[How does one fight the urge to make simple things more complex?]

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Freckle's friend
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Re: [How does one fight the urge to make simple things more complex?]

Post by Freckle's friend »

Hello all! My first post having just joined Bogleheads.org. I was drawn to this question from the 'three fund portfolio' thread. I have been intrigued by behavioral economics from a broader interest in 'decision-making science' starting with Tversky's and Kahneman's first paper in Science in the 1970's. I have read nothing that suggests that the Three Fund idea shouldn't perform sufficiently to satisfy every investor if held over 30+ years. (And fiddling with it over that time will nearly always do worse. And the lucky ones who do better? Just luck as anything with any 'odds' might. So do you feel lucky?)

Lauretta's question speaks to the power of the intuitive mind and its limitations in some domains. My first thought is that the 'market' is an 'anchor' upon which we are going to compare all alternatives to. Regret, the emotional response to a bad outcome, i.e. 'compared to the anchor', is a huge motivator. The psychological "problem" presented by the Three Fund portfolio for me is that it never 'beats the market'. And if any one person (or fund or portfolio) out there does so, then 'regret' sets in. Marketing those successes pulls on these two features (anchor, regret). Avoiding the noise (not teased by the regret) and reminding myself of the long time horizon success of a Three Fund (the anchor IS the best success in the long haul) would be very helpful in defeating the intuitions that have drawn me to the Bogleheads in the first place. For I, too, can't help but think that as of today: "Bonds produce no interest, Stocks are as pricey as ever (back in record territory despite a virus that is driving the worst economic downturn and government debt since the 1930's-45)" so that as I am nearing retirement I need to 'protect myself' in some way the Three Fund can't. Sigh.
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Taylor Larimore
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Re: [How does one fight the urge to make simple things more complex?]

Post by Taylor Larimore »

as I am nearing retirement I need to 'protect myself' in some way the Three Fund can't. Sigh.
Freckle's friend:

I am 96 years old and I retired at age 57. "The Three Fund" Portfolio (or similar) has protected me just fine.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom "A balanced approach (stocks and bonds) has been validated over centuries."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: [How does one fight the urge to make simple things more complex?]

Post by KyleAAA »

Decide how complex something actually is, then construct an appropriate solution. Over-simplifying complex things is probably worse than over-complicating simple things.
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Re: [How does one fight the urge to make simple things more complex?]

Post by Robot Monster »

Taylor Larimore wrote: Sun Aug 16, 2020 1:25 pm
as I am nearing retirement I need to 'protect myself' in some way the Three Fund can't. Sigh.
Freckle's friend:

I am 96 years old and I retired at age 57. "The Three Fund" Portfolio (or similar) has protected me just fine.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom "A balanced approach (stocks and bonds) has been validated over centuries."
You had amazing timing bond-wise, as the 10yr average yield in 1981 was 13.92%. Now it yields 0.71%. Bonds are a different animal now.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
kim.gold
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Re: [How does one fight the urge to make simple things more complex?]

Post by kim.gold »

Robot Monster wrote: Sun Aug 16, 2020 1:44 pm
Taylor Larimore wrote: Sun Aug 16, 2020 1:25 pm
as I am nearing retirement I need to 'protect myself' in some way the Three Fund can't. Sigh.
Freckle's friend:

I am 96 years old and I retired at age 57. "The Three Fund" Portfolio (or similar) has protected me just fine.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom "A balanced approach (stocks and bonds) has been validated over centuries."
You had amazing timing bond-wise, as the 10yr average yield in 1981 was 13.92%. Now it yields 0.71%. Bonds are a different animal now.

I beg to differ. As someone was saying “As long as yields continue declining, even at negative rates we hold bonds for capital gains. If you want dividends, go ask the equity folks.”
nanameg
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Re: [How does one fight the urge to make simple things more complex?]

Post by nanameg »

Ferdinand2014 wrote: Sat Aug 15, 2020 7:11 am I focus an the things I can control Instead of the illusion of the things I cannot. Savings rate, living below my means, costs and behavioral errors. Behavioral errors for me are constant fiddling. If my portfolio does not allow choices than I do not engage as there is nothing I actively need to decide. For example, I do not use ETF’s (as they encourage trading and do not allow automatic investing), I have all of my accounts on automatic investing including dividends, only own one mutual fund, do not rebalance and do not keep an asset allocation. Money is like soap, the more you handle it, the smaller it gets.
The last line is very good!!

Can I ask what is the one mutual fund u own?
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Toons
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Re: [How does one fight the urge to make simple things more complex?]

Post by Toons »

Read
"Occam's razor "
Periodically


:wink:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
nanameg
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Re: [How does one fight the urge to make simple things more complex?]

Post by nanameg »

Broken Man 1999 wrote: Sat Aug 15, 2020 3:10 pm
Lauretta wrote: Sat Aug 15, 2020 1:24 pm
lazynovice wrote: Sat Aug 15, 2020 12:48 pm For years, we have joked that if I pass away before my husband, the first thing he would do is sell all of our investments and put them in cash. Even though we have a three fund portfolio, I had scattered our money in several different brokerages and banks.

A co-worker of mine died suddenly in the fall. As I watched his wife go through the process of settling his estate and figuring out what she had to support herself and her children, I saw that even my simple set-up was still pretty darn complicated. Since then, I have been on a mission to get things simplified so that if I died tomorrow, he would be able to settle my estate relatively quickly and then either manage it himself or turn it over to a low cost advisor like Vanguard PAS.

So to answer your question, for the last few months when I want to do something, I ask myself whether I am making it more or less confusing for him if something were to happen to me. Or am I creating more work for him to settle the estate. That has not been 100 percent effective, but it has helped.
great point, thank you
Considering those left behind was an important issue when we discussed an estate plan a couple of years ago with our lawyer. And it had nothing to do with finances, and everything to do with managing the settlement of our estate. The money part was easy.

When I read of posts here of people having difficulty in administrating an estate, I think of how selfish and inconsiderate the person was to leave such a mess for grieving relatives to unwind. Total lack of respect, IMHO.

NEWS FLASH, we are all going to die! Take the time to plan for those left behind.

And, when a plan is developed, for goodness sakes share it with those who will be following your plan. Your potential heirs might bring something up for you to consider.

Broken Man 1999
Thank you for this. You phrased this well ...” total lack of respect” and I would add love and care...for those left behind. I think it’s essential to simplify not only money and estate but also just get rid of stuff so your kids don’t have to!
nanameg
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Re: [How does one fight the urge to make simple things more complex?]

Post by nanameg »

abuss368 wrote: Sat Aug 15, 2020 5:37 pm
lazynovice wrote: Sat Aug 15, 2020 12:48 pm For years, we have joked that if I pass away before my husband, the first thing he would do is sell all of our investments and put them in cash. Even though we have a three fund portfolio, I had scattered our money in several different brokerages and banks.

A co-worker of mine died suddenly in the fall. As I watched his wife go through the process of settling his estate and figuring out what she had to support herself and her children, I saw that even my simple set-up was still pretty darn complicated. Since then, I have been on a mission to get things simplified so that if I died tomorrow, he would be able to settle my estate relatively quickly and then either manage it himself or turn it over to a low cost advisor like Vanguard PAS.

So to answer your question, for the last few months when I want to do something, I ask myself whether I am making it more or less confusing for him if something were to happen to me. Or am I creating more work for him to settle the estate. That has not been 100 percent effective, but it has helped.
This is exactly my focus and what I have always asked myself when thinking about my spouse.

I also very clearly mentioned, and no doubt she will, hire Vanguard PAS.

Here the kicker. More and more I am thinking I may simply hire PAS sometime in retirement. Simply I won’t want to be bothered, future life things such as cognitive decline and death.

I am so glad they offer this service unlike years ago.
Wouldn’t it be even simpler ..and cheaper...to go to a one fund portfolio rather than engage PAS?
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Re: [How does one fight the urge to make simple things more complex?]

Post by Robot Monster »

kim.gold wrote: Sun Aug 16, 2020 1:57 pm
Robot Monster wrote: Sun Aug 16, 2020 1:44 pm
Taylor Larimore wrote: Sun Aug 16, 2020 1:25 pm
as I am nearing retirement I need to 'protect myself' in some way the Three Fund can't. Sigh.
Freckle's friend:

I am 96 years old and I retired at age 57. "The Three Fund" Portfolio (or similar) has protected me just fine.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom "A balanced approach (stocks and bonds) has been validated over centuries."
You had amazing timing bond-wise, as the 10yr average yield in 1981 was 13.92%. Now it yields 0.71%. Bonds are a different animal now.

I beg to differ. As someone was saying “As long as yields continue declining, even at negative rates we hold bonds for capital gains. If you want dividends, go ask the equity folks.”
K, but yields aren't going -13% or anywhere close.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
000
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Re: [How does one fight the urge to make simple things more complex?]

Post by 000 »

Freckle's friend wrote: Sun Aug 16, 2020 12:29 pm I have read nothing that suggests that the Three Fund idea shouldn't perform sufficiently to satisfy every investor if held over 30+ years.
It wouldn't satisfy me. I think there is more safety in land than fiat bonds.
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Re: [How does one fight the urge to make simple things more complex?]

Post by Ferdinand2014 »

nanameg wrote: Sun Aug 16, 2020 3:38 pm
Ferdinand2014 wrote: Sat Aug 15, 2020 7:11 am I focus an the things I can control Instead of the illusion of the things I cannot. Savings rate, living below my means, costs and behavioral errors. Behavioral errors for me are constant fiddling. If my portfolio does not allow choices than I do not engage as there is nothing I actively need to decide. For example, I do not use ETF’s (as they encourage trading and do not allow automatic investing), I have all of my accounts on automatic investing including dividends, only own one mutual fund, do not rebalance and do not keep an asset allocation. Money is like soap, the more you handle it, the smaller it gets.
The last line is very good!!

Can I ask what is the one mutual fund u own?
Currently a S&P 500 index fund (FXAIX) Er 0.015 as my only mutual fund and a few years of cash savings.

However, based on some conversation with my DW, our age difference (she is younger) and a recent health scare, I am beginning to think a TDF which would be completely hands off essentially forever has begun to creep into my thoughts.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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steve roy
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Re: [How does one fight the urge to make simple things more complex?]

Post by steve roy »

You're on the right track. My 2015 Target Date Fund has done as well as any fund I own. And I don't have to give it a thought.
nanameg
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Re: [How does one fight the urge to make simple things more complex?]

Post by nanameg »

steve roy wrote: Sun Aug 16, 2020 5:37 pm You're on the right track. My 2015 Target Date Fund has done as well as any fund I own. And I don't have to give it a thought.
You find that a TDF is as good in the distribution phase as it is was in the accumulation phase?
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steve roy
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Re: [How does one fight the urge to make simple things more complex?]

Post by steve roy »

The 2015 TDF holds all my 401(k) money. When our organization shifted to Vanguard as administrator of 401(k) funds years ago, they transferred all accounts from the old administrator to age-appropriate Target Date Funds.

I never moved anything to other offered funds, and it's worked out great. It's about 67% bonds now (I haven't checked the exact percentage), and I've only had one RMD. This year no RMD required, so I'm not taking it. Account is holding steady. I know the ideal is supposed to be to take withdrawals from equities or bonds depending on recent performance of each, but taking money from stocks and bonds equally has worked fine.

(The Asset Allocation of Mr. and Mrs. Steve Roy is 30/70. We're usually close to that.)
nanameg
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Re: [How does one fight the urge to make simple things more complex?]

Post by nanameg »

steve roy wrote: Sun Aug 16, 2020 11:09 pm The 2015 TDF holds all my 401(k) money. When our organization shifted to Vanguard as administrator of 401(k) funds years ago, they transferred all accounts from the old administrator to age-appropriate Target Date Funds.

I never moved anything to other offered funds, and it's worked out great. It's about 67% bonds now (I haven't checked the exact percentage), and I've only had one RMD. This year no RMD required, so I'm not taking it. Account is holding steady. I know the ideal is supposed to be to take withdrawals from equities or bonds depending on recent performance of each, but taking money from stocks and bonds equally has worked fine.

(The Asset Allocation of Mr. and Mrs. Steve Roy is 30/70. We're usually close to that.)
Good to hear. Thank you, that’s helpful.
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Re: [How does one fight the urge to make simple things more complex?]

Post by Dottie57 »

Experience helped me.

Complex portfolios from my financial advisors gave poorer results than the 401k with simple index funds.
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Re: [How does one fight the urge to make simple things more complex?]

Post by vitaflo »

What gets me to snap out of it is to do the math. Basically realizing I'm going to need to move hundreds of thousands of dollars around for the chance of sneaking out potential out performance that isn't guaranteed and then finding out if I'm lucky I'll make an extra few thousand or so in the end.

Add on to this that many complex approaches would take decades of sticking to it to really pay off, if they do. I've found that people who want to make things complex aren't ever satisfied with their solutions. If they were they wouldn't have attempted to make them complex in the first place. They tend to continually fiddle with their plans which just ends up making them worse.
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Taylor Larimore
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Target Date Funds

Post by Taylor Larimore »

nanameg wrote: Sun Aug 16, 2020 6:35 pm
steve roy wrote: Sun Aug 16, 2020 5:37 pm You're on the right track. My 2015 Target Date Fund has done as well as any fund I own. And I don't have to give it a thought.
You find that a TDF is as good in the distribution phase as it is was in the accumulation phase?
Bogleheads:

The simplicity of a Target Date Fund is ideal in the distribution phase -- for the owner, caregivers and heirs.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Target-date funds have proved to be the most powerful fund-industry-changing concept since the money market mutual fund and the index mutual fund."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Target Date Funds

Post by nanameg »

Taylor Larimore wrote: Mon Aug 17, 2020 11:39 am
nanameg wrote: Sun Aug 16, 2020 6:35 pm
steve roy wrote: Sun Aug 16, 2020 5:37 pm You're on the right track. My 2015 Target Date Fund has done as well as any fund I own. And I don't have to give it a thought.
You find that a TDF is as good in the distribution phase as it is was in the accumulation phase?
Bogleheads:

The simplicity of a Target Date Fund is ideal in the distribution phase -- for the owner, caregivers and heirs.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Target-date funds have proved to be the most powerful fund-industry-changing concept since the money market mutual fund and the index mutual fund."
The reasons I get stuck on this are 2.

1) I wonder about tax efficiency and RMD’s. We are still earning and haven’t begun drawdown so it’s all unfamiliar territory but approaching quickly. I don’t know how complex all of that is and if a TDF is the best route for withdrawal phase. Good to hear you think it is ideal.
2) our PAS advisor told me in a conversation in June of this year that TDF are NOT ideal for drawdown since you can’t isolate whether u are drawing from stocks or bonds when one or the other is doing well. Others on this forum have disagreed with that response.
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Re: [How does one fight the urge to make simple things more complex?]

Post by mak1277 »

I think this is all a function of the (recent?) urge to optimize EVERYTHING. I think that urge, and the resulting decisions it leads to, is ultimately bad for people's psyches. I don't need to have the exact best [insert thing]. The time it takes to figure out what that best [thing] is is (to me) a colossal waste of time and energy. I need a [thing] that's good enough for my purposes. For me, a three-fund portfolio is plenty good enough. Spending time to make it "better" is a fool's errand.

TLDR: I agree with the guy who said "3-fund because I'm lazy".
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Re: [How does one fight the urge to make simple things more complex?]

Post by Portfolio7 »

Lauretta wrote: Sat Aug 15, 2020 4:13 am
000 wrote: Fri Aug 14, 2020 11:22 pm Complexity isn't the problem, lack of persistence is. If simplicity helps one stay the course, then by all means go for it.

There were many "capitulation" threads on this board in March. I don't seem to recall complexity (number of funds, tilts, US vs Intl) being a factor.

The ideal portfolio is precisely as complex as is necessary. Excessive simplicity is not a virtue.
thank you, this is an excellent point. My problem is indeed persistence in that I overweighted Europe and titlted to value in my initial AA I set for myself; now I have a lot of money to invest and if I stick to my AA I should put a lot into Europe and a vale ETF. I realize that buying more of the funds that have performed worse (or, equivalently, rebalacing by selling the winners and buying the losers) is quite depressing; so probably a portfolio tat needs less maintenance is better for me...
You may also want to re-assess your need for risk. When you had less money, you chose an AA that carried extra risk of certain types, including very long-term underperformance relative to the market, hoping for long-term returns that exceeded a 3-funder.

Now that you have "a lot of money to invest", do you really need to take that risk? Or will a basic 3-fund portfolio now work for you in the long run?
"An investment in knowledge pays the best interest" - Benjamin Franklin
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Re: [How does one fight the urge to make simple things more complex?]

Post by dcabler »

As another poster mentioned, "simplicity is in the eye of the beholder". I personally have no desire to target a portfolio that only consists of an arbitrary number of funds between 1 and 3 - not in the modern era of easy access to data, spreadsheets and commission free trading. Rather, my choices are to use as few funds as possible which I believe will meet my needs with as little overlap as possible and to do so as inexpensively as possible. Simple enough for me.
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Re: [How does one fight the urge to make simple things more complex?]

Post by Freckle's friend »

Taylor Larimore wrote: Sun Aug 16, 2020 1:25 pm
as I am nearing retirement I need to 'protect myself' in some way the Three Fund can't. Sigh.
Freckle's friend:

I am 96 years old and I retired at age 57. "The Three Fund" Portfolio (or similar) has protected me just fine.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom "A balanced approach (stocks and bonds) has been validated over centuries."
I am honored by your response Taylor. Thank You.

I realize that I may have confused things. The simplicity and efficacy of the 3 fund is beyond dispute. Invest inexpensively in nearly every stock in the world and every bond in the US. You have posted many logical arguments in its favor. And yet, there is a pull to do otherwise that I feel and many others do likewise, in this thread and many others. The question I find so intriguing is 'why'? Why do I fear the 3 fund portfolio, for to be honest, I do a little bit. Clearly I 'don't fear' what I did enough not to have done it. And so the latest 'noise' is the virus, the unemployment rate, the Fed action, the trillion dollar spending packages and it invites many to conclude that the market is going to tank, protect yourself buy gold! It is the same impulse that draws people to run when the market falls, or jump in when the market has risen (exactly opposite the sensible 'buy low, sell high'). It is that impulse, intuition, anxiety that I am intrigued by. And I am migrating to a 3 fund portfolio as I head toward retirement and though I didn't do too badly, I wish I had the wisdom to have discovered it years earlier.
DesertMan
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Re: [How does one fight the urge to make simple things more complex?]

Post by DesertMan »

Channel your nervous energy into something else, preferably something having nothing to do with finance or investing. Tune out the news as best as you can.
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Re: [How does one fight the urge to make simple things more complex?]

Post by protagonist »

DesertMan wrote: Wed Aug 19, 2020 7:54 pm Channel your nervous energy into something else, preferably something having nothing to do with finance or investing. Tune out the news as best as you can.
That's good advice. Many years ago somebody told me "That to which you give your attention only grows stronger in your life." I never forget that.

Don't waste your time reading the Wall Street Journal or Money Magazine or listening to finance podcasts or watching the finance news on TV. Forget about Monte Carlo models which are meaningless in an unknown future, and only check your investments once a year or so. Investing is easy, and all that other stuff is noise. Tune it all out and find a more fun hobby. Like a sport or an art form or some such thing.

Maybe you will make a lot of money, or maybe you won't, but almost all of it is luck anyway.

If the "3 Fund Portfolio" makes sense to you, go with it. At least you know you are not spending huge amounts of money to make money managers or financial advisers rich. And you are not doing anything stupid.

And most important, stay out of debt, don't put all your eggs in one basket, and live within your means (which means "don't do anything stupid").
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Re: [How does one fight the urge to make simple things more complex?]

Post by Nowizard »

Yes, though more earlier on with investing as a younger person. The issue reared its head again when retiring and having little need for risk. It continues to be challenging at times to move from the "simplist" preservation portfolio rather than having at least some tilt to an accumulation portfolio. The urge is met in two ways. Our allocation ratio is approximately 5% higher in the equity area than necessary, and we continue to occasionally take a flyer on an individual stock under certain circumstances. It is a similar approach to the 20/80 one regarding meal planning where 80% is solid food, 20% indulgence. Works for us.

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Post by Taylor Larimore »

protagonist:

Nice post!

Thank you and best wishes.

Taylor
Jack Bogle's Word of Wisdom: "This business is all about simplicity and low cost. I'm not into all these market strategies and theories and cost-benefit analyses - all the bureaucracy that goes with business. In investing, strip all the baloney out of it, and give people what you promise."
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Re: [How does one fight the urge to make simple things more complex?]

Post by HRG »

Forgive me if this has already been answered somewhere, but when folks talk about the Three Fund Portfolio, are most of you doing this in a tax deferred account (401K/IRA/Roth etc)?

It doesn't seem as desirable in a regular brokerage account.
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Re: [How does one fight the urge to make simple things more complex?]

Post by mak1277 »

HRG wrote: Fri Aug 21, 2020 1:26 pm Forgive me if this has already been answered somewhere, but when folks talk about the Three Fund Portfolio, are most of you doing this in a tax deferred account (401K/IRA/Roth etc)?

It doesn't seem as desirable in a regular brokerage account.
I use three-fund in both tax-deferred and taxable accounts.
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Re: [How does one fight the urge to make simple things more complex?]

Post by abuss368 »

Taylor Larimore wrote: Sun Aug 16, 2020 1:25 pm
as I am nearing retirement I need to 'protect myself' in some way the Three Fund can't. Sigh.
Freckle's friend:

I am 96 years old and I retired at age 57. "The Three Fund" Portfolio (or similar) has protected me just fine.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom "A balanced approach (stocks and bonds) has been validated over centuries."
Investors would be wise to consider the many benefits of the Three Fund Portfolio.
John C. Bogle: “Simplicity is the master key to financial success."
HRG
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Re: [How does one fight the urge to make simple things more complex?]

Post by HRG »

mak1277,
I use three-fund in both tax-deferred and taxable accounts.
If you've had this setup for more than a year in your taxable account, how did it work out tax wise having bonds and international funds? I used to get hit hard with taxes and now only keep individual stocks in my taxable account.
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Re: [How does one fight the urge to make simple things more complex?]

Post by 22twain »

HRG wrote: Fri Aug 21, 2020 1:26 pm Forgive me if this has already been answered somewhere, but when folks talk about the Three Fund Portfolio, are most of you doing this in a tax deferred account (401K/IRA/Roth etc)?

It doesn't seem as desirable in a regular brokerage account.
The usual advice here is to first consider your total assets and decide how you want to allocate them by asset class: US stock, international stock, bonds, other fixed income, without regard to which accounts they'll be in. Then distribute those asset classes among your accounts (taxable, tax-deferred, and Roth) in a tax-efficient way.

For someone who has a relatively small bond/FI allocation, this might mean putting all bonds in tax-deferred, filling up the rest of the tax-deferred space with US stock, filling the Roth with US stock, and putting the international stock and the remaining US stock in taxable.
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