Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

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Dink2018
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Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Dink2018 » Tue Oct 30, 2018 7:46 pm

Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?

Are the Target Life Funds essentially market cap weighted by the entire global market?

I can see where I could start drifting with allocations over time between international and US and stocks and bonds.

The Target Life could help limit that. I'm not saying that it would be un-sellable if a person is to freak out. But the actual mechanics of keeping on track month in and out with various amounts being sent to the fund would sure be easier than having 3 or 4 separate funds.

The more I think about it the more I lean toward just focusing on the amount of money being sent into the funds and not the hyper specifics between a 3 fund, 4 fund, or Target Life (assuming of course the stock / bond ratio is similar).

Love the forum and minds that are here, thanks again for all the posts I've read! You guys / gals are great.

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vineviz
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by vineviz » Tue Oct 30, 2018 8:00 pm

Dink2018 wrote:
Tue Oct 30, 2018 7:46 pm
Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?
I’d say so.

Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Dink2018
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Dink2018 » Tue Oct 30, 2018 8:10 pm

I'm starting to lean that way. Since I have 5 accounts so far that starts to be a lot of manual effort when I have different amoutns to deposit.

His / Her Roth and Sep (that's 4 accounts)
Joint taxable (that's another one)

The volumes for the Roth are simple, I can max those out easily. The taxable account might get $300 one day and $7k the next week so I need to make sure I just keep plowing money into it and get out of my own way.

sambb
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by sambb » Tue Oct 30, 2018 8:14 pm

vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Dink2018 wrote:
Tue Oct 30, 2018 7:46 pm
Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?
I’d say so.

Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
agree, 3 fund is mostly hype for most investors, and youll do just fine with a target date. the downsides are minimal for people who want to set it.

lostdog
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by lostdog » Tue Oct 30, 2018 8:31 pm

Target Retirement and Life Strategy Funds are perfect for most people. Very simple and hands off. If you have a taxable you can put Total Stock or Total World in taxable and Life Strategy or Target Retirement in your IRA's. So simple.

This would be my plan but I don't want any bonds at the moment.

Fidelity has Fidelity Freedom INDEX Target date funds.

2015
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by 2015 » Tue Oct 30, 2018 10:31 pm

sambb wrote:
Tue Oct 30, 2018 8:14 pm
vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Dink2018 wrote:
Tue Oct 30, 2018 7:46 pm
Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?
I’d say so.

Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
agree, 3 fund is mostly hype for most investors, and youll do just fine with a target date. the downsides are minimal for people who want to set it.
Two things impact investment performance: fees and taxes. Using the 3 Fund PF to minimize taxes is hardly "hype". OTOH, I can't disagree that in the interest of simplicity a target date fund, while not optimal, will do just fine. Most importantly, either choice keeps investors from doing something stupid in the quest for brilliance, cleverness, or ego.

Investing is hard. As hard as you make it. Or it's as easy and as simple as you make it.

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willthrill81
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by willthrill81 » Tue Oct 30, 2018 10:36 pm

A good argument could be made for an investor to be in Vanguard's LifeStrategy Moderate Growth fund for their entire life. Literally.
“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

2015
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by 2015 » Tue Oct 30, 2018 10:54 pm

willthrill81 wrote:
Tue Oct 30, 2018 10:36 pm
A good argument could be made for an investor to be in Vanguard's LifeStrategy Moderate Growth fund for their entire life. Literally.
OTOH, the 60/40 AA of that fund might not be right for some and their risk tolerance. One could always find a target date fund with an AA to match their risk tolerance, but not so with this fund. OTOH OTOH, it's as good as any other strategy for someone desiring a 60/40 AA (okay, except for the fund fee--but if an investor doesn't mind that, sure). Sure beats chasing one's tail listening to ever flip flopping discussions of what one should do based on theory. The propensity to do damage by doing so is enormous.

Clever investing strategies and portfolios do work. For a while. Then they stop working. Trouble is in investing's complex adaptive system predicting the brick wall to the face event is impossible.

Dink2018
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Dink2018 » Tue Oct 30, 2018 11:50 pm

2015 wrote:
Tue Oct 30, 2018 10:54 pm
willthrill81 wrote:
Tue Oct 30, 2018 10:36 pm
A good argument could be made for an investor to be in Vanguard's LifeStrategy Moderate Growth fund for their entire life. Literally.
OTOH, the 60/40 AA of that fund might not be right for some and their risk tolerance. One could always find a target date fund with an AA to match their risk tolerance, but not so with this fund. OTOH OTOH, it's as good as any other strategy for someone desiring a 60/40 AA (okay, except for the fund fee--but if an investor doesn't mind that, sure). Sure beats chasing one's tail listening to ever flip flopping discussions of what one should do based on theory. The propensity to do damage by doing so is enormous.

Clever investing strategies and portfolios do work. For a while. Then they stop working. Trouble is in investing's complex adaptive system predicting the brick wall to the face event is impossible.
I appreciate your feedback. Yes I agree, and I'm getting mentally tired of considering the hundreds of variations. I want to eliminate as many variables as possible.

Manager Risk
Style Drift
Home Country Bias
Personal Mistakes with Button Pushing
Curve Fitting ( you should see some of the cool things I've been able to make Portfolio Analyzer do)
Wife Being able to understand it if I'm not around (less button pushing)

After reading the 3 fund book I'm pretty sold on the concepts of just existing in the market and not trying to beat it. Now I need to take away ME as being a derailment which is where I think the Life Strategy funds will work well. So much less thinking and messing with things.

In terms of AA I think 60/40 is about the best AA I can think of for 35 years old and no idea how long work life will last. I don't know if I'm going to retire at 50 or at 85 like my grandma. I've seen enough in life to know that I don't know...commission sales since I graduated school.

Dink2018
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Dink2018 » Tue Oct 30, 2018 11:54 pm

2015 wrote:
Tue Oct 30, 2018 10:31 pm
sambb wrote:
Tue Oct 30, 2018 8:14 pm
vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Dink2018 wrote:
Tue Oct 30, 2018 7:46 pm
Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?
I’d say so.

Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
agree, 3 fund is mostly hype for most investors, and youll do just fine with a target date. the downsides are minimal for people who want to set it.
Two things impact investment performance: fees and taxes. Using the 3 Fund PF to minimize taxes is hardly "hype". OTOH, I can't disagree that in the interest of simplicity a target date fund, while not optimal, will do just fine. Most importantly, either choice keeps investors from doing something stupid in the quest for brilliance, cleverness, or ego.

Investing is hard. As hard as you make it. Or it's as easy and as simple as you make it.
Is there any way to calculate the tax advantages of running the same ratios that are in the Target Life funds with a more manual 4 fund approach. I have no idea how that might impact taxes. I can see HOW it impacts taxes when you are withdrawing (eg selling bonds vs selling stocks vs selling the entire fund which contains both).

Would this be a 2% advantage or like a 20% advantage? There are so many factors its really hard to imagine the variations.

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BL
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by BL » Wed Oct 31, 2018 12:12 am

If you have a low-ER Target Date Fund, go for it. You can also decide on the % bonds and choose date based on that, (then check it now and then to be sure % bonds is still what you wish.)

rkhusky
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by rkhusky » Wed Oct 31, 2018 6:38 am

Dink2018 wrote:
Tue Oct 30, 2018 11:54 pm
Is there any way to calculate the tax advantages of running the same ratios that are in the Target Life funds with a more manual 4 fund approach. I have no idea how that might impact taxes. I can see HOW it impacts taxes when you are withdrawing (eg selling bonds vs selling stocks vs selling the entire fund which contains both).
If all your investing is in tax-advantaged accounts, there is no tax advantage.

The overall tax advantage would depend on the ratio of money in tax-advantaged accounts versus taxable accounts.

There is a tax advantage to having stocks rather than bonds in a taxable account. You can also Tax Loss Harvest in a taxable account.

For more detail, see https://www.bogleheads.org/wiki/Tax-eff ... _placement. From Table 1 there, you can see that the difference between having a 3%-yielding Total Bond fund and a 2%-yielding Total Stock fund in a taxable account is about 0.5% in the 25% tax bracket. Since a target fund has a mix of stocks and bonds, the actual difference would be less than that - perhaps 0.2% for a 60/40 balanced fund. And if you are in the 12% tax bracket, 0.1%.
Last edited by rkhusky on Wed Oct 31, 2018 6:48 am, edited 2 times in total.

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alpenglow
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by alpenglow » Wed Oct 31, 2018 6:47 am

willthrill81 wrote:
Tue Oct 30, 2018 10:36 pm
A good argument could be made for an investor to be in Vanguard's LifeStrategy Moderate Growth fund for their entire life. Literally.
+1
This is solid advice.

lostdog
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by lostdog » Wed Oct 31, 2018 7:34 am

Dink2018 wrote:
Tue Oct 30, 2018 11:50 pm
2015 wrote:
Tue Oct 30, 2018 10:54 pm
willthrill81 wrote:
Tue Oct 30, 2018 10:36 pm
A good argument could be made for an investor to be in Vanguard's LifeStrategy Moderate Growth fund for their entire life. Literally.
OTOH, the 60/40 AA of that fund might not be right for some and their risk tolerance. One could always find a target date fund with an AA to match their risk tolerance, but not so with this fund. OTOH OTOH, it's as good as any other strategy for someone desiring a 60/40 AA (okay, except for the fund fee--but if an investor doesn't mind that, sure). Sure beats chasing one's tail listening to ever flip flopping discussions of what one should do based on theory. The propensity to do damage by doing so is enormous.

Clever investing strategies and portfolios do work. For a while. Then they stop working. Trouble is in investing's complex adaptive system predicting the brick wall to the face event is impossible.
I appreciate your feedback. Yes I agree, and I'm getting mentally tired of considering the hundreds of variations. I want to eliminate as many variables as possible.

Manager Risk
Style Drift
Home Country Bias
Personal Mistakes with Button Pushing
Curve Fitting ( you should see some of the cool things I've been able to make Portfolio Analyzer do)
Wife Being able to understand it if I'm not around (less button pushing)

After reading the 3 fund book I'm pretty sold on the concepts of just existing in the market and not trying to beat it. Now I need to take away ME as being a derailment which is where I think the Life Strategy funds will work well. So much less thinking and messing with things.

In terms of AA I think 60/40 is about the best AA I can think of for 35 years old and no idea how long work life will last. I don't know if I'm going to retire at 50 or at 85 like my grandma. I've seen enough in life to know that I don't know...commission sales since I graduated school.

Vanguard Total World Stock index.

No home bias
No rebalancing
World market cap
No tinkering with international allocation
The entire world economy
Accept that world market cap is rational
Accept that you cannot beat the market, just buy the world market
Accept that there is not a perfect asset allocation between US and international
Literally buy the haystack

Add a decent bond fund at some point in your life when you're ready.

A simple two fund portfolio. It really is that simple.
Last edited by lostdog on Wed Oct 31, 2018 7:37 am, edited 1 time in total.

JonSharpe
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by JonSharpe » Wed Oct 31, 2018 7:37 am

Adding my full support above. It would be hard to go wrong with this approach. Instead of worrying about allocations, focus on how much money you are putting in each month.

asif408
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by asif408 » Wed Oct 31, 2018 8:14 am

I think either the Target Date/Lifestrategy funds or a Total World Fund are great options. It's likely Vanguard will continually tweak the TD/LS funds, but probably won't make that much difference over the long haul, just something to be aware of in case they do at some point decide to make any significant shifts. My advice to my wife if I die first is to use a TD/LS fund, as I feel it is the simplest and most effective way for someone without much interest in investing to invest or who are prone to making emotional decisions with money.

If you're comfortable without bonds or just hold your safe funds outside of retirement accounts and/or mainly use CD/I-bonds/etc. I think Total World is a great option, as that fund is unlikely to ever be tweaked.

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vineviz
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by vineviz » Wed Oct 31, 2018 8:19 am

vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
To put some quantification on this, the average investor in individual mutual funds costs themselves (according to Morningstar) between 1.2% and 1.6% per year due to behavioral issues while the average investor in balanced mutual funds costs themselves just 0.5%.

Image

Any potential tax-efficiencies from holding individual funds in their optimal location are absolutely dwarfed by this 100 basis point behavioral advantage.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Lafder
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Lafder » Wed Oct 31, 2018 8:26 am

Nit picky detail : the life strategy and target date funds both include international bonds, making them 4 fund portfolios ! SO it is a bit apples to oranges.

I agree with your comments that human error due to emotional decisions is your biggest risk to reducing your returns.

The brainpower at Vanguard chooses to hold international bonds in their all in one funds. The 3 fund portfolio is simpler. Only time will tell which has better returns.

The advantage to 3 separate funds in taxable is the ability to tax loss harvest or rebalance. The disadvantage is needing to check and possibly rebalance, which takes actions.

The simplicity of all in one invest and forget funds is hard to beat!

I hold 3 funds separately. But I have told my husband to switch to all in one if I die as he will never rebalance............

actually I told him to post on Bogleheads and follow what the majority advises !

lafder

Freefun
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Freefun » Wed Oct 31, 2018 8:33 am

Lafder wrote:
Wed Oct 31, 2018 8:26 am
Nit picky detail : the life strategy and target date funds both include international bonds, making them 4 fund portfolios ! SO it is a bit apples to oranges.

I agree with your comments that human error due to emotional decisions is your biggest risk to reducing your returns.

The brainpower at Vanguard chooses to hold international bonds in their all in one funds. The 3 fund portfolio is simpler. Only time will tell which has better returns.

The advantage to 3 separate funds in taxable is the ability to tax loss harvest or rebalance. The disadvantage is needing to check and possibly rebalance, which takes actions.

The simplicity of all in one invest and forget funds is hard to beat!

I hold 3 funds separately. But I have told my husband to switch to all in one if I die as he will never rebalance............

actually I told him to post on Bogleheads and follow what the majority advises !

lafder
Great info in this thread!

Isn’t the rebalancing somewhat automated in LS funds?
I realize that it’s not rebalancing when I want to and when I remove funds I can’t choose an asset type.

Trying to understand what I lose in the rebalancing part.
Remember when you wanted what you currently have?

rkhusky
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by rkhusky » Wed Oct 31, 2018 8:50 am

Freefun wrote:
Wed Oct 31, 2018 8:33 am
Isn’t the rebalancing somewhat automated in LS funds?
I realize that it’s not rebalancing when I want to and when I remove funds I can’t choose an asset type.

Trying to understand what I lose in the rebalancing part.
Manual rebalancing only has an advantage if one believes that there is a rebalancing bonus and that one's rebalancing scheme will outperform Vanguard's rebalancing procedure.

Vanguard handles all rebalancing in LS and TR funds. They do not publish exactly how they do it.

Dink2018
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Dink2018 » Wed Oct 31, 2018 3:22 pm

vineviz wrote:
Wed Oct 31, 2018 8:19 am
vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
To put some quantification on this, the average investor in individual mutual funds costs themselves (according to Morningstar) between 1.2% and 1.6% per year due to behavioral issues while the average investor in balanced mutual funds costs themselves just 0.5%.

Image

Any potential tax-efficiencies from holding individual funds in their optimal location are absolutely dwarfed by this 100 basis point behavioral advantage.
This is exactly what I'm talking about. I'm just looking at the tech and button pushing behind 5 accounts with 4 funds each. If I move money every week thats 20,800 trades over 20 years, plenty of room for a hell of a lot of errors there, let alone drift or emotion getting in the way when I'm going through different phases of life.

123
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by 123 » Wed Oct 31, 2018 3:30 pm

The expense ratios on the funds-of-funds, like Targe Retirement or LifeStrategy, are somewhat higher than if you did it yourself (about $1,000 on $1M of assets a year). I think it's worth it to keep me from messing around with things. I also find that I am less concerned on a day-to-day basis when there is just a single value per share rather than 3 or 4 values, each for the seperate components.

An apprropriate fund-of-funds also makes your survivors less prone to engage a financial advisor, assuming they understand the logic behind the fund-of-funds. They work especially well for IRA accounts.
The closest helping hand is at the end of your own arm.

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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Rowan Oak » Wed Oct 31, 2018 3:48 pm

sambb wrote:
Tue Oct 30, 2018 8:14 pm
vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Dink2018 wrote:
Tue Oct 30, 2018 7:46 pm
Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?
I’d say so.

Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
agree, 3 fund is mostly hype for most investors, and youll do just fine with a target date. the downsides are minimal for people who want to set it.
"hype"? I respectfully disagree. There are multiple reasons you would choose the The Three-Fund Portfolio over a target date or life strategy fund. All are excellent choices. None are hyped.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

Nate79
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Nate79 » Wed Oct 31, 2018 3:54 pm

The choice is moot for many because these type of funds may not be available in the most common retirement accounts, 401k's. My 401k has TD funds but their ER is much higher (~0.8%) than using index funds (~0.03%).

Jordan4FI
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by Jordan4FI » Wed Oct 31, 2018 3:59 pm

lostdog wrote:
Wed Oct 31, 2018 7:34 am

Vanguard Total World Stock index.

No home bias
No rebalancing
World market cap
No tinkering with international allocation
The entire world economy
Accept that world market cap is rational
Accept that you cannot beat the market, just buy the world market
Accept that there is not a perfect asset allocation between US and international
Literally buy the haystack

Add a decent bond fund at some point in your life when you're ready.

A simple two fund portfolio. It really is that simple.
And with the Global Stock you get 8,167 stocks currently, with the LifeStrategy and Date funds you get 10,095 stocks currently, a difference of 1,928, so someone would think that difference is a real plus or not in diversification, is up to the investor.

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jriding
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by jriding » Wed Oct 31, 2018 4:09 pm

123 wrote:
Wed Oct 31, 2018 3:30 pm
The expense ratios on the funds-of-funds, like Targe Retirement or LifeStrategy, are somewhat higher than if you did it yourself (about $1,000 on $1M of assets a year). I think it's worth it to keep me from messing around with things. I also find that I am less concerned on a day-to-day basis when there is just a single value per share rather than 3 or 4 values, each for the seperate components.

An apprropriate fund-of-funds also makes your survivors less prone to engage a financial advisor, assuming they understand the logic behind the fund-of-funds. They work especially well for IRA accounts.
Last year I switched from a four fund portfolio (three fund + REIT) across five accounts to Target Date funds for the exact reasons 123 describes. I have been happy with my decision, particularly on really bad days. As I near retirement (~5-10 years) I will re-think my strategy as I may want to withdraw from specific fund categories at different times.

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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by KlangFool » Wed Oct 31, 2018 4:17 pm

Dink2018 wrote:
Tue Oct 30, 2018 11:54 pm
2015 wrote:
Tue Oct 30, 2018 10:31 pm
sambb wrote:
Tue Oct 30, 2018 8:14 pm
vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Dink2018 wrote:
Tue Oct 30, 2018 7:46 pm
Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?
I’d say so.

Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
agree, 3 fund is mostly hype for most investors, and youll do just fine with a target date. the downsides are minimal for people who want to set it.
Two things impact investment performance: fees and taxes. Using the 3 Fund PF to minimize taxes is hardly "hype". OTOH, I can't disagree that in the interest of simplicity a target date fund, while not optimal, will do just fine. Most importantly, either choice keeps investors from doing something stupid in the quest for brilliance, cleverness, or ego.

Investing is hard. As hard as you make it. Or it's as easy and as simple as you make it.
Is there any way to calculate the tax advantages of running the same ratios that are in the Target Life funds with a more manual 4 fund approach. I have no idea how that might impact taxes. I can see HOW it impacts taxes when you are withdrawing (eg selling bonds vs selling stocks vs selling the entire fund which contains both).

Would this be a 2% advantage or like a 20% advantage? There are so many factors its really hard to imagine the variations.
Dink2018,

1) This is only a problem if you have a large taxable account.

2) Even if you have a large taxable account, it is fixable. Just keep your taxable account as 100% stock and make your tax-advantaged account into 40/60 instead of 60/40.

KlangFool

2015
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by 2015 » Wed Oct 31, 2018 11:06 pm

Dink2018 wrote:
Tue Oct 30, 2018 11:54 pm
2015 wrote:
Tue Oct 30, 2018 10:31 pm
sambb wrote:
Tue Oct 30, 2018 8:14 pm
vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Dink2018 wrote:
Tue Oct 30, 2018 7:46 pm
Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?
I’d say so.

Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
agree, 3 fund is mostly hype for most investors, and youll do just fine with a target date. the downsides are minimal for people who want to set it.
Two things impact investment performance: fees and taxes. Using the 3 Fund PF to minimize taxes is hardly "hype". OTOH, I can't disagree that in the interest of simplicity a target date fund, while not optimal, will do just fine. Most importantly, either choice keeps investors from doing something stupid in the quest for brilliance, cleverness, or ego.

Investing is hard. As hard as you make it. Or it's as easy and as simple as you make it.
Is there any way to calculate the tax advantages of running the same ratios that are in the Target Life funds with a more manual 4 fund approach. I have no idea how that might impact taxes. I can see HOW it impacts taxes when you are withdrawing (eg selling bonds vs selling stocks vs selling the entire fund which contains both).

Would this be a 2% advantage or like a 20% advantage? There are so many factors its really hard to imagine the variations.
Indeed there are. And even once you thought you had it figured it out it would be a sort of false precision anyway. In the complex evolving interacting systems that our lives and our investing rest in, entirely too much is unknown and unknowable. To minimize taxes, one could TLH or go with tax efficient placement of the 3 fund PF, but I don't think it's the end of the world if they just select an appropriate Target fund and then leave it alone (meaning don't change your mind later and go with something else thereby giving up the power of compounding).

Luck has more do to with life and outcomes than just about anything else. Chasing yield, the most clever portfolio, or the "best" investing strategy creates complexity and opacity where bad luck breeds. The way to win is through the door of simplicity, through taking as little action as possible (so that we don't trip over ourselves), and to pretend our eyes are shot and our ears useless when we read or hear anyone blathering about what to do right now.

mikeyzito22
Posts: 103
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Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by mikeyzito22 » Wed Oct 31, 2018 11:32 pm

:beer
Rowan Oak wrote:
Wed Oct 31, 2018 3:48 pm
sambb wrote:
Tue Oct 30, 2018 8:14 pm
vineviz wrote:
Tue Oct 30, 2018 8:00 pm
Dink2018 wrote:
Tue Oct 30, 2018 7:46 pm
Hello,

After reading Taylors 3 Fund book and several others I'm pretty convinced the main threat to my portfolio is myself (by the way of behavioral errors).

Would it be correct to say that the Target Life funds are even more of a Bogle Head approach than the 3 fund portfolio?
I’d say so.

Target Retirement and Life Strategy funds are well engineered to save investors from their own worse impulses and tend to do so effectively.

They might not be “optimal” in a taxable account, but I suspect the typical investor would retire a lot wealthier using one of these funds than by trying to manage their own portfolios.
agree, 3 fund is mostly hype for most investors, and youll do just fine with a target date. the downsides are minimal for people who want to set it.
"hype"? I respectfully disagree. There are multiple reasons you would choose the The Three-Fund Portfolio over a target date or life strategy fund. All are excellent choices. None are hyped.
I'm going to agree with Rowan here. If you had just started this year and went Target date 2060, you would have seen a significant portion of it go down "so far" in the international exposure. If you started and had a three fund with more US exposure, you would see more gains (although nonthing like last year). Yes, I realize YTD returns and the always debatable "how much international" doesn't matter here, but it may for people who have just started out. Although the target date is a fund of funds, sometimes it just doesn't work out as well as other allocations. For those who have just started, maybe it matters, maybe it doesn't. For those who don't want to look or prefer to trust the fund of funds, maybe it does.

2015
Posts: 2181
Joined: Mon Feb 10, 2014 2:32 pm

Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by 2015 » Wed Oct 31, 2018 11:44 pm

Just to be clear: I'm not advocating target date funds. I wouldn't own them myself, for the expense ratio alone. But I would own one before I'd spend the precious seconds of my life creating what I thought was the most clever portfolio, strategy, or yield hounding investment scheme. I'm a proud owner of the 3 fund portfolio which allows me to ignore most of the marketing disguised as information and ego-driven nonsense proffered by the overconfident.

Transitioning to the 3 fund portfolio for me was like taking a bath after rolling around in mud.

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beyou
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Location: Northeastern US

Re: Limting Human Bias - 3 Fund VS Vanguard Target Life Strategy

Post by beyou » Thu Nov 01, 2018 6:44 am

For some people that do not want to think about investing, would not rebalance, would not even login and look, the target/life strategy is an excellent choice.

For smaller portfolios that do not qualify for Admiral shares, and for who you would be trading 1 share of an ETF to rebalance, the higher fees amount to little. My son opened his first ROTH with 5500. Fee of life strat cost him about $4/year more than a 3 fund etf portfolio. To ensure the account stays at the desired AA, and that Vanguard is handling that when I know my son wont, willing to pay $4.

For a young person that has no taxable acct, no tax location advantages are left on the table.

I also found that for my MIL, who has a tiny IRA, same rule applied. Main difference was she had a non trivial taxable account. So put Target in the tiny IRA where fees are low in $ and auto rebalancing cause no taxable events. 3-4 fund portfolio in larger taxable acct, to take advantage of lower fees. Taxes eliminated by use of a muni fund as one of the funds (and overall low income due to small RMD and overall lack of other income). If I didn’t have her permission to manage the accounts for her, I would have recommended tax managed balanced in taxable, and just total bond in ira to reduce bonds in overall AA. Any balanced fund gives you a similar benefit, not just Target and Life Strategy.

So for the very young, and aging low income balanced funds can be very useful to stay on track.

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