am

willthrill81 wrote:
stemikger wrote:
willthrill81 wrote:
stemikger wrote:While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite. The rationale for a 100-percent-index-fund portfolio remains as solid as a rock. It's all about common sense.

CMH - The Cost Matters Hypothesis.
If there are indeed infinite investment strategies, then the same could be said of any investment strategy.
Possibly, but I doubt any of them concentrate on simplicity for the average main street investor. In fact, it seems 99% of the other strategies claim their cutting edge practices are proprietary which is why you need them to implement said methods. Some do beat the market but some don't and you can guarantee you will pay the price either way.

When all else fails fall back on simplicity ~ John C. Bogle
Simplicity is a definite advantage of the three-fund portfolio. And it will likely outperform a number of other popular portfolios over the long-term. But the claim, which has been made before you, that "the number of investment strategies that are worse is infinite" is hollow and potentially misleading.
Not sure what's really up for debate. It's up to you to decide if index investing is right for you.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Mon May 29, 2017 10:32 am

stemikger wrote:
willthrill81 wrote:
stemikger wrote:
willthrill81 wrote:
stemikger wrote:While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite. The rationale for a 100-percent-index-fund portfolio remains as solid as a rock. It's all about common sense.

CMH - The Cost Matters Hypothesis.
If there are indeed infinite investment strategies, then the same could be said of any investment strategy.
Possibly, but I doubt any of them concentrate on simplicity for the average main street investor. In fact, it seems 99% of the other strategies claim their cutting edge practices are proprietary which is why you need them to implement said methods. Some do beat the market but some don't and you can guarantee you will pay the price either way.

When all else fails fall back on simplicity ~ John C. Bogle
Simplicity is a definite advantage of the three-fund portfolio. And it will likely outperform a number of other popular portfolios over the long-term. But the claim, which has been made before you, that "the number of investment strategies that are worse is infinite" is hollow and potentially misleading.
Not sure what's really up for debate. It's up to you to decide if index investing is right for you.
Again, it's not a question of index investing vs. not at all. There are many, many investment strategies one can implement with indexes other than the three-fund portfolio. The problem is that the statement "the number of investment strategies that are worse is infinite," often used as an argument in favor of the three-fund portfolio, is demonstrably meaningless.

The statement assumes that there are infinite investment strategies, which I actually agree with. As such, no matter how good or bad an investment strategy is, there are infinite strategies that are worse. For instance, an investment strategy that involves putting 90% in gold and 10% in TSM, probably a horrific strategy, is still better than an infinite number of other investment strategies (i.e. 91% gold/9% TSM). So this statement, while strictly true, has no value whatsoever.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by stemikger » Mon May 29, 2017 11:02 am

willthrill81 wrote:
stemikger wrote:
willthrill81 wrote:
stemikger wrote:
willthrill81 wrote:
If there are indeed infinite investment strategies, then the same could be said of any investment strategy.
Possibly, but I doubt any of them concentrate on simplicity for the average main street investor. In fact, it seems 99% of the other strategies claim their cutting edge practices are proprietary which is why you need them to implement said methods. Some do beat the market but some don't and you can guarantee you will pay the price either way.

When all else fails fall back on simplicity ~ John C. Bogle
Simplicity is a definite advantage of the three-fund portfolio. And it will likely outperform a number of other popular portfolios over the long-term. But the claim, which has been made before you, that "the number of investment strategies that are worse is infinite" is hollow and potentially misleading.
Not sure what's really up for debate. It's up to you to decide if index investing is right for you.
Again, it's not a question of index investing vs. not at all. There are many, many investment strategies one can implement with indexes other than the three-fund portfolio. The problem is that the statement "the number of investment strategies that are worse is infinite," often used as an argument in favor of the three-fund portfolio, is demonstrably meaningless.

The statement assumes that there are infinite investment strategies, which I actually agree with. As such, no matter how good or bad an investment strategy is, there are infinite strategies that are worse. For instance, an investment strategy that involves putting 90% in gold and 10% in TSM, probably a horrific strategy, is still better than an infinite number of other investment strategies (i.e. 91% gold/9% TSM). So this statement, while strictly true, has no value whatsoever.
O.K, but I think you may have to take it up with Mr. Bogle. I copied it from The Little Book of Common Sense Investing.

However, John Bogle has a nasty little habit of always being right.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Mon May 29, 2017 11:11 am

stemikger wrote:
willthrill81 wrote:
stemikger wrote:
willthrill81 wrote:
stemikger wrote:
Possibly, but I doubt any of them concentrate on simplicity for the average main street investor. In fact, it seems 99% of the other strategies claim their cutting edge practices are proprietary which is why you need them to implement said methods. Some do beat the market but some don't and you can guarantee you will pay the price either way.

When all else fails fall back on simplicity ~ John C. Bogle
Simplicity is a definite advantage of the three-fund portfolio. And it will likely outperform a number of other popular portfolios over the long-term. But the claim, which has been made before you, that "the number of investment strategies that are worse is infinite" is hollow and potentially misleading.
Not sure what's really up for debate. It's up to you to decide if index investing is right for you.
Again, it's not a question of index investing vs. not at all. There are many, many investment strategies one can implement with indexes other than the three-fund portfolio. The problem is that the statement "the number of investment strategies that are worse is infinite," often used as an argument in favor of the three-fund portfolio, is demonstrably meaningless.

The statement assumes that there are infinite investment strategies, which I actually agree with. As such, no matter how good or bad an investment strategy is, there are infinite strategies that are worse. For instance, an investment strategy that involves putting 90% in gold and 10% in TSM, probably a horrific strategy, is still better than an infinite number of other investment strategies (i.e. 91% gold/9% TSM). So this statement, while strictly true, has no value whatsoever.
O.K, but I think you may have to take it up with Mr. Bogle. I copied it from The Little Book of Common Sense Investing.

However, John Bogle has a nasty little habit of always being right.
Unfortunately, in this instance, it can be easily mathematically proven that the statement is hollow, even though it is indeed true.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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stemikger
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by stemikger » Mon May 29, 2017 11:52 am

willthrill81 wrote:
stemikger wrote:
willthrill81 wrote:
stemikger wrote:
willthrill81 wrote:
Simplicity is a definite advantage of the three-fund portfolio. And it will likely outperform a number of other popular portfolios over the long-term. But the claim, which has been made before you, that "the number of investment strategies that are worse is infinite" is hollow and potentially misleading.
Not sure what's really up for debate. It's up to you to decide if index investing is right for you.
Again, it's not a question of index investing vs. not at all. There are many, many investment strategies one can implement with indexes other than the three-fund portfolio. The problem is that the statement "the number of investment strategies that are worse is infinite," often used as an argument in favor of the three-fund portfolio, is demonstrably meaningless.

The statement assumes that there are infinite investment strategies, which I actually agree with. As such, no matter how good or bad an investment strategy is, there are infinite strategies that are worse. For instance, an investment strategy that involves putting 90% in gold and 10% in TSM, probably a horrific strategy, is still better than an infinite number of other investment strategies (i.e. 91% gold/9% TSM). So this statement, while strictly true, has no value whatsoever.
O.K, but I think you may have to take it up with Mr. Bogle. I copied it from The Little Book of Common Sense Investing.

However, John Bogle has a nasty little habit of always being right.
Unfortunately, in this instance, it can be easily mathematically proven that the statement is hollow, even though it is indeed true.
Maybe you can write Mr. Bogle a letter telling him to put a footnote whenever he writes this statement in one of his books.

* Please be aware that this is a hollow truth.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by joer1212 » Tue May 30, 2017 1:19 am

chinto wrote:It seems logical that if you have a big enough portfolio, you can logically do better by creating your own index of individual stocks with a buy and hold mentality


Are you saying that it's likely you'll outperform the market by picking your own stocks, even though the vast majority of professional money managers can't do it consistently?

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by chinto » Tue May 30, 2017 3:44 pm

joer1212 wrote:
chinto wrote:It seems logical that if you have a big enough portfolio, you can logically do better by creating your own index of individual stocks with a buy and hold mentality


Are you saying that it's likely you'll outperform the market by picking your own stocks, even though the vast majority of professional money managers can't do it consistently?
No, what I said is you could likely get a better return because there would be no on going expenses, you could tax loss harvest and there would only be capital gains realized when you wanted them. John Bogle essentially makes the point in Common Sense on Mutual Funds. It has nothing to do with stock selection and everything to do with costs and taxes.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Johnnie » Wed May 31, 2017 6:24 pm

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?
Since we can't know the future, it may be the best bet that doesn't require you to conclude "it's different this time" in fundamental ways.
"I know nothing."

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Wed May 31, 2017 6:35 pm

Johnnie wrote:
joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?
Since we can't know the future, it may be the best bet that doesn't require you to conclude "it's different this time" in fundamental ways.
Actually, there are several asset classes that have historically outperformed the TSM over the long-term, a key component of the 3-fund portfolio. Arguably, those who buy TSM are those concluding "it's different this time." I'm not saying that I completely agree with either side, but it's not a slam dunk in favor of the 3-fund.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Phineas J. Whoopee » Wed May 31, 2017 7:02 pm

willthrill81 wrote:...
Actually, there are several asset classes that have historically outperformed the TSM over the long-term, a key component of the 3-fund portfolio. Arguably, those who buy TSM are those concluding "it's different this time." I'm not saying that I completely agree with either side, but it's not a slam dunk in favor of the 3-fund.
Your assertion, willthrill81, makes sense if and only if every investor is attempting to maximize return. I, for one, view my role with respect to my portfolio as that of risk manager, not return maximizer.
PJW

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Wed May 31, 2017 7:05 pm

Phineas J. Whoopee wrote:
willthrill81 wrote:...
Actually, there are several asset classes that have historically outperformed the TSM over the long-term, a key component of the 3-fund portfolio. Arguably, those who buy TSM are those concluding "it's different this time." I'm not saying that I completely agree with either side, but it's not a slam dunk in favor of the 3-fund.
Your assertion, willthrill81, makes sense if and only if every investor is attempting to maximize return. I, for one, view my role with respect to my portfolio as that of risk manager, not return maximizer.
PJW
No arguing with that, though I would say that the purpose of the 3-fund portfolio, TMK, is not to minimize risk or even the maximize risk-adjusted returns.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Johnnie » Wed May 31, 2017 7:12 pm

willthrill81 wrote:
Johnnie wrote:
joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?
Since we can't know the future, it may be the best bet that doesn't require you to conclude "it's different this time" in fundamental ways.
Actually, there are several asset classes that have historically outperformed the TSM over the long-term, a key component of the 3-fund portfolio. Arguably, those who buy TSM are those concluding "it's different this time." I'm not saying that I completely agree with either side, but it's not a slam dunk in favor of the 3-fund.
Oh, roger that. I was referring to the overall concept of long-term buy-hold-rebalance investing in low cost index funds, in asset classes that in the past have met the test of time. Including TSM and the one that caught my attention and imagination, Merriman's Ultimate slice-'n-dice, and all the variations in between.

I can guarantee the course I stay will not be the the optimal one revealed by the fullness of time. But absent some fundamental "it's different this time" factor, it's not crazy to imagine it might at least bring me to the right neighborhood. I imagine that goes for all of us. <shrug>
"I know nothing."

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Phineas J. Whoopee » Wed May 31, 2017 7:20 pm

willthrill81 wrote:
Phineas J. Whoopee wrote:
willthrill81 wrote:...
Actually, there are several asset classes that have historically outperformed the TSM over the long-term, a key component of the 3-fund portfolio. Arguably, those who buy TSM are those concluding "it's different this time." I'm not saying that I completely agree with either side, but it's not a slam dunk in favor of the 3-fund.
Your assertion, willthrill81, makes sense if and only if every investor is attempting to maximize return. I, for one, view my role with respect to my portfolio as that of risk manager, not return maximizer.
PJW
No arguing with that, though I would say that the purpose of the 3-fund portfolio, TMK, is not to minimize risk or even the maximize risk-adjusted returns.
I'm not sure where you read minimize risk from my statement that I manage risks, unless you're responding sort of in general and not to what you specifically quoted. You're the one making the unqualified assertions. Kindly refrain from putting words into my mouth.
PJW

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Wed May 31, 2017 7:44 pm

Phineas J. Whoopee wrote:
willthrill81 wrote:
Phineas J. Whoopee wrote:
willthrill81 wrote:...
Actually, there are several asset classes that have historically outperformed the TSM over the long-term, a key component of the 3-fund portfolio. Arguably, those who buy TSM are those concluding "it's different this time." I'm not saying that I completely agree with either side, but it's not a slam dunk in favor of the 3-fund.
Your assertion, willthrill81, makes sense if and only if every investor is attempting to maximize return. I, for one, view my role with respect to my portfolio as that of risk manager, not return maximizer.
PJW
No arguing with that, though I would say that the purpose of the 3-fund portfolio, TMK, is not to minimize risk or even the maximize risk-adjusted returns.
I'm not sure where you read minimize risk from my statement that I manage risks, unless you're responding sort of in general and not to what you specifically quoted. You're the one making the unqualified assertions. Kindly refrain from putting words into my mouth.
PJW
I didn't quote you, so I didn't put words in your mouth. It seemed to me that you were insinuating that alternatives to the 3-fund portfolio were riskier as you were discussing the risk management issue, hence my statement. And I have no idea what "unqualified assertions" you are referring to.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by Phineas J. Whoopee » Wed May 31, 2017 7:53 pm

willthrill81 wrote:
Phineas J. Whoopee wrote:
willthrill81 wrote:
Phineas J. Whoopee wrote:
willthrill81 wrote:...
Actually, there are several asset classes that have historically outperformed the TSM over the long-term, a key component of the 3-fund portfolio. Arguably, those who buy TSM are those concluding "it's different this time." I'm not saying that I completely agree with either side, but it's not a slam dunk in favor of the 3-fund.
Your assertion, willthrill81, makes sense if and only if every investor is attempting to maximize return. I, for one, view my role with respect to my portfolio as that of risk manager, not return maximizer.
PJW
No arguing with that, though I would say that the purpose of the 3-fund portfolio, TMK, is not to minimize risk or even the maximize risk-adjusted returns.
I'm not sure where you read minimize risk from my statement that I manage risks, unless you're responding sort of in general and not to what you specifically quoted. You're the one making the unqualified assertions. Kindly refrain from putting words into my mouth.
PJW
I didn't quote you, so I didn't put words in your mouth. It seemed to me that you were insinuating that alternatives to the 3-fund portfolio were riskier as you were discussing the risk management issue, hence my statement.
You most certainly did quote me, by quoting me. If quoting a person isn't quoting a person, then I don't know what quoting a person is.

I am not defending the three-fund portfolio against your attack. I am showing others the flaws in your reasoning.

PJW

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by willthrill81 » Wed May 31, 2017 7:55 pm

Phineas J. Whoopee wrote:
willthrill81 wrote:
Phineas J. Whoopee wrote:
willthrill81 wrote:
Phineas J. Whoopee wrote: Your assertion, willthrill81, makes sense if and only if every investor is attempting to maximize return. I, for one, view my role with respect to my portfolio as that of risk manager, not return maximizer.
PJW
No arguing with that, though I would say that the purpose of the 3-fund portfolio, TMK, is not to minimize risk or even the maximize risk-adjusted returns.
I'm not sure where you read minimize risk from my statement that I manage risks, unless you're responding sort of in general and not to what you specifically quoted. You're the one making the unqualified assertions. Kindly refrain from putting words into my mouth.
PJW
I didn't quote you, so I didn't put words in your mouth. It seemed to me that you were insinuating that alternatives to the 3-fund portfolio were riskier as you were discussing the risk management issue, hence my statement.
You most certainly did quote me, by quoting me. If quoting a person isn't quoting a person, then I don't know what quoting a person is.

I am not defending the three-fund portfolio against your attack. I am showing others the flaws in your reasoning. You're the one making unqualified assertions.

PJW
I quoted your post because I was merely referring to your comment. Again, I don't know what "unqualified assertions" you are referring to, and I don't understand this strong defensive stance over seemingly nothing.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by jef » Wed May 31, 2017 8:11 pm

nisiprius wrote:
joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere?
I don't know.
How do you know this?
I don't know.

There are a large number of "sensible" portfolios that are good enough. We won't know which had the highest risk-adjusted return over the next thirty years until thirty years have gone by. Even then, we won't know whether the one that had the highest return was actually the best or whether it was just the luck of those thirty years.

So the question is, given that I don't think I know, what should I do? However, that's not the question you asked, so I won't try to answer it here.
To answer the question you didn't ask, its probably the best portfolio I can pick to avoid having catfood being my retirement diet staple.

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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by NibbanaBanana » Wed May 31, 2017 9:25 pm

Johnnie wrote: I can guarantee the course I stay will not be the the optimal one revealed by the fullness of time. But absent some fundamental "it's different this time" factor, it's not crazy to imagine it might at least bring me to the right neighborhood. I imagine that goes for all of us. <shrug>
I remember reading John Brennan's ( Bogles successor) book. He said that VG did a survey of some wealthy investors. They asked a man who lived in Boca Raton what his annualized rate of return on his investments had been. IIRC, his response was, "I don't know, but enough to get me to Boca." :D

smesman
Posts: 97
Joined: Thu Apr 27, 2017 7:11 am

Re: Boglehead Portfolio vs. All Other Possible Investments

Post by smesman » Sun Jun 04, 2017 7:22 am

I think one issue with the total stock market is its assets are simply based on market cap, not on correlation.

So for example if you had gotten in near 2008 your portfolio would've taken some huge hits just because the financial sector happened to have a 30% market cap at that point in time.

In that sense, replacing the total stock market with a "Low Volatity" type fund such as USMV that tries to select the most uncorrelated stocks seems like it should generate better risk adjusted returns. However you should realize the companies in such an index may always have some kind of unforeseen correlation or flaw in the selection process.

A question I wonder about is is: Let's say you live in the US; do you want your stocks to have a high correlation with the US? When would you need your money more, in a booming economy or a depression? Does the fact that the US has 60% market cap mean you should put 60% of your money in the US?

vested1
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Re: Boglehead Portfolio vs. All Other Possible Investments

Post by vested1 » Sun Jun 04, 2017 9:48 am

joer1212 wrote:Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?

* total stock, total bond, total int'l (optional: small-cap value, REITs and TIPS)
Passive investing may not be the most exciting approach, nor the most satisfying to the ego, but IMHO it is by far the least stressful way to capture the return of the markets while eliminating the need to micromanage your portfolio.

My plan, as compared to a close friend, is detailed in this post from almost a year ago viewtopic.php?f=10&t=195335&p=2981376#p2981376

I've been retired now for almost a year and a half, my wife retiring 7 months earlier. We have 5 total funds, all VG indexes, and our 60/40 AA has drifted to 63/37. I see no need to rebalance at this time. We are delaying SS currently at 64/65 years of age, and are withdrawing 5k a month from retirement savings from cash positions not included in the investment portfolio. Our gain on investments has garnered 40k more than withdrawal amounts from cash since retirement. We have changed nothing in our accounts since retirement, and all dividends (approx 25k yearly) are reinvested.

My friend started out with a much more complicated strategy, relying on individuals stocks, a variable annuity and trusting his investments to an advisor. He also had about 500k more than I did when I retired, and was already retired when I pulled the plug. He has not begun withdrawals from his savings as he and his wife filed for SS at their FRA's and he still had yearly bonuses from his previous executive employment, the last of which was awarded in March of this year. He called me recently, worried that his investments have been treading water or even losing money, and that his need to begin withdrawals is imminent.

I have another friend that recently retired who has a portfolio with a large single stock position. I sat down with him several times at his request and even attended a meeting with him at his advisor's office in order to protect him from self-serving advice. I am loathe to give investment advice but suggested that he diversify the single stock position. He called last week, freaked out that he is losing money in his portfolio, as his single position has experienced an unexpected downturn. He filed for SS at FRA this year and is withdrawing from his portfolio with no pension.

All this is anecdotal of course, but in my case, I don't worry about market fluctuations as much as they do. My risk is far less than theirs simply because I own 9773 stocks and 15,808 bonds. I have a relatively small exposure to international stocks and bonds in my portfolio, 10% of stocks and 8% of bonds currently, which are finally beginning to pay off. It amazes me that anyone could lose money in this current market and my main worry is what will happen to their accounts if there is a severe downturn. The diversity in my portfolio virtually eliminates that concern for my own savings.

Once SS kicks in it won't matter anyway, since our combined benefits will cover 100% of expenses. The 20% to 25% or so of savings that I had planned on spending for the delay has decreased due to market performance. Diversity allowed that to happen. Concentration would have destroyed that plan. The real question is "How lucky do you feel?" or better yet, "How smart do you think you are in making investment decisions". I have no illusions. Indexing makes those questions irrelevant.

garlandwhizzer
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Joined: Fri Aug 06, 2010 3:42 pm

Re: Boglehead Portfolio vs. All Other Possible Investments

Post by garlandwhizzer » Sun Jun 04, 2017 1:04 pm

joer1212 wrote:
Simple question: Is a passive, low-cost, diversified index portfolio* really the best bet to achieve the highest possible risk-adjusted, long-term returns anywhere? How do you know this?
It is a simple question but there's a problem. We never know beforehand the exact details of which portfolio is going to achiever "the highest possible risk-adjusted returns over the long term going forward." Uncertainty is the constant state of current forecasting for the future. What we do know is that some approaches are very likely on average to produce lower risk adjusted returns: 100% active management, angel investing, hedge funds, private equity, penny stocks, individual stock picking, etc.. There are other better approaches that we know offer high risk adjusted returns historically and are overwhelmingly likely to do so in the future. These include the Boglehead cap weighted 3 fund, 4 fund, or 5 fund approaches that can easily be tailored to meet ones risk tolerance and offer at extremely low cost offer great market exposure and diversification. There is still some controversy whether factor approaches, including multi-factor, versus cap weight equity will produce improved long term returns on a risk adjusted basis relative to the classic Bogelhead approaches IMO. There are knowledgeable experts on either side of that question that make rational arguments for each point of view. Either approach is overwhelmingly likely to work if it is low cost and not abandoned during market crashes. In the long run it may make very little difference which is my central belief. It is a lot more important to have a solid portfolio than you believe in and can stick with than to endlessly search for the perfect portfolio. If you're not fully committed to either, a mixture of the two may be a good option although this adds an extra layer of cost as well as complexity when it comes to withdrawals/rebalancing.

All investors seek certainty about which specific portfolio is going to be the best in their future. There is no certainty and there never will be in this question. We must accept that fact and choose among the reasonable options. Luckily there are only a few IMHO: classic Boglehead, factor-based, or some mixture of the two that fits best to ones own situation and whether they prefer low cost simplicity with beta (Boglehead) or higher cost complexity with the possibility but not guarantee of higher long term returns with various factor approaches. Keep in mind that as markets get more professionally dominated beta gets harder and harder to beat. The most important thing is that in the long term both work very well and will get the job done as long as you stick to your well thought-out plan.

Garland Whizzer

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