"How a Second Grader Beats Wall Street" -- A Gem

[redrock]

I found your posts very interesting and wish you all the best in your recovery. I am a novice investor(actually all in cash and CD's) but have found the good people on this board very helpful and friendly, especially after two less than satisfactory experiences with "financial advisers". I,too, have had some health issues(colon and prostate cancers)and worry about what is best for my family. I have found this board very interesting and comforting for me. Again,all the best and try to treasure each and evry day.

You know, Redrock - I have to wonder if I would have ever thought to think outside of the box, if it hadn't been for health issues. I couldn't figure out if I was retired, or not. I'm too young to be retired. But I don't have regular income to DCA every month. Then I tried the 100 minus your age thing - again, that didn't seem to work for me, as my statistically projected lifespan is 10 years short of average (and plenty long enough, there is no angst in this for me). So how do I think about this? The drumbeat for those seeking early retirement is to afford big ticket expenditures such as exotic travel. Thankfully, I traveled all I cared too, back when I was working. My biggest issue, and one I assume you well know - is health care inflation, but more specific is those surprise unexpected big health care bills. When you don't fit in the typical box, you sort of have to figure out a box that is right for yourself and your family. That is all I tried to do.
tutaloo

Each of us has to figure out his "own box". One that fits our particular circumstances. In my own case, I am retired-age 63-with a shortened statistical lifespan and my wife is very risk averse. Accordingly, our particular investment box consists of mm funds and CD's. This certainly wouldn't be the "box"for many people but it works well for us. I also concur with your feelings on those surprise medical bills. Many of mine shouldn't be surprises, i.e., 6 month CT and PET scans,etc, but I'm still surprised when I get the copay. My medical plan pays 90% after the deductible is met. Anyhow, all the best in your recovery and in your investment strategy.

[Allan Roth]

Daretobedull,

I read the recent article about going back to school.

What did you mean by 10-2=8. Was that a reference to the 80/20 stock/bond allocation?

Thanks.

By that I meant, if the market earns 10% and the average investor pays 2% in fees, then the average dollar invested will earn 8%. Last year, the market lost 37%, the average investor paid 2%, so the average dollar invested lost 39%. It's second grade arithmetic.

[bozo]

Rocky and Bullwinkle got in their "wayback" machine this morning to celebrate April Fools Day. The object was to find the biggest fools they could find in terms of prognostication over the past couple of years. Here's a good one:

http://www.post-gazette.com/pg/07031/758279-28.stm

Well, we all know how that turned out. The Fed began slashing rates in September, 2007, and all those "financial planners" got caught with those six- to twelve-month CDs at precisely the wrong time.

You can't time anything. Don't even try.

Bozo

[catchup]

Daretobedull,

Thanks for your response! And thanks for your lessons.

Catchup

[CyberBob]

So the Second-Grader portfolio is:

• Total Stock
• Total International Stock
• Total Bond

Hmmmm, where have we heard that before? Is this kids last name Larimore?

Bob

[kenner]

CyberBob,

I think Taylor also includes a money market fund (Prime), and TIPS for larger portfolios. Not to be picky or anything.

Ken

[nova1968]

The info and links in this post have been very informative, I don't think what happened in the 1930s takes too much precedent in evaluating returns but I did do a comparative analysis to the various scenarios compared to my own returns for the last 20 years. I started indexing as a result of my TSP plan and within the last few years I have also applied my Roth towards indexing. I like Taylors philosophy of keeping it simple. Yes its boring, but I am convinced staying the course with a long term perspective and appropriate allocation has the potential to produce significant benefits.

[Taylor Larimore]

I like Taylor's philosophy of keeping it simple. Yes its boring, but I am convinced staying the course with a long term perspective and appropriate allocation has the potential to produce significant benefits.

nova1968:

I wish I could say "keeping it simple" is my idea, but nearly everything I have learned about successful investing came from the minds of others who are more brilliant.

"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." - Nobel Laureate, Paul Samuelson

Best wishes.
Taylor

[Nick341981]

Saw this topic today and decided to buy the book. Started reading it and first thing that jumped out at me is the 30% international stocks. Warren Buffett and Jack Bogle himself both seem to think that a simple S&P500 index offers all the international exposure you need. I decided to look up how this portfolio has been doing and it looks like Warren and Jack are right. I tend to agree heavily with Warren Buffett in that it's dumb to bet against the USA and international stock is a losing proposition. I know, past performance doesn't indicate future results, blah, blah, blah. But Warren is pretty much on another level from anyone else and if he says the S&P is all you need I tend to take it as gospel. Proofs in the pudding of course.

http://www.marketwatch.com/lazyportfolio

[digarei]

Saw this topic today and decided to buy the book. Started reading it and first thing that jumped out at me is the 30% international stocks. Warren Buffett and Jack Bogle himself both seem to think that a simple S&P500 index offers all the international exposure you need. I decided to look up how this portfolio has been doing and it looks like Warren and Jack are right. I tend to agree heavily with Warren Buffett in that it's dumb to bet against the USA and international stock is a losing proposition. I know, past performance doesn't indicate future results, blah, blah, blah. But Warren is pretty much on another level from anyone else and if he says the S&P is all you need I tend to take it as gospel. Proofs in the pudding of course.

http://www.marketwatch.com/lazyportfolio

Yes, if you hold international equities, they should be sold immediately!
Tell all of your friends.
Start a chain letter and warn people!

I'm being facetious, of course. What I'll be doing is readying cash to buy more of these unwanted securities.


Nick341981,

I'm not sure why a recommendation to hold 30% international stocks should be alarming. Vanguard and plenty of other fund companies, advisors and investors are suggesting 40-50% of stock. In fact, Vanguard reminds me of this each time I bring up their portfolio analysis tool. [International stocks are held per my allocation plan (IPS) and comprise about 33% of stocks (26% of a portfolio apportioned 80/20).]

Yes, foreign equities have not performed well for a while... this makes me happy. The P/E ratio goes down, prices/NAV deflates. But every asset class has its day! I can wait, and other parts of my portfolio are doing well this year.

I believe the Bogleheads wiki has a copy of the Callan Periodic Table of Investment Returns. Please check it out.

Foreign stocks beat nearly everything else (other asset classes) in 2003, 2004, 2005, 2006, 2007, 2009 and in 2012. The emerging markets segment provided investors with an annual return of between 18 and 80 percent in each of these years. I do think it unlikely that either Warren Buffet or Jack Bogle said, "international stock is a losing proposition." Is there a link?

I certainly don't feel that because I choose to invest in companies operated outside of the U.S. that I am "betting against the USA". If you are partial to this gambling metaphor, let's say I'm placing bets on many different wagers/contests, including the USA. This way I get an opportunity to root for everybody! And I always have a winner.

You said it well: "the proof is in the pudding." But some puddings take longer to cook.


Best of luck to you,

digarei

[Nick341981]

Saw this topic today and decided to buy the book. Started reading it and first thing that jumped out at me is the 30% international stocks. Warren Buffett and Jack Bogle himself both seem to think that a simple S&P500 index offers all the international exposure you need. I decided to look up how this portfolio has been doing and it looks like Warren and Jack are right. I tend to agree heavily with Warren Buffett in that it's dumb to bet against the USA and international stock is a losing proposition. I know, past performance doesn't indicate future results, blah, blah, blah. But Warren is pretty much on another level from anyone else and if he says the S&P is all you need I tend to take it as gospel. Proofs in the pudding of course.

http://www.marketwatch.com/lazyportfolio

Yes, if you hold international equities, they should be sold immediately!
Tell all of your friends.
Start a chain letter and warn people!

I'm being facetious, of course. What I'll be doing is readying cash to buy more of these unwanted securities.


Nick341981,

I'm not sure why a recommendation to hold 30% international stocks should be alarming. Vanguard and plenty of other fund companies, advisors and investors are suggesting 40-50% of stock. In fact, Vanguard reminds me of this each time I bring up their portfolio analysis tool. [International stocks are held per my allocation plan (IPS) and comprise about 33% of stocks (26% of a portfolio apportioned 80/20).]

Yes, foreign equities have not performed well for a while... this makes me happy. The P/E ratio goes down, prices/NAV deflates. But every asset class has its day! I can wait, and other parts of my portfolio are doing well this year.

I believe the Bogleheads wiki has a copy of the Callan Periodic Table of Investment Returns. Please check it out.

Foreign stocks beat nearly everything else (other asset classes) in 2003, 2004, 2005, 2006, 2007, 2009 and in 2012. The emerging markets segment provided investors with an annual return of between 18 and 80 percent in each of these years. I do think it unlikely that either Warren Buffet or Jack Bogle said, "international stock is a losing proposition." Is there a link?

I certainly don't feel that because I choose to invest in companies operated outside of the U.S. that I am "betting against the USA". If you are partial to this gambling metaphor, let's say I'm placing bets on many different wagers/contests, including the USA. This way I get an opportunity to root for everybody! And I always have a winner.

You said it well: "the proof is in the pudding." But some puddings take longer to cook.


Best of luck to you,

digarei

Not to be too blunt here, but you're not just wrong, you're dead wrong and cherry picking certain years where international stocks did good won't fool anyone but first timers on this message board. Did you actually click the provided link that show 10 years of the S&P 500 cooking 8 different internationally allocated portfolios pudding? Not to mention the last 1,3,5 years. I'll ask you the exact same question I ask every person that tries to give financial advice, please post your portfolio and let's compare it to the S&P500 for the last 5 and 10 years. If you are not beating it(you're not) I'm not taking your advice seriously. So whos side is the great Jack Bogle on in this situation? Took me about 2 seconds to google up a link for your reading pleasure https://www.google.com/amp/www.cnbc.com ... -rest.html

What about Warren Buffett? The one guy who has beat the pants off the S&P for decades, a claim no one else can make and therefore someone that everyone should be taking advice from when he is kind enough to give it out.

"For 240 years it's been a terrible mistake to bet against America, and now is no time to start. America's golden goose of commerce and innovation will continue to lay more and larger eggs."

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's. (NASDAQMUTFUND:VFINX)) I believe the trust's long-term results from this policy will be superior to those attained by most investors -- whether pension funds, institutions, or individuals -- who employ high-fee managers."

Notice how Warren Buffet himself doesn't recommend international diversity? Notice how his recommend portfolio would have beat the pants off all the "lazy portfolios" that do recommend international exposure? You really think that's just a coincidence?

Of course you are free to try to prove both Warren and Jack wrong in the future but I think I'll take thier advice and wish you the best of luck with yours cause I think you will need it.

[digarei]

Saw this topic today and decided to buy the book. Started reading it and first thing that jumped out at me is the 30% international stocks. Warren Buffett and Jack Bogle himself both seem to think that a simple S&P500 index offers all the international exposure you need. I decided to look up how this portfolio has been doing and it looks like Warren and Jack are right. I tend to agree heavily with Warren Buffett in that it's dumb to bet against the USA and international stock is a losing proposition. I know, past performance doesn't indicate future results, blah, blah, blah. But Warren is pretty much on another level from anyone else and if he says the S&P is all you need I tend to take it as gospel. Proofs in the pudding of course.

http://www.marketwatch.com/lazyportfolio

Yes, if you hold international equities, they should be sold immediately!
Tell all of your friends.
Start a chain letter and warn people!

I'm being facetious, of course. What I'll be doing is readying cash to buy more of these unwanted securities.


Nick341981,

I'm not sure why a recommendation to hold 30% international stocks should be alarming. Vanguard and plenty of other fund companies, advisors and investors are suggesting 40-50% of stock. In fact, Vanguard reminds me of this each time I bring up their portfolio analysis tool. [International stocks are held per my allocation plan (IPS) and comprise about 33% of stocks (26% of a portfolio apportioned 80/20).]

Yes, foreign equities have not performed well for a while... this makes me happy. The P/E ratio goes down, prices/NAV deflates. But every asset class has its day! I can wait, and other parts of my portfolio are doing well this year.

I believe the Bogleheads wiki has a copy of the Callan Periodic Table of Investment Returns. Please check it out.

Foreign stocks beat nearly everything else (other asset classes) in 2003, 2004, 2005, 2006, 2007, 2009 and in 2012. The emerging markets segment provided investors with an annual return of between 18 and 80 percent in each of these years. I do think it unlikely that either Warren Buffet or Jack Bogle said, "international stock is a losing proposition." Is there a link?

I certainly don't feel that because I choose to invest in companies operated outside of the U.S. that I am "betting against the USA". If you are partial to this gambling metaphor, let's say I'm placing bets on many different wagers/contests, including the USA. This way I get an opportunity to root for everybody! And I always have a winner.

You said it well: "the proof is in the pudding." But some puddings take longer to cook.


Best of luck to you,

digarei

Hi Nick341981,

My responses interspersed in your reply...


Nick341981 wrote:

Not to be too blunt here, but you're not just wrong, you're dead wrong and cherry picking certain years where international stocks did good won't fool anyone but first timers on this message board.

digarei: More cherries wait to be picked: 1999 and 2010 (the latter, marginally, depending on ones tilts). In the in-between years, the S&P 500 was on top or ahead of MSCI EAFE / MSCI Emerging Markets or both lagged and something else did well (Small Cap Value in the early 2000s). An outsider might conclude that these assets were playing musical chairs—or drawing straws among themselves to see who was going to produce the strongest returns this year.

My point is not that international stocks are inarguably superior to the S&P 500 (over decades they're probably equivalent in regard to returns) but that investing in international stocks is a reasonable pursuit and seems to improve a portfolio's risk characteristics; inclusion can potentially reduce volatility. I don't know if you would deem that an important attribute.


Did you actually click the provided link that show 10 years of the S&P 500 cooking 8 different internationally allocated portfolios pudding? Not to mention the last 1,3,5 years.

digarei: (I did!) But the comparison doesn't hold up well. The asset allocation drives the returns. The "internationally allocated" lazy portfolios have other components. Example: in that described as 'Dr. Bernstein's No Brainer', there is a 25% allocation to bonds, an asset class most would say has lower expected returns. But note that there is also a 25% allocation in the Vanguard 500 Index Fund; its returns may fairly be compared to the benchmark S&P 500. As one would expect, the fund and its benchmark are closely aligned across all sample return periods with the fund lagging the index by about 15 basis points (fund expenses).


I'll ask you the exact same question I ask every person that tries to give financial advice, please post your portfolio and let's compare it to the S&P500 for the last 5 and 10 years.

digarei: This would be a more reasonable proposition if my portfolio consisted of a single S&P 500 index fund (100% large cap equities). I've tried to construct my portfolio with a variety of asset classes, including fixed income. It's not necessary to post investor returns when evaluating fund performance or comparing asset classes.

For instance, see Portfolio Visualizer.


If you are not beating it(you're not) I'm not taking your advice seriously. So whos side is the great Jack Bogle on in this situation? Took me about 2 seconds to google up a link for your reading pleasure:

https://www.google.com/amp/www.cnbc.com ... -rest.html


digarei: Thank you. An excerpt from the article you cite that shows this to be a minority view:

• But Bogle's advice goes against conventional wisdom and even some Vanguard Group research.
  In 2014, Vanguard research suggested that investors allocate at least 20 percent of an equity
  allocation to non-U.S. stocks.
  
  Tim McCarthy, former president of Charles Schwab and author of "The Safe Investor," agrees
  with Vanguard in this case, not Bogle.
  
  "No matter how great a country is, putting zero outside your own country is the wrong answer
  on both a risk and return basis," said McCarthy by email. "Having a minority portion in
  international over the decades will decrease your risk and increase your returns."

What about Warren Buffett? The one guy who has beat the pants off the S&P for decades, a claim no one else can make and therefore someone that everyone should be taking advice from when he is kind enough to give it out.

digarei: I think a few others could also make that claim. But if your assertion is correct I would think the likelihood of any one investor "beating the pants off the S&P" is remote—even if the advice was taken. (Surely others have tried over the decades?)


"For 240 years it's been a terrible mistake to bet against America, and now is no time to start. America's golden goose of commerce and innovation will continue to lay more and larger eggs."

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's. (NASDAQMUTFUND:VFINX)) I believe the trust's long-term results from this policy will be superior to those attained by most investors -- whether pension funds, institutions, or individuals -- who employ high-fee managers."

digarei: The qualifier that ends this quote is important. Investors who employ high-fee managers would undoubtedly face difficulties in achieving superior returns. I think this statement is true and could be applied to any asset class.


Notice how Warren Buffet himself doesn't recommend international diversity?

digarei: I can't know with certainty the reason(s) Mr. Buffet is most public with his advocacy for domestic index funds—perhaps this stance is good for [his] business? Nor have I read anything that suggests he warns others to stay away (from international investing).


Notice how his recommend portfolio would have beat the pants off all the "lazy portfolios" that do recommend international exposure? You really think that's just a coincidence?

digarei: No. It's a misapprehension. I would expect that any 90/10 portfolio would "beat the pants off" a more diversified portfolio during a strong bull market. In a bear, not so much.


Of course you are free to try to prove both Warren and Jack wrong in the future but I think I'll take thier advice and wish you the best of luck with yours cause I think you will need it.

digarei: I'm not interested in proving anyone wrong. But consider giving a diversified lazy portfolio a bit of space and time to work. Let's see what happens over twenty years or in the aftermath of a bear market.

• ~ ~ ~
  
  Nick, thank you for engaging in this conversation. I enjoy being challenged. It fires up another
  
  neuron or two and I find investing to be an endlessly interesting topic.
  
  • Greg

[Nick341981]

And after all that the 3 most important points(facts) still remain the same.

1.) Jack Bogle himself thinks there is no reason to diversify international and that if you do you are likely over invested international when you consider that most if not all S&P 500 companies are global companies. This is an indisputable FACT. He goes into more detail in his books, you should read them, they are quite good.

2.) Warren Buffett is extremely bullish on the S&P 500 and pretty much nothing else. When Lebron James came to him to ask him for advice he didn't even recommend Lebron himself should buy Berkshire Hathaway stocks, he didn't recommend what Jack Bogle would refer to as an over international tilted 3 fund portfolio. He recommend an S&P 500 index fund and that's it. This is an indisputable FACT

3.) If you choose to invest any other way than an S&P500 index fund and a bond fund you are going strictly against the advice of two of the titans of the industry and as the topic of this post about the lazy second grader portfolio found out over the last 1,3,5,10 years will lag the index significantly.

4.) The bear market theory you use is laughable at best and is the exact same one most active managers give clients to try to sell them on active management. Let's go back to Warren Buffett shall we, ever heard of the S&P 500 bet? Well, Warren Buffett believes so much in the S&P 500 that he made a bet in 2007 that he could beat the active management group, with nothing more than an S&P 500 index fund and no diversity what so ever, not even a bond fund. What happened in 2008? That's right the Great Recession. A huge bear market. Therefore Warren started off the challenge at what most would call a huge disadvantage and now almost 10 years later who is going to win the bet? Warren of course.

You are free to go against Warren and Jacks advice but you do so at your own peril which is obvious from the fact that you won't post your portfolio and results over the last ten years. It's not so much a personal attack against you as it is trying to help hopefully a few bogleheads out of the echo chamber that goes on here with everyone saying how great international diversity is when it's simple not true as the results have pointed out. This book has some good information but anyone who followed its advice for the last 10 years instead of Jack and Warren I feel bad for. Ultimately it belongs somewhere in the same category as the infamous Dow 36000 by Mr. Glassman

[pkcrafter]

Nick wrote:

Not to be too blunt here, but you're not just wrong, you're dead wrong and cherry picking certain years where international stocks did good won't fool anyone but first timers on this message board.

Nick, your conclusions are much to narrow for other investors. If it works for you then OK, but to flatly dismiss viable strategies used my many other investors because you don't use them is a bit strong. Using past 10 year data is far to short to draw any conclusion.

Allocation to Global Stocks

https://blogs.cfainstitute.org/investor ... al-stocks/

Paul

[Rodc]

And after all that the 3 most important points(facts) still remain the same.

1.) Jack Bogle himself thinks there is no reason to diversify international and that if you do you are likely over invested international when you consider that most if not all S&P 500 companies are global companies. This is an indisputable FACT. He goes into more detail in his books, you should read them, they are quite good.

2.) Warren Buffett is extremely bullish on the S&P 500 and pretty much nothing else. When Lebron James came to him to ask him for advice he didn't even recommend Lebron himself should buy Berkshire Hathaway stocks, he didn't recommend what Jack Bogle would refer to as an over international tilted 3 fund portfolio. He recommend an S&P 500 index fund and that's it. This is an indisputable FACT

3.) If you choose to invest any other way than an S&P500 index fund and a bond fund you are going strictly against the advice of two of the titans of the industry and as the topic of this post about the lazy second grader portfolio found out over the last 1,3,5,10 years will lag the index significantly.

4.) The bear market theory you use is laughable at best and is the exact same one most active managers give clients to try to sell them on active management. Let's go back to Warren Buffett shall we, ever heard of the S&P 500 bet? Well, Warren Buffett believes so much in the S&P 500 that he made a bet in 2007 that he could beat the active management group, with nothing more than an S&P 500 index fund and no diversity what so ever, not even a bond fund. What happened in 2008? That's right the Great Recession. A huge bear market. Therefore Warren started off the challenge at what most would call a huge disadvantage and now almost 10 years later who is going to win the bet? Warren of course.

You are free to go against Warren and Jacks advice but you do so at your own peril which is obvious from the fact that you won't post your portfolio and results over the last ten years. It's not so much a personal attack against you as it is trying to help hopefully a few bogleheads out of the echo chamber that goes on here with everyone saying how great international diversity is when it's simple not true as the results have pointed out. This book has some good information but anyone who followed its advice for the last 10 years instead of Jack and Warren I feel bad for. Ultimately it belongs somewhere in the same category as the infamous Dow 36000 by Mr. Glassman

There are other "titans" with different views. I don't find this particular appeal to authority very enlightening.

Historically adding some international has been a little bit beneficial, on average long term. Easy enough to look it up. Now the benefit has been small so if I had a family member that decided not to diversify I would not lose sleep over it. But getting worked up about someone investing international is silly. And the emotional hyperbole not very useful.

I would add that if one wants US only likely better to use total stock as it is cheaper and more diversified than an S&P 500 fund and is not cobbled together by committee. That said, if a family member insisted on an S&P 500 fund I would not lose sleep over it.

[Nick341981]

There are other "titans" with different views. I don't find this particular appeal to authority very enlightening.

Historically adding some international has been a little bit beneficial, on average long term. Easy enough to look it up. Now the benefit has been small so if I had a family member that decided not to diversify I would not lose sleep over it. But getting worked up about someone investing international is silly. And the emotional hyperbole not very useful.

I would add that if one wants US only likely better to use total stock as it is cheaper and more diversified than an S&P 500 fund and is not cobbled together by committee. That said, if a family member insisted on an S&P 500 fund I would not lose sleep over it.

There are other "titans" yes but lets be very clear, there is only one Warren Buffett and nobody else has even come close to replicating his performance over such a long period of time. Its would be like saying there are many NBA basketball players but there is only one Michael Jordan and even that in not a good comparison. When this guys is nice enough to give out advice people should listen. He has been very clear and very direct in the fact that he recommends the S&P 500 and the S&P alone. He doesn't even recommend his own stock for Lebron James or his own wife. That should tell you something.

It just amazes me that we are on a bogleheads forum and the guy that the fourm is dedicated to, Jack Bogle basically espouses the same advice as Warren and says stay out of international stocks and has said this for years in his books and online and yet you still have people running around talking about the 3 fund portfolio in one topic and then countless other topics with new investors taking this advice and wondering why they are lagging the S&P 500. Now that is silly.

[Rodc]

There are other "titans" with different views. I don't find this particular appeal to authority very enlightening.

Historically adding some international has been a little bit beneficial, on average long term. Easy enough to look it up. Now the benefit has been small so if I had a family member that decided not to diversify I would not lose sleep over it. But getting worked up about someone investing international is silly. And the emotional hyperbole not very useful.

I would add that if one wants US only likely better to use total stock as it is cheaper and more diversified than an S&P 500 fund and is not cobbled together by committee. That said, if a family member insisted on an S&P 500 fund I would not lose sleep over it.

There are other "titans" yes but lets be very clear, there is only one Warren Buffett and nobody else has even come close to replicating his performance over such a long period of time. Its would be like saying there are many NBA basketball players but there is only one Michael Jordan and even that in not a good comparison. When this guys is nice enough to give out advice people should listen. He has been very clear and very direct in the fact that he recommends the S&P 500 and the S&P alone. He doesn't even recommend his own stock for Lebron James or his own wife. That should tell you something.

It just amazes me that we are on a bogleheads forum and the guy that the fourm is dedicated to, Jack Bogle basically espouses the same advice as Warren and says stay out of international stocks and has said this for years in his books and online and yet you still have people running around talking about the 3 fund portfolio in one topic and then countless other topics with new investors taking this advice and wondering why they are lagging the S&P 500. Now that is silly.

Let's be clear - Buffet made his money buying and controlling companies more than stock investing.

But if you want to engage in mindless hero-worship that is certainly your right.

More important this is all dancing on the head of a pin and not really very important. The success or failure of my retirement hinges on other things - any reasonable asset allocation is going to work ok.

[Nick341981]

There are other "titans" with different views. I don't find this particular appeal to authority very enlightening.

Historically adding some international has been a little bit beneficial, on average long term. Easy enough to look it up. Now the benefit has been small so if I had a family member that decided not to diversify I would not lose sleep over it. But getting worked up about someone investing international is silly. And the emotional hyperbole not very useful.

I would add that if one wants US only likely better to use total stock as it is cheaper and more diversified than an S&P 500 fund and is not cobbled together by committee. That said, if a family member insisted on an S&P 500 fund I would not lose sleep over it.

There are other "titans" yes but lets be very clear, there is only one Warren Buffett and nobody else has even come close to replicating his performance over such a long period of time. Its would be like saying there are many NBA basketball players but there is only one Michael Jordan and even that in not a good comparison. When this guys is nice enough to give out advice people should listen. He has been very clear and very direct in the fact that he recommends the S&P 500 and the S&P alone. He doesn't even recommend his own stock for Lebron James or his own wife. That should tell you something.

It just amazes me that we are on a bogleheads forum and the guy that the fourm is dedicated to, Jack Bogle basically espouses the same advice as Warren and says stay out of international stocks and has said this for years in his books and online and yet you still have people running around talking about the 3 fund portfolio in one topic and then countless other topics with new investors taking this advice and wondering why they are lagging the S&P 500. Now that is silly.

Let's be clear - Buffet made his money buying and controlling companies more than stock investing.

But if you want to engage in mindless hero-worship that is certainly your right.

More important this is all dancing on the head of a pin and not really very important. The success or failure of my retirement hinges on other things - any reasonable asset allocation is going to work ok.

And make sure you leave out what Jack Bogle himself has had to say on the topic over the years to make your argument sound more convincing. Following the advice of this book over the last 10 years and lagging the S&P by at least 2% might not be a big deal for you but for most people on this forum it's huge. Fees matter but lagging the market maters just as much. Read Jacks books he explains this in detail.

[trope]

@Nick, you mention that based on the performance of the 2nd grader portfolio, the recommendations you cite were "correct". But the link you gave shows that all the portfolios did roughly the same, excluding the S&P500, which of course only did better than the rest because it is a 100% stock portfolio and all the others include bonds. So your criticism is at all of the portfolios, which have widely varying international allocations?

The US stock market has done very well over the past hundred years (and longer), but there is a very close relationship between US economic growth and the US stock market (which Buffett has discussed). The US economy is 500 times larger than it was in 1900, but at that point the US was an emerging market country. It is not conceivable that the economy will grow another 500x from 2000 to 2100, so returns should naturally be lower.

Most of the products you buy are probably from China. Why are you betting against the US?

[Nick341981]

@Nick, you mention that based on the performance of the 2nd grader portfolio, the recommendations you cite were "correct". But the link you gave shows that all the portfolios did roughly the same, excluding the S&P500, which of course only did better than the rest because it is a 100% stock portfolio and all the others include bonds. So your criticism is at all of the portfolios, which have widely varying international allocations?

The US stock market has done very well over the past hundred years (and longer), but there is a very close relationship between US economic growth and the US stock market (which Buffett has discussed). The US economy is 500 times larger than it was in 1900, but at that point the US was an emerging market country. It is not conceivable that the economy will grow another 500x from 2000 to 2100, so returns should naturally be lower.

Most of the products you buy are probably from China. Why are you betting against the US?

It's not me that's making this argument. I am simply pointing out the elephant in the bogleheads forum in the fact that Jack has said for a long time in his books, on the Internet and on TV that all the companies on the S&P500 are global companies and that if you diversify into international you are over diversified internationally wether you realize it or not and will therefore lag the market. It's not me, it's Jack Bogle saying this

[209south]

Nick, in reading your posts in this appropriately titled thread, I wonder if you are in fact a second-grader yourself?

[Nick341981]

Nick, in reading your posts in this appropriately titled thread, I wonder if you are in fact a second-grader yourself?

Nothing constructive to add so you just resort to second grade name calling. Nice.

[209south]

My post is a reaction to your childish hostility toward others with their own reasonable views. So, to substance:

1. Warren Buffett is a legendary investor, and rightfully so...but if you are to praise him you should at least consider his record vs. relevant benchmarks. You compare him to a variety of diversified portfolios, which is silly as he is professionally a pure equity investor. Then you compare him to the S&P 500, which is misleading since Buffett is a self-acclaimed value investor. The appropriate benchmark is a diversified value fund, relative to which his performance is underwhelming...see the following article which is one of many trying to at least identify the correct benchmark...http://paulmerriman.com/warren-buffett- ... th-legend/
2. Mr. Bogle is also a legend, and I will never forget discovering his philosophy while a student in Gene Fama's Investments course at The University of Chicago in the 1980s...I have been a Vanguard investor from that point and my net worth has benefited immeasurably from that introduction. Having said that, it is an understatement to say the Mr. Bogle is an outlier when considering the benefits of international diversification. I certainly agree that if you could only invest in one equity market, then (for Americans) the US is certainly the market to choose. Earlier another post mentioned the Callan Periodic Table, which is a very simple and elegant means of highlighting the benefits of international exposure.

Anyway, to each his own. I wish you well, but also wish that you would treat other posters with the respect they and their ideas deserve.

[Nick341981]

My post is a reaction to your childish hostility toward others with their own reasonable views. So, to substance:

1. Warren Buffett is a legendary investor, and rightfully so...but if you are to praise him you should at least consider his record vs. relevant benchmarks. You compare him to a variety of diversified portfolios, which is silly as he is professionally a pure equity investor. Then you compare him to the S&P 500, which is misleading since Buffett is a self-acclaimed value investor. The appropriate benchmark is a diversified value fund, relative to which his performance is underwhelming...see the following article which is one of many trying to at least identify the correct benchmark...http://paulmerriman.com/warren-buffett- ... th-legend/
2. Mr. Bogle is also a legend, and I will never forget discovering his philosophy while a student in Gene Fama's Investments course at The University of Chicago in the 1980s...I have been a Vanguard investor from that point and my net worth has benefited immeasurably from that introduction. Having said that, it is an understatement to say the Mr. Bogle is an outlier when considering the benefits of international diversification. I certainly agree that if you could only invest in one equity market, then (for Americans) the US is certainly the market to choose. Earlier another post mentioned the Callan Periodic Table, which is a very simple and elegant means of highlighting the benefits of international exposure.

Anyway, to each his own. I wish you well, but also wish that you would treat other posters with the respect they and their ideas deserve.

I am simply pointing out that if the people on this forum had listened to the guy the forum is named after and took his advice as opposed to the advice in this book they would have come out percentage points ahead. A lot of of bogleheads have 7 figure portfolios so a 2% spread over 10 years is a lot of money to a lot of people here. Bottom line is Jack and Warren gave advice that was and is still in direct conflict with this book and they were giving it at the time this book came out and they are still giving to this day. 10 years later they were proven right and this author was proven wrong. What else matters?

[Taylor Larimore]

Jack Bogle basically espouses the same advice as Warren and says stay out of international stocks and has said this for years in his books and online

Sorry. This is not entirely accurate. The quote below is what Mr. Bogle wrote in Bogle on Mutual Funds in 1993:

"Your exposure to mutual funds investing in foreign stocks should not exceed 20% of your equity portfolio."

So far, Mr. Bogle has been right.

Best wishes.
Taylor

[Saphomd]

Mr. Bogle also says in his book "Common sense on mutual funds":

Foreign funds may reduce a portfolio's volatility, but their economic and currency risks may reduce returns by a still larger amount.
Correctly said.

[Taylor Larimore]

Mr. Bogle also says in his book "Common sense on mutual funds":

Foreign funds may reduce a portfolio's volatility, but their economic and currency risks may reduce returns by a still larger amount.
Correctly said.

Saphomd:

In the 2008 U.S.bear market for stocks (-37%), adding Total International (-44%) made the loss worse.

Best wishes.
Taylor

[jeffyscott]

Using past 10 year data is far to short to draw any conclusion.

Paul

And actually, the recent 10 year out-performance of US stocks really all occurred over just the past 6 years.

Per M* growth of $10,000 chart, from 12/16/2006 to 12/15/2010 VFINX and VGTSX performed about the same, the S&P 500 fund lost about 6% while total international lost about 4%. The actual index that m* uses for foreign funds in their charts, MSCI ACWI Ex USA, lost just 1% in that period.

[Rodc]

There are other "titans" with different views. I don't find this particular appeal to authority very enlightening.

Historically adding some international has been a little bit beneficial, on average long term. Easy enough to look it up. Now the benefit has been small so if I had a family member that decided not to diversify I would not lose sleep over it. But getting worked up about someone investing international is silly. And the emotional hyperbole not very useful.

I would add that if one wants US only likely better to use total stock as it is cheaper and more diversified than an S&P 500 fund and is not cobbled together by committee. That said, if a family member insisted on an S&P 500 fund I would not lose sleep over it.

There are other "titans" yes but lets be very clear, there is only one Warren Buffett and nobody else has even come close to replicating his performance over such a long period of time. Its would be like saying there are many NBA basketball players but there is only one Michael Jordan and even that in not a good comparison. When this guys is nice enough to give out advice people should listen. He has been very clear and very direct in the fact that he recommends the S&P 500 and the S&P alone. He doesn't even recommend his own stock for Lebron James or his own wife. That should tell you something.

It just amazes me that we are on a bogleheads forum and the guy that the fourm is dedicated to, Jack Bogle basically espouses the same advice as Warren and says stay out of international stocks and has said this for years in his books and online and yet you still have people running around talking about the 3 fund portfolio in one topic and then countless other topics with new investors taking this advice and wondering why they are lagging the S&P 500. Now that is silly.

Let's be clear - Buffet made his money buying and controlling companies more than stock investing.

But if you want to engage in mindless hero-worship that is certainly your right.

More important this is all dancing on the head of a pin and not really very important. The success or failure of my retirement hinges on other things - any reasonable asset allocation is going to work ok.

And make sure you leave out what Jack Bogle himself has had to say on the topic over the years to make your argument sound more convincing. Following the advice of this book over the last 10 years and lagging the S&P by at least 2% might not be a big deal for you but for most people on this forum it's huge. Fees matter but lagging the market maters just as much. Read Jacks books he explains this in detail.

Unfortunately this forum is lacking the rolling eyes smilie.

Surely you understand that the performance of the last 10 years proves nothing and in other 10 year periods hold US was the losing hand.

I would add that all our heros, political, scientific, financial are fallible human beings. They all make mistakes from time to time, they all have biases and blind spots. It is best if we learn to listen, but also to engage our own critical thinking skills. And when possible best to evaluate a broad set of experts, especially when they do not agree.

[Mav]

So, that site argues that DFA funds beat Vanguard,

https://www.evansonasset.com/20.htm

as I pointed in this post about Paul Merriman http://paulmerriman.com/whats-wrong-van ... cap-value/

but I think Taylor argued against Paul's statements.

I came to this board not too long ago and trying to sort which arguments have validity.