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Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 1:19 pm
by Steadfast
Morse Code wrote:
Tue Jul 30, 2019 12:43 pm
Steadfast wrote:
Tue Jul 30, 2019 11:15 am
If I was doing this I'd use VFVA for the U.S. small value fund. Way smaller, way more valuey.

But, I'm not doing this.
VFVA median market cap, 6.0 billion. VIOV median market cap, 1.6 billion.
I stand corrected. Definitely more valuey though.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 1:23 pm
by vineviz
dorster wrote:
Tue Jul 30, 2019 12:49 pm
I was under the impression that it was usually better to increase equity exposure and use pure treasuries (VGLT or EDV) instead of investment-grade bonds. For example 84/16 Stocks/EDV instead of 80/20 Stocks/BLV.
I agree with you that the use of pure treasury funds would be superior in terms of diversification. The portfolios I presented were intended to be somewhat "middle-of-the-road" in terms of Boglehead philosophies about diversification in an attempt to avoid both the milquetoast approach of using a total bond market fund and the triggering effect of specifying a long-term Treasury fund.

In my personal portfolio, EDV is about 50% of my bond allocation and SPTL/PRUUX account for another 20% (primarily because of a 401k plan were PRUUX is the longest-term Treasury fund available). I've got a ragtag assortment of individual bonds that make up the rest.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 1:26 pm
by vineviz
KyleAAA wrote:
Tue Jul 30, 2019 12:30 pm
The only change I would make would be to use long term treasuries rather than the long term bond fund to make the portfolio slightly more efficient.
I would totally endorse that, and avoided making that recommendation in the OP primarily because my goal was to look for a middle ground with those who are passionate about total market approaches. But the portfolio would definitely be more efficient and better diversified with VGLT or EDV instead of BLV.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 2:01 pm
by Longtermgrowth
Another low cost Boglehead portfolio keeps running through my mind for those that don't want to tilt to value, or extremely to size, but do want the best exposure to international economies: VOO (Vanguard S&P 500 ETF) combined with VSS (Vanguard FTSE All-World ex-US Small-Cap ETF).

The idea is allocating everything total US market would have in small caps to international small instead, plus whatever more desired exposure to them.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 2:16 pm
by pdavi21
Why don't you include large developed?
Because, in my back-testing interval, it didn't diversify risk away from large US.
Why do you include large US?

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 2:45 pm
by james22
vineviz wrote:
Tue Jul 30, 2019 1:26 pm
...my goal was to look for a middle ground with those who are passionate about total market approaches.
Is there a middle ground though?

It seems to me one either believes the Larry Portfolio is more diversified or one does not.

I'd be curious who is swayed *just* enough by the arguments to adopt any "middle-of-the-road" approach.

I know many have tilted from their core TSM/TIM positions, which might be thought of similarly, but after the last decade there seem to be many threads questioning even the TIM position, much less SV/IS.

(I am sympathetic to the argument that it is different this time [that technology adoption rewards some companies disproportionately] and so one wouldn't want to give up LG exposure, but that is a different argument than being half-convinced by the financial research.)

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 3:14 pm
by vineviz
pdavi21 wrote:
Tue Jul 30, 2019 2:16 pm
Why don't you include large developed?
Because, in my back-testing interval, it didn't diversify risk away from large US.
Why do you include large US?
US total stock market funds are basically the cheapest way to buy market beta in bulk. If you're trying to build a portfolio with a weighted average ER under 0.1%, you look for deals where you can find them.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 3:18 pm
by pdavi21
vineviz wrote:
Tue Jul 30, 2019 3:14 pm
pdavi21 wrote:
Tue Jul 30, 2019 2:16 pm
Why don't you include large developed?
Because, in my back-testing interval, it didn't diversify risk away from large US.
Why do you include large US?
US total stock market funds are basically the cheapest way to buy market beta in bulk. If you're trying to build a portfolio with a weighted average ER under 0.1%, you look for deals where you can find them.
Except you are (arguably) tilting away from value by choosing VTI over VEA.
Latest 6 month ER's were .02% and .03%. Compared to over 0.1% for many of your other funds.
There would be a currency risk and different tax treatment for VEA, however.

EDIT: I should clarify, I don't think it is necessarily incorrect to exclude VEA/VXUS. I just worry that a portfolio like this (which needs to be held for a long time to have a high chance to pay off) needs an ironclad logical defense that will keep investors "staying the course".

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 3:29 pm
by vineviz
james22 wrote:
Tue Jul 30, 2019 2:45 pm
vineviz wrote:
Tue Jul 30, 2019 1:26 pm
...my goal was to look for a middle ground with those who are passionate about total market approaches.
Is there a middle ground though?

It seems to me one either believes the Larry Portfolio is more diversified or one does not.
You could be right.

Rather than thinking of it as being "half-convinced", however, I find it easier to think of it in terms of the many different behavioral traits that investors have.

Even fully rational investors may differ when it comes to things like risk aversion, regret aversion, status quo preference, default bias, action bias, and so forth. And any portfolio that is built with multiple constraints (e.g. diversified but low cost, factor exposed but long only, robust but only five funds) may very well not be optimal in ANY direction.

My portfolio doesn't look quite like the examples I provided, but I can definitely see that many people are looking for the middle ground in investing and elsewhere. How else would you explain the ubiquity of the Honda CR-V?

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 4:08 pm
by FlyingMoose
Why international-small but not international-value? (My starting point is the TrevH 4-fund thread)...

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 4:16 pm
by Wyodoc
FlyingMoose wrote:
Tue Jul 30, 2019 4:08 pm
Why international-small but not international-value? (My starting point is the TrevH 4-fund thread)...
One of his objectives was low cost. Hard to find low cost ETF for Intl small value. Wish there was.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 4:36 pm
by FlyingMoose
Wyodoc wrote:
Tue Jul 30, 2019 4:16 pm
FlyingMoose wrote:
Tue Jul 30, 2019 4:08 pm
Why international-small but not international-value? (My starting point is the TrevH 4-fund thread)...
One of his objectives was low cost. Hard to find low cost ETF for Intl small value. Wish there was.
Not international small-value. The TrevH portfolio uses 1/2 international-small and 1/2 international-value.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 4:55 pm
by Wyodoc
I won’t speak for Vineviz but are there low cost true value international ETFs? Also, I’m assuming EM provides better diversification for the cost (Not 100% about that statement)

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 5:01 pm
by vineviz
Wyodoc wrote:
Tue Jul 30, 2019 4:16 pm
FlyingMoose wrote:
Tue Jul 30, 2019 4:08 pm
Why international-small but not international-value? (My starting point is the TrevH 4-fund thread)...
One of his objectives was low cost. Hard to find low cost ETF for Intl small value. Wish there was.
True. There are some decent ex-US large cap value funds (I use HDEF in my portfolio, for instance), but the international SCV funds tend to be expensive or have questionable SCV exposure. Or both!

But part of the premise behind the model portfolios I presented is that you don't need to own an asset directly to the it provides exposure. I think mentioned this earlier, but the combination of VIOV, VSS, and VWO is fairly effective at "synthesizing" most of what a good ex-US large cap value fund would bring to the table.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 5:05 pm
by MoneyMarathon
MoneyMarathon wrote:
Mon Jul 29, 2019 10:33 pm
vineviz wrote:
Mon Jul 29, 2019 9:59 pm
If you added a dedicated large cap developed market fund as a sixth fund to the portfolio, for instance, it would add virtually no additional sources of unique risk or return. The five fund portfolio captures something like 99.4% of the variation in returns that the six fund portfolio would provide.
What's your opinion on the Vanguard International Dividend Appreciation ETF (VIGI)?

https://investor.vanguard.com/etf/profile/VIGI

Would it have the same issue?
Does anyone have an opinion on VIGI?

Would it add anything to this kind of slice and dice portfolio?

A factor regression seems to suggest it might have the "quality" factor.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 6:33 pm
by Huygens
vineviz wrote:
Tue Jul 30, 2019 1:23 pm
I agree with you that the use of pure treasury funds would be superior in terms of diversification. The portfolios I presented were intended to be somewhat "middle-of-the-road" in terms of Boglehead philosophies about diversification in an attempt to avoid both the milquetoast approach of using a total bond market fund and the triggering effect of specifying a long-term Treasury fund.
I apologize for the rudimentary questions: Why would treasury funds increase diversification in comparison to a long-term bond fund? And why would do you propose a long-term bond fund over the typical total bond market fund recommendation?

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 7:31 pm
by dbr
Huygens wrote:
Tue Jul 30, 2019 6:33 pm
vineviz wrote:
Tue Jul 30, 2019 1:23 pm
I agree with you that the use of pure treasury funds would be superior in terms of diversification. The portfolios I presented were intended to be somewhat "middle-of-the-road" in terms of Boglehead philosophies about diversification in an attempt to avoid both the milquetoast approach of using a total bond market fund and the triggering effect of specifying a long-term Treasury fund.
I apologize for the rudimentary questions: Why would treasury funds increase diversification in comparison to a long-term bond fund? And why would do you propose a long-term bond fund over the typical total bond market fund recommendation?
Long term treasuries are expected (hoped) to have the lowest correlation of returns with equities of all the normal options in bonds.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 8:02 pm
by Ferdinand2014
vineviz wrote:
Mon Jul 29, 2019 6:48 pm
I'm frequently asked, sometimes by private message, if it's possible to build a low-cost portfolio that is both consistent with the Bogleheads investment philosophy (e.g. simplicity, low-cost, broadly diversified, etc.) and makes use of advances in financial research that have taken place over the past forty years.

This is definitely possible.

In order to avoid potentially confusing people with the well-established 3 and 4 fund Boglehead portfolios, I thought it might be instructive to put forward an example 5 fund portfolio that ticks all the Bogleheads boxes. I know that others (e.g. Larry Swedroe and Rick Ferri ) have done this before, so nothing radically new here. Just a fresh discussion.

My goal was to keep expenses low (less than 0.10% if possible), rely on Vanguard-issued market-cap weighted index funds as much as possible, and to create a significantly more diversified portfolio than is possible using the the typical total market funds. As an example, this portfolio is 80% stocks and 20% bonds but could easily be made more or less conservative.

32.00% Vanguard Total Stock Market ETF (VTI)
16.00% Vanguard S&P Small-Cap 600 Value ETF (VIOV)
16.00% Vanguard FTSE All-Wld ex-US SmCp ETF (VSS)
16.00% Vanguard FTSE Emerging Markets ETF (VWO)
20.00% Vanguard Long-Term Bond ETF (BLV)

Some or all of these funds could be swapped out for funds from other issuers (though not all of equivalent portfolios are quite as cheap). For example:

32.00% iShares Core S&P Total US Stock Mkt ETF (ITOT)
16.00% iShares S&P Small-Cap 600 Value ETF (IJS)
16.00% iShares MSCI EAFE Small-Cap ETF (SCZ)
16.00% iShares Core MSCI Emerging Markets ETF (IEMG)
20.00% iShares Core 10+ Year USD Bond ETF (ILTB)

or

32.00% SPDR Portfolio Total Stock Market ETF (SPTM)
16.00% SPDR S&P 600 Small Cap Value ETF (SLYV)
16.00% SPDR S&P International Small Cap ETF (GWX)
16.00% SPDR Portfolio Emerging Markets ETF (SPEM)
20.00% SPDR Portfolio Long Term Treasury ETF (SPTL)

and so on.
32% FSKAX 0.015(Fido Total Stock Market)
16% FSSNX 0.025 (Fido Small Cap Index) (Small Cap value will be FIVSX and available soon)
16% FTIHX 0.060 (Fido Total International Index) (includes 12% small cap international)
16% FPADX 0.075 (Fido Emerging Market Index)
20% FNBGX 0.030 (Fido Long Term Treasury Bond Index)

Not my cup of tea, but for those interested in approximate Fido version and at low cost. Weighted average is 0.0364 ER

Re: A low-cost 5 fund Boglehead portfolio

Posted: Tue Jul 30, 2019 10:49 pm
by vineviz
Huygens wrote:
Tue Jul 30, 2019 6:33 pm
vineviz wrote:
Tue Jul 30, 2019 1:23 pm
I agree with you that the use of pure treasury funds would be superior in terms of diversification. The portfolios I presented were intended to be somewhat "middle-of-the-road" in terms of Boglehead philosophies about diversification in an attempt to avoid both the milquetoast approach of using a total bond market fund and the triggering effect of specifying a long-term Treasury fund.
I apologize for the rudimentary questions: Why would treasury funds increase diversification in comparison to a long-term bond fund? And why would do you propose a long-term bond fund over the typical total bond market fund recommendation?
It's a good question. There are three things that determine how much diversification and asset adds to a portfolio: the correlation of the asset with the rest of the portoflio, the volatility of the asset relative to the rest of the portfolio, and the weight of the asset in the portfolio.

The lower the correlation the better the diversification, and the higher the volatility the better the diversification.

As a result, long-term bonds offer more diversification to a stock portoflio than intermediate-term or short-term bonds do because the long-term bonds must be more volatile. And Treasury bonds offer more diversification than corporate bonds (or a total bond market fund) because their correlation with stocks must be lower.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 7:32 am
by Jmh04j
As a result, long-term bonds offer more diversification to a stock portoflio than intermediate-term or short-term bonds do because the long-term bonds must be more volatile. And Treasury bonds offer more diversification than corporate bonds (or a total bond market fund) because their correlation with stocks must be lower.
I am in my early 30’s and in accumulation mode. Current 3-fund asset allocation is 90/10 w/ 20% of my equity allocation towards total international. Would I get better diversification benefit switching from total bond to long term treasuries?

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 8:05 am
by james22
vineviz wrote:
Tue Jul 30, 2019 3:29 pm
I can definitely see that many people are looking for the middle ground in investing and elsewhere.
Maybe present the portfolio as a 'core-and-explore' variant then? More explicitly taking from both approaches?

I'm just afraid the proposed otherwise looks to be without conviction.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 11:57 am
by zonto
Jmh04j wrote:
Wed Jul 31, 2019 7:32 am
As a result, long-term bonds offer more diversification to a stock portoflio than intermediate-term or short-term bonds do because the long-term bonds must be more volatile. And Treasury bonds offer more diversification than corporate bonds (or a total bond market fund) because their correlation with stocks must be lower.
I am in my early 30’s and in accumulation mode. Current 3-fund asset allocation is 90/10 w/ 20% of my equity allocation towards total international. Would I get better diversification benefit switching from total bond to long term treasuries?
Yes. See: De-Risking and Diversification aren't the same thing..

Related discussions here:

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 12:51 pm
by international001
stan1 wrote:
Tue Jul 30, 2019 7:15 am

1/9 ISCF [formerly VINEX, this is in an IRA so I'll keep looking for better]
Are you sure?
https://www.portfoliovisualizer.com/bac ... total3=100

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 1:02 pm
by MoneyMarathon
vineviz wrote:
Mon Jul 29, 2019 6:48 pm
32.00% Vanguard Total Stock Market ETF (VTI)
16.00% Vanguard S&P Small-Cap 600 Value ETF (VIOV)
16.00% Vanguard FTSE All-Wld ex-US SmCp ETF (VSS)
16.00% Vanguard FTSE Emerging Markets ETF (VWO)
20.00% Vanguard Long-Term Bond ETF (BLV)
After reading Larry Swedroe's book on factor investing, I came away thinking that there was a better case for investing in quality and momentum than there was for small or value. I think VIGI is an interesting way to look for quality in international equity, but IQLT could take its place if that's not convincing or not diversified enough. I am also intrigued by the low volatility factor.

So, if talking about a portfolio like this:

40% MTUM (iShares Edge MSCI USA Momentum Fctr ETF)
20% VIGI (Vanguard Intl Div Apprec ETF, or IQLT for quality instead)
20% EEMV (iShares Edge MSCI Min Vol Emerg Mkts ETF)
20% VGLT (Vanguard Long-Term Treasury ETF)

What do you think? It looks for different factors, other than beta and term (which they both invest in), but it seems to have some of the same diversification advantages.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 1:04 pm
by MotoTrojan
stan1 wrote:
Mon Jul 29, 2019 8:58 pm
CJC000 wrote:
Mon Jul 29, 2019 8:30 pm
We're all in at Schwab. Do you mind making a similar portfolio with their ETF"s??
Thanks!
VTI -> SCHB
VIOV -> SLYV [no commission ETF list]

VWO -> SCHE
VSS -> SCHC
I would not hold SLYV in a taxable account.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 1:06 pm
by MotoTrojan
Vineviz, I would love to hear more about your exclusion of large-cap international (outside of EM I suppose).

Currently my core allocation is 55% Total US, 25% Total Int, 20% Small-value, and I also have some capital in leveraged risk-parity type portfolios (UPRO, TMF, EDV) but no bond exposure otherwise. I have always been intrigued by the idea of just holding my 25% International in small-cap or small/EM, but given the differences in US vs. Ex-US large-cap businesses I have never been fully convinced.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 1:30 pm
by Morse Code
I have almost exact portfolio with a few exceptions:

30% US Multi-Factor (VFMF)
10% Small Value (VBR)
35% Int'l Small (VSS)
5% Emerging Mkts (VWO)
20% Intermediate Term Treas. (VGIT)

Weighted ER .12

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 3:11 pm
by Wyodoc
Morse Code wrote:
Wed Jul 31, 2019 1:30 pm
I have almost exact portfolio with a few exceptions:

30% US Multi-Factor (VFMF)
10% Small Value (VBR)
35% Int'l Small (VSS)
5% Emerging Mkts (VWO)
20% Intermediate Term Treas. (VGIT)

Weighted ER .12
Same with me
35% US total market VTI
20% US small value VIOV/SLYV
20% Intl small SCZ (Most expensive fund. I've considered switching to SCHC or VSS but this fund has beaten those funds fairly handily over last 8yrs)
15% EM IEMG
10% Int term bond fund (limited due to options in 401k. No long term treasuries or bond fund)

Weighted ER 0.15

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 4:16 pm
by vineviz
MotoTrojan wrote:
Wed Jul 31, 2019 1:06 pm
Vineviz, I would love to hear more about your exclusion of large-cap international (outside of EM I suppose).
Essentially, the portfolio has enough exposure to developed markets large cap stocks (i.e. the US holdings of VTI) and large cap stocks in general (VWO is mostly large caps, as you notice) that adding more via a specific LC ex-US fund would actually reduce the level of diversification.

There are some exceptions among ex-US developed markets large cap funds, but no compelling ones among Vanguard ETFs in my opinion (a constraint I put on the first example portfolio in the OP).

My own portfolio have a much stronger domestic SCV tilt (my only US TSM or large-cap fund is about 3% of my portfolio, and only because of limited options in a 401k plan), so I use MSCI EAFE High Dividend Yield Equity ETF (HDEF) instead of an international small cap fund.

I think if someone wanted to replace VSS in the example portfolios with a large cap fund , one of the low volatility/minimum variance funds might be interesting choices as a way of bumping up the factor diversification a bit. Examples would be:

Invesco S&P International Developed Low Volatility ETF (IDLV) • 0.25% ER
iShares Edge MSCI Min Vol EAFE ETF (EFAV) • 0.20% ER
Vanguard Global Minimum Volatility Fund (VMNVX) • 0.15% ER [reduce VTI, since this includes US stocks]

These are all more expensive than VSS and would push the portfolio away from small cap exposure, of course.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 4:22 pm
by MotoTrojan
vineviz wrote:
Wed Jul 31, 2019 4:16 pm
MotoTrojan wrote:
Wed Jul 31, 2019 1:06 pm
Vineviz, I would love to hear more about your exclusion of large-cap international (outside of EM I suppose).
Essentially, the portfolio has enough exposure to developed markets large cap stocks (i.e. the US holdings of VTI) and large cap stocks in general (VWO is mostly large caps, as you notice) that adding more via a specific LC ex-US fund would actually reduce the level of diversification.

There are some exceptions among ex-US developed markets large cap funds, but no compelling ones among Vanguard ETFs in my opinion (a constraint I put on the first example portfolio in the OP).

My own portfolio have a much stronger domestic SCV tilt (my only US TSM or large-cap fund is about 3% of my portfolio, and only because of limited options in a 401k plan), so I use MSCI EAFE High Dividend Yield Equity ETF (HDEF) instead of an international small cap fund.

I think if someone wanted to replace VSS in the example portfolios with a large cap fund , one of the low volatility/minimum variance funds might be interesting choices as a way of bumping up the factor diversification a bit. Examples would be:

Invesco S&P International Developed Low Volatility ETF (IDLV) • 0.25% ER
iShares Edge MSCI Min Vol EAFE ETF (EFAV) • 0.20% ER
Vanguard Global Minimum Volatility Fund (VMNVX) • 0.15% ER [reduce VTI, since this includes US stocks]

These are all more expensive than VSS and would push the portfolio away from small cap exposure, of course.
So with my core portfolio of 55% Total US, 25% Total Int, 20% domestic SCV if I just wanted to make one change and wanted to stay with broad indices, splitting the 25% Total Int with VWO & VSS would be a prudent choice in your eyes?

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 6:18 pm
by vineviz
MotoTrojan wrote:
Wed Jul 31, 2019 4:22 pm
So with my core portfolio of 55% Total US, 25% Total Int, 20% domestic SCV if I just wanted to make one change and wanted to stay with broad indices, splitting the 25% Total Int with VWO & VSS would be a prudent choice in your eyes?
I think so, yes.

Over the past 10 years, the VTI/VBR(?)/VWO/VSS portfolio would have been marginally more volatile but also marginally higher return, and certainly better diversified.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 6:23 pm
by MotoTrojan
vineviz wrote:
Wed Jul 31, 2019 6:18 pm
MotoTrojan wrote:
Wed Jul 31, 2019 4:22 pm
So with my core portfolio of 55% Total US, 25% Total Int, 20% domestic SCV if I just wanted to make one change and wanted to stay with broad indices, splitting the 25% Total Int with VWO & VSS would be a prudent choice in your eyes?
I think so, yes.

Over the past 10 years, the VTI/VBR(?)/VWO/VSS portfolio would have been marginally more volatile but also marginally higher return, and certainly better diversified.
Currently holding the MF equivalent of VBR, yes. My preference is VIOV (S&P600) but my Roth is entirely dedicated elsewhere and I don't foresee that changing anytime soon. If I start investing via taxable again I would likely hold some SCV there.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 7:17 pm
by stan1
MotoTrojan wrote:
Wed Jul 31, 2019 1:04 pm
stan1 wrote:
Mon Jul 29, 2019 8:58 pm
CJC000 wrote:
Mon Jul 29, 2019 8:30 pm
We're all in at Schwab. Do you mind making a similar portfolio with their ETF"s??
Thanks!
VTI -> SCHB
VIOV -> SLYV [no commission ETF list]

VWO -> SCHE
VSS -> SCHC
I would not hold SLYV in a taxable account.
Someone posted that State Street has "fixed" the capital gains distributions on SLYV and indeed it did not throw off distributions in 2018 as it has in most other years since inception. I can't confirm anything else and would want more time to pass. However the lower expense ratio and no commission trade at Schwab may make it a wash. Agree that just out of principle I would not want to own an ETF that threw off capital gains every year. Then again I see no reason to use Schwab as a brokerage for anything so its all notional advice from me. I left them 15+ years ago when they started charging me for a Schwab One account and have never looked back.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Jul 31, 2019 10:56 pm
by D-Dog
vineviz wrote:
Mon Jul 29, 2019 6:48 pm
I'm frequently asked, sometimes by private message, if it's possible to build a low-cost portfolio that is both consistent with the Bogleheads investment philosophy (e.g. simplicity, low-cost, broadly diversified, etc.) and makes use of advances in financial research that have taken place over the past forty years.

This is definitely possible.

In order to avoid potentially confusing people with the well-established 3 and 4 fund Boglehead portfolios, I thought it might be instructive to put forward an example 5 fund portfolio that ticks all the Bogleheads boxes. I know that others (e.g. Larry Swedroe and Rick Ferri ) have done this before, so nothing radically new here. Just a fresh discussion.

My goal was to keep expenses low (less than 0.10% if possible), rely on Vanguard-issued market-cap weighted index funds as much as possible, and to create a significantly more diversified portfolio than is possible using the the typical total market funds. As an example, this portfolio is 80% stocks and 20% bonds but could easily be made more or less conservative.

32.00% Vanguard Total Stock Market ETF (VTI)
16.00% Vanguard S&P Small-Cap 600 Value ETF (VIOV)
16.00% Vanguard FTSE All-Wld ex-US SmCp ETF (VSS)
16.00% Vanguard FTSE Emerging Markets ETF (VWO)
20.00% Vanguard Long-Term Bond ETF (BLV)
What do you think about using low volatility funds like SMLV and EEMV in place of VIOV and VWO? Is this a reasonable way to further reduce portfolio volatility, or would the lower volatility of these funds reduce the diversification benefits you might otherwise get from small cap and emerging markets asset classes?

Re: A low-cost 5 fund Boglehead portfolio

Posted: Thu Aug 01, 2019 2:00 am
by HawkeyePierce
klaus14 wrote:
Tue Jul 30, 2019 11:46 am
vineviz wrote:
Mon Jul 29, 2019 6:48 pm

32.00% Vanguard Total Stock Market ETF (VTI)
16.00% Vanguard S&P Small-Cap 600 Value ETF (VIOV)
16.00% Vanguard FTSE All-Wld ex-US SmCp ETF (VSS)
16.00% Vanguard FTSE Emerging Markets ETF (VWO)
20.00% Vanguard Long-Term Bond ETF (BLV)
isn't this too heavy on emerging equities? especially considering VSS also has 20% EM. i think even in your own portfolio you aimed at only 40% of INT for EM.

-----

I think this portfolio is great, but can be enhanced even further by:
- moving 8% of VTI to gold (GLDM). Gold as a portfolio insurance. In addition, now stocks are world market cap split between US and ExUS but portfolio is still home biased because of USD bonds.
- moving 8% of VWO to Emerging Debt (LEMB). Now you have much better geographic diversity (no more China/Taiwan concentration) and much lower volatility from EM.
- moving BLV to EDV + LTPZ for better efficiency (EDV even longer term) and inflation protection.

Now it becomes:

24.00% Vanguard Total Stock Market ETF (VTI)
16.00% Vanguard S&P Small-Cap 600 Value ETF (VIOV)
16.00% Vanguard FTSE All-Wld ex-US SmCp ETF (VSS)
8.00% Vanguard FTSE Emerging Markets ETF (VWO)
8.00% iShares J.P. Morgan EM Local Currency Bond ETF (LEMB) (ER: 0.30%)
10.00% Vanguard Extended Duration Treasury ETF (EDV) (ER: 0.07%)
10.00% PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ) (ER: 0.20%)
8% SPDR® Gold MiniSharesSM Trust (ER: 0.18%)

Slightly more complex/expensive, but gold, EM Debt and TIPS are different sources of return, risk and protection that are not provided by original portfolio. So in that sense, this version is more diversified.

I should also add that best way to make this portfolio more conservative is to move funds from stocks to CDs. CDs are only available to small investors, as safe as treasuries and offers much better return. One more small improvement is to use IBonds, to the extend allowed, instead of TIPS when they offer better rates (like right now)
The use of EM bonds here is interesting. Vanguard has a paper that argues replacing a slice of equities with EM debt improves risk-adjusted return:

https://personal.vanguard.com/pdf/ISGEMB.pdf

Their analysis used USD-denominated bonds rather than local currency bonds, however. They include a graph in that paper showing that USD bonds have performed better than local bonds (caveat past performance etc). In that light, this portfolio could be viewed as a 72/28 portfolio.

Vanguard clearly prefers USD bonds given that they offer an EM USD bond fund but not an equivalent local currency fund. That fund (VWOB) and the local currency fund proposed here have the same ER (0.3%). I can see arguments in both directions. VWOB has a longer average maturity than LEMB (12 year weight average vs 7).

Re: A low-cost 5 fund Boglehead portfolio

Posted: Thu Aug 01, 2019 2:35 am
by bluquark
HawkeyePierce wrote:
Thu Aug 01, 2019 2:00 am
The use of EM bonds here is interesting. Vanguard has a paper that argues replacing a slice of equities with EM debt improves risk-adjusted return:

https://personal.vanguard.com/pdf/ISGEMB.pdf
I am currently dabbling in EM bonds and plan to increase their portion of my portfolio to 10% soon. I like the idea of diversifying into countries like Mexico, Russia, Saudi Arabia, Indonesia etc which have a vanishingly small presence in investible equity. I like that the low correlation should improve the technical qualities of my portfolio. And most of all I like that the government bonds can be bailed out by the IMF and that the corporate bonds have junk-bond yields even when they are rated as investment-grade by the credit rating agencies.

Frankly, the asset class seems too good to be true. It's either that home-bias and bonds-are-for-safety bias are so strong that investors are turning up their noses at an obviously fantastic diversifier, or it is I who is the fool, I am reaching for yield and investing on past returns just as credit risks in these economies are coming to a boil, and the smart money is wisely staying away.

Unfortunately, the Vanguard paper does nothing to assuage my concern. It is mindless backtesting over a 20-year-period, telling me as I can tell from a single glance at an EM bond total return chart that I would've done well holding it it in the recent past.

That said, the fundamental arguments in favor seem strong and the trepidation I have about it is of the same nature that I have with equity asset classes -- not surprising since it's half-equity-like -- so I do plan to go to 10% of portfolio weight and hold the course from there, just not go any higher than 10%.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Thu Aug 01, 2019 2:38 am
by klaus14
bluquark wrote:
Thu Aug 01, 2019 2:35 am
HawkeyePierce wrote:
Thu Aug 01, 2019 2:00 am
The use of EM bonds here is interesting. Vanguard has a paper that argues replacing a slice of equities with EM debt improves risk-adjusted return:

https://personal.vanguard.com/pdf/ISGEMB.pdf
I am currently dabbling in EM bonds and plan to increase their portion of my portfolio to 10% soon. I like the idea of diversifying into countries like Mexico, Russia, Saudi Arabia, Indonesia etc which have a vanishingly small presence in investible equity. I like that the low correlation should improve the technical qualities of my portfolio. And most of all I like that the government bonds can be bailed out by the IMF and that the corporation bonds have junk-bond yields even when they are rated as investment-grade by the credit rating agencies.

Frankly, the asset class seems too good to be true. It's either that home-bias and bonds-are-for-safety bias are so strong that investors are turning up their noses at an obviously fantastic diversifier, or it is I who is the fool, I am reaching for yield and investing on past returns just as credit risks in these economies are coming to a boil, and the smart money is wisely staying away.

Unfortunately, the Vanguard paper does nothing to assuage my concern. It is mindless backtesting over a 20-year-period, telling me as I can tell from a single glance at an EM bond total return chart that I would've done well holding it it in the recent past.

That said, the fundamental arguments in favor seem strong and the trepidation I have about it is of the same nature that I have with equity asset classes -- not surprising since it's half-equity-like -- so I do plan to go to 10% of portfolio weight and hold the course from there, just not go any higher than 10%.
I also do 10% EM Debt (in addition to 10% EM Equity).
It's 5% VEGBX + 5% LEMB.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Thu Aug 01, 2019 2:51 am
by bluquark
Nice! We think alike, I was thinking of going with 5% VEGBX and 5% VWOB. I will investigate your suggestion of LEMB instead of VWOB for the EM government exposure.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Thu Aug 01, 2019 2:54 am
by klaus14
bluquark wrote:
Thu Aug 01, 2019 2:51 am
Nice! We think alike, I was thinking of going with 5% VEGBX and 5% VWOB. I will investigate your suggestion of LEMB instead of VWOB for the EM government exposure.
VEGBX is (almost) all government debt. it's usd or usd hedged.
vs LEMB is local currency.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Thu Aug 01, 2019 3:21 am
by bluquark
Got it, I was under the wrong assumption that VEGBX had corporate debt in it. It looks like it merely has the option to but typically will not hold much.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Thu Aug 01, 2019 9:54 am
by vineviz
D-Dog wrote:
Wed Jul 31, 2019 10:56 pm
What do you think about using low volatility funds like SMLV and EEMV in place of VIOV and VWO? Is this a reasonable way to further reduce portfolio volatility, or would the lower volatility of these funds reduce the diversification benefits you might otherwise get from small cap and emerging markets asset classes?
I think the use of minimum variance funds and/or low volatility funds in place of the funds I mentioned would be totally appropriate. In fact, the switches you mention would probably further improve diversification rather than lower it.

My main concern would, of course, be cost. SMLV actually has an attractive expense ratio, but EEMV is about twice as expensive as VWO. Because iShares Edge MSCI Min Vol USA ETF (USMV) and iShares Edge MSCI Min Vol EAFE ETF (EFAV) are both lower cost than EEMV, I'd probably swap out VTI and VSS for those and keep VWO. Maybe like this:

30.00% iShares Edge MSCI Min Vol USA ETF (USMV)
20.00% SPDR SSGA US Small Cap Low Vol ETF (SMLV)
15.00% iShares Edge MSCI Min Vol EAFE ETF (EFAV)
15.00% Vanguard FTSE Emerging Markets ETF (VWO)
20.00% iShares Core 10+ Year USD Bond ETF (ILTB)

And if you had access to Vanguard mutual funds, you could simplify even further with something like this:

50.00% Vanguard Global Minimum Volatility Admiral Shares (VMNVX)
15.00% SPDR SSGA US Small Cap Low Vol ETF (SMLV)
15.00% Vanguard FTSE Emerging Markets ETF (VWO)
20.00% iShares Core 10+ Year USD Bond ETF (ILTB)

Re: A low-cost 5 fund Boglehead portfolio

Posted: Mon Aug 05, 2019 2:27 pm
by jakehefty17
vineviz wrote:
Mon Jul 29, 2019 6:48 pm

32.00% Vanguard Total Stock Market ETF (VTI)
16.00% Vanguard S&P Small-Cap 600 Value ETF (VIOV)
16.00% Vanguard FTSE All-Wld ex-US SmCp ETF (VSS)
16.00% Vanguard FTSE Emerging Markets ETF (VWO)
20.00% Vanguard Long-Term Bond ETF (BLV)
Maybe a simple question, but why Long-Term Bond over Total Bond? My understanding of bonds is still somewhat limited so maybe I'm inclined to take the simplest approach. I see an opportunity to learn something.

I understand the other tilts sufficiently. Is there an advantage to long-term bonds I'm unaware of?

Re: A low-cost 5 fund Boglehead portfolio

Posted: Mon Aug 05, 2019 3:03 pm
by vineviz
jakehefty17 wrote:
Mon Aug 05, 2019 2:27 pm
Maybe a simple question, but why Long-Term Bond over Total Bond? My understanding of bonds is still somewhat limited so maybe I'm inclined to take the simplest approach. I see an opportunity to learn something.

I understand the other tilts sufficiently. Is there an advantage to long-term bonds I'm unaware of?
The general rule is that long-term bonds diversify equity risk substantially more than intermediate or short-term bonds do. The mathematical explanation for this is that their higher volatility serves as a better counter-party to the high volatility of stocks.

Many investors find the mechanics of portfolio diversification to be counterintuitive: they see that long-term bonds are more volatile than short-term bonds and (improperly) extrapolate that behavior up to the portfolio.

The actuality is that a portfolio of 80% stocks and 20% total bond market has pretty much identical volatility to a portfolio of 80% stocks and 20% long-term bonds. Use long-term treasuries instead of a broad long-term bond fund, and now the portfolio has less volatility than the portfolio with a total bond market fund.

And because long-term bonds have a higher expected return than intermediate and short-term bonds, the diversification benefits can result in portfolios that have both higher expected returns AND lower expected volatility. This why Harry Markowitz called diversification "the only free lunch in finance."

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Aug 14, 2019 1:04 am
by HawkeyePierce
It's too bad NTSX uses intermediate Treasuries instead of long-term. You could build a very interesting portfolio of 52% NTSX, 16% VIOV, 16% VSS and 16% VWO if you wanted to boost your large-cap and bond allocation without shrinking the other tilts.

It would roughly work out to:

45% large cap
30% bond
16% SCV
16% Intl Small
16% EM

Or you could keep the original weights of large cap and bonds at 32/20 which would open up 20% for other assets. If you allocated that to long term TIPS you'd have roughly an 80/40 portfolio with bonds almost split between nominal and real.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Aug 14, 2019 5:20 am
by schismal
HawkeyePierce wrote:
Wed Aug 14, 2019 1:04 am
It's too bad NTSX uses intermediate Treasuries instead of long-term.
Maybe we should send WisdomTree some links. ;)

Current NTSX bond holdings (I was curious):

Image

Re: A low-cost 5 fund Boglehead portfolio

Posted: Wed Aug 14, 2019 2:58 pm
by noraz123
schismal wrote:
Tue Jul 30, 2019 4:27 am
noraz123 wrote:
Mon Jul 29, 2019 9:40 pm
vineviz wrote:
Mon Jul 29, 2019 6:48 pm
...
My goal was to keep expenses low (less than 0.10% if possible), rely on Vanguard-issued market-cap weighted index funds as much as possible, and to create a significantly more diversified portfolio than is possible using the the typical total market funds.
...
Is this 5 fund portfolio more diversified than the typical 3 fund portfolio (Total Stock, Total International, and Total Bond)?

I can see in a taxable account that a 5-fund portfolio allows for more tax loss harvesting, but unclear to me that that there is more diversification, especially "significantly" more.

A quick run through PortfolioVisualizer of your portfolio vs corresponding 3 fund (48% Total Stock, 32% Total International, 20% Total Bond), show remarkably similar results.
Link: https://www.portfoliovisualizer.com/bac ... 0&total3=0
Your PV link only goes back ~8 years. A quick substitution with equivalent funds takes us back just a few more years, and the performance difference becomes clear.

LINK
Thanks! Yes, I only went as far back as the those funds existed. I definitely see a difference here with a tilt towards small cap. However, it seems to imply that the additional return from this tilt comes from 2008-2011, whereas there seems to be little to no difference the last 7-8 yeas.

Makes me wonder if 1.) tilting towards small cap is advantageous at at certain times in the business cycle and/or 2.) if tiling to small cap no longer has the advantages it once had.

Conversely, at least going back to 2008, tilting to small cap doesn't ever seem to under-perform the 3-fund portfolio, and outperformed for a 2-3 year stretch. I would think that then for taxable, a tilt like this could be favorable vs. 3-fund.

If we assume that is a long enough time period to draw conclusions, then worst case scenario you get the same return as 3-fund portfolio but with additional opportunity for tax loss harvesting. And best case scenario, you are getting a better return, with equal or greater diversification. I am not sure if I agree there is much greater diversification, but there is certainly no less.

I'll stick to my 3-fund portfolio for now, but definitely see some advantages to this portfolio. :sharebeer

Re: A low-cost 5 fund Boglehead portfolio

Posted: Sun Aug 18, 2019 5:12 am
by HawkeyePierce
This might be splitting the tiniest of hairs, but I wonder given the following:

* VBR is really a mid/small value fund compared to VIOV which is truly a small value fund
* VBR costs 0.07% but VIOV costs 0.20%

I wonder if swapping the total market fund for S&P500 and then using the cheaper VBR wouldn't get you about the same thing at a slightly lower cost. You keep the value tilt across the entire ex-500 market without abandoning midcaps entirely.

That choice also makes things simpler for those who prefer mutual funds as VBR has a mutual fund share class (VSIAX) at the same ER but VIOV is only available as an ETF. All the other funds in this portfolio already exist as mutual funds.

I've been mulling this portfolio for the last couple weeks. It addresses a lot of my latent concerns with the 3 fund portfolio, chiefly that it is less tied to large caps, has a lower allocation to economic areas that are facing serious demographic issues (Japan and Western Europe) and uses long-term bonds in place of total bonds. If I jump in I plan on putting half the EM allocation into EM government bonds. Not going to bother trying to leverage it with NTSX.
schismal wrote:
Wed Aug 14, 2019 5:20 am
HawkeyePierce wrote:
Wed Aug 14, 2019 1:04 am
It's too bad NTSX uses intermediate Treasuries instead of long-term.
Maybe we should send WisdomTree some links. ;)

Current NTSX bond holdings (I was curious):

Image
I tweeted at them, does that count? :D

Re: A low-cost 5 fund Boglehead portfolio

Posted: Fri Aug 30, 2019 2:28 pm
by vineviz
HawkeyePierce wrote:
Sun Aug 18, 2019 5:12 am
This might be splitting the tiniest of hairs, but I wonder given the following:

* VBR is really a mid/small value fund compared to VIOV which is truly a small value fund
* VBR costs 0.07% but VIOV costs 0.20%

I wonder if swapping the total market fund for S&P500 and then using the cheaper VBR wouldn't get you about the same thing at a slightly lower cost. You keep the value tilt across the entire ex-500 market without abandoning midcaps entirely.

That choice also makes things simpler for those who prefer mutual funds as VBR has a mutual fund share class (VSIAX) at the same ER but VIOV is only available as an ETF. All the other funds in this portfolio already exist as mutual funds.
I think using either VBR or its mutual fund equivalent would be an entirely reasonable way to reduce the ER a bit.

My only slight hesitation is the evidence that adding a quality/profitability screen to SCV helps isolate the factors a bit: the S&P indexes include such a screen whereas the CRSP indexes do not.

I don't want to make more of it than it should be, just be aware that VBR does diverge from SLYV/VIOV/IJS at times.

Re: A low-cost 5 fund Boglehead portfolio

Posted: Fri Aug 30, 2019 2:48 pm
by zonto
If using a taxable account, one could use Vanguard Tax Managed Small Cap (VTMSX) instead of VIOV. VTMSX is basically the mutual fund equivalent of VIOO (S&P Small Cap 600 blend index), except cheaper (0.09% vs. 0.15% for VIOO or 0.20% for VIOV) and with more qualified dividends. You'd lose the value tilt, but that may not be the worst thing.