The Three-Fund Portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Seattlenative
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Re: Total Market Index Funds

Postby Seattlenative » Sat Aug 29, 2015 3:16 pm

Taylor Larimore wrote:Bogleheads:

Toto238 posted a very informative Morningstar chart showing the 23-year returns and volatility of Total Market Index Fund and its sub-allocations of Growth and Value indexes. This was his conclusion:
This is why most BHs here choose Total Funds whenever possible. It maximizes diversification, thus reducing the volatility in our portfolios. And despite us having lower volatility (and therefore less risk), our expected return stays exactly the same. Diversification is the only free lunch in investing. It allows you to reduce risk without reducing expected return.

23-year returns for three Vanguard index funds: Total Stock Market Index (VTSMX); Value Index (VIVAX); and Growth Index (VIGRX).

Best wishes.
Taylor

With humility, I'd ask for a bit of clarification on the growth rate of a single buy-and-hold investment in Total Stock Index back on 11-02-1992. Using the simple online Bureau of Labor Statistics CPI calculator to adjust 1992 dollars to 2015 dollars, an initial investment of $17,009 (2015 dollars) would have grown by 08/28/15 to $75,484.51. If this is correct, would this mean that such an investment would have obtained a more than a 443% inflation-adjusted rate of return over a 22-year 10-month time frame, or am I missing something here?

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Re: The Three Fund Portfolio

Postby small_index » Sun Aug 30, 2015 2:37 pm

rca1824 wrote:If you buy a 5-year CD and hold it for 5 years you get exactly 2.25%, with 100% certainty.


rca1824 - After purchasing the 5-year CD, how do you determine when to switch back to TBM?

RevYoung wrote:As for me, I will stick with TBM so I am holding it when its return surpassed your CD and/or EE bond. :)


RevYoung - you might be waiting longer than it takes rca1824's 5-year CD to mature. Vanguard TBM has a duration of 5.7 years. If you get the higher yield needed to beat the 5-year CD, then TBD also takes a dip that requires 5.7 years of waiting to recoup. TBM isn't going to beat the 5-year CD on yield - only on a total return that includes capital gains (rates fall, TBM benefits).

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Taylor Larimore
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Roboadvisers ?

Postby Taylor Larimore » Tue Sep 01, 2015 5:08 pm

Bogleheads:

There were no "roboadvisers" when I first posted this Three Fund Portfolio topic in 2012. Having never used a roboadviser, and knowing little about them, I recently made a post on the Boglehead forum titled, "Does The Three Fund Portfolio Need a Roboadviser?"

As of today, we have received 75 very helpful replies. The vast majority of replies do not recommend a roboadvisor for The Three Fund Portfolio -- another advantage of simplicity.

I am writing this Reply here so that we will have a link for anyone considering a roboadviser. If you have a question or comment about using a roboadvisor, please post your reply in the original thread by using the link above.

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

archii
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Re: The Three Fund Portfolio

Postby archii » Tue Sep 01, 2015 5:28 pm

Taylor,
I already have tax deferred and taxable accounts at fidelity in mid six figures. I cannot add any more to the tax deferred (IRA).
I have some cash to put to work, just opened up a vanguard account, and wish to put $150K in there towards a three fund portfolio. This account will compliment a 60/25 equity/bond mix that I already have as an AA.
For a taxable vanguard account, would you choose the etf's over the mutual funds?

thx

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Taylor Larimore
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Accomplishing our asset-allocation plan

Postby Taylor Larimore » Tue Sep 01, 2015 5:49 pm

archii wrote:Taylor,
I already have tax deferred and taxable accounts at fidelity in mid six figures. I cannot add any more to the tax deferred (IRA).
I have some cash to put to work, just opened up a vanguard account, and wish to put $150K in there towards a three fund portfolio. This account will compliment a 60/25 equity/bond mix that I already have as an AA.
For a taxable vanguard account, would you choose the etf's over the mutual funds?

thx

Archii:

You should use only tax-efficient mutual funds that you can hold 'forever' in your new Vanguard taxable account. Vanguard Total Stock Market and Total International are two such funds.

Exchange funds (stocks to bonds) in your Fidelity IRA to accomplish your overall asset-allocation plan. Fidelity's Spartan U.S. Bond Index Fund (FSITX) is the Total Bond Market equivalent.

Regarding "ETF's over the mutual funds," read THIS.

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

archii
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Re: Accomplishing our asset-allocation plan

Postby archii » Tue Sep 01, 2015 6:29 pm

Taylor Larimore wrote:
You should use only tax-efficient mutual funds that you can hold 'forever' in your new Vanguard taxable account. Vanguard Total Stock Market and Total International are two such funds.

Exchange funds (stocks to bonds) in your Fidelity IRA to accomplish your overall asset-allocation plan. Fidelity's Spartan U.S. Bond Index Fund (FSITX) is the Total Bond Market equivalent.

Regarding "ETF's over the mutual funds," read THIS.

Best wishes.
Taylor



Thanks Taylor

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Re: The Three Fund Portfolio

Postby epicahab » Wed Sep 02, 2015 8:43 am

This thread inspired me to check my employer's 401k...miraculously, Vanguard Funds are now available for the first time in 13 years.

So I have ditched .4 expense ratios and gone with 44% total bond and 28% each total stock and total world stock.

Thanks for all the guidance over the years. :beer

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Taylor Larimore
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"Fewer choices mean fewer mistakes."

Postby Taylor Larimore » Fri Sep 04, 2015 10:13 am

Bogleheads:

This is a PM (Private Message) I received last week:
"Dear Taylor:

I am sincerely sorry for not listening to you in the beginning. As a PhD student in economics I overthought things and by my own hubris thought I could do better than the conventional wisdom. I realize now for a variety of reasons that The Three Fund Portfolio is best.

The biggest reason, recently, is that I, for the life of me, could not calculate the optimal allocation towards six or eight different funds, and went quite mad trying to do so. Fewer choices mean fewer mistakes. Now I only need to make 3 choices. Thanks!"

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

standard7
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Re: The Three Fund Portfolio

Postby standard7 » Sat Sep 05, 2015 5:52 pm

Cash component of a Three Fund Portfolio?

Does this article reflect the basic concept of all that is needed for the cash allocation - http://www.bogleheads.org/wiki/Emergency_fund

6-12 months expenses, and no cash buffer in the tax deferred account?

In practice is that what people are doing?

thank you,

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Taylor Larimore
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Re: The "Four" Fund Portfolio

Postby Taylor Larimore » Sat Sep 05, 2015 7:43 pm

standard7:

My original version of a simple portfolio suitable for taxable investors, was a Four Fund Portfolio posted on the Morningstar Diehard Forum in June, 1999. The fourth fund was a money market fund.

Later I realized that it is usually unnecessary to have a separate low-yielding fund (that may never be needed) if cash can be obtained elsewhere (credit card, bank, portfolio, loans, etc.).

I have no problem in adding a money market fund if necessary. However, keep in mind these words of Laura Dogu, Ambassador to Nicaragua and co-author of "The Bogleheads Guide to Retirement Planning":
"A simple portfolio is actually the ultimate in sophistication. It almost always lowers cost (including taxes), makes analysis easier, simplifies rebalancing, simplifies tax-preparation, reduces paper-work and record-keeping, and enables caregivers and heirs to easily take-over the portfolio when necessary. Best of all, a simple portfolio allows the investor to spend more time with family and friends."

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

standard7
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Re: The Three Fund Portfolio

Postby standard7 » Sat Sep 05, 2015 8:13 pm

Hi Taylor

Thank you for the reply. I'm still making my way through the retirement book and a couple others. My biggest challenge as I move to the 3 Fund Portfolio are my old investing habits. I'll get there...

best regards,

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Re: The Three Fund Portfolio

Postby Lieutenant.Columbo » Sun Sep 06, 2015 9:34 pm

Boglenaut wrote:
ofcmetz wrote: I reduced my taxable funds from 6 to 2.


how did you do it? invested it in RE?
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Re: Fund placement

Postby Lieutenant.Columbo » Sun Sep 06, 2015 10:29 pm

Taylor Larimore wrote: VBTLX (Vanguard Total Bond Market Admiral) should be in a tax-deferred account. There are exceptions, but most funds are better in a tax-deferred account than in a taxable account.


1) I do not understand why it is bonds and not stock index funds that should go in tax-deferred accounts; I've read the wiki and still can't see the reason' aren't bond yielding less returns, and hence less taxes? if so, doesn't that say bonds are better allocated in taxable accounts?

2) does the above about tax-deferred account also apply to tax-free accounts?

thank you!
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Taylor Larimore
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Re: Fund placement

Postby Taylor Larimore » Mon Sep 07, 2015 7:57 am

JLMA wrote:
Taylor Larimore wrote: VBTLX (Vanguard Total Bond Market Admiral) should be in a tax-deferred account. There are exceptions, but most funds are better in a tax-deferred account than in a taxable account.


1) I do not understand why it is bonds and not stock index funds that should go in tax-deferred accounts; I've read the wiki and still can't see the reason' aren't bond yielding less returns, and hence less taxes? if so, doesn't that say bonds are better allocated in taxable accounts?

2) does the above about tax-deferred account also apply to tax-free accounts?

thank you!

JLMA:

I should have said "tax-advantaged" accounts (which includes all IRAs); not "tax-deferred" which is ambiguous.

This study by Professor William Reichenstein explains why bonds are usually best in tax-advantaged accounts and stocks in taxable accounts:

The Asset Location Decision Revisited

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

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Re: The "Four" Fund Portfolio

Postby fortyofforty » Mon Sep 07, 2015 12:56 pm

Taylor Larimore wrote:standard7:

My original version of a simple portfolio suitable for taxable investors, was a Four Fund Portfolio posted on the Morningstar Diehard Forum in June, 1999. The fourth fund was a money market fund.

Later I realized that it is usually unnecessary to have a separate low-yielding fund (that may never be needed) if cash can be obtained elsewhere (credit card, bank, portfolio, loans, etc.).

I have no problem in adding a money market fund if necessary. However, keep in mind these words of Laura Dogu, Ambassador to Nicaragua and co-author of "The Bogleheads Guide to Retirement Planning":
"A simple portfolio is actually the ultimate in sophistication. It almost always lowers cost (including taxes), makes analysis easier, simplifies rebalancing, simplifies tax-preparation, reduces paper-work and record-keeping, and enables caregivers and heirs to easily take-over the portfolio when necessary. Best of all, a simple portfolio allows the investor to spend more time with family and friends."

Best wishes.
Taylor


Taylor,

I don't think I understand something, and maybe I'm just not seeing something obvious. Is it not dangerous to add credit card debt, loans against retirement assets, home equity lines of credit, and other types of loans, when an investor is in the midst of a true emergency? As a person's source of income has been eliminated, for example, there really isn't any guarantee that three months, or six months, or even a year of emergency funds will be all that is needed. I'd much rather tap into a Money Market Fund for as long as possible before incurring additional debt. Am I missing something? Is this just being too conservative?

Thanks
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell

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Taylor Larimore
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Emergency Fund

Postby Taylor Larimore » Mon Sep 07, 2015 1:42 pm

I'd much rather tap into a Money Market Fund for as long as possible before incurring additional debt. Am I missing something? Is this just being too conservative?

fortyofforty:

If you can get the money elsewhere, I think it is too conservative for an emergency which may never happen. (Money Market funds now yield almost nothing.)

There is more than one road to Dublin.

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

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Re: Fund placement

Postby Lieutenant.Columbo » Mon Sep 07, 2015 8:13 pm

Taylor Larimore wrote: This study by Professor William Reichenstein explains why bonds are usually best in tax-advantaged accounts and stocks in taxable accounts:
The Asset Location Decision Revisited



what is your opinion on this (opposite?) point on view? thank you
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Re: The Efficient Frontier and Past Performance

Postby Toons » Mon Sep 07, 2015 9:06 pm

Taylor Larimore wrote:Hi Keith:

I will try to answer your questions one at a time:

I am somewhat more concerned about diversification and volatility than most. So, I have always had a little (3-5% each) specifically in REITS and in Natural Resources. But, that was then. Do you think your current recommendations adequately include these less correlated components?


The total market portfolios hold the market's weight in every marketable corporation--including REITS and Natural Resources. So your question involves "overweighting segments you think will outperform or reduce risk.

Many academics believe that Market Portfolios are on the "Efficient Frontier": Portfolios having the highest expected return possible for the given amount of risk. For this reason, I doubt that we can improve the risk/return trade-off by overweighting with additional securities already in the index.

If you are "Somewhat more concerned about diversification and volatility than most," in my opinion the best solution is to increase your bond allocation--not add more stock funds.

And while I'm at it, is there an easy way to see returns for comparable lazy portfolios of Vanguard funds? I am interested to see how they compare to portfolios that have the same philosophy (I think) but are more complex, like Alex Green's "Gone Fishin' Portfolio": http://www.gonefishinportfolio.com/


Total Market Index Fund performance reflects the market weight of all the asset-classes (REITS, Utilities, Precious Metal Companies, Small-Value, etc.) within it. Overweighting specific asset-classes will likely cause the Total Market Index to fall below the Efficient Frontier. For this reason I doubt if adding funds with the additional complexity is worth the trouble.

It is easy to back-test and find selected asset-classes that outperformed during certain periods and infer that these same asset-classes will outperform going forward. It seems logical but using past performance to pick winners is such a lousy idea that even the government requires mutual funds to tell you it is a lousy idea.

If anything, stocks, funds and asset-classes that outperform in one period are the ones that underperform later as they return to their mean. Mr. Bogle explains all this in this speech we heard him deliver at our Boglehead Reunion in June, 2002:

http://www.vanguard.com/bogle_site/sp20020626.html

Happy New Year!
Taylor



"Your success in investing, I wrote, "will depend on your ability to realize, at the heights of ebullience and the depths of despair alike that 'This too shall pass away.'""

Brilliant words from Bogle in the link to his speech :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Taylor Larimore
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Re: Fund placement

Postby Taylor Larimore » Mon Sep 07, 2015 9:22 pm

JLMA wrote:
Taylor Larimore wrote: This study by Professor William Reichenstein explains why bonds are usually best in tax-advantaged accounts and stocks in taxable accounts:
The Asset Location Decision Revisited



what is your opinion on this (opposite?) point on view? thank you

JLMA:

I agree with Professor Reichenstein (who acknowledges there can be exceptions).

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

Clive
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Re: The Three Fund Portfolio

Postby Clive » Thu Sep 17, 2015 7:16 am

Taylor Larimore wrote:
kkhanmd wrote:Are REITS, TIPS included in three fund portfolios according to their market caps or they missing from it?

REITS are included. TIPS are not.

GDP calculations include imputed rent from all homes, rented or not, as that way GDP isn't affected by transitions from owner-occupier to rental and vice-versa. For the UK the total housing stock value is a multiple of the UK total stock market value and as such the three fund portfolio doesn't hold REIT cap weighting IMO. That may be corrected for if a investor owns their own home.

A alternative three 'fund' portfolio is as advocated in ancient Talmud text : third each in business, land and reserves which might be interpreted as stocks, own home and CD's/gold. Owning a home avoids having to pay gross rental yield whilst generally seeing the home value rise over time - very equity like (share/house price appreciation plus dividend/imputed rent).

For UK investors historic gross rental yields averaged 4.6%, when added to house price appreciation and combined with US stocks (GBP adjusted) and gold such a portfolio was resilient whilst providing satisfactory rewards in a cost and tax efficient manner. Buy and hold compared in reward to rebalanced and even if you discounted one asset being devastated such as a assumption of home value being lost during WW2 the broader portfolio outcome was still good (around 6% annualised real long term reward).

For US data towards the bottom of http://www.econ.yale.edu/~shiller/data.htm there's data for house price, stocks and one year interest rates available in two separate spreadsheets. Assuming a 4.5% average imputed rent benefit a yearly rebalanced three way split of those assets since 1890 yielded a 4.6% annualised real with a near straight upward sloping nominal growth line other than a wiggle during the 1930's.

From a UK investors perspective gold sovereign coins being legal tender are exempt from capital gains tax and pay no interest so there's no income taxes. Your primary home is exempt from capital gain tax and imputed rent is also tax exempt. We have options to hold stocks in tax exempt accounts that eliminate any taxes on capital gains or income/dividends, and if stocks are a initial equal weighted bought and held set of the 50 largest stocks (or whatever) there's no ongoing fund management fees. i.e. after the initial purchase there might be zero ongoing fees/costs (if you opt to not rebalance) other than the cost of any sales.

This link shows the actual Talmudic text http://www.yutorah.org/daf.cfm/6024/Bava%20Metzia/42/a and this link provides a translation http://www.come-and-hear.com/babamezia/ ... ia_42.html Part of the translation further suggests that you reduce/eliminate third party risk as much as possible.

Comparing non rebalanced and rebalanced and rebalanced can reduce portfolio volatility

Rebalanced
https://www.portfoliovisualizer.com/bac ... 0&REIT2=33

Non rebalanced
https://www.portfoliovisualizer.com/bac ... 0&REIT2=33

But for less liquid assets it can be better to just ride the volatility and use periodic profit taking as the means to steer the portfolio.

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Re: The Three Fund Portfolio

Postby Clive » Thu Sep 17, 2015 7:56 am

Clive wrote:For US data towards the bottom of http://www.econ.yale.edu/~shiller/data.htm there's data for house price, stocks and one year interest rates available in two separate spreadsheets. Assuming a 4.5% average imputed rent benefit a yearly rebalanced three way split of those assets since 1890 yielded a 4.6% annualised real with a near straight upward sloping nominal growth line other than a wiggle during the 1930's.

A observation with regard to that US data. With 4.5% assumed imputed rent, that compares to the 4.4% average stock dividend yield since 1890. Which compares to the 4.5% total real return from the portfolio. i.e. as though both share prices and house prices rose with inflation, and additionally paid 4.5% dividend/imputed rent on top of that 0% real capital gain. Where one third of the portfolio was in cash, that might broadly just pace inflation, the inference is that volatility capture (trading via rebalancing) induced a 4.5% benefit from such cash. Collectively three (diverse) sets of real gains : dividends, imputed rent, volatility capture (trading), where each broadly averaged 4.5%.

Generally if you rebalance you often raise the level of cash (typically a rebalance will more often reduce stock to top up cash). Sometimes vice-versa - stocks down so some of cash used to buy more shares (at a relatively lower price), and later profit taking (selling shares to replenish cash). Such 'trading' would appear to have generated a 4.5% benefit on that cash.

If you don't rebalance then typically over time the weightings will see stocks become more heavily weighted, cash become more lightly weighted. So instead of volatility capture/trading gains, the benefit is more attributed to stock gains/dividends.

Its as though price appreciation, dividend income and volatility capture benefits are all broadly as rewarding as each other. I guess that has to be the case otherwise Options traders would arbitrage the difference such that over time only one of those sources of rewards would prevail as the one and only single source of reward.

A land owner who leaves the land idle, a property owner who doesn't live in the property (or rent it out), a cash holder who doesn't periodically utilise the cash (perhaps buy shares for a period to later replenish the cash) are comparable to a stock holder who burns the dividend cheques. Each might broadly see their asset value perhaps just rise with inflation. When more appropriately utilised each of the choices can broadly compare in the amount of dividend benefit received (land produce profits, stock dividends, cash trading gains, imputed/actual property rental benefit). Some individuals might diversify across a range of such choices, others might concentrate, broadly whichever is the more cost and tax efficient is a reasonable choice (mindful that diversification helps to reduce risk - if 100% of your wealth is in woodland and there's a forest fire !!!)).

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Re: The Three Fund Portfolio

Postby pingo » Thu Sep 17, 2015 2:03 pm

epicahab wrote:This thread inspired me to check my employer's 401k...miraculously, Vanguard Funds are now available for the first time in 13 years.


Congratulations!

epicahab wrote:So I have ditched .4 expense ratios and gone with 44% total bond and 28% each total stock and total world stock.


For those who are new to the forum and/or The Three Fund Portfolio, I want to be sure the Vanguard Total International Index Fund (VGTSX/VTIAX), which covers foreign markets, is not confused with the Vanguard Total World Stock Index Fund (VTWSX/VTWIX), which tracks both the U.S. and foreign markets in a single fund. Some people use Total World as their only stock fund to enjoy the simplicity of a Two Fund Portfolio, as mentioned here and there. (BTW Taylor's perspective is here.)

One reason the The Three Fund Portfolio uses VG Total Int'l is so that one's general allocation to international stocks can be one and the same as one's allocation to the fund, which can be seen and understood at a glance.

epicahab has devised a variant 3 fund portfolio which is still as effective as the typical Three Fund Portfolio by working around the Total International by including not available. The use of Total Bond, Total U.S. and Total World (the latter two being split evenly) results in a U.S./International relationship of 3:1, i.e., 1/4 of stocks are in foreign markets because half of the Total World is still comprised of U.S. equities.
Last edited by pingo on Mon Sep 21, 2015 11:59 pm, edited 1 time in total.

Seattlenative
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Re: The Three Fund Portfolio

Postby Seattlenative » Mon Sep 21, 2015 7:34 pm

pingo wrote: One reason the The Three Fund Portfolio uses VG Total Int'l is so that one's general allocation to international stocks can be one and the same as one's allocation to the fund, which can be seen and understood at a glance. epicahab has devised a variant 3 fund portfolio which is still as effective as the typical Three Fund Portfolio by working around the Total International by including not available. The use of Total Bond, Total U.S. and Total World (the latter two being split evenly) results in a U.S./International relationship of 3:1, i.e., 1/4 of stocks are in foreign markets because half of the Total World is still comprised of U.S. equities.


I agree with epicahab. 40% in Total Bond (BND), 30% in Total U.S. (VTI) and 30% in Total World (VT) creates a portfolio asset allocation of 40% U.S. fixed income, 45% U.S. equity and 15% international equity. Some have mentioned that VT's ER is 0.17%, while you could assemble a comparable combination of VTI and VXUS for a combined ER of under 0.09%. However, by avoiding the need to periodically rebalance between U.S. and international and the temptation to tilt this AA in one direction or other, Total World's automatic rebalancing may well offset the somewhat higher ER. VT's ER is still very low compared to almost every other investment portfolio out there. It seems to be a rational approach for a long-term investor. This is simply my two pennies' worth on this idea.

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Re: The Three Fund Portfolio

Postby YoungBoglehead » Sun Sep 27, 2015 12:07 am

Guys, my whole life savings is in 3 funds, pretty much what I learned from this thread. It's in


1) VTSAX/VTI (same thing, total US stock market index funds)

2) VXUS (total international index fund)

3) BND


Am I doing anything wrong here?
Also, I am 27, if I remember correctly the best lineup is maybe 60% total US, 15% total INTL, and 25% BND (bond almost follows age)
I'm probably very low on bonds currently and high on US stocks (feel good about US economy) but am I at least close to right on what I think it should be?

Thank you,
Started investing around 21, joined Bogleheads at 23.

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Re: The Three Fund Portfolio

Postby Hodor » Sun Sep 27, 2015 7:24 am

YoungBoglehead wrote:Guys, my whole life savings is in 3 funds, pretty much what I learned from this thread. It's in


1) VTSAX/VTI (same thing, total US stock market index funds)

2) VXUS (total international index fund)

3) BND


Am I doing anything wrong here?
Also, I am 27, if I remember correctly the best lineup is maybe 60% total US, 15% total INTL, and 25% BND (bond almost follows age)
I'm probably very low on bonds currently and high on US stocks (feel good about US economy) but am I at least close to right on what I think it should be?

Thank you,



You are doing just fine. Those are three excellent funds and the ratio that you have in each is perfectly reasonable. Do you also have an emergency fund that you could tap into?

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Re: The Three Fund Portfolio

Postby gvsucavie03 » Sun Sep 27, 2015 10:31 am

YoungBoglehead wrote:I'm probably very low on bonds currently and high on US stocks (feel good about US economy) but am I at least close to right on what I think it should be?


This logic is flawed. Investing on feeling is one of the worst decisions you can make. Pick up a copy of Boglehead's Guide to Investing, read carefully, and you will understand why.

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Re: The Three Fund Portfolio

Postby LadyGeek » Sun Sep 27, 2015 10:46 am

There's no need to buy the book. See the wiki: Behavioral pitfalls and pay attention to the big blue box at the top of the page.

YoungBoglehead has also posted in this on-going discussion: I feel like going 100% Bonds, but am staying the course which would be a better place to discuss the behavioral aspects.

Hodor brings up an excellent point regarding an Emergency fund. Feel free to start a thread in the Investing - Help with Personal Investments forum to discuss your situation in more detail.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: The Three Fund Portfolio

Postby gvsucavie03 » Sun Sep 27, 2015 11:34 am

LadyGeek wrote:There's no need to buy the book.


I think everyone would benefit from this valuable resource, especially younger investors. Though the Wiki has a tremendous amount of valuable information, the book offers more organized format while the Wiki is more "choose your own adventure."

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Re: The Three Fund Portfolio

Postby abuss368 » Sun Sep 27, 2015 12:54 pm

gvsucavie03 wrote:
YoungBoglehead wrote:I'm probably very low on bonds currently and high on US stocks (feel good about US economy) but am I at least close to right on what I think it should be?


This logic is flawed. Investing on feeling is one of the worst decisions you can make. Pick up a copy of Boglehead's Guide to Investing, read carefully, and you will understand why.


Bogleheads,

The Bogleheads Guide to Investing is one of the best personal financing and investing books that I have ever read.

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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F150HD
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Re: The Three Fund Portfolio

Postby F150HD » Sun Sep 27, 2015 2:56 pm

Ok, I haven't read through this entire thread (maybe this is answered somewhere)...

Contribution limit is $5500 for a Roth IRA currently.

The minimum investment requirement for each of the 3 VG funds is $3000 each, so, to put each of the 3 funds into a Roth for example, how does that work? as the amount one needs to spend exceeds the contribution limit for a given year (would need to put in $9000 to get started).

I have a 403 at work (no VG funds available there), just opened a Roth at VG and wanted to use this approach.

Do you have to just start w/ 1 fund (VTSMX for example)....then add the others over the years? Thanks.

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Re: The Three Fund Portfolio

Postby gvsucavie03 » Sun Sep 27, 2015 3:00 pm

mj13f150 wrote:Ok, I haven't read through this entire thread (maybe this is answered somewhere)...

Contribution limit is $5500 for a Roth IRA currently.

The minimum investment requirement for each of the 3 VG funds is $3000 each, so, to put each of the 3 funds into a Roth for example, how does that work? as the amount one needs to spend exceeds the contribution limit for a given year (would need to put in $9000 to get started).

I have a 403 at work (no VG funds available there), just opened a Roth at VG and wanted to use this approach.

Do you have to just start w/ 1 fund (VTSMX for example)....then add the others over the years? Thanks.


Target retirement or life strategy until you can do 3-fund

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Re: The Three Fund Portfolio

Postby F150HD » Sun Sep 27, 2015 3:02 pm

Question #2 (and if this is answered, point me to the thread!)

Which is the better choice? 3 Fund approach or the Gone Fishing Portfolio?

http://www.investmentu.com/content/detail/gone-fishin-index-fund-portfolio

Thanks.

if this is the wrong place to ask this question, I can move the question to an appropriate thread.

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Re: The Three Fund Portfolio

Postby F150HD » Sun Sep 27, 2015 3:05 pm

gvsucavie03 wrote:
Target retirement or life strategy until you can do 3-fund


Sorry, what do you mean by until?

I have looked at VFORX etc....but was opting for the 3 (or maybe 4) fund approach I was reading about. Thanks.

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Re: The Three Fund Portfolio

Postby gvsucavie03 » Sun Sep 27, 2015 3:11 pm

mj13f150 wrote:
gvsucavie03 wrote:
Target retirement or life strategy until you can do 3-fund


Sorry, what do you mean by until?

I have looked at VFORX etc....but was opting for the 3 (or maybe 4) fund approach I was reading about. Thanks.


Invest every year until your balance is large enough to meet the individual fund minimums.

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Re: The Three Fund Portfolio

Postby gvsucavie03 » Sun Sep 27, 2015 3:14 pm

mj13f150 wrote:Question #2 (and if this is answered, point me to the thread!)

Which is the better choice? 3 Fund approach or the Gone Fishing Portfolio?

http://www.investmentu.com/content/detail/gone-fishin-index-fund-portfolio

Thanks.

if this is the wrong place to ask this question, I can move the question to an appropriate thread.


No one really knows what is best. We make the best judgement and hope the principles will hold for the next 40 years.

IMO, 3 fund is better... Majesty of Simplicity

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Re: The Three Fund Portfolio

Postby gvsucavie03 » Sun Sep 27, 2015 3:24 pm

mj13f150 wrote:
gvsucavie03 wrote:
Target retirement or life strategy until you can do 3-fund


Sorry, what do you mean by until?

I have looked at VFORX etc....but was opting for the 3 (or maybe 4) fund approach I was reading about. Thanks.


As long as that TR approximates your risk tolerance, invest there until you have enough to split to TSM, TISM and TBM. Vanguard will automatically grant you Admiral shares when each fund balance reaches $10,000.

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Re: The Three Fund Portfolio

Postby packet » Sun Sep 27, 2015 7:34 pm

mj13f150 wrote:...Contribution limit is $5500 for a Roth IRA currently. ...The minimum investment requirement...I have a 403 at work ...

You should consider all retirement accounts as one big portfolio and balance your assets across them. That's not to say target retirement or lifestrategy funds are bad choices (they're great actually)...

I would recommend you post a new thread and use this format.

You will get lots of great feedback. Also, perhaps the best part of following this posting format, it the process it puts you through... you're likely to learn a thing or two about your portfolio.

:beerCheers,
packet
First round’s on me.

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Re: The Three Fund Portfolio

Postby YoungBoglehead » Mon Sep 28, 2015 11:05 pm

LadyGeek wrote:There's no need to buy the book. See the wiki: Behavioral pitfalls and pay attention to the big blue box at the top of the page.

YoungBoglehead has also posted in this on-going discussion: I feel like going 100% Bonds, but am staying the course which would be a better place to discuss the behavioral aspects.

Hodor brings up an excellent point regarding an Emergency fund. Feel free to start a thread in the Investing - Help with Personal Investments forum to discuss your situation in more detail.


Checked it out!

Regarding my comment about being heavy on US stocks "because I feel good about the US economy" maybe was the wrong wording (but maybe not) I didn't necessarily mean that as an emotion, I mostly meant that... using what I know about economics, and the world (trust me, I know it's novice) I feel that the US will have a strong economy for some time. Right or wrong, who knows.

Anyway, I should probably even it out with some overseas stocks I guess
Started investing around 21, joined Bogleheads at 23.

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The Three Fund Portfolio wins again

Postby Taylor Larimore » Sun Oct 04, 2015 9:32 pm

Bogleheads:

Ten years ago, Boglehead adviser, Allan Roth, wrote about The Three Fund Portfolio he set-up for his seven-year-old son. Now, at age 17, the son reflects on his winning portfolio:

Second-Grader Who Beat Wall Street -- A Decade Later

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

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Re: The Three Fund Portfolio

Postby DriftingDudeSC » Mon Oct 05, 2015 3:01 am

Thank you for posting Mr. Taylor. Very sound advice.

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Re: The Three Fund Portfolio wins again

Postby abuss368 » Mon Oct 05, 2015 6:14 pm

Taylor Larimore wrote:Bogleheads:

Ten years ago, Boglehead adviser, Allan Roth, wrote about The Three Fund Portfolio he set-up for his seven-year-old son. Now, at age 17, the son reflects on his winning portfolio:

Second-Grader Who Beat Wall Street -- A Decade Later

Best wishes
Taylor


That is amazing! Lesson: Keep investing low cost, diversified, and simple!
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 wins again

Postby bertilak » Tue Oct 06, 2015 8:50 am

Taylor Larimore wrote:Bogleheads:

Ten years ago, Boglehead adviser, Allan Roth, wrote about The Three Fund Portfolio he set-up for his seven-year-old son. Now, at age 17, the son reflects on his winning portfolio:

Second-Grader Who Beat Wall Street -- A Decade Later

Best wishes
Taylor

My favorite paragraph:

    It’s still a bad idea to: pay one expert to outsmart other experts, to put all of your nest eggs into one basket, to lend money to somebody who won’t pay it back, and to listen to, let alone invest, based upon the advice of TV financial gurus.
And my favorite part of that paragraph:

    It’s still a bad idea to: pay one expert to outsmart other experts.
I have a strong moral sense - by my standards. | -- Rex Stout

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Re: The Three Fund Portfolio

Postby Senin » Thu Oct 08, 2015 3:15 am

I still believe that America is the strongest country in the world. I would put the majority of my money there.

Let's say...
60% Total Market index
20% International
20% Bond

Of course this is for now. When things change I would change my allocation. America is for stability, International is for speculation, Bond is for reserve. Over the course of a lifetime, the Total Market is the lifeline.

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Re: The Three Fund Portfolio

Postby 4strings » Thu Oct 08, 2015 8:32 am

Taylor,

Have you ever looked at how the true Vanguard 3 Fund Portfolio has done versus the 3 Fund Portfolios from other institutions? For example, I am at Schwab and use their equivalent funds as recommended on the 3 Fund Portfolio Wiki. Would love to see the performance vs. Schwab/Fidelity/T. Rowe, etc. Even more curious to see how the funds have done versus the ETF version...

Thanks!

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Re: The Three Fund Portfolio

Postby bertilak » Thu Oct 08, 2015 8:35 am

4strings wrote:Taylor,

Have you ever looked at how the true Vanguard 3 Fund Portfolio has done versus the 3 Fund Portfolios from other institutions? For example, I am at Schwab and use their equivalent funds as recommended on the 3 Fund Portfolio Wiki. Would love to see the performance vs. Schwab/Fidelity/T. Rowe, etc. Even more curious to see how the funds have done versus the ETF version...

Thanks!

Make a chart on Morningstar.
I have a strong moral sense - by my standards. | -- Rex Stout

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Re: The Three Fund Portfolio

Postby packet » Thu Oct 08, 2015 9:08 am

bertilak wrote:
4strings wrote:Taylor,

Have you ever looked at how the true Vanguard 3 Fund Portfolio has done versus the 3 Fund Portfolios from other institutions? For example, I am at Schwab and use their equivalent funds as recommended on the 3 Fund Portfolio Wiki. Would love to see the performance vs. Schwab/Fidelity/T. Rowe, etc. Even more curious to see how the funds have done versus the ETF version...

Thanks!

Make a chart on Morningstar.

I'll place a bet now... each flavor of the 3 fund portfolio performs the same (any differences will be insignificant).

:beerCheers,
packet
First round’s on me.

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Past performance of total market index funds?

Postby Taylor Larimore » Thu Oct 08, 2015 11:57 am

4strings wrote:Taylor,

Have you ever looked at how the true Vanguard 3 Fund Portfolio has done versus the 3 Fund Portfolios from other institutions? For example, I am at Schwab and use their equivalent funds as recommended on the 3 Fund Portfolio Wiki. Would love to see the performance vs. Schwab/Fidelity/T. Rowe, etc. Even more curious to see how the funds have done versus the ETF version...Thanks!

4strings:

I am confident that Packet is right when he wrote: "I'll place a bet now... each flavor of the 3 fund portfolio performs the same (any differences will be insignificant)."

"Past performance does not guarantee future performance."

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

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Re: The Three Fund Portfolio

Postby patrick013 » Thu Oct 08, 2015 1:36 pm

My observation is that the indexes used are slightly different.

There's a CRSP, Dow Jones, S&P, Russell, and Morgan Stanley
indexes used most frequently. So, they have some different
stocks or bonds in each one and slightly different returns.

I did check one 5 year period where the Dow Jones total market
stock had a 75% return and the CRSP total market stock had a
90% return.

But overall they should be very similar including a blend of
highly rated stocks in each.
age in bonds, buy-and-hold, 10 year business cycle

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Funds vs. Indexes

Postby Taylor Larimore » Thu Oct 08, 2015 2:40 pm

I did check one 5 year period where the Dow Jones total market stock had a 75% return and the CRSP total market stock had a 90% return.

Patrick:

That's a huge difference for two indexes representing the U.S. Total Stock Market. Can you give your source(s) and the "5 year period?"

It is important to understand that the original question was about Vanguard, Schwab and T Rowe Price Total Stock Market Index funds--not the Dow Jones and CRISP Indexes.

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

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Re: Funds vs. Indexes

Postby patrick013 » Thu Oct 08, 2015 5:22 pm

Taylor Larimore wrote:
I did check one 5 year period where the Dow Jones total market stock had a 75% return and the CRSP total market stock had a 90% return.

Patrick:

That's a huge difference for two indexes representing the U.S. Total Stock Market. Can you give your source(s) and the "5 year period?"

It is important to understand that the original question was about Vanguard, Schwab and T Rowe Price Total Stock Market Index funds--not the Dow Jones and CRISP Indexes.

Thank you and best wishes.
Taylor


Taylor,

It was before the correction but the exact 5 year period I don't have it
written down or anything.

Today VTI is at +70.77% for 5 year return (the CRSP index used)
and SCHB is at +71.34% for 5 year return (the Dow Jones index used)

The above is according to the Schwab website. So they have equaled
returns quite well.
age in bonds, buy-and-hold, 10 year business cycle


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