A low-cost 5 fund Boglehead portfolio

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GermanDoc
Posts: 13
Joined: Tue Sep 10, 2019 4:48 am

Re: A low-cost 5 fund Boglehead portfolio

Post by GermanDoc » Tue Sep 24, 2019 4:16 am

Really enjoy reading your discussion here!
Opinion from a Non-US investor on the 'missing' developed country large cap stocks:
One argument is that correlation is high between the US and other developed markets.
Another argument is that the US market has outperformed other developed markets over a long period.
Both is true for sure, but I think they contradict each other a bit.
No non us stocks necessary because they behave the same, or no non us stocks because they did (and will) behave differently (worse)?
Several of the biggest companies are young US tech stocks, they were a major contributor to the outperformence over foreign stocks.
While I think it's not unlikely the next big thing is going to happen in the US aswell, what if some Newzeelander lands a big shot on AI or something similar and over the next ten years his company grows bigger than Google and Facebook combined?
I want the broadest coverage of the markets that can be had for little fees.

Regarding research: there are some publications with high quality data on emerging markets USD government bonds as a unique source of risk and return.

My 5 fund portfolio looks like this: (no tickers it's all weird EU ETFs)

40% total developed world large and mid cap
15% total developed world small cap
15% emerging markets stocks
10% emerging markets USD government bonds

20% long term government bonds


5 funds - all backed by research and boglehead compliant :beer

When I move towards a more conservative AA I will add short term bonds. I will not be holding more than 20% in long term.
Allocating 25% to EM in some way needs a bit of confidence in these countries. I gained that confidence by living and travelling in these countries. The people have a more fierce drive to improve their wealth and the live of their children.



What are your thoughts on my AA?

PS: most expensive fund is the vanguard EM stock fund with 0,25%

lassevirensghost
Posts: 96
Joined: Mon May 07, 2018 5:33 am

Re: A low-cost 5 fund Boglehead portfolio

Post by lassevirensghost » Tue Sep 24, 2019 7:27 am

GermanDoc wrote:
Tue Sep 24, 2019 4:16 am


My 5 fund portfolio looks like this: (no tickers it's all weird EU ETFs)

40% total developed world large and mid cap
15% total developed world small cap
15% emerging markets stocks
10% emerging markets USD government bonds

20% long term government bonds


5 funds - all backed by research and boglehead compliant :beer

When I move towards a more conservative AA I will add short term bonds. I will not be holding more than 20% in long term.
Allocating 25% to EM in some way needs a bit of confidence in these countries. I gained that confidence by living and travelling in these countries. The people have a more fierce drive to improve their wealth and the live of their children.



What are your thoughts on my AA?

PS: most expensive fund is the vanguard EM stock fund with 0,25%
Are those blend index funds or value tilted, GermanDoc?

Also, would still love to see a distilled 3 fund version of this vineviz portfolio.
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

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vineviz
Posts: 5391
Joined: Tue May 15, 2018 1:55 pm

Re: A low-cost 5 fund Boglehead portfolio

Post by vineviz » Tue Sep 24, 2019 7:40 am

lassevirensghost wrote:
Mon Sep 23, 2019 10:11 pm
Vineviz,

If you had to reduce this to three funds what would those three funds be?
I don't think the 5 fund portfolios mentioned in the original post could be easily reduced to a 3-fund portfolio without sacrificing the superior diversification relative to traditional 3- fund portfolios that I was trying to achieve.

That said, I do view a traditional 3-fund portfolio similar to the following as a reasonable choice:
• iShares Core S&P Total US Stock Mkt ETF (ITOT)
• iShares Core MSCI Total Intl Stk ETF (IXUS)
• iShares 20+ Year Treasury Bond ETF (TLT)

For someone a little more risk-tolerant, the following combination would offer somewhat better diversification:
• Vanguard Total World Stock ETF (VT)
• Vanguard S&P Small-Cap 600 Value ETF (VIOV)
• Vanguard Long-Term Treasury ETF (VGLT)

If I had to invest in just three funds personally, I'd probably be a little more bold and use something like this:
• Vanguard US Multifactor ETF (VFMF)
• iShares Core MSCI Emerging Markets ETF (IEMG)
• SPDR Portfolio Long Term Treasury ETF (SPTL)
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

lassevirensghost
Posts: 96
Joined: Mon May 07, 2018 5:33 am

Re: A low-cost 5 fund Boglehead portfolio

Post by lassevirensghost » Tue Sep 24, 2019 7:58 am

vineviz wrote:
Tue Sep 24, 2019 7:40 am
lassevirensghost wrote:
Mon Sep 23, 2019 10:11 pm
Vineviz,

If you had to reduce this to three funds what would those three funds be?
I don't think the 5 fund portfolios mentioned in the original post could be easily reduced to a 3-fund portfolio without sacrificing the superior diversification relative to traditional 3- fund portfolios that I was trying to achieve.

That said, I do view a traditional 3-fund portfolio similar to the following as a reasonable choice:
• iShares Core S&P Total US Stock Mkt ETF (ITOT)
• iShares Core MSCI Total Intl Stk ETF (IXUS)
• iShares 20+ Year Treasury Bond ETF (TLT)

For someone a little more risk-tolerant, the following combination would offer somewhat better diversification:
• Vanguard Total World Stock ETF (VT)
• Vanguard S&P Small-Cap 600 Value ETF (VIOV)
• Vanguard Long-Term Treasury ETF (VGLT)

If I had to invest in just three funds personally, I'd probably be a little more bold and use something like this:
• Vanguard US Multifactor ETF (VFMF)
• iShares Core MSCI Emerging Markets ETF (IEMG)
• SPDR Portfolio Long Term Treasury ETF (SPTL)
Thank you much! I understand what you mean. I suppose it was a way of asking which of the funds were most important. Particularly, I was interested to see if you would be more inclined toward small value or multifactor. I hold IJS in an HSA but have been toying with the idea of LRGF. The new Avantis ETFs look interesting too.
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

GermanDoc
Posts: 13
Joined: Tue Sep 10, 2019 4:48 am

Re: A low-cost 5 fund Boglehead portfolio

Post by GermanDoc » Tue Sep 24, 2019 9:19 am

lassevirensghost wrote:
Tue Sep 24, 2019 7:27 am
GermanDoc wrote:
Tue Sep 24, 2019 4:16 am


My 5 fund portfolio looks like this: (no tickers it's all weird EU ETFs)

40% total developed world large and mid cap
15% total developed world small cap
15% emerging markets stocks
10% emerging markets USD government bonds

20% long term government bonds


5 funds - all backed by research and boglehead compliant :beer

When I move towards a more conservative AA I will add short term bonds. I will not be holding more than 20% in long term.
Allocating 25% to EM in some way needs a bit of confidence in these countries. I gained that confidence by living and travelling in these countries. The people have a more fierce drive to improve their wealth and the live of their children.



What are your thoughts on my AA?

PS: most expensive fund is the vanguard EM stock fund with 0,25%
Are those blend index funds or value tilted, GermanDoc?

Also, would still love to see a distilled 3 fund version of this vineviz portfolio.
It's all blend funds, no value or other factor tilt beyond small and political risk (EM fund).

Products are
40% total developed world large and mid cap ( Vanguard FTSE Developed World ETF, ER: 0,18%)
15% total developed world small cap ( iShares MSCI World Small Cap ETF, ER: 0,35%)
15% emerging markets stocks ( Vanguard FTSE Emerging markets ETF, ER: 0,25%)
10% emerging markets USD government bonds (Vanguard USD Emerging Markets Government Bond ETF, 0,25%)

20% long term government bonds (Amundi ETF Government Bond EuroMTS Broad Investment Grade 10-15 ETF, ER 0,14%)

Indexfunds and ETFs are a bit more expensive in the EU...

international001
Posts: 1163
Joined: Thu Feb 15, 2018 7:31 pm

Re: A low-cost 5 fund Boglehead portfolio

Post by international001 » Wed Sep 25, 2019 9:47 am

But on the bright side, EU allows accumulation ETF. This tends to (over) compensate the higher ER
Did you look for funds?
How is it in Germany? Can you sell funds/ETFs from one to another w/o need to pay taxes (for rebalancing)?

GermanDoc
Posts: 13
Joined: Tue Sep 10, 2019 4:48 am

Re: A low-cost 5 fund Boglehead portfolio

Post by GermanDoc » Wed Sep 25, 2019 9:58 am

Yes, ACC is nice in some cases, regarding taxes. But the difference isn't big anymore.
I actually hold distributing, because it increases cashflow. And since I plan not to sell the stock part of my portfolio when buying a house, I can pay off the loan quicker.
(I like to leverage by taking a mortgage but then get rid of it asap)

We have to pay taxes when rebalancing.. 26,5% fixed no matter your invone tax.
A fund doesn't have to pay taxes when rebalancing though.
So I should set up my own fund of funds :wink:

international001
Posts: 1163
Joined: Thu Feb 15, 2018 7:31 pm

Re: A low-cost 5 fund Boglehead portfolio

Post by international001 » Thu Sep 26, 2019 10:00 am

GermanDoc wrote:
Wed Sep 25, 2019 9:58 am
Yes, ACC is nice in some cases, regarding taxes. But the difference isn't big anymore.
I actually hold distributing, because it increases cashflow. And since I plan not to sell the stock part of my portfolio when buying a house, I can pay off the loan quicker.
(I like to leverage by taking a mortgage but then get rid of it asap)

We have to pay taxes when rebalancing.. 26,5% fixed no matter your invone tax.
A fund doesn't have to pay taxes when rebalancing though.
So I should set up my own fund of funds :wink:

You are planing to use the income from your investments to pay out your mortgage? Make numbers, this is usually not a good idea if you are still young
If Germany taxes distributions same as capital gains, then it doesn't make much sense anyway to hold DIST. Just sell whatever whenever you need the cash.
If you are taxed 26.5% on distributions, that's huge if you can avoid it. For buy and hold investment, it decreases the exponential rate at which your investments growths

My strategy is to hold at least a portion of funds (50% of portfolio?) so you can rebalance tax free. If ETFs are much cheaper, and you plan to rebalance with new money, then you can reduce the portion of funds you need (25%?)

GermanDoc
Posts: 13
Joined: Tue Sep 10, 2019 4:48 am

Re: A low-cost 5 fund Boglehead portfolio

Post by GermanDoc » Thu Sep 26, 2019 3:52 pm

Acc used to have a big tax advantage over dist, but since 2018 that's not the case anymore.
I calculated it , the benefit of acc would be less than 1500€ over 10 years. That's a coffee a week. In addition I would have to trade more to rebalance. And I prefer the psychology of distributing.
Regarding the mortgage payments, I'll calculate it when I'm there. Will be relevant no earlier than 10 years, before that I don't know where my career will take me to.

ARoseByAnyOtherName
Posts: 364
Joined: Wed Apr 26, 2017 12:03 am

Re: A low-cost 5 fund Boglehead portfolio

Post by ARoseByAnyOtherName » Sun Nov 24, 2019 8:50 pm

Earlier in this thread someone posted a PV link going back to 2001, comparing this 5-fund to a typical Bogleheads 3-fund. Here's that comparison that also adds a third portfolio of 100% VTSMX (Vanguard Total Stock Market Index):
Link

From a starting point of 2001 the 5-fund beats 100% VTSMX by about 1.4% absolute CAGR. Eyeballing annual returns for this comparison, it looks like the 5-fund annual returns beat 100% VTSMX from around 2001 - 2010, while 100% VTSMX was either close to even or outperformed the 5-fund since then.

One of the things that's discussed a lot around here is the historical underperformance of International compared to the US market. The 5-fund has a heavy international component at 32% of total. But it looks like the International funds are what caused this portfolio to outperform 100% VTSMX in the 2000's, in some cases significantly.

Is this significantly biased by the starting point? I could have sworn someone posted a PortfolioVisualizer link for this portfolio that went back to 1991 or so but I can't find now. Does anyone have it?

international001
Posts: 1163
Joined: Thu Feb 15, 2018 7:31 pm

Re: A low-cost 5 fund Boglehead portfolio

Post by international001 » Mon Nov 25, 2019 2:43 pm

Risk adjusted, I would argue that US only did almost well as your portfolio. International improved a little because of uncorrelations.
https://www.portfoliovisualizer.com/bac ... bol7=VBMFX

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