How has a home biased Japan investor done the last few decades with his TSM portfolio? I don’t know specifically, but I think he would have been better off diversifying beyond the single source of return, market beta. Market beta can potentially do poorly for a very long time. I agree that the longer one’s timeframe, the more likely it is to “work out”. Contrary to what most people here believe, I think diversification across factors is more important when the timeframe is shorter. For example in the critical years immediately preceding retirement and in early retirement, where sequence of returns risk is huge, diversification across independent sources of return can help a lot.vineviz wrote: ↑Wed Jun 20, 2018 9:30 amMy take on it is that most important thing an investor can do is to choose a portfolio that has a reasonable chance of doing two things:indexonlyplease wrote: ↑Wed Jun 20, 2018 9:10 amI always read that picking a portfolio and sticking with it long term may be one of the best decisions an investor can make. But I constantly read here how so many believe there is a better way or think there is a better way. So, I may be confused at times and think there is a better portfolio. But then I go to the first line I typed.
So, I have to keep believing my 3 fund is good enough.
I hope I am stating this correctly?
I don't think there can be any serious debate about whether the typical 3-fund Boglehead portfolio meets the first condition. Depending on the allocation, of course, I can't see any reason that those three funds couldn't help any investor meet any reasonable financial goal. This condition is purely a mathematical one.
- Allowing the investor to meet their financial goals;
- Allowing the investor to stick with it during market ups-and-downs.
The second condition is more personal and behavioral. For my own investments, given how intently I consume financial theory and research, I am unlikely to be satisfied with a strict three-fund portfolio. Such a portfolio could undoubtedly allow me to meet my financial goals, but without style and risk factor tilts I'd always be worried that I was leaving money on the table (so to speak).
So, I'd say your first sentence is entirely right but that it doesn't necessarily contradict the second sentence. There are lots of tweaks one could make to a three-fund portfolio that have a small chance of having a big impact or a big chance of having a small impact, none of which are likely to severely impact the typical investor in retirement.
There are also some tweaks that have a big chance of having a big impact, but these tweaks (in my experience) almost always have negative - not positive - consequences. People have, unfortunately, routinely demonstrated an attraction to this class of tweak which is why avoiding ALL tweaks is such a good strategy.