The Three-Fund Portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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Taylor Larimore
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International Investing

Post by Taylor Larimore » Sun May 24, 2015 9:09 am

Kevin:

Thank you for your kind remarks.

A good argument FOR international investing is this white paper by Vanguard:

Global equities: Balancing home bias and diversification

The best argument I have seen AGAINST international investing is Chapter 8, "Global Investing" in "Common Sense on Mutual Funds" by our mentor, Jack Bogle. This may be the best book ever written about mutual fund investing.

When experts disagree it is often because it makes no foreseeable difference.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Kevin22751
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Re: The Three Fund Portfolio

Post by Kevin22751 » Sun May 24, 2015 9:24 am

bertie wooster wrote:
Kevin22751 wrote:Question: Do I really need to have International equities in my portfolio ? I am in the process of re-balancing and did some research on the International category using Morningstar data. What I found was that over the past 10-15 years the correlation between international equities and the US stock market has risen to about 85%. I also found that the international category has produced lower average returns with a higher standard deviation than the US stock market over this period. So, given that the international category has lower returns with higher risk and is 85% correlated to the US stock market, why would I want to include international equities in my portfolio ? Wouldn't I be better off with a two fund portfolio using VTSAX and VBTLX ? If not, why not ? Thanks !!


No you don't need to, but many of us do. I split my equities 50/50 b/w domestic and international. If you only own Total Stock Market for your equities I think you won't be as well diversified as you could be (by adding Total International) but there are far worse portfolios out there.

As far as international having lower returns and higher standard deviation, the key is not these metrics for Total International and Total Stock Market in isolation, but how these metrics are for a mixed portfolio. Search for TrevH's posts. He's done a lot of work showing how you get lower standard deviation and higher returns from mixing (though he also includes domestic and international small caps). I haven't bothered to crunch the numbers myself, I just went for the option of greater diversification and took TrevH's analysis at face value. YMMV.

Good Luck!



Thanks Bertie !

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Re: The Three Fund Portfolio

Post by Kevin22751 » Sun May 24, 2015 9:25 am

RevYoung wrote:
Kevin22751 wrote:Question: Do I really need to have International equities in my portfolio ?


Hi Kevin22751,

From my post above:

You may be interested to read the thread I recently started asking almost that exact same question. It was very enlightening thanks to the help of fellow Bogleheads:

How important is an international allocation?

If you are specifically interested in Taylor's thoughts on the matter, I'd encourage you to take a look at the thread he started in July 2014:

International investing. A good call by our mentor.

I hope that helps. Have a great weekend! :mrgreen:



Thanks RevYoung !

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Taylor Larimore
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The Three Fund Portfolio -- Very reassuring.

Post by Taylor Larimore » Wed May 27, 2015 8:29 pm

Bogleheads:

I live on the 35th floor of a condominium in Miami, Florida. At least once a day I walk out on our balcony and look at the thousands of businesses, big and small, stretched-out below me. I know that every corporation I can see is trying to increase its stock value.

Total Stock Market Index Fund investors own a small piece of nearly every corporation. It is very reassuring.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: The Three Fund Portfolio -- Very reassuring.

Post by abuss368 » Thu May 28, 2015 12:23 am

Taylor Larimore wrote:Bogleheads:

I live on the 35th floor of a condominium in Miami, Florida. At least once a day I walk out on our balcony and look at the thousands of businesses, big and small, stretched-out below me. I know that every corporation I can see is trying to increase its stock value.

Total Stock Market Index Fund investors own a small piece of nearly every corporation. It is very reassuring.

Best wishes.
Taylor


Hi Taylor,

That puts things in perspective.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

KCJaZG
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Re: The Three Fund Portfolio

Post by KCJaZG » Sat May 30, 2015 11:39 am

Since retiring 3 years ago, Vanguard IRA monies have been primarily invested in VFSUX, far too conservative for long-range horizon of +25 years. I have contacted VG Personal Advisor Services for financial planning/ portfolio recommendations. They'll charge $300 annual fee for every $100,000 invested, admittedly a low fee. Should I use this service or just follow Taylor's "Three Fund Portfolio" recommendation and save the fees?

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Moving to "The Three Fund Portfolio"

Post by Taylor Larimore » Sat May 30, 2015 1:47 pm

KCJaZG:

Welcome to the Bogleheads Forum!
KCJaZG wrote:Since retiring 3 years ago, Vanguard IRA monies have been primarily invested in VFSUX (Vanguard Short-Term Investment-Grade Fund Admiral Shares), far too conservative for long-range horizon of +25 years. I have contacted VG Personal Advisor Services for financial planning/ portfolio recommendations. They'll charge $300 annual fee for every $100,000 invested, admittedly a low fee. Should I use this service or just follow Taylor's "Three Fund Portfolio" recommendation and save the fees?

KCJaZG:

Although I feel The Three Fund Portfolio is nearly ideal for most investors, it may be difficult to attain because of current holding, numerous accounts, tax-considerations etc. In any event, it is important to consider one's entire portfolio, not just the IRA.

Unless you are confident in what you are doing, I think it can make sense to use Vanguard's (conflict-free) Personal Advisor Service to help you design the best portfolio (often The Three Fund Portfolio); manage fund exchanges, transfers, and give you confidence that your portfolio was professionally designed.

After your portfolio is in place, consider discontinuing the service and stay-the-course.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

KCJaZG
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Re: The Three Fund Portfolio

Post by KCJaZG » Sun May 31, 2015 9:08 am

Your opinion is respected and appreciated. Thank you,
KCJaZG

Steven in NC
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Re: The Three Fund Portfolio

Post by Steven in NC » Fri Jun 05, 2015 10:22 am

I am a three fund portfolio investor. I know we are not supposed to read headlines but short of going and living in a cave that is impossible. With all of the noise about "bonds being routed" (Gross Yahoo Headline du jour) what impact should I expect to see with my Total Bond Fund?

Steven:

We have been hearing "noise" about bonds being "routed" for several years. No such thing has happened and I doubt that it will.

Vanguard Total Bond Market Index Fund in The Three Fund Portfolio tracks a composite Barclay Aggregate Bond Index.** This is the history of Inflation and the Barclay Aggregate Bond Index total return since the Index's inception 39 years ago:

YEAR--INFLATION--BOND INDEX
1976-------4.9%--------15.6%
1977-------6.7-----------3.0
1978-------9.0-----------1.4
1979------13.3-----------1.9
1980------12.5-----------2.7
1980------12.5-----------2.7
1981-------8.9-----------6.3
1982-------3.8----------32.6
1983-------3.8-----------8.4
1984-------3.9----------15.2
1985-------3.8----------22.1
1986-------1.1----------15.2
1987-------4.4-----------2.8
1988-------4.4-----------7.9
1989-------4.6----------14.5
1990-------6.1-----------8.9
1991-------3.1----------16.0
1992-------2.9-----------7.4
1993-------2.7-----------9.7
1994-------2.7---------(-2.9)
1995-------2.5----------18.5
1996-------3.3-----------3.6
1997-------1.7-----------9.7
1998-------1.6-----------8.7
1999-------2.7---------(-0.8)
2000-------3.4----------11.6
2001-------1.6-----------8.4
2002-------2.4----------10.3
2003-------1.9-----------4.1
2004-------3.3-----------4.3
2005-------3.4-----------2.4
2006-------2.5-----------4.3
2007-------4.1-----------7.0
2008-------0.1-----------5.2
2009-------2.7-----------5.9
2010-------1.5-----------6.5
2011-------3.0-----------7.7
2012-------1.7-----------4.3
2013-------1.5---------(-2.0)
2014-------1.6-----------6.0
Source: U.S. Department of Labor and Barclays

Observations:
* Inflation increased from 4.9% in 1976 to 13.3% in 1979. There was no bond "route."
* The Index had only three (small) negative years.

When your stocks are "routed," your Total Bond Market Index Fund will help maintain your portfolio value and provide the cash needed to rebalance back to your original stock/bond allocation (buy low-sell high).

**Barclays U.S. Aggregate Bond Index through December 31, 2009; Barclays U.S. Aggregate Float Adjusted Index thereafter.

Stay the course (assuming your three funds are reasonably allocated).

Best wishes.
Taylor

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Re: The Three Fund Portfolio

Post by LHerr » Fri Jun 05, 2015 10:38 am

Steven,

Expect your bond fund will decrease in value when interest rates begin to rise. For this reason I am holding very few dollars in bonds.

LHerr

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Re: The Three Fund Portfolio

Post by ddurrett896 » Fri Jun 05, 2015 11:46 am

LHerr wrote:Steven,
Expect your bond fund will decrease in value when interest rates begin to rise. For this reason I am holding very few dollars in bonds.
LHerr


You know whats crazy...all the "stocks are going to crash" talk made me think of re balancing some equities to bonds and I said forgot it and stayed the course (still a newish boglehead) and now bonds are at risk.

Perfect example of avoiding the noise!

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Re: The Three Fund Portfolio

Post by RevYoung » Fri Jun 05, 2015 12:18 pm

“As I have said before, the daily machinations of the stock market are like a tale told by an idiot, full of sound and fury, signifying nothing. One of my favorite rules is ‘Don’t peek.’ Don’t let all the noise drown out your common sense and your wisdom. Just try not to pay that much attention, because it will have no effect whatsoever, categorically, on your lifetime investment returns.” — Jack Bogle

:beer
“For wisdom is a defence, and money is a defence: but the excellency of knowledge is, that wisdom giveth life to them that have it.”

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Re: The Three Fund Portfolio

Post by watchnerd » Sat Jun 06, 2015 9:00 am

LHerr wrote:Steven,

Expect your bond fund will decrease in value when interest rates begin to rise. For this reason I am holding very few dollars in bonds.

LHerr


If you don't need the funds soon, why worry about this? If you hold the bond fund for the duration, it should even out.

If that's too long, then shorten the duration.

The textbook response to interest rate risk is to shorten duration. But going all cash is like saying you think the interest rate risk is infinity.
Tweaked 3-Fund: 35% US Equities | 35% Total International | 30% Intermediate Treasuries

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Taylor Larimore
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Jack Bogle on "All-Market Index Funds"

Post by Taylor Larimore » Sun Jun 07, 2015 9:59 am

Bogleheads:

In his book, Don't Count On It, page 362, Mr. Bogle wrote:
I favor the all-market index index fund as the best choice for most investors.

Best wishes.
Taylor
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The Three Fund Portfolio holds worlds largest funds

Post by Taylor Larimore » Sun Jun 07, 2015 10:25 pm

Bogleheads:

The July issue of Kiplinger's magazine (page 61) lists Vanguard Total Stock Market as the world's largest stock mutual fund and Vanguard's Total International as the largest stock international fund. Vanguard's Total Bond Market is also the largest bond fund.

Investors are discovering the advantages of the total market index funds in The Three Fund Portfolio.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: The Three Fund Portfolio holds worlds largest funds

Post by abuss368 » Mon Jun 08, 2015 2:45 pm

Taylor Larimore wrote:Bogleheads:

The July issue of Kiplinger's magazine (page 61) lists Vanguard Total Stock Market as the world's largest stock mutual fund and Vanguard's Total International as the largest stock international fund. Vanguard's Total Bond Market is also the largest bond fund.

Investors are discovering the advantages of the total market index funds in The Three Fund Portfolio.

Best wishes.
Taylor


Hi Taylor,

Great news and peace of mind knowing we are all following Mr. Bogle's lead and investing and "owning the markets".

I would expect in a fair amount of time, at the current rate of growth, that the Vanguard Total International Bond Index Fund will become the largest international bond index fund. This fund, in two short years, is already larger than the TIPS funds.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Become a millionaire with The Three Fund Portfolio

Post by Taylor Larimore » Wed Jun 24, 2015 10:22 am

Bogleheads:

William Bernstein is a Boglehead and a giant in the field of personal finance. He has written at least ten books on the subject. In his latest, If You Can: How Millennials Can Get Rich Slowly, he wrote:
Would you believe me if I told you that there's an investment strategy that a seven-year-old could understand, will take you fifteen minutes of work per year, outperform 90 percent of financial professionals in the long run, and make you a millionaire over time?

Well, it is true, and here it is: Start by saving 15 percent of your salary at age 25 into a 401(k) plan, an IRA, or a taxable account (or all three). Put equal amounts of that 15 percent into just three funds:

* A U.S. Total Stock Market index fund

* An International Stock Market index fund

* A U.S., Total Bond Market index fund

More investment gems from If You Can: How Millennials Can Get Rich Slowly.

Best wishes.
Taylor


 















 



  
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: The Three Fund Portfolio

Post by Vega » Sat Jun 27, 2015 8:46 am

I've spent a lot of time running allocations at pfo viz and just can't find any allocation to international that doesn't drag on returns. I've found EM to both reduce risk and increase returns when added in small doses. I know past performance doesn't guarantee, but it makes future sense to me. Just look at the demographics of most developed nations.

There is also a ton of upside potential in EM.

Also, equal amounts?! I can't stomach more than 10% to non-us, but that's because I am a homer I think.

Does anyone else feel this way?
15% Large Cap, 30% Mid Cap, 15% REIT, 10% EM, 25% LT Bond, 5% TIPs

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Re: The Three Fund Portfolio

Post by fortyofforty » Sat Jun 27, 2015 9:26 am

I like to have anywhere from 20-40% in international. I don't overweight Emerging Markets, I'm just happy to get the capitalization-weighted share. I think the theory is that a Japanese company might have more inroads into Asian EMs, which is why you'd want to own Japan, or Germany is closer to the European EMs, so you'd want to own Germany for inroads there. That, I suppose, is the idea behind owning the Developed Markets.
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Study: "The Three Fund Portfolio" won 82.9% of the time.

Post by Taylor Larimore » Sun Jun 28, 2015 2:48 pm

Bogleheads:

In June 2013, Richard Ferri, CFA, and Alex C. Benke, CFP, did a comprehensive twenty-five page study which included a comparison of 5,000 actively managed fund portfolios with the Three Fund Portfolio. This was a conclusion:
The index fund portfolio outperformed randomly selected actively managed fund portfolios 82.9% of the time during this 16-year period.

A Case for Index Fund Portfolios

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: The Three Fund Portfolio

Post by MacGuy » Mon Jun 29, 2015 5:56 pm

First posting after my old Bogleheads registration disappeared, but here's an issue that I've been pondering for awhile:

My mutual fund portfolio has both managed and index funds, some funds I've owned more than 30 years. The old funds, all managed, have very good long term records, for example SEQUX, MDISX, DODFX and FGCKX and more recently (3 yrs) VHCAX all are closed to new investors. Performance of these funds have all exceeded those of the 3 Fund portfolio for 10-15 yrs. I'm not adding to these managed funds in any way except for VHCAX and DODFX. The index funds are with Vanguard, mid-cap and small-cap institutional class also a couple of Vanguard bond index funds. The weighted exp. ratio of the portfolio is 0.39 So is there any reason I should be thinking about moving to a 3 or 4 fund index only portfolio? I don't want to dump the closed funds. All the funds, except the first two mentioned, are in tax-deferred or Roth accounts for my wife and I. I'm retired, wife still working and doesn't want to retire, both in excellent health with probably another 20-25yrs to go. Comments any one...?

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Re: The Three Fund Portfolio

Post by tj » Mon Jun 29, 2015 7:00 pm

Personal decision. We can't tell you what to do.

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Re: The Three Fund Portfolio

Post by pingo » Mon Jun 29, 2015 11:44 pm

MacGuy wrote:First posting after my old Bogleheads registration disappeared, but here's an issue that I've been pondering for awhile:


Welcome back. :wink:

MacGuy wrote:My mutual fund portfolio has both managed and index funds, some funds I've owned more than 30 years. The old funds, all managed, have very good long term records, for example SEQUX, MDISX, DODFX and FGCKX and more recently (3 yrs) VHCAX all are closed to new investors. Performance of these funds have all exceeded those of the 3 Fund portfolio for 10-15 yrs. I'm not adding to these managed funds in any way except for VHCAX and DODFX. The index funds are with Vanguard, mid-cap and small-cap institutional class also a couple of Vanguard bond index funds. The weighted exp. ratio of the portfolio is 0.39 So is there any reason I should be thinking about moving to a 3 or 4 fund index only portfolio? I don't want to dump the closed funds.


There are many roads to Dublin, as is often expressed by someone on this forum whose name escapes me for some reason… :D

The Three Fund Portfolio is a great, pragmatic way to keep investing simple, low cost and effective. However, it is not required to be a good Boglehead. You can do far worse than holding some actively-managed funds that have high marks for stewardship. I see nothing inherently wrong with holding the funds you have and weighted portfolio costs are within reason. If it works for you, congratulations.

MacGuy wrote:All the funds, except the first two mentioned, are in tax-deferred or Roth accounts for my wife and I.


One benefit of a Three Fund Portfolio is simplicity for you and or loved ones that may one day be left with the portfolio. It's a qualitative factor, among others, that only you can weigh. (Regarding simplicity: go up to Taylor's recent post and click on the "Simplicity" link in his signature.)

Of utmost importance are the tax repercussions of keeping SEQUIX and MDISX in the taxable account versus liquidating them for simplicity or tax-efficiency going forward. Those repercussions should govern whether or not those specific funds are liquidated, regardless of whether you decided to bring things more in line with the Three Fund Portfolio, which is the focus of this thread.

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Taylor Larimore
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Wrong Forum

Post by Taylor Larimore » Tue Jun 30, 2015 8:11 am

MacGuy:

This is your first post. Welcome to the Bogleheads Forum!

In order to keep this thread manageable, we try to keep this topic confined specifically to The Three Fund Portfolio. Please post questions about your personal portfolio here:

Investing -- Help with Personal Investments

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: The Three Fund Portfolio

Post by abuss368 » Tue Jun 30, 2015 8:35 am

MacGuy wrote:First posting after my old Bogleheads registration disappeared, but here's an issue that I've been pondering for awhile:

My mutual fund portfolio has both managed and index funds, some funds I've owned more than 30 years. The old funds, all managed, have very good long term records, for example SEQUX, MDISX, DODFX and FGCKX and more recently (3 yrs) VHCAX all are closed to new investors. Performance of these funds have all exceeded those of the 3 Fund portfolio for 10-15 yrs. I'm not adding to these managed funds in any way except for VHCAX and DODFX. The index funds are with Vanguard, mid-cap and small-cap institutional class also a couple of Vanguard bond index funds. The weighted exp. ratio of the portfolio is 0.39 So is there any reason I should be thinking about moving to a 3 or 4 fund index only portfolio? I don't want to dump the closed funds. All the funds, except the first two mentioned, are in tax-deferred or Roth accounts for my wife and I. I'm retired, wife still working and doesn't want to retire, both in excellent health with probably another 20-25yrs to go. Comments any one...?


Hi MacGuy,

I think you have asked some excellent questions. Please consider starting a new thread and you will probably received a lot more direct responses with useful information.

Keep investing simple!
Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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"Lost decade" ?

Post by Taylor Larimore » Tue Jun 30, 2015 8:32 pm

Bogleheads:

A Boglehead wrote: "We've already just experienced a lost decade."

This was my reply:

These are the 10-year dollar and (annualized returns) for $10,000 invested in each of the three index funds in The Three Fund Portfolio:

$22,047 (8.23%) Vanguard Total Stock Market Index Fund
$16,913 (5.40%) Vanguard Total International Index Fund
$15,267 (4.32%) Vanguard Total Bond Market Index Fund
$54,227

Best wishes.
Taylor
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"Active funds win battles but lose wars"

Post by Taylor Larimore » Tue Jun 30, 2015 9:41 pm

Bogleheads:

Rick Ferri, author of "All About Index Funds," has written an excellent article for Dow Jones Indexology explaining why The Three Fund Portfolio containing only index funds is expected to outperform:
It’s widely known that, over time, index investing has typically outperformed actively managed funds across every investment category. What’s less known is the benefit achieved from using a diversified portfolio of only index funds over a comparable portfolio of actively managed funds.

Active Funds Win Battles--But Lose Wars

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Active funds win battles but lose wars"

Post by abuss368 » Tue Jun 30, 2015 10:03 pm

Taylor Larimore wrote:Bogleheads:

Rick Ferri, author of "All About Index Funds," has written an excellent article for Dow Jones Indexology explaining why The Three Fund Portfolio containing only index funds is expected to outperform:
It’s widely known that, over time, index investing has typically outperformed actively managed funds across every investment category. What’s less known is the benefit achieved from using a diversified portfolio of only index funds over a comparable portfolio of actively managed funds.

Active Funds Win Battles--But Lose Wars

Best wishes.
Taylor


Thanks Taylor! I really like the Three Fund Portfolio!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Three Fund Portfolio

Post by abuss368 » Wed Jul 01, 2015 12:16 am

Is it fair to assume Rick is much more open to the Three Fund a Portfolio after many years of slice and dice?

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Three Fund Portfolio

Post by Leeraar » Wed Jul 01, 2015 2:23 am

abuss368 wrote:Is it fair to assume Rick is much more open to the Three Fund a Portfolio after many years of slice and dice?

Best.

In my own opinion, it is interesting to see how Rick Ferri's position has shifted as he has done more research over the years.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

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Re: The Three Fund Portfolio

Post by abuss368 » Wed Jul 01, 2015 6:06 am

Leeraar wrote:
abuss368 wrote:Is it fair to assume Rick is much more open to the Three Fund a Portfolio after many years of slice and dice?

Best.

In my own opinion, it is interesting to see how Rick Ferri's position has shifted as he has done more research over the years.

L.


Agreed. There is so much overwhelming research. Rick also removed microcaps a year or more ago.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Three Fund Portfolio

Post by martinks » Sun Jul 05, 2015 1:06 pm

Mr. Taylor,

I am new to this thread and see there are thousands of responses about the Three Fund Portfolio. I am sure it has been stated hundreds of times, but can you quickly clarify the portfolio and is this it?

These are the 10-year dollar and (annualized returns) for $10,000 invested in each of the three index funds in The Three Fund Portfolio:

$22,047 (8.23%) Vanguard Total Stock Market Index Fund
$16,913 (5.40%) Vanguard Total International Index Fund
$15,267 (4.32%) Vanguard Total Bond Market Index Fund
$54,227

And are you suggesting adding 1/3 to each fund? I am in my mid 50's and hope to retire at 60 or 62.

Thanks,
martin

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Allocating within The Three Fund Portfolio

Post by Taylor Larimore » Sun Jul 05, 2015 2:03 pm

Martin:

Welcome to the Bogleheads Forum!

martinks wrote:Mr. Taylor,

I am new to this thread and see there are thousands of responses about the Three Fund Portfolio. I am sure it has been stated hundreds of times, but can you quickly clarify the portfolio and is this it?

These are the 10-year dollar and (annualized returns) for $10,000 invested in each of the three index funds in The Three Fund Portfolio:

$22,047 (8.23%) Vanguard Total Stock Market Index Fund
$16,913 (5.40%) Vanguard Total International Index Fund
$15,267 (4.32%) Vanguard Total Bond Market Index Fund
$54,227

And are you suggesting adding 1/3 to each fund? I am in my mid 50's and hope to retire at 60 or 62.

Martin:

The figures are correct. No, I am not suggesting "adding 1/3 to each fund."

A primary benefit of The Three Fund Portfolio (in addition to its simplicity), is the fact that investors can adjust their allocation to the funds according to their own goals, time-frame, risk-tolerance, and financial situation.

My first post contains this link to a Vanguard asset-allocation tool designed to help investors decide their own best allocation between the three funds:

https://personal.vanguard.com/us/funds/tools/recommendation?WT.srch=1

Best wishes.
Taylor
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The word is out

Post by Taylor Larimore » Mon Jul 06, 2015 4:02 pm

Bogleheads:

Today, Morningstar posted a very positive article about Vanguard. This is what they said about the three funds in The Three Fund Portfolio:
Although Vanguard recently has launched a few new offerings, most of the money has gone to existing, broad-based funds, including Vanguard Total International Stock Index (VTSNX), Vanguard Total Stock Market Index (VITSX), and Vanguard Total Bond Market Index (VBTIX)

The word is out.

Top Honors Go to Vanguard and Its Strong Culture

Best wishes.
Taylor
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Re: The word is out

Post by abuss368 » Mon Jul 06, 2015 8:43 pm

Taylor Larimore wrote:Bogleheads:

Today, Morningstar posted a very positive article about Vanguard. This is what they said about the three funds in The Three Fund Portfolio:
Although Vanguard recently has launched a few new offerings, most of the money has gone to existing, broad-based funds, including Vanguard Total International Stock Index (VTSNX), Vanguard Total Stock Market Index (VITSX), and Vanguard Total Bond Market Index (VBTIX)

The word is out.

Top Honors Go to Vanguard and Its Strong Culture

Best wishes.
Taylor


Excellent article on how far Vanguard has grown. The Three Fund Portfolio, The Vanguard Four Fund Portfolio, and the Target lineup are hard to beat.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The word is out

Post by longinvest » Tue Jul 07, 2015 6:58 am

abuss368 wrote:Excellent article on how far Vanguard has grown. The Three Fund Portfolio, The Vanguard Four Fund Portfolio, and the Target lineup are hard to beat.

It is my humble opinion that Taylor's Three-Fund Portfolio is slightly superior to the Four-Fund Portfolio used in Vanguard's LifeStrategy and TargetRetirement lineups, despite the attractiveness of the simpler investment solution they provide in tax-advantaged accounts.

I think that the use of financial derivative products to hedge currency in the international bond fund (required to reduce the volatility due to foreign exchange rates) unfortunately adds counter-party risk which is a risk most likely to show up in bad times, exactly when bonds should be protecting a portfolio. Note that I have a hard time quantifying the importance of this risk (e.g. what's the worst that could happen?).
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Re: The word is out

Post by abuss368 » Tue Jul 07, 2015 8:32 am

longinvest wrote:
abuss368 wrote:Excellent article on how far Vanguard has grown. The Three Fund Portfolio, The Vanguard Four Fund Portfolio, and the Target lineup are hard to beat.

It is my humble opinion that Taylor's Three-Fund Portfolio is slightly superior to the Four-Fund Portfolio used in Vanguard's LifeStrategy and TargetRetirement lineups, despite the attractiveness of the simpler investment solution they provide in tax-advantaged accounts.

I think that the use of financial derivative products to hedge currency in the international bond fund (required to reduce the volatility due to foreign exchange rates) unfortunately adds counter-party risk which is a risk most likely to show up in bad times, exactly when bonds should be protecting a portfolio. Note that I have a hard time quantifying the importance of this risk (e.g. what's the worst that could happen?).


Hi longinvest,

Either portfolio should do the job of providing safety and income to a portfolio. We will have to see how Total International Bond Index "holds up" during the next sell off.

I would expect Vanguard put a lot of research into this before launching any changes.
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Re: The Three Fund Portfolio -- Very reassuring.

Post by vitaflo » Tue Jul 07, 2015 10:41 am

Taylor Larimore wrote:Bogleheads:
I live on the 35th floor of a condominium in Miami, Florida. At least once a day I walk out on our balcony and look at the thousands of businesses, big and small, stretched-out below me. I know that every corporation I can see is trying to increase its stock value.

Total Stock Market Index Fund investors own a small piece of nearly every corporation. It is very reassuring.


Taylor, my friends recently were discussing buying AAPL and talked about it as an investment strategy. They made some good points, but then I thought "I already own AAPL" in my Total Stock fund. To my surprise, I calculated I already owned $10,000 in AAPL!

My mother is soon retiring from a job at a small midwestern bank with about 20 branches. They are publicly traded. I decided to see if and how much of the bank I owned. Turns out I already owned 52 cents worth of the bank!

It was very reassuring to know I owned both the biggest and smallest companies already. With no extra work on my part! :sharebeer

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Re: The Three Fund Portfolio

Post by staybalanced » Tue Jul 07, 2015 1:33 pm

The more I read and research the more the 3-fund makes sense. I am taking the plunge, changed retirement allocations already and slowly switching my taxable account (to minimize realized gains) to three-fund using ETF's (BTW vanguard is creating a AMT (Alternate Minimum Tax)-free muni ETF that should be trading before year end.) Cheers to much shorter statements from Vanguard and less fund Prospectuses showing up at my house.

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Re: The Three Fund Portfolio -- Very reassuring.

Post by abuss368 » Tue Jul 07, 2015 4:37 pm

vitaflo wrote:
Taylor Larimore wrote:Bogleheads:
I live on the 35th floor of a condominium in Miami, Florida. At least once a day I walk out on our balcony and look at the thousands of businesses, big and small, stretched-out below me. I know that every corporation I can see is trying to increase its stock value.

Total Stock Market Index Fund investors own a small piece of nearly every corporation. It is very reassuring.


Taylor, my friends recently were discussing buying AAPL and talked about it as an investment strategy. They made some good points, but then I thought "I already own AAPL" in my Total Stock fund. To my surprise, I calculated I already owned $10,000 in AAPL!

My mother is soon retiring from a job at a small midwestern bank with about 20 branches. They are publicly traded. I decided to see if and how much of the bank I owned. Turns out I already owned 52 cents worth of the bank!

It was very reassuring to know I owned both the biggest and smallest companies already. With no extra work on my part! :sharebeer


Back in our evil stock picking days (when we thought we could out smart the market) we owned Apple. We made a lot of money on some trades and lost a lot of money on others.

I am happy to be a Vanguard Shareholder!

Thank You Jack Bogle.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Three Fund Portfolio

Post by 661 » Thu Jul 09, 2015 8:37 am

Greetings Bogleheads!

Read through the entirety of this informative thread and I am very excited to implement the TFP when rolling over a 401k in the coming weeks!

In discussing the merits of the three fund approach vs target date or life strategy products, one difference is conspicuously absent from the conversation; earnings frequency.

Vanguard target date and life strategy funds distribute dividends and capital gains annually and bi-annually, respectively. Components of the TFP most commonly discussed here distribute earnings monthly, in the case of TBM, and quarterly with regard to TSM/TISM.

It seems to me that the compounding and dollar cost averaging effect of the TFP's shorter earnings interval could really add up for a large portfolio and long time horizon.

Is there a flaw in my reasoning?

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Re: The Three Fund Portfolio

Post by abuss368 » Thu Jul 09, 2015 12:28 pm

661 wrote:Greetings Bogleheads!

Read through the entirety of this informative thread and I am very excited to implement the TFP when rolling over a 401k in the coming weeks!

In discussing the merits of the three fund approach vs target date or life strategy products, one difference is conspicuously absent from the conversation; earnings frequency.

Vanguard target date and life strategy funds distribute dividends and capital gains annually and bi-annually, respectively. Components of the TFP most commonly discussed here distribute earnings monthly, in the case of TBM, and quarterly with regard to TSM/TISM.

It seems to me that the compounding and dollar cost averaging effect of the TFP's shorter earnings interval could really add up for a large portfolio and long time horizon.

Is there a flaw in my reasoning?


Hi 661,

Welcome to the forum. I am glad to here you are excited to be moving to the Three Fund Portfolio. You will like the simplicity and performance.

I am unsure why the Target and LifeStrategy funds do not pay the dividends to the Shareholders on a monthly and quarterly basis. You may want to consider reaching out to Vanguard to ask that very good question. If you do, please share with the forum.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Three Fund Portfolio

Post by 661 » Thu Jul 09, 2015 1:56 pm

abuss368 wrote:I am unsure why the Target and LifeStrategy funds do not pay the dividends to the Shareholders on a monthly and quarterly basis. You may want to consider reaching out to Vanguard to ask that very good question. .


Thanks abuss!

Since I'm moving from target to TFP this point becomes moot for me. :wink: The intent of my post was to simulate discussion around what I perceive to be yet another significant advantage for the TFP vs fund of funds approximations.

That this has gone unmentioned through 23 pages of input makes me wonder if I am being too clever by half. :mrgreen:

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Re: The Three Fund Portfolio

Post by abuss368 » Thu Jul 09, 2015 2:40 pm

661 wrote:
abuss368 wrote:I am unsure why the Target and LifeStrategy funds do not pay the dividends to the Shareholders on a monthly and quarterly basis. You may want to consider reaching out to Vanguard to ask that very good question. .


Thanks abuss!

Since I'm moving from target to TFP this point becomes moot for me. :wink: The intent of my post was to simulate discussion around what I perceive to be yet another significant advantage for the TFP vs fund of funds approximations.

That this has gone unmentioned through 23 pages of input makes me wonder if I am being too clever by half. :mrgreen:


Hi 661,

Always a good question. This thread is focused on the Three Fund Portfolio so that is probably why the Target and LifeStrategy funds are not discussed as much.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: The Three Fund Portfolio

Post by longinvest » Thu Jul 09, 2015 3:05 pm

661 wrote:In discussing the merits of the three fund approach vs target date or life strategy products, one difference is conspicuously absent from the conversation; earnings frequency.

Vanguard target date and life strategy funds distribute dividends and capital gains annually and bi-annually, respectively. Components of the TFP most commonly discussed here distribute earnings monthly, in the case of TBM, and quarterly with regard to TSM/TISM.

It seems to me that the compounding and dollar cost averaging effect of the TFP's shorter earnings interval could really add up for a large portfolio and long time horizon.

Is there a flaw in my reasoning?

Dear 661,

Welcome to the forum!

Unfortunately, there's a good reason nobody made such a claim so far in this thread. While it is true that the Three-Fund Portfolio has more frequent distributions (monthly for bonds, quarterly for stocks), this has no impact on total returns.

Distributions accrue in the NAV of the funds, so on the day a distribution is paid, the NAV drops by an equivalent amount. When the distribution is automatically reinvested, it becomes a non-event in a tax-advantaged account. Unfortunately, in taxable accounts, distributions come with tax consequences. Luckily, the Three-Fund Portfolio (as well as the target retirement and life strategy funds) minimize these consequences through low turnover.

The Three-Fund Portfolio has an advantage in presence of a taxable account by allowing the investor to locate his investments according to their tax efficiency (e.g. keep bonds in tax-advantaged accounts, as far as possible).
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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Re: The Three Fund Portfolio

Post by 661 » Fri Jul 10, 2015 6:50 am

longinvest wrote:Dear 661,

Welcome to the forum!

Unfortunately, there's a good reason nobody made such a claim so far in this thread. While it is true that the Three-Fund Portfolio has more frequent distributions (monthly for bonds, quarterly for stocks), this has no impact on total returns.



Hi longinvest,

I should have chosen my words more carefully to avoid implying that dividends are free money. However, I do feel there is a compounding of sorts since each dividend reinvested raises the baseline quantity of shares against which the next dividend is computed... and so on. Although there is no intrinsic value-add in this scenario, I continue to believe that more shares is a good thing in the long run.

Does this make sense?

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Re: The Three Fund Portfolio

Post by tj » Fri Jul 10, 2015 11:25 am

661 wrote:
longinvest wrote:Dear 661,

Welcome to the forum!

Unfortunately, there's a good reason nobody made such a claim so far in this thread. While it is true that the Three-Fund Portfolio has more frequent distributions (monthly for bonds, quarterly for stocks), this has no impact on total returns.



Hi longinvest,

I should have chosen my words more carefully to avoid implying that dividends are free money. However, I do feel there is a compounding of sorts since each dividend reinvested raises the baseline quantity of shares against which the next dividend is computed... and so on. Although there is no intrinsic value-add in this scenario, I continue to believe that more shares is a good thing in the long run.

Does this make sense?


Its psychological. Growth in capital of existing shares is equivalent to if the same capital is diluted over additional shares.

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Re: The Three Fund Portfolio

Post by Taylor Larimore » Fri Jul 10, 2015 11:31 am

661 wrote:
longinvest wrote:Dear 661,

Welcome to the forum!

Unfortunately, there's a good reason nobody made such a claim so far in this thread. While it is true that the Three-Fund Portfolio has more frequent distributions (monthly for bonds, quarterly for stocks), this has no impact on total returns.



Hi longinvest,

I should have chosen my words more carefully to avoid implying that dividends are free money. However, I do feel there is a compounding of sorts since each dividend reinvested raises the baseline quantity of shares against which the next dividend is computed... and so on. Although there is no intrinsic value-add in this scenario, I continue to believe that more shares is a good thing in the long run.

Does this make sense?


661:

The subject of dividend reinvestment is complicated and deserves its own topic. If desired, please continue the topic on the Investment Theory forum.

Thank you and best wishes.
Taylor
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Re: The Three Fund Portfolio

Post by fortyofforty » Fri Jul 24, 2015 7:02 am

I had some time to kill, so I found myself wandering into a Barnes & Noble bookstore. Heading over to the Investing and Personal Finance section, I found myself staring at racks of books purporting to explain to me how to make money in the stock market, how to use options to make a fortune, how to beat the stock market, how to read the economy and market signs to avoid the coming crash, how to pick the best stocks, and every other technique you can imagine to "win the game". How wonderful to realize that we don't need any of these books.

Investing can be simple when you just trust a few broad stock and bond indices, choose an appropriate asset allocation, and stick to your plan.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell

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Re: The Three Fund Portfolio

Post by cfs » Fri Jul 24, 2015 9:28 am

Two out of three TFP members are in the top gainers

Biggest gainers (inflows) during the first half of 2015:

-- Vanguard Total International Stock Index (VTIAX) in 1st place with $25.932 (billions).

-- Vanguard Total Stock Market Index (VTSMX) in 5th place with $9.430 (billions).

More information on the link: http://news.investors.com/photopopup.as ... &id=763134

p.s. Vanguard and "that other company" heading in opposite directions (see top outflows).
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