The One-Fund Portfolio as a default suggestion

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S_Track
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Re: The One-Fund Portfolio as a default suggestion

Post by S_Track »

longinvest wrote: Sun Sep 13, 2020 12:45 pm I'm confident that global (free-float) stock and bond weightings will remain balanced (e.g. closer to 50% than to 100% for both assets) and, as a consequence, that a 60/40 stock/bond target allocation will remain close enough*. As for Vanguard, it has historically improved its LifeStrategy funds (getting rid of an active component, adding international bonds, and reducing the home bias). I'm confident that Vanguard will remain a good manager and keep its dedication to global index investing within its LifeStrategy Moderate Growth Fund (VSMGX).
Excellent information here. Considering a One-Fund in a taxable account such as LifeStrategy Moderate Growth. I am not so much worried about VG drifting the style, but I am worried about the tax consequences should they decide to change funds. A possible scenario would be for VG to drop Total Stock and Total international in favor of Total World. If that were to happen, could it bring a large unexpected tax consequences for investors? Thinking the fund would need to do large amount of internal selling. Thanks
Ferdinand2014
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Re: The One-Fund Portfolio as a default suggestion

Post by Ferdinand2014 »

I can appreciate the simplicity of having 1 all-in-one fund in all accounts across the tax spectrum and calling it good enough. I currently have a fairly simple portfolio of cash in the form of FDLXX ( treasury only money market fund) in taxable along with FXAIX (Fidelity 500 index fund)/VTSAX (Vanguard total stock index fund) across our IRA/SEP/403b/taxable accounts. I have been very happy with its progress in meeting our goals and my ability to stick with it. I consider the cash as a catchall- emergency fund/lumpy large expenses/de-risk sleep well to stay invested in stocks pile. Having said all that, my DW has zero interest in investing and in case of cognitive decline/death (I am 10 years older and the only one that deals with the finances), I have wondered about a one fund across all accounts solution but have some questions:

If my taxable accounts which have mostly FDLXX (which equals about 3-4 years expenses depending on situation- about 8-9% of our portfolio currently and our only fixed income) gets converted (along with our IRA/SEP/403b) to an all-in-one fund such as FFNOX (Fidelity four in one index fund - a static 60/25/15) which has about 15% in investment grade total bond fund FXNAX (Fidelity total bond fund). How would I approach an emergency or a potential short term expense given the duration of the bond fund imbedded is about 6 years along with the 80-85% proportion of stocks? Wouldn’t it be less than optimal to sell a static portion of bonds with a duration of about 6 years and riskier stocks to fund a shorter term need? I assume the answer is if you have a large enough portfolio and as your potential emergency or expenses become a smaller portion of the total, it may not matter especially given the upside of not having a lot of cash sitting around getting eaten by inflation? I know there have been other threads showing being fully invested in say a 60/40 balanced portfolio does better than having a portion of cash on the side for emergencies instead of just selling the 60/40.
Last edited by Ferdinand2014 on Sun Sep 20, 2020 2:17 pm, edited 2 times in total.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

S_Track wrote: Sun Sep 20, 2020 9:37 am A possible scenario would be for VG to drop Total Stock and Total international in favor of Total World.
I don't think that Vanguard is likely to drop home bias down to zero. But...
S_Track wrote: Sun Sep 20, 2020 9:37 am If that were to happen, could it bring a large unexpected tax consequences for investors? Thinking the fund would need to do large amount of internal selling.
Vanguard could do it gradually, buying into the new fund with new money, and selling from old funds for redemptions. Vanguard could also take advantage of future downturns to switch funds with reduced tax consequences. But this is just a guess. It's probably best to directly ask the question to Vanguard.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Ferdinand2014 wrote: Sun Sep 20, 2020 1:42 pm I currently have a fairly simple portfolio of cash in the form of FDLXX [...] I consider the cash as a catchall- emergency fund/lumpy large expenses/de-risk sleep well to stay invested in stocks pile. Having said all that, my DW has zero interest in investing and in case of cognitive decline/death (I am 10 years older and the only one that deals with the finances), I have wondered about a one fund across all accounts solution but have some questions
[...]
Ferdinand2014,

For the theoretical part, some investors consider cash as "savings" and don't count it as part of their "investment" portfolio. For them, whether cash is located into a savings account or into a money-market fund within an investment account doesn't change this principle. Other investors define their portfolio as a specific set of investment accounts (Trad. IRA, Roth IRA, taxable, ...). For them, anything within these accounts is part of their "investment" portfolio (not counted as "savings"). Both approaches are perfectly acceptable.

You're mostly asking a personal investment and money management question which would be best addressed by starting a new Personal Investments thread. The current thread is more of a theoretical nature. If you provide the information suggested in this post in your new personal thread, knowledgeable forum members will be able to understand the role of cash in your overall financial landscape and make specific recommendations about whether your FDLXX holdings should be considered as part of your investment portfolio (and possibly merged into your One-Fund Portfolio) or kept separately.
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Re: The One-Fund Portfolio as a default suggestion

Post by 1210sda »

Ferdinand2014 wrote: Sun Sep 20, 2020 1:42 pm my DW has zero interest in investing and in case of cognitive decline/death (I am 10 years older and the only one that deals with the finances)
For me, this is the key. Unfortunately, no one knows the timing of either death or cognitive decline. If I were in these shoes, I'd simplify as soon as possible. (Unless capital gains in doing so were prohibitive.)
Last edited by 1210sda on Sun Sep 20, 2020 8:02 pm, edited 1 time in total.
S_Track
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Re: The One-Fund Portfolio as a default suggestion

Post by S_Track »

longinvest wrote: Sun Sep 20, 2020 2:04 pm
S_Track wrote: Sun Sep 20, 2020 9:37 am A possible scenario would be for VG to drop Total Stock and Total international in favor of Total World.
I don't think that Vanguard is likely to drop home bias down to zero. But...
S_Track wrote: Sun Sep 20, 2020 9:37 am If that were to happen, could it bring a large unexpected tax consequences for investors? Thinking the fund would need to do large amount of internal selling.
Vanguard could do it gradually, buying into the new fund with new money, and selling from old funds for redemptions. Vanguard could also take advantage of future downturns to switch funds with reduced tax consequences. But this is just a guess. It's probably best to directly ask the question to Vanguard.
I believe VG made a change in the Life Strategy funds a few years back now removing some active piece. It would be curious to see the data on the distributions. I will try to find some history on VG site but perhaps someone remembers.
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

S_Track wrote: Sun Sep 20, 2020 5:41 pm
longinvest wrote: Sun Sep 20, 2020 2:04 pm
S_Track wrote: Sun Sep 20, 2020 9:37 am A possible scenario would be for VG to drop Total Stock and Total international in favor of Total World.
I don't think that Vanguard is likely to drop home bias down to zero. But...
S_Track wrote: Sun Sep 20, 2020 9:37 am If that were to happen, could it bring a large unexpected tax consequences for investors? Thinking the fund would need to do large amount of internal selling.
Vanguard could do it gradually, buying into the new fund with new money, and selling from old funds for redemptions. Vanguard could also take advantage of future downturns to switch funds with reduced tax consequences. But this is just a guess. It's probably best to directly ask the question to Vanguard.
I believe VG made a change in the Life Strategy funds a few years back now removing some active piece. It would be curious to see the data on the distributions. I will try to find some history on VG site but perhaps someone remembers.
See this BH wiki article for a history of LifeStrategy fund AA changes. Not sure about the corresponding distribution history...
lanceteer
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Re: The One-Fund Portfolio as a default suggestion

Post by lanceteer »

Longinvest, thanks for all the work you have done to promote the simple investing with a one-fund portfolio.

I live in Australia and we do not have a prominent Australian presence on these boards. I think the largest Australian online presence for discussions of Boglehead-esque index investing happens on the AusFinance subreddit. I am posting here because I want to share that we have independently gravitated towards the one fund portfolio since Vanguard Australia released diversified ETFs in 2017. The gravitation is so stark that the one fund portfolio is the default suggestion now when new people ask about how they should invest. This happened rather organically, without a crusader like yourself spearheading the cause.

In Australia, Vanguard has offered fixed asset allocation diversified funds (akin to LifeStrategy) as traditional index funds since the 1990s, but it was only in 2017 that the ETF versions were created. There are as yet no Vanguard target date funds in Australia, presumably because the demand is inadequate from the relatively small market. Prior to 2017, Australian investors with more than a few thousand dollars to invest typically used single-asset class ETFs to create a domestic/developed international equity and bond portfolio, with some throwing in emerging markets. The Vanguard traditional index funds were not as popular because they had a relatively high MER (0.9% p.a.) for investors with less than $100,000 to invest.

Come 2017 and the diversified ETFs were released to a lukewarm reception, but their popularity has really snowballed since. The standout ETF in particular is VDHG (Vanguard diversified high growth), which has a fixed 90/10 allocation to equities/fixed income. There are three other diversified ETFs available with allocation ratios of 70/30, 50/50, and 30/70 respectively. VDHG is so recommended for its diversification, auto-rebalancing, and simplicity of investing. I hypothesize that the significant skew towards the higher equity allocation is because reddit users are of a younger demographic and hence are further away from retirement. The recommended plan for most of these high equity one-fund investors is to add a bond ETF at a stage closer to retirement in order to increase their allocation to fixed income, but they would have one-to-two decades of single fund investing before that happens.

Just thought I'd share some Antipodean happenings.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Thanks Lanceteer.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Paying less taxes is an illogical objective to aim for. The logical objective it to aim for having more money left to spend after taxes and savings over an entire lifetime, not just in the current year. This can involve paying more taxes in the short-term.

I'd like to highlight some criticism of the fund placement approach advocated in the main body our wiki's page on tax-efficient fund placement. This criticism is found on the page itself and its related discussion page. (Additional criticism, like the fact that tax-adjusted asset allocation isn't taken into account by this wiki page, is expressed in the first post of this thread).

First, to put things into perspective, the most important decision is asset allocation, not fund placement:
wiki:Tax-efficient fund placement wrote:
:!: Determination of your asset allocation (% stocks / % bonds), which sets your portfolio's level of acceptable risk, is the single most influential decision you can make on your portfolio's performance. Only consider taxes after you have configured your total portfolio.
Second, optimizing based on a projection of the investor's current situation could very well backfire due to unanticipated changes in tax laws or investor circumstances. Our wiki warns about this (but doesn't put sufficient emphasis on it, in my opinion):
wiki:Tax-efficient fund placement wrote:
:!: Tax regulations can be complex and contain subtle details that may escape inexperienced investors. If this article seems overly complicated, then just remember a few key points:
  • Set your asset allocation first, taxes come second. If you don't have any funds which can be put in a location to reduce your tax bill, then stop here. You've done the best you can.
  • Tax rates and brackets change frequently. What was a logical tax location one year may turn out to be a poor choice a few years later. Consider if it's worth the effort (added complexity) to take this approach.
The wiki page also contains a Criticism section which explicitly says that the proposed approach might be the opposite of what the investor should actually do:
wiki:Tax-efficient fund placement wrote:
Criticisms of this tax placement strategy

Due to higher returns, equities have the potential to expand tax-advantaged space, leading to higher tax savings later on despite higher tax bills in the present. This is particularly true at the presently low bond yields, when the tax penalty from bonds in taxable is not as high as it has been in the past.

The situation may change in retirement, when the funds are withdrawn for income (decumulation phase). It is possible under some combinations of lifetime investment results and lifetime individual tax situations to be better off doing the opposite of the strategy recommended here.
...
The above highlights an important contradiction: the wiki page advocates a specific fund placement strategy because it's supposed to be optimal, yet the criticism section reveals that it could actually end up being the worst strategy!

It's tough to make predictions, especially about the future.” ― Yogi Berra

The discussion tab of the wiki page also contains a criticism and improvement suggestions:

Illogical objective: less taxes (instead of higher lifelong after-tax available income)
Illogical objective: less taxes (instead of higher lifelong after-tax available income)

I've explained in Bogleheads® forum post: Time to update asset location rules of thumb? [1 of 2] and Bogleheads® forum post: Time to update asset location rules of thumb? [2 of 2] that aiming for lower taxes using single-year calculations is illogical. In a few words, poorer people pay less taxes. I argue that the objective should be to aim for higher lifelong after-tax available income (or cash flows, after savings). I've also explained that there's a lot of uncertainty about future outcomes and suggested that a mirror asset location strategy might be good enough, especially when using an all-in-one investment such a LifeStrategy or Target Retirement fund. I definitely suggest to make the page less biased towards bonds in tax-advantaged accounts and to put a lot more emphasis on the significant uncertainty of future outcomes.

--longinvest 13:54, 5 July 2020 (UTC)

I think that using a globally-diversified all-in-one index fund or ETF in all accounts, including a taxable account when tax-advantaged accounts are full, is good enough. It will reliably deliver average returns which, by definition, are guaranteed to never be the worst returns. Using a One-Fund Portfolio greatly simplifies investing, especially for care takers or a surviving spouse. It eliminates the need to rebalance the portfolio and it sidesteps a long list of potential behavioral pitfalls.

Note: This post is based on a reply I wrote in the Personal Investments forum.
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Rajsx
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Re: The One-Fund Portfolio as a default suggestion

Post by Rajsx »

Thanks for a informative thread, I am following
Ferdinand2014
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Re: The One-Fund Portfolio as a default suggestion

Post by Ferdinand2014 »

For individuals who have decided to go with a one fund portfolio in all accounts and are still in accumulation phase, how do you deal with the following scenarios before retirement:

1.) A known expense in an expected timeframe of 3 years such as a new car

2.) An expected, but time frame unclear expense such as a major house repair

3.) An unexpected and unknown time frame expense such as a job loss

Do you withdraw from the one fund life strategy portfolio in taxable, keep a separate cash fund (so you truly are not in a one fund portfolio only), or some combination?
Last edited by Ferdinand2014 on Sat Nov 07, 2020 10:09 pm, edited 1 time in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by Marseille07 »

Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm For individuals who have decided to go with a one fund portfolio in all accounts and are still in accumulation phase, how do you deal with the following withdrawing scenarios before retirement:

1.) A known expense in a timeframe of 1-3 years such as a new car

2.) An expected, but time frame unclear expense such as a major house repair

3.) An emergency such as job loss

Do you withdraw from the one fund life strategy portfolio in taxable, keep a separate cash fund (so you truly are not in a one fund portfolio only), or some combination?
Keep a separate cash fund, of course. You said before retirement, so all bets are off and you aren't limited to living off of one-fund portfolio withdrawals.
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Re: The One-Fund Portfolio as a default suggestion

Post by Blue456 »

Marseille07 wrote: Sat Nov 07, 2020 10:07 pm
Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm For individuals who have decided to go with a one fund portfolio in all accounts and are still in accumulation phase, how do you deal with the following withdrawing scenarios before retirement:

1.) A known expense in a timeframe of 1-3 years such as a new car

2.) An expected, but time frame unclear expense such as a major house repair

3.) An emergency such as job loss

Do you withdraw from the one fund life strategy portfolio in taxable, keep a separate cash fund (so you truly are not in a one fund portfolio only), or some combination?
Keep a separate cash fund, of course. You said before retirement, so all bets are off and you aren't limited to living off of one-fund portfolio withdrawals.
But then it’s not one fund portfolio.
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Re: The One-Fund Portfolio as a default suggestion

Post by abuss368 »

Blue456 wrote: Sat Nov 07, 2020 10:14 pm
Marseille07 wrote: Sat Nov 07, 2020 10:07 pm
Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm For individuals who have decided to go with a one fund portfolio in all accounts and are still in accumulation phase, how do you deal with the following withdrawing scenarios before retirement:

1.) A known expense in a timeframe of 1-3 years such as a new car

2.) An expected, but time frame unclear expense such as a major house repair

3.) An emergency such as job loss

Do you withdraw from the one fund life strategy portfolio in taxable, keep a separate cash fund (so you truly are not in a one fund portfolio only), or some combination?
Keep a separate cash fund, of course. You said before retirement, so all bets are off and you aren't limited to living off of one-fund portfolio withdrawals.
But then it’s not one fund portfolio.
I don’t count cash as a separate fund.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The One-Fund Portfolio as a default suggestion

Post by tj »

Blue456 wrote: Sat Nov 07, 2020 10:14 pm
Marseille07 wrote: Sat Nov 07, 2020 10:07 pm
Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm For individuals who have decided to go with a one fund portfolio in all accounts and are still in accumulation phase, how do you deal with the following withdrawing scenarios before retirement:

1.) A known expense in a timeframe of 1-3 years such as a new car

2.) An expected, but time frame unclear expense such as a major house repair

3.) An emergency such as job loss

Do you withdraw from the one fund life strategy portfolio in taxable, keep a separate cash fund (so you truly are not in a one fund portfolio only), or some combination?
Keep a separate cash fund, of course. You said before retirement, so all bets are off and you aren't limited to living off of one-fund portfolio withdrawals.
But then it’s not one fund portfolio.
Sure it is. A Savings account /emergency fund/ cash buffer is not part of the long term investment portfolio. There's no expected growth from it. it's just the buffer in between your paycheck and your portfolio...
Ferdinand2014
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Re: The One-Fund Portfolio as a default suggestion

Post by Ferdinand2014 »

bck63 wrote: Mon Jul 06, 2020 6:00 pm
longinvest wrote: Sun Apr 26, 2020 6:57 pm An all-in-one fund or ETF rebalances with the cash flows of other investors. This is very tax and cost efficient.
I am becoming increasingly convinced that a one-fund portfolio is useful, at least for part of my portfolio. I may go all the way. I recently placed most of my cash in the Vanguard LifeStrategy Income Fund (VASIX). I just didn't see the need to have the cash sitting around, and VASIX will maintain a 20/80 allocation.

I may end up just calling it a day and putting everything in a LifeStrategy fund.

Thanks for what you do.
Have you done this? Do you still keep cash around for short term needs/emergency fund or are you entirely invested in an all in one fund?
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Re: The One-Fund Portfolio as a default suggestion

Post by GoneOnTilt »

Ferdinand2014 wrote: Mon Nov 30, 2020 4:32 pm
bck63 wrote: Mon Jul 06, 2020 6:00 pm
longinvest wrote: Sun Apr 26, 2020 6:57 pm An all-in-one fund or ETF rebalances with the cash flows of other investors. This is very tax and cost efficient.
I am becoming increasingly convinced that a one-fund portfolio is useful, at least for part of my portfolio. I may go all the way. I recently placed most of my cash in the Vanguard LifeStrategy Income Fund (VASIX). I just didn't see the need to have the cash sitting around, and VASIX will maintain a 20/80 allocation.

I may end up just calling it a day and putting everything in a LifeStrategy fund.

Thanks for what you do.
Have you done this? Do you still keep cash around for short term needs/emergency fund or are you entirely invested in an all in one fund?
I haven't gone all the way. As for emergencies, I currently have about $16,000 in the LifeStrategy Income fund (20/80) and about $9,000 in cash. I'm willing to take a small amount of risk for the chance at a small amount of capital appreciation.

The thing is, I know it's all mental accounting. I could take that 25K and invest it in my taxable account at my current asset allocation, and just withdraw from the overweight asset in an emergency. Despite that, I see to sleep better at night doing it this way.
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Re: The One-Fund Portfolio as a default suggestion

Post by abuss368 »

Ferdinand2014 wrote: Mon Nov 30, 2020 4:32 pm
bck63 wrote: Mon Jul 06, 2020 6:00 pm
longinvest wrote: Sun Apr 26, 2020 6:57 pm An all-in-one fund or ETF rebalances with the cash flows of other investors. This is very tax and cost efficient.
I am becoming increasingly convinced that a one-fund portfolio is useful, at least for part of my portfolio. I may go all the way. I recently placed most of my cash in the Vanguard LifeStrategy Income Fund (VASIX). I just didn't see the need to have the cash sitting around, and VASIX will maintain a 20/80 allocation.

I may end up just calling it a day and putting everything in a LifeStrategy fund.

Thanks for what you do.
Have you done this? Do you still keep cash around for short term needs/emergency fund or are you entirely invested in an all in one fund?
There is an old saying that “cash is king” and for good reason.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The One-Fund Portfolio as a default suggestion

Post by totality »

Thanks for this thread, longinvest, I really like the appeal to simplicity and avoiding behavior errors.

However, I do wonder about the capital gains behavior of a target date fund in a taxable account. It seems to me that everything would be just fine right up until there is not enough inflow to cover the bond purchases needed by the glidepath. At that point, the fund will have to start selling stock to stay balanced, and sooner or later they will run out of lots with a loss. After that, there will be more and more capital gains distributions as investors start drawing down their holdings.

If we look at Vanguard's Target Retirement 2015 fund, it looks like the capital gains distributions are not too bad: About the same size as the dividend. However, this is a fund that opened in 2003, only 12 years before the retirement date. How will funds that opened 40 years before the retirement date fare?

It seems like a double-edge sword: You get nice tax behavior during accumulation (rebalancing without capital gains, even if you aren't contributing, due to fund inflow from others) at the cost of RMD-like behavior in retirement. (due to fund outflow from others.)

Am I thinking about this right? I have only a passing understanding of how mutual funds must handle capital gains, so I may have misunderstood something.
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Re: The One-Fund Portfolio as a default suggestion

Post by tj »

totality wrote: Mon Nov 30, 2020 8:31 pm Thanks for this thread, longinvest, I really like the appeal to simplicity and avoiding behavior errors.

However, I do wonder about the capital gains behavior of a target date fund in a taxable account. It seems to me that everything would be just fine right up until there is not enough inflow to cover the bond purchases needed by the glidepath. At that point, the fund will have to start selling stock to stay balanced, and sooner or later they will run out of lots with a loss. After that, there will be more and more capital gains distributions as investors start drawing down their holdings.

If we look at Vanguard's Target Retirement 2015 fund, it looks like the capital gains distributions are not too bad: About the same size as the dividend. However, this is a fund that opened in 2003, only 12 years before the retirement date. How will funds that opened 40 years before the retirement date fare?

It seems like a double-edge sword: You get nice tax behavior during accumulation (rebalancing without capital gains, even if you aren't contributing, due to fund inflow from others) at the cost of RMD-like behavior in retirement. (due to fund outflow from others.)

Am I thinking about this right? I have only a passing understanding of how mutual funds must handle capital gains, so I may have misunderstood something.
My understanding is that those target date funds eventually merge with Target Retirement Income, I'm surprised the Target 2015 fund still has not merged into the Target Income fund. They have very small equity allocations.

I believe the One Fund Portfolio is more like a static 60/40 fund, since it isn't marketed to people retiring in X year, it might have more constant contributions which might minimize the need to force such sales. It also would not have the other funds merging into it. There was 0.06% STCG distribution in 2019 though.
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

tj wrote: Mon Nov 30, 2020 8:43 pm ...
My understanding is that those target date funds eventually merge with Target Retirement Income, I'm surprised the Target 2015 fund still has not merged into the Target Income fund. They have very small equity allocations.
...
I think it happens seven years after a fund reaches its target date year, so around 2022 for the Target 2015 fund.

Reference:
https://retirementplans.vanguard.com/VG ... tFunds.jsf
https://personal.vanguard.com/funds/reports/q3080b.pdf
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Re: The One-Fund Portfolio as a default suggestion

Post by behumble »

longinvest wrote: Mon Aug 12, 2019 8:10 am I think that the following could be a good default portfolio suggested in answer to many queries about portfolio construction:
  • Portfolio 1: Vanguard LifeStrategy Moderate Growth Fund (VSMGX) -- a globally-diversified balanced index portfolio with a moderate home bias, appropriate for investors of all ages and all wealth levels, or
  • Portfolio 2: A carefully-chosen all-in-one index fund or ETF with a gliding or fixed asset allocation based on the investor's circumstances -- low-cost Target Retirement / Target Date index fund (various providers), LifeStrategy fund (Vanguard), or Core Allocation ETF (iShares)
In theory, the "ideal" default portfolio would be William Sharpe's Market Portfolio but it has various problems: (a) calculating asset weights is challenging, (b) the actual weightings are approximate because float-adjusted market capitalisations corresponding to Vanguard's total world stocks (VT) and bonds (BNDW) aren't all available*, and (c) there are good reasons for most investors (around the world) to keep a reasonable amount of home bias in their portfolios, as explained in Vanguard's paper "The role of home bias in global asset allocation decisions".

* They aren't available for free, if they're available.

As a consequence, I think that portfolio 1 is a very good default portfolio for investors of all ages and all wealth levels. This includes experienced investors who have finally realized the importance simplicity as well as the futility of trying to engineer a better portfolio, accumulating investors who want to spend their life doing other things than worrying about their portfolio, and even new investors who don't know how to choose an asset allocation. It has a fixed 60/40 stocks/bonds allocation. It's very broadly-diversified, currently holding over 25,000 securities. It's actually a very good practical proxy for Bill Sharpe's ideal Market Portfolio adapted for a U.S. investor with a moderate home bias.

Investors who desire a specific gliding or fixed asset allocation can go with portfolio 2 and choose among the various available all-in-one index funds and ETFs. This is somewhat more complex than portfolio 1 as it requires making more assumptions about assets and about the investor's preferences.

I think that these funds and ETFs are good enough to be used as a single identical investment across all of the investor's accounts (Traditional, Roth, ..., and even taxable).

I think that most tax-efficient fund placement arguments against using such funds in a taxable account are flawed because they usually ignore tax-adjusted asset allocation which is justified by mathematics:
Bogleheads wiki wrote:Your ability to take risk is determined by the consequences of losses; losing $100K in your Roth IRA will reduce your standard of living (or require more additional savings to keep the same standard) by more than losing $100K in your traditional IRA or taxable account does.
In particular:
  • Most analyses ignore the long-term impact of asset location. For example, while bonds get most of their growth from coupons which attract immediate taxes, unlike stock capital gains which are only taxed when realized often decades later (leading simple analyses to conclude that one should prioritize bonds over stocks in tax-advantaged accounts), a long-term view can reveal that the generally faster growth of stocks might lead to more taxes when stock dividends in taxable grow to more than bond interest in tax-advantaged. Also, prioritizing the placement of a slower growing asset in tax-advantaged leads to a slower growth of tax-advantaged space relative to the size of the entire portfolio.
  • Most analyses ignore that rebalancing reduces the impact (good or bad) of prioritizing the location of specific assets into specific accounts.
  • Most analyses ignore the tax advantage of rebalancing with the cash flows of other investors when using a balanced fund or ETF in a taxable account.
  • Most analyses ignore that future tax laws could change, that future investor circumstances could change, and that the best asset location strategy can only be known after the fact.
I think that using a mirrored asset allocation in all accounts with a single identical all-in-one fund or ETF is good enough and elegantly sidesteps the need to tax-adjust the asset allocation.**

** A mirrored asset allocation is inherently tax-adjusted.

The use of a single identical all-in-one index fund or ETF in all accounts greatly simplifies a portfolio, eliminates the need to rebalance, and sidesteps a long list of potential behavioral pitfalls. Many investors are likely to lose more to behavioral pitfalls with separate funds or ETFs than to save in taxes even when they're lucky enough to select an asset location strategy that beats the mirrored one (unforeseeable) in their specific long-term investing time frame.

My personal preference is for portfolio 1, representing a globally-diversified lifelong 60/40 stocks/bonds allocation because I consider that all investment assets are risky, but in different ways. I think that it's best to broadly diversify across them all lifelong***.

*** In retirement, combining variable portfolio withdrawals with Social Security (possibly delayed to age 70) and a pension (if any) often results into mild total income fluctuations. When necessary, Total Retirement Income fluctuations can be further dampened by using a small part of the portfolio to buy an inflation-indexed Single Premium Immediate Annuity (SPIA) instead of increasing the bond allocation above 40%.


Just came across the above post as I was researching for a 1 fund portfolio. In terms of mirroring across all accounts, I was wondering what you think about a slight modification to the use of VSMGX and replacing or using both VSMGX and VASGX where we can. My wife and I are in our mid-40s and wonder if applying what you posted above would be the best way to control behavioral risk while offering a reasonable investment option. We have the following accounts: 1) my Roth IRA, 2) wife Roth IRA, 3) Joint Taxable Brokerage, 4) my 401K and 5) wife's 401K. Would you stand by what you stated above if we used 1) VASGX in all accounts where possible or 2) used both VSGMX (Taxable) and VASGX (Roths/401K) throughout all accounts?
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

behumble wrote: Mon Jan 25, 2021 4:42 pm Just came across the above post as I was researching for a 1 fund portfolio. In terms of mirroring across all accounts, I was wondering what you think about a slight modification to the use of VSMGX and replacing or using both VSMGX and VASGX where we can. My wife and I are in our mid-40s and wonder if applying what you posted above would be the best way to control behavioral risk while offering a reasonable investment option. We have the following accounts: 1) my Roth IRA, 2) wife Roth IRA, 3) Joint Taxable Brokerage, 4) my 401K and 5) wife's 401K. Would you stand by what you stated above if we used 1) VASGX in all accounts where possible or 2) used both VSGMX (Taxable) and VASGX (Roths/401K) throughout all accounts?
Behumble, this isn't the thread to debate fixed versus gliding allocation, so I'll simply note that the average growth and volatility of a gliding allocation and a fixed allocation at the average of the glide tend to be similar (but not identical). In other words, 90% stocks gradually reduced to 30% stocks is more or less equivalent to 60% stocks all lifelong.

A One-Fund Portfolio uses a single identical fund in all accounts. The investor has to choose a fund that matches the desired allocation model: fixed or gliding. Someone seeking a high stock allocation when young and a lower stock allocation when older would use a Target Retirement fund. Someone preferring a fixed allocation for life would use a LifeStrategy fund.

Using differently allocated funds in different accounts wouldn't match the ideas proposed in this thread.
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behumble
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Re: The One-Fund Portfolio as a default suggestion

Post by behumble »

longinvest wrote: Mon Jan 25, 2021 5:10 pm
behumble wrote: Mon Jan 25, 2021 4:42 pm Just came across the above post as I was researching for a 1 fund portfolio. In terms of mirroring across all accounts, I was wondering what you think about a slight modification to the use of VSMGX and replacing or using both VSMGX and VASGX where we can. My wife and I are in our mid-40s and wonder if applying what you posted above would be the best way to control behavioral risk while offering a reasonable investment option. We have the following accounts: 1) my Roth IRA, 2) wife Roth IRA, 3) Joint Taxable Brokerage, 4) my 401K and 5) wife's 401K. Would you stand by what you stated above if we used 1) VASGX in all accounts where possible or 2) used both VSGMX (Taxable) and VASGX (Roths/401K) throughout all accounts?
Behumble, this isn't the thread to debate fixed versus gliding allocation, so I'll simply note that the average growth and volatility of a gliding allocation and a fixed allocation at the average of the glide tend to be similar (but not identical). In other words, 90% stocks gradually reduced to 30% stocks is more or less equivalent to 60% stocks all lifelong.

A One-Fund Portfolio uses a single identical fund in all accounts. The investor has to choose a fund that matches the desired allocation model: fixed or gliding. Someone seeking a high stock allocation when young and a lower stock allocation when older would use a Target Retirement fund. Someone preferring a fixed allocation for life would use a LifeStrategy fund.

Using differently allocated funds in different accounts wouldn't match the ideas proposed in this thread.
I appreciate your response, thank you Longinvest. Would you mind sharing your thoughts on my specific portfolio and if so, where or how do you recommend reaching out to you? I'm not quite familiar with this forum. Thanks in advance for your consideration and recommendation.
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Re: The One-Fund Portfolio as a default suggestion

Post by behumble »

longinvest wrote: Mon Jan 25, 2021 5:10 pm
behumble wrote: Mon Jan 25, 2021 4:42 pm Just came across the above post as I was researching for a 1 fund portfolio. In terms of mirroring across all accounts, I was wondering what you think about a slight modification to the use of VSMGX and replacing or using both VSMGX and VASGX where we can. My wife and I are in our mid-40s and wonder if applying what you posted above would be the best way to control behavioral risk while offering a reasonable investment option. We have the following accounts: 1) my Roth IRA, 2) wife Roth IRA, 3) Joint Taxable Brokerage, 4) my 401K and 5) wife's 401K. Would you stand by what you stated above if we used 1) VASGX in all accounts where possible or 2) used both VSGMX (Taxable) and VASGX (Roths/401K) throughout all accounts?
Behumble, this isn't the thread to debate fixed versus gliding allocation, so I'll simply note that the average growth and volatility of a gliding allocation and a fixed allocation at the average of the glide tend to be similar (but not identical). In other words, 90% stocks gradually reduced to 30% stocks is more or less equivalent to 60% stocks all lifelong.

A One-Fund Portfolio uses a single identical fund in all accounts. The investor has to choose a fund that matches the desired allocation model: fixed or gliding. Someone seeking a high stock allocation when young and a lower stock allocation when older would use a Target Retirement fund. Someone preferring a fixed allocation for life would use a LifeStrategy fund.

Using differently allocated funds in different accounts wouldn't match the ideas proposed in this thread.
Longinvest, I just posted a question (3 questions in 1 post) today and hoping you could respond to at least questions 1 & 2, since I know what your response will be to question 3. For your reference, my post today is called, "Need advice on AA and Single Fund investing across all accounts."
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

behumble wrote: Tue Jan 26, 2021 1:16 pm For your reference, my post today is called, "Need advice on AA and Single Fund investing across all accounts."
Behumble, see my comments in this post of your thread.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Using a single identical LifeStrategy or Target Retirement fund in all accounts (Traditional, Roth, ..., and even taxable once tax-advantaged accounts are full) all lifelong is good enough. The optimal asset allocation and the optimal asset location strategy will only be known after death.

Earlier in this thread, I've provided a proof that a mirrored asset allocation is mathematically-guaranteed not to turn out to have been the worst asset location strategy over one's lifetime.

Some people might consider this mathematical guarantee, of not being the worst asset location strategy, "not very attractive", yet I have not seen a mathematical proof of a "more attractive" asset location strategy that is guaranteed to always beat a simple mirrored allocation strategy.

It's quite similar to indexing, when you think about it. William Sharpe's theorem guarantees that a simple total-market cap-weighted index investment strategy will never be worse than average (before fees). Some people might consider this mathematical guarantee "not very attractive", yet I have not seen a mathematical proof of a "more attractive" investment strategy that is guaranteed to always beat it.

Aiming for paying fewer taxes is an illogical objective (see this earlier post). The logical objective is to aim to end up with more money to spend after paying taxes. Simplistic one-year calculations are insufficient to achieve this objective. A lifelong analysis of portfolio contributions and after-tax withdrawals is required. Unfortunately, there are more unknown parameters (such as future unanticipated asset returns, future unanticipated tax law changes, and future unanticipated investor circumstance changes) to this analysis than known parameters.

When taking risk into consideration, one quickly discovers the necessity to consider the effective tax-adjusted asset allocation (justified by mathematics) within analyses. Most analyses fail this requirement.

Note that a mirror asset allocation is inherently tax-adjusted (see this post).

The One-Fund Portfolio, which consists of a single identical low-cost globally-diversified all-in-one balanced index fund (or ETF) with a fixed or gliding allocation in all accounts (including taxable), eliminates the need to rebalance and greatly simplifies investing, especially for caretakers or a surviving spouse, and can help sidestep a long list of behavioral pitfalls.
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Blue456
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Re: The One-Fund Portfolio as a default suggestion

Post by Blue456 »

longinvest wrote: Sun Feb 07, 2021 7:07 am
Aiming for paying fewer taxes is an illogical objective (see this earlier post). The logical objective is to aim to end up with more money to spend after paying taxes.
+ 1 to this.
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Re: The One-Fund Portfolio as a default suggestion

Post by dknightd »

Any thoughts on the TIAA social choice fund? It seems to meet my 60/40 target. The 60 is part domestic stocks, part international. The 40 part is also a mix of domestic and international bonds. For me it might be a One-fund portfolio.
I do not know how they pick their social choice. But I suspect there is some overlap. It seems to be a globally diversified fund which matches with my thoughts that one day we will have a globally diversified economy.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

dknightd wrote: Thu Feb 18, 2021 11:04 am Any thoughts on the TIAA social choice fund? It seems to meet my 60/40 target. The 60 is part domestic stocks, part international. The 40 part is also a mix of domestic and international bonds. For me it might be a One-fund portfolio.
I do not know how they pick their social choice. But I suspect there is some overlap. It seems to be a globally diversified fund which matches with my thoughts that one day we will have a globally diversified economy.
Is it capitalization weighted, or actively managed?

Finiki, the wiki of our Canadian sister forum, has a well-documented article (with many references) about ESG portfolio screening. Among its conclusions:
In general, ESG investing attempts to have social or environmental impact through the intermediary of the corporation. This is an indirect and uncertain way to reach this goal. There are much more direct paths, like changing one’s habits to consume fewer resources, giving time or money to a carefully chosen charity, etc.
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Re: The One-Fund Portfolio as a default suggestion

Post by dknightd »

longinvest wrote: Thu Feb 18, 2021 5:07 pm
Is it capitalization weighted, or actively managed?
probably a little bit of both. The back of my envelope says it does about as well as any other combination of funds
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Both stocks and bonds are traded on markets. Their prices are fully subject to the Law of supply and demand. The global stock and bond markets are gigantic. Why would a small investor like me, with very little knowledge of the internals of markets, hope to know more about what's the fair price of stocks and bonds than the collective wisdom of all market participants to decide that bonds are too expensive relative to stocks, or the reverse? I just don't know what prices are really fair and I suspect that those who know have already acted on perceived unfair prices leading market prices to adjust accordingly.

The global stock-and-bond market is balanced. As a consequence, I think that using a low-cost globally-diversified balanced index fund like Vanguard's LifeStrategy Moderate Growth Fund (VSMGX) for life is good enough for investors of all ages and all wealth levels. it's my preferred suggestion as a One-Fund Portfolio.

Instead of worrying about the minutia of asset allocation, trying to find the "best" asset allocation and "best" asset location strategy, I suggest to simply make sure to save enough (by possibly spending a little less) during accumulation, and to combine variable portfolio withdrawals with sufficient stable lifelong non-portfolio income (such as Social Security, possibly delayed to age 70) during retirement.

"Invest with simplicity" -- The Bogleheads Investment Philosophy
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DB2
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Re: The One-Fund Portfolio as a default suggestion

Post by DB2 »

longinvest wrote: Sat Feb 20, 2021 9:14 am Both stocks and bonds are traded on markets. Their prices are fully subject to the Law of supply and demand. The global stock and bond markets are gigantic. Why would a small investor like me, with very little knowledge of the internals of markets, hope to know more about what's the fair price of stocks and bonds than the collective wisdom of all market participants to decide that bonds are too expensive relative to stocks, or the reverse? I just don't know what prices are really fair and I suspect that those who know have already acted on perceived unfair prices leading market prices to adjust accordingly.

The global stock-and-bond market is balanced. As a consequence, I think that using a low-cost globally-diversified balanced index fund like Vanguard's LifeStrategy Moderate Growth Fund (VSMGX) for life is good enough for investors of all ages and all wealth levels. it's my preferred suggestion as a One-Fund Portfolio.

Instead of worrying about the minutia of asset allocation, trying to find the "best" asset allocation and "best" asset location strategy, I suggest to simply make sure to save enough (by possibly spending a little less) during accumulation, and to combine variable portfolio withdrawals with sufficient stable lifelong non-portfolio income (such as Social Security, possibly delayed to age 70) during retirement.

"Invest with simplicity" -- The Bogleheads Investment Philosophy
Good points and I love Vanguard's LifeStrategy funds. But why Moderate Growth for all? Is this because it closely mirrors the overall world market cap weights in terms of stocks and bonds? I ask because it would depend on one's risk tolerances, AA preference, etc. where one of the other LifeStrategy funds might be preferable.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

DB2 wrote: Sat Feb 20, 2021 10:42 am Good points and I love Vanguard's LifeStrategy funds. But why Moderate Growth for all? Is this because it closely mirrors the overall world market cap weights in terms of stocks and bonds? I ask because it would depend on one's risk tolerances, AA preference, etc. where one of the other LifeStrategy funds might be preferable.
I know that the financial industry likes us to think about stocks as risky and bonds as safe.

I think that both stocks and bonds are risky assets, but they differ in their riskiness. As a result, I think that its quite reasonable to accept the global stock-and-bond market's composition for what it is, possibly with a moderate home bias (because foreign investing is slightly but inherently riskier than domestic investing for all investors around the world). VSMGX isn't a perfect image of the global stock-and-bond market at all times, but it's close-enough with a moderate home bias.

What's safe, in the long term, isn't a bond; it's an inflation-indexed lifelong pension like Social Security. As for the very short term, what's safe is a bank account that I can use to pay a bill without worrying about trading hours, settlement dates, and fluctuating portfolio account balance.

During accumulation and retirement, it's good enough to invest portfolio assets into VSMGX. Money for short-term needs can be kept in a high-interest savings account. During retirement, if necessary, a small inflation-indexed (e.g.-2% indexed) SPIA* could be bought with part of the portfolio to complement Social Security. But, preferably, Social Security can be delayed to age 70 to significantly increase it.

* Single Premium Immediate Annuity.
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Re: The One-Fund Portfolio as a default suggestion

Post by Ferdinand2014 »

DB2 wrote: Sat Feb 20, 2021 10:42 am
longinvest wrote: Sat Feb 20, 2021 9:14 am Both stocks and bonds are traded on markets. Their prices are fully subject to the Law of supply and demand. The global stock and bond markets are gigantic. Why would a small investor like me, with very little knowledge of the internals of markets, hope to know more about what's the fair price of stocks and bonds than the collective wisdom of all market participants to decide that bonds are too expensive relative to stocks, or the reverse? I just don't know what prices are really fair and I suspect that those who know have already acted on perceived unfair prices leading market prices to adjust accordingly.

The global stock-and-bond market is balanced. As a consequence, I think that using a low-cost globally-diversified balanced index fund like Vanguard's LifeStrategy Moderate Growth Fund (VSMGX) for life is good enough for investors of all ages and all wealth levels. it's my preferred suggestion as a One-Fund Portfolio.

Instead of worrying about the minutia of asset allocation, trying to find the "best" asset allocation and "best" asset location strategy, I suggest to simply make sure to save enough (by possibly spending a little less) during accumulation, and to combine variable portfolio withdrawals with sufficient stable lifelong non-portfolio income (such as Social Security, possibly delayed to age 70) during retirement.

"Invest with simplicity" -- The Bogleheads Investment Philosophy
Good points and I love Vanguard's LifeStrategy funds. But why Moderate Growth for all? Is this because it closely mirrors the overall world market cap weights in terms of stocks and bonds? I ask because it would depend on one's risk tolerances, AA preference, etc. where one of the other LifeStrategy funds might be preferable.
Agree. I feel the basic all in one construct is a reasonable choice for many investors. I however, have never understood what the global allocation ratio of stocks and bonds has anything to do with an individual investor. For example, U.S. treasuries are bought by Japanese and Chinese central banks in part because of complex issues of trade balance, the U.S. dollars reserve currency, etc. The global balance of stocks and bonds in my mind is arbitrary and not at all related to individual investors. This I believe is inherently different than the global stock market where individual public companies are capitalized based on relative value to each other by the collective investors both institutional and individual.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Ferdinand2014 wrote: Sat Feb 20, 2021 12:15 pm I however, have never understood what the global allocation ratio of stocks and bonds has anything to do with an individual investor.
It has the same relevancy as the relative capitalization weightings of Apple Inc. (AAPL) (5.24%) and InterDigital Inc. (IDCC) (0.00%) in an individual investor's domestic stock exposure through Vanguard's Total Stock Market ETF (VTI). It's all about float-adjusted capitalization-weighted indexing.

The recent GameStop events were an illustration of how it's much easier to manipulate a small part of the market (here, a single stock) than the overall market (VTI which wasn't noticeably affected).

Free-float capitalization-weighted investing is backed by a powerful easy-to-understand theorem based on simple arithmetic: The Arithmetic of Active Management by William Sharpe.

The theorem allows us to conclude that, in a perfectly unified world with a single currency, beating the global stock-and-bond market is a zero-sum game before fees and a losing game after fees. But, in the real world, where we live, the same security doesn't deliver perfectly identical returns to a domestic and to a foreign investor, and it carries slightly more risk for the foreign investor. This is why I think that a moderate home bias is acceptable in the global portfolio of an individual investor. Yet, the main principle remains unchanged: beating the global stock-and-bond market is (mostly) a zero-sum game before fees.

Investing into a portfolio which reliably delivers average returns, year after year after year, guarantees that the portfolio will never be the worst performing one over any period (short or long). There are very few such mathematical guarantees in investing. I see no reason not to take advantage of it all lifelong, especially when it comes in the form of a low-cost all-in-one globally-diversified balanced index fund like Vanguard's LifeStrategy Moderate Growth Fund (VSMGX).
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Re: The One-Fund Portfolio as a default suggestion

Post by Ferdinand2014 »

longinvest wrote: Sat Feb 20, 2021 12:45 pm
Ferdinand2014 wrote: Sat Feb 20, 2021 12:15 pm I however, have never understood what the global allocation ratio of stocks and bonds has anything to do with an individual investor.
It has the same relevancy as the relative capitalization weightings of Apple Inc. (AAPL) (5.24%) and InterDigital Inc. (IDCC) (0.00%) in an individual investor's domestic stock exposure through Vanguard's Total Stock Market ETF (VTI). It's all about float-adjusted capitalization-weighted indexing.

The recent GameStop events were an illustration of how it's much easier to manipulate a small part of the market (here, a single stock) than the overall market (VTI which wasn't noticeably affected).

Free-float capitalization-weighted investing is backed by a powerful easy-to-understand theorem based on simple arithmetic: The Arithmetic of Active Management by William Sharpe.

The theorem allows us to conclude that, in a perfectly unified world with a single currency, beating the global stock-and-bond market is a zero-sum game before fees and a losing game after fees. But, in the real world, where we live, the same security doesn't deliver perfectly identical returns to a domestic and to a foreign investor, and it carries slightly more risk for the foreign investor. This is why I think that a moderate home bias is acceptable in the global portfolio of an individual investor. Yet, the main principle remains unchanged: beating the global stock-and-bond market is (mostly) a zero-sum game before fees.

Investing into a portfolio which reliably delivers average returns, year after year after year, guarantees that the portfolio will never be the worst performing one over any period (short or long). There are very few such mathematical guarantees in investing. I see no reason not to take advantage of it all lifelong, especially when it comes in the form of a low-cost all-in-one globally-diversified balanced index fund like Vanguard's LifeStrategy Moderate Growth Fund (VSMGX).
Beating the global stock and bond market is not my goal. I have a stock and bond (treasury bills in my case) amount designed to meet my short and long term needs based on risk tolerance and goals. My goals have nothing to do with the global stock and bond arbitrary ratios determined by the complexities of institutional, individual and central bank needs for fixed income. If not true, why would you propose a reasonable alternative to VSMGX such as target date funds which change the ratio over time which certainly do not correspond to a global stock and bond ratio? From my standpoint, there is a fundamental difference between global bonds and global stocks and their uses in a portfolio that do not have much to do with an individual investor vs the global ratio.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Ferdinand2014 wrote: Sat Feb 20, 2021 3:25 pm I have a stock and bond (treasury bills in my case) amount designed to meet my short and long term needs based on risk tolerance and goals.
Ferdinand2014, we obviously differ in our view of what's a risky asset. I've explained my view in this post just above your first post.

Luckily, the first post of this thread presents two One-Fund Portfolio options to accommodate various differing views like yours and mine.
:sharebeer
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Re: The One-Fund Portfolio as a default suggestion

Post by GoneOnTilt »

Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm For individuals who have decided to go with a one fund portfolio in all accounts and are still in accumulation phase, how do you deal with the following scenarios before retirement:

1.) A known expense in an expected timeframe of 3 years such as a new car

2.) An expected, but time frame unclear expense such as a major house repair

3.) An unexpected and unknown time frame expense such as a job loss

Do you withdraw from the one fund life strategy portfolio in taxable, keep a separate cash fund (so you truly are not in a one fund portfolio only), or some combination?
This is a great question and after years after hemming and hawing and switching things around, and now being 4-5 years from retirement, I just do this:

1. For expenses that might come up in the next year or so, Vanguard Federal MMF.

2. For expenses that might come up in the next 2-3 years, Vanguard Short Term Treasury ETF (VGSH).

3. All the rest of fixed income is in total bond, for the most part.

I consider it all as part of my asset allocation, and just refill (1) as needed. I have to say that DW and I have been fortunate and haven't had any huge emergencies that we weren't able to just cash flow with our regular income.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm
bck63 wrote: Sat Feb 20, 2021 7:13 pm
This thread is about the One-Fund Portfolio. There are other threads to discuss the minutia of budgeting, cash account management, and possibly low-cost debt to spread the cost of big items over time.
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

longinvest wrote: Sat Feb 20, 2021 7:25 pm
Ferdinand2014 wrote: Sat Nov 07, 2020 10:02 pm
bck63 wrote: Sat Feb 20, 2021 7:13 pm
This thread is about the One-Fund Portfolio. There are other threads to discuss the minutia of budgeting, cash account management, and possibly low-cost debt to spread the cost of big items over time.
And not to be snarky but the answer to "with a one fund portfolio... how do you deal with the following scenarios..." is the same as if you had a multi-fund portfolio, except you have one less decision to make. Instead of choosing between selling stocks or bonds, you sell from the one-fund! The other aspects (budgeting, cash management, etc.) are indeed the same.
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Re: The One-Fund Portfolio as a default suggestion

Post by GoneOnTilt »

.......
Last edited by GoneOnTilt on Sat Feb 20, 2021 7:57 pm, edited 1 time in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by 000 »

longinvest wrote: Sat Feb 20, 2021 9:14 am Both stocks and bonds are traded on markets. Their prices are fully subject to the Law of supply and demand. The global stock and bond markets are gigantic. Why would a small investor like me, with very little knowledge of the internals of markets, hope to know more about what's the fair price of stocks and bonds than the collective wisdom of all market participants to decide that bonds are too expensive relative to stocks, or the reverse? I just don't know what prices are really fair and I suspect that those who know have already acted on perceived unfair prices leading market prices to adjust accordingly.

The global stock-and-bond market is balanced. As a consequence, I think that using a low-cost globally-diversified balanced index fund like Vanguard's LifeStrategy Moderate Growth Fund (VSMGX) for life is good enough for investors of all ages and all wealth levels. it's my preferred suggestion as a One-Fund Portfolio.

Instead of worrying about the minutia of asset allocation, trying to find the "best" asset allocation and "best" asset location strategy, I suggest to simply make sure to save enough (by possibly spending a little less) during accumulation, and to combine variable portfolio withdrawals with sufficient stable lifelong non-portfolio income (such as Social Security, possibly delayed to age 70) during retirement.

"Invest with simplicity" -- The Bogleheads Investment Philosophy
Currencies also trade on gigantic liquid markets. Do you know enough to exclude the Forex market?

So do commodities. Do you know enough to exclude the commodities market?

Then the flipside....

If you have a liability in a certain currency over some timeframe, how could you not know enough to pick the currency and bond duration?

If you have greater risk for a certain class of securities than the aggregate investor therein (such as a foreign investor in a hostile country's security markets), how could you not know enough to recognize that that class of securities offers lower risk-adjusted return for you particularly?
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

000 wrote: Sat Feb 20, 2021 7:49 pm Currencies also trade on gigantic liquid markets. ...
So do commodities. ...
I'm not aware of a low-cost all-in-one fund or ETF that contains, in addition to stocks and bonds, a global (free-float) capitalization-weighted allocation to currencies, commodities, and derivatives. As an answer to the questions about including currencies and commodities, I suggest reading this post on the "Bill Sharpe's preferred portfolio" thread. But, without an appropriate all-in-one low-cost index fund or ETF that includes them, it's pretty much off topic for this thread.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
000
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Re: The One-Fund Portfolio as a default suggestion

Post by 000 »

longinvest wrote: Sat Feb 20, 2021 9:14 pm
000 wrote: Sat Feb 20, 2021 7:49 pm Currencies also trade on gigantic liquid markets. ...
So do commodities. ...
I'm not aware of a low-cost all-in-one fund or ETF that contains, in addition to stocks and bonds, a global (free-float) capitalization-weighted allocation to currencies, commodities, and derivatives. As an answer to the questions about including currencies and commodities, I suggest reading this post on the "Bill Sharpe's preferred portfolio" thread. But, without an appropriate all-in-one low-cost index fund or ETF that includes them, it's pretty much off topic for this thread.
I think we may have reached peak Argumentum ad Simplicitum. If it's not in a one fund, it can't possibly be worth investing in or even discussing what we may be missing! The point of my questions was to encourage you to think about why you think you need to own every security that a fund provider thinks is worthy but not any securities that they don't. Some people consider bonds to be a kind of currency BTW...
D-Dog
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Re: The One-Fund Portfolio as a default suggestion

Post by D-Dog »

longinvest wrote: Sat Feb 20, 2021 9:14 pm
000 wrote: Sat Feb 20, 2021 7:49 pm Currencies also trade on gigantic liquid markets. ...
So do commodities. ...
I'm not aware of a low-cost all-in-one fund or ETF that contains, in addition to stocks and bonds, a global (free-float) capitalization-weighted allocation to currencies, commodities, and derivatives. As an answer to the questions about including currencies and commodities, I suggest reading this post on the "Bill Sharpe's preferred portfolio" thread. But, without an appropriate all-in-one low-cost index fund or ETF that includes them, it's pretty much off topic for this thread.
So this thread is only about one fund portfolios? I thought it was about the benefits of one fund portfolios vs. multi-fund portfolios. You have provided your rationale for a one fund portfolio, and it sounds to me like some others are debating the validity of your rationale. Why is that off topic?

I have been following this thread since the beginning, and I think you have some very strong points. I'm becoming more convinced of the benefits of a one fund portfolio every day, but I find the questions and debate helpful.
Blue456
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Re: The One-Fund Portfolio as a default suggestion

Post by Blue456 »

longinvest wrote: Sat Feb 20, 2021 9:14 pm

I'm not aware of a low-cost all-in-one fund or ETF that contains, in addition to stocks and bonds, a global (free-float) capitalization-weighted allocation to currencies, commodities, and derivatives.
How high of a cost is considered low cost?
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Blue456 wrote: Sun Feb 21, 2021 2:06 pm
longinvest wrote: Sat Feb 20, 2021 9:14 pm

I'm not aware of a low-cost all-in-one fund or ETF that contains, in addition to stocks and bonds, a global (free-float) capitalization-weighted allocation to currencies, commodities, and derivatives.
How high of a cost is considered low cost?
You know what they say: "If you have to ask, it's probably too high." :wink:

Are you thinking about the Cambria Global Asset Allocation ETF (GAA) which "utilizes a quantitative approach to manage a diversified portfolio of global asset classes"? It isn't an index fund. It contains underlying funds like the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) which "is an actively managed exchange-traded fund (ETF) that seeks to achieve its investment objective by investing in commodity-linked futures and other financial instruments that provide economic exposure to a diverse group of the world's most heavily traded commodities."
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Blue456
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Re: The One-Fund Portfolio as a default suggestion

Post by Blue456 »

longinvest wrote: Sun Feb 21, 2021 2:24 pm
Blue456 wrote: Sun Feb 21, 2021 2:06 pm
longinvest wrote: Sat Feb 20, 2021 9:14 pm

I'm not aware of a low-cost all-in-one fund or ETF that contains, in addition to stocks and bonds, a global (free-float) capitalization-weighted allocation to currencies, commodities, and derivatives.
How high of a cost is considered low cost?
You know what they say: "If you have to ask, it's probably too high." :wink:

Are you thinking about the Cambria Global Asset Allocation ETF (GAA) which "utilizes a quantitative approach to manage a diversified portfolio of global asset classes"? It isn't an index fund. It contains underlying funds like the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) which "is an actively managed exchange-traded fund (ETF) that seeks to achieve its investment objective by investing in commodity-linked futures and other financial instruments that provide economic exposure to a diverse group of the world's most heavily traded commodities."
This one maybe among a couple of others that I am thinking about. At what point it cost not worth the convenience?
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