Simplicity (Three Fund) vs. Return (Slightly more complex):

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Nowizard
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Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Nowizard » Sat Jun 29, 2019 9:56 am

The many threads on the Three-Fund portfolio are very persuasive, and the greatest exponent is definitely one of, if not the greatest, contributor to this forum. The idea of simplicity appeals in many ways, particularly as we age and as one of us is much more involved in our investment decisions than the other, topics I suspect affect many posters. We use the Three-fund portfolio as a guide for two reasons: 1. It's simplicity allows a ready comparison of returns for stock and bond percentages with a more complex portfolio, 2. It allows a comparison with other portfolios for asset returns. In our case, we have a portfolio that contains six funds, and our returns have exceeded that of the Three-Fund portfolio by an average of 1.4% annually over more than the past decade. That has "justified" our more complex portfolio from our perspective. How do others determine the degree to which simplicity and returns interact? In our case we strive toward the simplest portfolio with the greatest return in a 60/40 portfolio.

Tim

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by AerialWombat » Sat Jun 29, 2019 10:11 am

I think the 3-fund portfolio is a great baseline. For most people that are employed by somebody else, have a family, and/or don’t have the interest in learning how to manage something any more complex, I think the three fund is the simplest and best approach. Added complexity is not necessary.

For those of us that can afford to take risk, or are driven to madness by the insatiable desire to over analyze or tinker, or that have quirky financial risks elsewhere, then other portfolios may make more sense.

During the brief times I’ve held some Total Stock Market, or Emerging Markets, or Small Cap, or even SP500, the daily volatility made me nauseous. Thus, I have chosen to take my risk in other ways, and sacrifice some return for a very low level of volatility.

This is why “personal finance is personal”.
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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Lastrun » Sat Jun 29, 2019 10:16 am

Comparisons are tough in my opinion as very quickly you are comparing portfolios with very different metrics (stock-bond percentages, standard deviation, etc.)

But I think to answer your question, for me, I will compare something with VBINX (Vanguard Balanced Index Investor Shares)--60/40, almost 30 years of data, and theoretically, I could live with one fund and the underlying allocation for my entire life.

But others may have relevant and better comparisons.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by SimpleGift » Sat Jun 29, 2019 11:11 am

Nowizard wrote:
Sat Jun 29, 2019 9:56 am
How do others determine the degree to which simplicity and returns interact?
Seeking higher returns seems a dubious reason for diversifying one's equities beyond the simple three-fund portfolio, in my view. Diversifying to reduce risk (portfolio variance) seems more justifiable.

In our case, after selling a business in the early 1990s, we started with a simple Vanguard portfolio, maintaining a 50% stock/50% bond mix — and then added a few additional asset classes as these became available:
  • 1994 — Vanguard Emerging Markets Stock Index (VEIEX)
    1996 — Vanguard Real Estate Index (VGSIX)
    1999 — Vanguard Tax-managed Small Cap (VTMSX)
    2009 — Vanguard FTSE All-World Ex-US Small Cap (VFSVX)
Over the years, adding these additional asset classes has resulted in outperformance in some time periods, and in other periods it has not. But we've definitely enjoyed a smoother ride along the way.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by onourway » Sat Jun 29, 2019 11:16 am

The point of simplicity with the 3-fund is not that it will maximize returns, rather that it minimizes the likelihood of major loss. Complex portfolios will have periods where they will return more than a comparable 3-fund, and other periods where they will return less. 10 years is just a small portion of most investor's lifetimes. Many of us will own investments for 70 years or more. What will you think if after the next 10 years the situation has reversed? What if it has reversed significantly and your portfolio is down 5 or 10% vs. something simpler?

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by GLState » Sat Jun 29, 2019 11:19 am

To which "Three Fund Portfolio" are you comparing your returns. Some have only a token allocation to International and perhaps only 10% bonds. Others equal weight US and International with, perhaps, 40% bonds. The past returns are very different.

A three fund portfolio is easy to live with. We aren't concerned with growth vs value, large vs small, REITs, or Gold discussions. We get the market return. It seems to me that once we start slicing our portfolio, we have become active managers trying to beat the market. We know that some will win and some will lose, but, on average, we get the market return. I think the key is to stick with our portfolios,whatever they may be, and not chase performance. As long as we are buying mainstream index funds, our costs will be low.


In Meb Faber's book Global Asset Allocation (which we can get for free,as a pdf, on mebfaber.com) , he back-tested 13 portfolios from well-known investors. He found that the 40 year returns were similar in most cases, even though the portfolios were quite different ... the Permanent Portfolio being one exception.
Last edited by GLState on Sat Jun 29, 2019 11:32 am, edited 2 times in total.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by UpperNwGuy » Sat Jun 29, 2019 11:20 am

I'll stick with simplicity over complexity.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by telemark » Sat Jun 29, 2019 11:48 am

I have five funds in my taxable account at Vanguard, five in my Vanguard Roth IRA, four in an old 401K, three in a rollover IRA, and one in my Fidelity Roth IRA. That makes, um, eighteen? Plus the Series I savings bonds. It's not something I worry about, and I have not found the alleged complexity to be in any way burdensome. Passive investing, being passive, requires very little attention from day to day, or even quarter to quarter.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by patrick013 » Sat Jun 29, 2019 11:57 am

The thing I don't care for with the 3 fund is the Intl AA. How long do we have to listen to statistics about the low returns for Intl ?

The below link is my idea for a cash flow portfolio in a non-crash market. One of four assets to withdraw from even in a bad market with the TRSY AA. You may get more long term return from micro-caps or SCV but for money every year these choices seem robust. So I would withdraw primarily from the index which has the highest return for the year end.

You could add micro-caps or Intl or SCV or any other factor(s) separately but general indexes have these options invested in as well.

No books here just another chart.
Image
age in bonds, buy-and-hold, 10 year business cycle

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by BeBH65 » Sat Jun 29, 2019 12:02 pm

Duplicate
Last edited by BeBH65 on Sat Jun 29, 2019 12:05 pm, edited 1 time in total.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by BeBH65 » Sat Jun 29, 2019 12:04 pm

It is most likely that you can define a 60/40 3fund portfolio that did beat your 6 fund portfolio in your backtesting. Just lower international until you reach that point. .... Hindside.

There are many ways that you can reach for higher return and still have a very simple portfolio.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Dottie57 » Sat Jun 29, 2019 12:14 pm

Interesting to see midcap CAGR as the highest during this period in the chart.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Mike Scott » Sat Jun 29, 2019 12:14 pm

I would suggest that the baseline for simplicity and return be one of the "all in one" funds such as Vanguard's Life Strategy or Target Date funds. You will pay a bit more fees plus taxes if it is in a taxable account but it can't get any simpler. The separate two/three/four fund will let you make minor tweaks compared to an "all in one" fund, it should be a bit cheaper fees and it gives you control over where each component is located so you may have some tax savings.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by JoMoney » Sat Jun 29, 2019 12:41 pm

We really don't know what the future returns of the broad-market will be, but by holding it we know precisely that our return will be the same as the dollar-weighted average of the market. People like to focus on returns, but that's probably the least of all the dimensions of investing within our control. The assets that might have the most potential for higher returns will inevitably have higher potential for lower returns too. The more someone focuses on higher returns the more unpredictable the outcome will be along the outcome of potential returns. This is more than just some sophisticated "complexity", it's chaos.

The "simplicity" of the Three Fund portfolio accepts the markets return (which few will beat) and puts the focus back on elements we have more meaningful control of, like exposure to risk, the costs/expenses of our portfolio, our own behavior, the time/duration of investment horizon and mapping that to the risks we're willing to take.
Last edited by JoMoney on Sat Jun 29, 2019 12:47 pm, edited 1 time in total.
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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Vulcan » Sat Jun 29, 2019 12:45 pm

AerialWombat wrote:
Sat Jun 29, 2019 10:11 am
I think the 3-fund portfolio is a great baseline. For most people that are employed by somebody else, have a family, and/or don’t have the interest in learning how to manage something any more complex, I think the three fund is the simplest and best approach.
With the advent of Admiral shares of Total World, the "simplest and best approach" is 2-fund.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Vulcan » Sat Jun 29, 2019 12:47 pm

Mike Scott wrote:
Sat Jun 29, 2019 12:14 pm
I would suggest that the baseline for simplicity and return be one of the "all in one" funds such as Vanguard's Life Strategy or Target Date funds. You will pay a bit more fees plus taxes if it is in a taxable account but it can't get any simpler. The separate two/three/four fund will let you make minor tweaks compared to an "all in one" fund, it should be a bit cheaper fees and it gives you control over where each component is located so you may have some tax savings.
The problem with all in one funds is that they are only simplest if they are your only holding.
If you have multiple accounts figuring out what you own quickly becomes more convoluted than holding a two-fund portfolio.
Last edited by Vulcan on Sat Jun 29, 2019 1:07 pm, edited 1 time in total.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by GLState » Sat Jun 29, 2019 12:55 pm

Rather than evaluating a portfolio just by return, it might be a good idea to see the risk that we're taking to get that return. Here's 3 portfolios on PortfolioVisualizer. Portfolio 1 is Three Fund. Portfolio 2 is Swensen's Lazy. Portfolio 3 is the Permanent Portfolio. The returns are similar, but the Permanent Portfolio has much lower standard deviation, lower worst year, and lower max drawdown ... A much smoother ride for a similar result over this time period. The Sharpe Ratio, a common risk/return measurement, is much higher for the Permanent Portfolio.

I'm not advocating for The Permanent Portfolio, but it's performance (risk/return) was hard to beat during this period.


https://www.portfoliovisualizer.com/bac ... ortfolios]
Last edited by GLState on Sat Jun 29, 2019 1:13 pm, edited 3 times in total.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by trueblueky » Sat Jun 29, 2019 1:02 pm

Dottie57 wrote:
Sat Jun 29, 2019 12:14 pm
Interesting to see midcap CAGR as the highest during this period in the chart.
However, more than half the years midcap finished between large and small, as I would intuit.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by patrick013 » Sat Jun 29, 2019 1:12 pm

trueblueky wrote:
Sat Jun 29, 2019 1:02 pm
Dottie57 wrote:
Sat Jun 29, 2019 12:14 pm
Interesting to see midcap CAGR as the highest during this period in the chart.
However, more than half the years midcap finished between large and small, as I would intuit.
And good old bonds had more highest return years than mid cap. :)
age in bonds, buy-and-hold, 10 year business cycle

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Ben Mathew » Sat Jun 29, 2019 1:19 pm

Focusing on value vs growth as an example, one of two things will happen over your investing horizon:

1. Growth > Total > Value
2. Value > Total > Growth

If you bet on total, you know for sure that you'll come in second. That's not a bad place to be. You don't know what your absolute returns will be, but you at least know it won't be as bad as it could have been. There's some security in that.

I personally think (2) is more likely, so I've bet on value. But if (1) happens, I'd be more than a little bummed. It's a risk I'm taking.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by patrick013 » Sat Jun 29, 2019 1:33 pm

Ben Mathew wrote:
Sat Jun 29, 2019 1:19 pm
Focusing on value vs growth as an example, one of two things will happen over your investing horizon:

1. Growth > Total > Value
2. Value > Total > Growth

If you bet on total, you know for sure that you'll come in second. That's not a bad place to be. You don't know what your absolute returns will be, but you at least know it won't be as bad as it could have been. There's some security in that.

I personally think (2) is more likely, so I've bet on value. But if (1) happens, I'd be more than a little bummed. It's a risk I'm taking.
Indexes include growth and value for a reason. Growth in revenues and earnings greater than the mean for good markets. Value for stability but less growth in average or slow markets. It has gone back and forth between the 2 for decades which will have the best long term gains. When business activity is good both have good returns. Don't want to get too complex.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by GerryL » Sat Jun 29, 2019 1:47 pm

My investing goal is to have ENOUGH for a comfortable and secure retirement. My simple 60/40 portfolio has gotten me there … and beyond. I have no need to try to get MORE, especially not at the cost of more complexity. So, yeah, maybe I could tweak my portfolio and get a little more -- or not -- it's not worth it to me.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Carol88888 » Sat Jun 29, 2019 2:51 pm

I think you might be cherry picking the period to back test in regards to the permanent portfolio. It seemed to do well 2005-2019 because that coincided with a period that gold did unusually well.

Take a look at PRPHX, a fund set up like the permanent portfolio. Over a ten-year period it delivered a dismal 3.83%. Morningstar gives it 1 star.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by longinvest » Sat Jun 29, 2019 3:35 pm

Nowizard wrote:
Sat Jun 29, 2019 9:56 am
How do others determine the degree to which simplicity and returns interact?
I know that because it's invested into broad total-markets, my portfolio will only have average returns, matching those of these markets minus a tiny fee and a small tracking error. They'll never be spectacular returns, not on the positive side nor on the negative side.

My wife and I have chosen to put our entire portfolio into an all-in-one globally-diversified balanced index Vanguard ETF (VBAL) similar to the LifeStategy Moderate Growth Fund. It's a 60/40 global stocks/bonds portfolio with a Canadian home bias. It invests into over 25,000 distinct securities.

Using an all-in-one investment is really awesome. We don't have to worry about rebalancing, and we never get tempted to overweight or underweight some market segment based on the lastest threads in the Theory forum. :wink:
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Ben Mathew » Sat Jun 29, 2019 3:39 pm

patrick013 wrote:
Sat Jun 29, 2019 1:33 pm
Ben Mathew wrote:
Sat Jun 29, 2019 1:19 pm
Focusing on value vs growth as an example, one of two things will happen over your investing horizon:

1. Growth > Total > Value
2. Value > Total > Growth

If you bet on total, you know for sure that you'll come in second. That's not a bad place to be. You don't know what your absolute returns will be, but you at least know it won't be as bad as it could have been. There's some security in that.

I personally think (2) is more likely, so I've bet on value. But if (1) happens, I'd be more than a little bummed. It's a risk I'm taking.
Indexes include growth and value for a reason. Growth in revenues and earnings greater than the mean for good markets. Value for stability but less growth in average or slow markets. It has gone back and forth between the 2 for decades which will have the best long term gains. When business activity is good both have good returns. Don't want to get too complex.
Value and growth are typically viewed as opposite ends of a spectrum (high P/E vs low P/E or high P/B vs low P/B). Yes, funds might not stick to that definition. If you prefer a more complex multidimensional definition of value and growth, you can replace "value" and "growth" in my statement above with "high P/E" vs "low P/E" or "high P/B" vs. "low P/B". That should hopefully clarify the point I was trying to make, which was that whatever subset you're invested in, it will either be ahead or behind the subset you're not invested in. Total will always be in the middle of the two.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Nowizard » Sat Jun 29, 2019 4:12 pm

Thanks for the responses. It seems that a common thought is that simplicity is in itself a very worthwhile goal as long as it produces adequate returns, a logical conclusion or that chasing returns might be an issue. That is possible, but our approach started long before the three-fund was discussed. Definitely, not picking on it and could have used other common portfolios to illustrate the concept without mentioning personal returns.

Tim

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by KyleAAA » Sat Jun 29, 2019 5:09 pm

In 2019, 6 funds is not measurably more complex than 3 funds. They are both trivial to maintain.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Fallible » Sat Jun 29, 2019 6:28 pm

JoMoney wrote:
Sat Jun 29, 2019 12:41 pm
We really don't know what the future returns of the broad-market will be, but by holding it we know precisely that our return will be the same as the dollar-weighted average of the market. People like to focus on returns, but that's probably the least of all the dimensions of investing within our control. The assets that might have the most potential for higher returns will inevitably have higher potential for lower returns too. The more someone focuses on higher returns the more unpredictable the outcome will be along the outcome of potential returns. This is more than just some sophisticated "complexity", it's chaos.

The "simplicity" of the Three Fund portfolio accepts the markets return (which few will beat) and puts the focus back on elements we have more meaningful control of, like exposure to risk, the costs/expenses of our portfolio, our own behavior, the time/duration of investment horizon and mapping that to the risks we're willing to take.
The case for simplicity, simply stated. :thumbsup
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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Tdubs » Sat Jun 29, 2019 8:22 pm

And the best portfolio is . . . . just five funds. Not much more complex than the three fund.

https://portfoliocharts.com/portfolio/golden-butterfly/

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by JustinR » Sat Jun 29, 2019 9:28 pm

Nowizard wrote:
Sat Jun 29, 2019 9:56 am
The many threads on the Three-Fund portfolio are very persuasive, and the greatest exponent is definitely one of, if not the greatest, contributor to this forum. The idea of simplicity appeals in many ways, particularly as we age and as one of us is much more involved in our investment decisions than the other, topics I suspect affect many posters. We use the Three-fund portfolio as a guide for two reasons: 1. It's simplicity allows a ready comparison of returns for stock and bond percentages with a more complex portfolio, 2. It allows a comparison with other portfolios for asset returns. In our case, we have a portfolio that contains six funds, and our returns have exceeded that of the Three-Fund portfolio by an average of 1.4% annually over more than the past decade. That has "justified" our more complex portfolio from our perspective. How do others determine the degree to which simplicity and returns interact? In our case we strive toward the simplest portfolio with the greatest return in a 60/40 portfolio.

Tim
There are 1-fund portfolios that beat the 3-fund portfolio and whatever your portfolio is.

You're not doing anything special and your extra funds are unlikely to achieve anything over the simpler portfolios in the long run.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by retiredflyboy » Sat Jun 29, 2019 10:34 pm

Total stock market and total bond. 2 fund portfolio for me.
Facts are stubborn things. Everything works until it doesn’t.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by KlangFool » Sat Jun 29, 2019 10:37 pm

OP,

I do not believe the 3 funds-portfolio is simple enough. It requires rebalancing. Many people are incapable of doing that. Most people should start and stay with one fund portfolio like the target retirement and/or the life strategy funds.

KlangFool

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by TomCat96 » Sat Jun 29, 2019 11:04 pm

1 fund portfolio. Special "degenerate" case of the three fund portfolio.

Superior returns to 3 fund portfolio. Riskier than three fund portfolio.
Dependent on financial stability, and both ability and willingness to take risk.

Unlike others. I find no special benefit to "simplicity."
Simplicity is not a goal for me, returns are.

I am not a boglehead because I found a new dogma I want to adopt for life. I am a boglehead because my independent analysis has come to the same conclusions.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by fennewaldaj » Sat Jun 29, 2019 11:26 pm

My portfolio has a lot of funds(~45) at the moment. This is partially because I have a merriman style sliced portfolio but also due to having a bunch of different accounts and ending up using multiple funds for the same allocation (like small cap value). I also ended up with all three share classes of FTSE all world ex US small cap, two S+P 600 value funds, two share classes of vanguard total stock, both the etf and mutual fund share class of schwab fundamental indexes, ect. That said I can manually input all of my information into a spreadsheet in ~30 minutes so it really is not hard to manage at all. I do intend to simplify things significantly when older by consolidating all the accounts (and thus using only 1 fund for each allocation) and reducing the number of sub allocations a bit

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by klaus14 » Sat Jun 29, 2019 11:44 pm

Vulcan wrote:
Sat Jun 29, 2019 12:45 pm
AerialWombat wrote:
Sat Jun 29, 2019 10:11 am
I think the 3-fund portfolio is a great baseline. For most people that are employed by somebody else, have a family, and/or don’t have the interest in learning how to manage something any more complex, I think the three fund is the simplest and best approach.
With the advent of Admiral shares of Total World, the "simplest and best approach" is 2-fund.
I agree. VT/BND should be the baseline. Life Strategy is not tax efficient and also you can't adjust stock/bond ratio finely.

VT/BND also has sufficient home bias since bonds are USD only.

You can have marginal gains over VT/BND but unless you enjoy portfolio theory, it's not worth it.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by trueblueky » Sun Jun 30, 2019 6:28 am

KlangFool wrote:
Sat Jun 29, 2019 10:37 pm
OP,

I do not believe the 3 funds-portfolio is simple enough. It requires rebalancing. Many people are incapable of doing that. Most people should start and stay with one fund portfolio like the target retirement and/or the life strategy funds.

KlangFool
Since there is no tax advantage to rebalancing tax-deferred or Roth accounts, why not one-fund there (if fees are low enough), then three-fund the taxable account to.take advantage of foreign tax credit and loss harvesting opportunities?

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Dottie57 » Sun Jun 30, 2019 7:52 am

trueblueky wrote:
Sat Jun 29, 2019 1:02 pm
Dottie57 wrote:
Sat Jun 29, 2019 12:14 pm
Interesting to see midcap CAGR as the highest during this period in the chart.
However, more than half the years midcap finished between large and small, as I would intuit.
Looking at this long term - buy and hold.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Dottie57 » Sun Jun 30, 2019 7:53 am

patrick013 wrote:
Sat Jun 29, 2019 1:12 pm
trueblueky wrote:
Sat Jun 29, 2019 1:02 pm
Dottie57 wrote:
Sat Jun 29, 2019 12:14 pm
Interesting to see midcap CAGR as the highest during this period in the chart.
However, more than half the years midcap finished between large and small, as I would intuit.
And good old bonds had more highest return years than mid cap. :)
Looking at this long term - buy and hold.

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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by BigJohn » Sun Jun 30, 2019 8:13 am

Here’s the questions I asked myself...

1) Do I really need (not want) the potentially higher return? For me the answer was “no”. If history is any guide, the market return of my portfolio should be more than enough to fund a comfortable retirement. In fact, since higher return also means higher risk, I view simplicity as a more sure bet for a worry free retirement.

2) Am I 100% sure that I (or a surviving spouse) will always be able to manage well the extra complexity? For me the answer was “no”. I could now but anyone who thinks they are immune from cognitive decline or worse, dementia, is only fooling themselves. Also, while no longer an issue for me since my wife passed away, a lot of spouses would struggle with desire and understanding needed to manage complexity.

3) Do my heirs (children) really get benefit from the potentially higher return? For me the answer was again “no”. They might get a bit more but they also might get a bit less depending on if/when the risks show up vs when they inherit. In addition, all are independent and taking care of themselves so any inheritance is just lagniappe.

Based on these answer, I put away a lifelong desire for “more” and decided that a move to simple was a much better retirement plan for me. I recognize and accept what I might be giving up but I have peace of mind and sleep well at night. However, everyone’s situation is going to be slightly different so the answers and decisions may be different as well.

KlangFool
Posts: 13257
Joined: Sat Oct 11, 2008 12:35 pm

Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by KlangFool » Sun Jun 30, 2019 8:14 am

Dottie57 wrote:
Sun Jun 30, 2019 7:52 am
trueblueky wrote:
Sat Jun 29, 2019 1:02 pm
Dottie57 wrote:
Sat Jun 29, 2019 12:14 pm
Interesting to see midcap CAGR as the highest during this period in the chart.
However, more than half the years midcap finished between large and small, as I would intuit.
Looking at this long term - buy and hold.
Dottie57,

Minor correction.

Buy, hold, and rebalance.

KlangFool

Dottie57
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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Dottie57 » Sun Jun 30, 2019 8:19 am

KlangFool wrote:
Sun Jun 30, 2019 8:14 am
Dottie57 wrote:
Sun Jun 30, 2019 7:52 am
trueblueky wrote:
Sat Jun 29, 2019 1:02 pm
Dottie57 wrote:
Sat Jun 29, 2019 12:14 pm
Interesting to see midcap CAGR as the highest during this period in the chart.
However, more than half the years midcap finished between large and small, as I would intuit.
Looking at this long term - buy and hold.
Dottie57,

Minor correction.

Buy, hold, and rebalance.

KlangFool
Yes. My main point is to not look at one year returns but look at longer term. I was surprised at CAGR of mid-cap.

GLState
Posts: 192
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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by GLState » Sun Jun 30, 2019 9:41 am

Carol88888 wrote:
Sat Jun 29, 2019 2:51 pm
I think you might be cherry picking the period to back test in regards to the permanent portfolio. It seemed to do well 2005-2019 because that coincided with a period that gold did unusually well.

Take a look at PRPHX, a fund set up like the permanent portfolio. Over a ten-year period it delivered a dismal 3.83%. Morningstar gives it 1 star.
I wasn't cherry picking, nor promoting the Permanent Portfolio ... I simply used all of the data available on PortfolioVisualizer as example portfolios taking into account "risk" rather than just return. Many are optimizing their portfolios and their thinking based on the last ten years. Someday risk will come calling asking for payment.
In a previous post, I stated that all of the data came from PortfolioVisualizer so others could check the portfolios, funds, and dates of their choosing.

The PRPHX fund (Permanent Portfolio C) has a very short history and during that short time has not followed THE Permanent Portfolio very well... PPRHX has had much lower returns and higher standard deviation. Check it out on PV. PRPHX also has an ER of 1.84% and 1% deferred load. It is not Harry Browne's Permanent Portfolio.

txaggie
Posts: 7
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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by txaggie » Sun Jun 30, 2019 9:44 pm

patrick013 wrote:
Sat Jun 29, 2019 11:57 am
The thing I don't care for with the 3 fund is the Intl AA. How long do we have to listen to statistics about the low returns for Intl ?

The below link is my idea for a cash flow portfolio in a non-crash market. One of four assets to withdraw from even in a bad market with the TRSY AA. You may get more long term return from micro-caps or SCV but for money every year these choices seem robust. So I would withdraw primarily from the index which has the highest return for the year end.

You could add micro-caps or Intl or SCV or any other factor(s) separately but general indexes have these options invested in as well.

No books here just another chart.
Image
This chart is very interesting. Could you point me to the ticker symbols for the Mid Cap, Small Cap, and Treasury 10 returns that you used to build this chart? I found the Large Cap total returns that matched the chart by looking up the Vanguard 500 Index Fund Investor Shares (VFINX) at https://finance.yahoo.com/quote/vfinx/performance/. Could you point me to the data source for the other 3 columns?

Darwin
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Location: California

Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by Darwin » Sun Jun 30, 2019 10:45 pm

JoMoney wrote:
Sat Jun 29, 2019 12:41 pm
We really don't know what the future returns of the broad-market will be, but by holding it we know precisely that our return will be the same as the dollar-weighted average of the market. People like to focus on returns, but that's probably the least of all the dimensions of investing within our control. The assets that might have the most potential for higher returns will inevitably have higher potential for lower returns too. The more someone focuses on higher returns the more unpredictable the outcome will be along the outcome of potential returns. This is more than just some sophisticated "complexity", it's chaos.

The "simplicity" of the Three Fund portfolio accepts the markets return (which few will beat) and puts the focus back on elements we have more meaningful control of, like exposure to risk, the costs/expenses of our portfolio, our own behavior, the time/duration of investment horizon and mapping that to the risks we're willing to take.
Very well said.
No planet, no business. Earth bats last.

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patrick013
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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by patrick013 » Mon Jul 01, 2019 11:29 am

txaggie wrote:
Sun Jun 30, 2019 9:44 pm
patrick013 wrote:
Sat Jun 29, 2019 11:57 am
The thing I don't care for with the 3 fund is the Intl AA. How long do we have to listen to statistics about the low returns for Intl ?

The below link is my idea for a cash flow portfolio in a non-crash market. One of four assets to withdraw from even in a bad market with the TRSY AA. You may get more long term return from micro-caps or SCV but for money every year these choices seem robust. So I would withdraw primarily from the index which has the highest return for the year end.

You could add micro-caps or Intl or SCV or any other factor(s) separately but general indexes have these options invested in as well.

No books here just another chart.
Image
This chart is very interesting. Could you point me to the ticker symbols for the Mid Cap, Small Cap, and Treasury 10 returns that you used to build this chart? I found the Large Cap total returns that matched the chart by looking up the Vanguard 500 Index Fund Investor Shares (VFINX) at https://finance.yahoo.com/quote/vfinx/performance/. Could you point me to the data source for the other 3 columns?
https://www.portfoliovisualizer.com/bac ... total3=100

These are supposed to correspond to CRSP indexes which VG uses for it's general indexes.

It's hard to find 30 years of data so it's nice that PV has the data built-in.

The 4 funds I used have good return and lower volatility plus a ladder (TRSY 10) if I want to go long term on bonds someday. See the metrics on the info tab.
age in bonds, buy-and-hold, 10 year business cycle

txaggie
Posts: 7
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Re: Simplicity (Three Fund) vs. Return (Slightly more complex):

Post by txaggie » Mon Jul 01, 2019 9:18 pm

Thank you Patrick. Great info.

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