The Three-Fund Portfolio

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Taylor Larimore
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Making small-cap stocks less costly and more tax-efficient

Post by Taylor Larimore » Thu Mar 31, 2016 10:54 am

Bogleheads:

Advisor Perspectives wrote:
Kadlec puts average one-way trade costs for U.S. equities at 0.45% for large-cap stocks, 0.84% for mid-cap, and 1.46% for small-cap. Small-cap costs run three times the level of large-cap costs because small-cap stocks are less liquid.

Total market index funds in The Three-Fund Portfolio enjoy the advantages of making its small-cap stocks less costly and more tax-efficient than using individual small-cap funds.

Best wishes.
Taylor
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Re: The Three-Fund Portfolio

Post by LadyGeek » Thu Mar 31, 2016 3:56 pm

FYI - new member dandypandys is requesting help with a portfolio, which I've moved into a new thread: The Three-Fund Portfolio [Portfolio help]
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Re: The Three-Fund Portfolio

Post by InspectorG » Sun Apr 03, 2016 1:31 am

Wow, this is an amazing thread by itself not to mention all the other ones. This is a must read for a newbie before posting a question on the forum. I have spent all day on this thread since 10am (now yesterday, the 2nd), plus many hours previously. I have bookmarked at least 15 different pages throughout the day, just from this thread (still not all the way through)... Many questions have been answered and new things realized. This thread has greatly reduced the anxiety of starting the investing process (without a broker) in the near future. Thanks to everyone for the time spent building this forum and all the accumulated information, thank you very much!!

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Re: The Three-Fund Portfolio

Post by gvsucavie03 » Sun Apr 03, 2016 8:31 am

InspectorG wrote:Wow, this is an amazing thread by itself not to mention all the other ones. This is a must read for a newbie before posting a question on the forum. I have spent all day on this thread since 10am (now yesterday, the 2nd), plus many hours previously. I have bookmarked at least 15 different pages throughout the day, just from this thread (still not all the way through)... Many questions have been answered and new things realized. This thread has greatly reduced the anxiety of starting the investing process (without a broker) in the near future. Thanks to everyone for the time spent building this forum and all the accumulated information, thank you very much!!


Yep, its boring, vanilla advice that won't get nearly as much attention as the slice-and-dice methods, but probably the best anywhere.

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Re: The Three-Fund Portfolio

Post by Fieldsy1024 » Tue Apr 05, 2016 9:22 am

I added the Small-Cap Idx to the 3 fund.

Overall I want my AA to be
31 yrs old
Total stock: 57%
Total int'l: 8%
Sm Cap: 15%
Total Bond: 20%

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Re: The Three-Fund Portfolio

Post by abuss368 » Tue Apr 05, 2016 5:28 pm

InspectorG wrote:Wow, this is an amazing thread by itself not to mention all the other ones. This is a must read for a newbie before posting a question on the forum. I have spent all day on this thread since 10am (now yesterday, the 2nd), plus many hours previously. I have bookmarked at least 15 different pages throughout the day, just from this thread (still not all the way through)... Many questions have been answered and new things realized. This thread has greatly reduced the anxiety of starting the investing process (without a broker) in the near future. Thanks to everyone for the time spent building this forum and all the accumulated information, thank you very much!!


Hi InspectorG,

This is a great thread and may very well be "the" thread on this forum. This thread stand for everything Boglehead!

Keep investing 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

Post by Fieldsy1024 » Wed Apr 06, 2016 7:54 am

abuss368 wrote:
InspectorG wrote:Wow, this is an amazing thread by itself not to mention all the other ones. This is a must read for a newbie before posting a question on the forum. I have spent all day on this thread since 10am (now yesterday, the 2nd), plus many hours previously. I have bookmarked at least 15 different pages throughout the day, just from this thread (still not all the way through)... Many questions have been answered and new things realized. This thread has greatly reduced the anxiety of starting the investing process (without a broker) in the near future. Thanks to everyone for the time spent building this forum and all the accumulated information, thank you very much!!


Hi InspectorG,

This is a great thread and may very well be "the" thread on this forum. This thread stand for everything Boglehead!

Keep investing simple.

+1
Even though my AA is slightly different, I will always keep it with these 3 funds and 1 more at times...

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Re: The Three-Fund Portfolio

Post by dandypandys » Sat Apr 09, 2016 8:07 am

I'm getting closer and closer to this now! I have 9 funds now, down from a gadjillion hahah! 6 of them are Vanguard low cost index ones too.
So glad my 403b has VSTAX. It doesn't have total international, but it does have Vanguard Dvlp Mrkts Indx Admrl and Vanguard Emerging Mkts Stock Idx Adm
yay!
This thread is long, i still have to go back to the start and read it all. Thanks Taylor and everyone!

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Re: The Three-Fund Portfolio

Post by gvsucavie03 » Sat Apr 09, 2016 10:22 am

dandypandys wrote:I'm getting closer and closer to this now! I have 9 funds now, down from a gadjillion hahah! 6 of them are Vanguard low cost index ones too.
So glad my 403b has VSTAX. It doesn't have total international, but it does have Vanguard Dvlp Mrkts Indx Admrl and Vanguard Emerging Mkts Stock Idx Adm
yay!
This thread is long, i still have to go back to the start and read it all. Thanks Taylor and everyone!


I would definitely read the entire tread and articles Taylor shared. The message is quite clear - 3 simple funds is all you need (or even 1-2 as long as they are highly diversified - i.e. own the entire market). Another strategy could beat it, but more importantly, that same strategy could seriously lag behind it.

Good luck as you continue to simplify/improve your portfolio!

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Re: The Three-Fund Portfolio

Post by abuss368 » Sat Apr 09, 2016 11:10 am

gvsucavie03 wrote:
dandypandys wrote:I'm getting closer and closer to this now! I have 9 funds now, down from a gadjillion hahah! 6 of them are Vanguard low cost index ones too.
So glad my 403b has VSTAX. It doesn't have total international, but it does have Vanguard Dvlp Mrkts Indx Admrl and Vanguard Emerging Mkts Stock Idx Adm
yay!
This thread is long, i still have to go back to the start and read it all. Thanks Taylor and everyone!


I would definitely read the entire tread and articles Taylor shared. The message is quite clear - 3 simple funds is all you need (or even 1-2 as long as they are highly diversified - i.e. own the entire market). Another strategy could beat it, but more importantly, that same strategy could seriously lag behind it.

Good luck as you continue to simplify/improve your portfolio!


Hi gvsucavie03,

You right, another strategy could "beat" it. The question is for how long? Jack Bogle has provided a lot of research into reversion to the mean.

Keep investing simple. The Three Fund Portfolio does that.
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 gvsucavie03 » Sat Apr 09, 2016 2:28 pm

I suppose I was thinking this but didn't quite word it correctly. There are strategies that beat it, but you're right (and Bogle is right) - how long is the question none of us know. Best to stick with the plan that will have a 70-80% chance of beating everything over the long run!

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Taylor Larimore
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"Sheer difficulty of trying to beat the market."

Post by Taylor Larimore » Sat Apr 09, 2016 10:18 pm

Bogleheads:

Mark Hulbert was owner and editor of the Hulbert Financial Digest for 36 years. His Digest tracked the performance of hundred's of newsletters claiming to "beat the market." Last month was his last edition. Chuck Jaffe at MarketWatch wrote:
Hulbert said the most important lesson his 36-year run revealed was the sheer difficulty of trying to beat the market. That goes not just for newsletters but also for mutual funds, hedge funds and investment counselors.

Three-fund investors own the market!

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

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"Travails of the active fund manager may only just be beginning"

Post by GKSD » Sat Apr 09, 2016 11:48 pm

Financial Times piece from yesterday 04/8/2016 Travails of the active fund manager may only just be beginning

Some snippets below -
“The whole subject is retirees, a 40-year savings phenomenon, and so-called alpha or investment skill is completely irrelevant for 99 per cent of people,”

“Financial markets are so distorted by central bank actions it takes a genius to beat these markets, you have to be exceptionally lucky or exceptionally skilful. Insofar as active managers have failed to deliver, it is not for want of trying”.

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Re: The Three-Fund Portfolio

Post by dandypandys » Sun Apr 10, 2016 5:17 pm

I am on page 14 now, but still haven't come across the answer I need. Hope it is ok to post here, as it is already in my other thread. What percentages of each of VTMGX Vanguard Dvlp Mrkts Indx Admrl and VEMAX Vanguard Emerging Mkts Stock Idx Adm would make the closest resemblance to Vanguard total international stock VGTSX?
I don't know why my 403b offers those and not VGTSX.
Thanks in advance! I think by Monday I should have my transfers done and will have a resemblance to the Three-fund - thanks Taylor for your help in my personal thread. I really appreciate it, and so does my husband, waving hi from Orlando FL! :sharebeer :sharebeer

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Re: The Three-Fund Portfolio

Post by gvsucavie03 » Sun Apr 10, 2016 5:49 pm

dandypandys wrote:I am on page 14 now, but still haven't come across the answer I need. Hope it is ok to post here, as it is already in my other thread. What percentages of each of VTMGX Vanguard Dvlp Mrkts Indx Admrl and VEMAX Vanguard Emerging Mkts Stock Idx Adm would make the closest resemblance to Vanguard total international stock VGTSX?
I don't know why my 403b offers those and not VGTSX.
Thanks in advance! I think by Monday I should have my transfers done and will have a resemblance to the Three-fund - thanks Taylor for your help in my personal thread. I really appreciate it, and so does my husband, waving hi from Orlando FL! :sharebeer :sharebeer


https://www.bogleheads.org/wiki/Approximating_total_international_stock_market

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Re: The Three-Fund Portfolio

Post by dandypandys » Sun Apr 10, 2016 6:00 pm

Ah ok, thanks! Looks like I can't exactly, but 70 % developing 30% emerging might be close? Darn it is frustrating when a retirement fund doesn't let you do this simple portfolio exactly as you guys have laid it out.

Edit, finished this mammoth thread woooohooooo!!!!!!!! :happy :D :) :o :P 8-) :sharebeer
Last edited by dandypandys on Mon Apr 11, 2016 4:59 pm, edited 1 time in total.

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Re: The Three-Fund Portfolio

Post by gvsucavie03 » Mon Apr 11, 2016 6:30 am

dandypandys wrote:Ah ok, thanks! Looks like I can't exactly, but 70 % developing 30% emerging might be close? Darn it is frustrating when a retirement fund doesn't let you do this simple portfolio exactly as you guys have laid it out.


Search or post your question in another thread. I know the mix of S&P 500/Extended to replicate TSM, but I don't know about international. I'm sure a mix of Developed/Emerging will get you close.

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Taylor Larimore
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Most Stock Funds Die

Post by Taylor Larimore » Sun Apr 17, 2016 9:58 am

Bogleheads:
ruralavalon wrote:

I kept hoping to see the number of managed domestic stock funds that existed in 1976, and the number (and names) of those still alive today 40 years later?

These figures by Mr. Bogle (in 2005) help answer your question:
Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business . Only 24 outpaced the market by more than 1% a year. These are terrible odds. -- I favor the all-market index fund as the best choice for most investors.


Another reason to select 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

Post by LadyGeek » Fri Apr 29, 2016 9:14 am

FYI - Norske77 is asking about international stock funds, which I moved into a stand-alone thread: International Funds Worth it?
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Re: The Three-Fund Portfolio

Post by snarlyjack » Sat Apr 30, 2016 8:10 am

Taylor Larimore,

I just wanted to post & say thank you for all your posts & help!

In all truth...it took me some time to adjust to your teachings but
after 9 months I converted my entire portfolio to your 3 fund portfolio.

When I first came here I was a dividend index investor (high dividend yield
index fund & dividend growth index fund). After hours & hours of reading
different posts & articles...the light bulb came on & I converted my thinking
to the 3 fund portfolio. In all reality, it is a much better portfolio!

So...I'm another one of your converts. You are 100% correct in your analysis!
And I wanted to say thank you! You have probably saved me $ thousands
of dollars & quite literally could make me $ millions of dollars more. And, I
realize that...so once again a big thank you goes out to you & the other Bogleheads
for all your teachings!

Cheers :sharebeer

snarlyjack

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Taylor Larimore
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Kind words of appreciation

Post by Taylor Larimore » Sat Apr 30, 2016 1:38 pm

snarley Jack:

I am pleased to learn of your success using The Three-Fund Portfolio.

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

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"The world's largest bond and stock funds lower expense ratios"

Post by Taylor Larimore » Tue May 03, 2016 12:00 pm

Bogleheads:

Good news for The Three Fund Portfolio:
Vanguard Total Bond Market Index Fund. The world's largest bond fund with $158 billion in assets reported expense ratio reductions including Investor Shares, down four basis points to 0.16%; Admiral™ Shares, down one basis point to 0.06%.

Vanguard Total Stock Market Index Fund. The largest stock fund with $418 billion in assets reported an expense ratio reduction for Investor Shares of one basis point to 0.16%.

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

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Re: "The world's largest bond and stock funds lower expense ratios"

Post by abuss368 » Tue May 03, 2016 11:14 pm

Taylor Larimore wrote:Bogleheads:

Good news for The Three Fund Portfolio:
Vanguard Total Bond Market Index Fund. The world's largest bond fund with $158 billion in assets reported expense ratio reductions including Investor Shares, down four basis points to 0.16%; Admiral™ Shares, down one basis point to 0.06%.

Vanguard Total Stock Market Index Fund. The largest stock fund with $418 billion in assets reported an expense ratio reduction for Investor Shares of one basis point to 0.16%.

Best wishes.
Taylor


Great news! Hopefully Vanguard will continue to decrease the Total International Stock Index Fund too!
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Re: The Three-Fund Portfolio

Post by dandypandys » Wed May 04, 2016 7:15 am

ooh wonder if this will reflect in my 403b.

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Re: The Three-Fund Portfolio

Post by Hawaiishrimp » Wed May 04, 2016 12:24 pm

Thanks to Taylor, the forum members and the concept of Three Fund Portfolio. I finally did my portfolio makeover and now have a clear objective and timeline when me and my wife can retire comfortably. We are on our way to retire by age 52.

My current AA is:

US Stock (40%)>> 40.48%
International (30%)>> 29.78%
Bond(30%)>> 29.72%
Cash>> 0.02%
Total Distribution>> 100%

Thank you, everyone! I love the Bogleheads. This is the best forum for individual investors. THANK YOU!
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Wed May 04, 2016 1:22 pm

Hawaiishrimp wrote:Thanks to Taylor, the forum members and the concept of Three Fund Portfolio. I finally did my portfolio makeover and now have a clear objective and timeline when me and my wife can retire comfortably. We are on our way to retire by age 52.

My current AA is:

US Stock (40%)>> 40.48%
International (30%)>> 29.78%
Bond(30%)>> 29.72%
Cash>> 0.02%
Total Distribution>> 100%

Thank you, everyone! I love the Bogleheads. This is the best forum for individual investors. THANK YOU!

Hawaiishrimp:

It makes my heart sing when I learn that I've helped others get on the road to investment success.

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 » Fri May 06, 2016 9:10 am

Hawaiishrimp wrote:Thanks to Taylor, the forum members and the concept of Three Fund Portfolio. I finally did my portfolio makeover and now have a clear objective and timeline when me and my wife can retire comfortably. We are on our way to retire by age 52.

My current AA is:

US Stock (40%)>> 40.48%
International (30%)>> 29.78%
Bond(30%)>> 29.72%
Cash>> 0.02%
Total Distribution>> 100%

Thank you, everyone! I love the Bogleheads. This is the best forum for individual investors. THANK YOU!


Hi Hawaiishrimp,

In my opinion you have an excellent investment portfolio. Continue to live below your means and look for ways to increase both savings (i.e. cash) and investment accounts.

Simplicity is the master key to financial success!

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 phanas » Fri May 06, 2016 7:31 pm

Thanks Taylor for this post. I personally have experienced the folly of maintaining slice-dice spreadsheet and controlling quarterly AA re-balancing across many index funds. I kept going towards simplification over past 10 years and actually have ended in single Vanguard Retirement Fund. My attraction is for built-in re-balancing and AA glide in single fund which is convenient to auto-invest into.

Do the proponents of 3 fund strategy think cost of single Target Fund is high for the convenience it brings?

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The Three-Fund Portfolio vs. a Target Fund -- Two good choices.

Post by Taylor Larimore » Fri May 06, 2016 8:25 pm

Do the proponents of 3 fund strategy think the cost of a single Target Fund is high for the convenience it brings?

phanas:

The Three-Fund Portfolio and Vanguard Target Funds (containing the same stock/bond ratios) should have similar long-term returns.

In my opinion, the simplicity of a Target Fund portfolio with no taxable accounts, and containing a suitable stock/bond allocation, is probably worth the small additional cost, and can be as good or better than The Three-Fund Portfolio. Morningstar gives Vanguard Target Funds their highest Gold rating.

The Three-Fund Portfolio is more tax-efficient for portfolios containing both taxable and tax-advantaged accounts because it allows placement of tax-efficient funds in the taxable account and tax-inefficient funds in the tax advantaged accounts. It is "after-tax return" that counts.

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

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Re: The Three-Fund Portfolio

Post by phanas » Fri May 06, 2016 11:16 pm

ok Taylor, now I understand this issue better.

So I have a single Vanguard Target Retirement Fund in IRA account, a single Fidelity Target Retirement in employee 401k account. In taxable account I have a few slice-dice funds mostly tilted towards emerging markets and US small value stocks. I am trying to gradually simplify and align to 3 funds model but the Bond money will need tax-free fund. What will be best way to manage 20% Bond potion in Taxable account? Vanguard Tax Exempt Bond Index Fund?

I now understand the implication of managing across tax and tax deferred accounts using Target Funds. I basically am forced to manage separate buckets with Target Funds sitting in Tax advantaged accounts and becoming core holding. Taxable account is a bit of patch work to maintain overall AA.

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Re: The Three-Fund Portfolio

Post by VirtualCuriosity » Fri May 06, 2016 11:53 pm

Finished to this point!!!

I have read, listened, and watched each link along the way. I feel reprogrammed and I am thankful for it.

Not too long ago, I started reading and watching hours upon hours of Mr. Bogle’s interviews. I wish I had learned about Mr. Bogle and this particular website, years earlier. I had once believed my investing goal was to try and select the right funds to beat the market. I have banged my head on the proverbial wall for years trying to find the right combinations that would last. The same type combos that would have then caused me to question this simple method just like those who have posted here with the “what about adding this” type questions…

While reading a while back, I learned to pay more attention to the expense ratios and after doing so, I had an unintentional consequence. I simplified my portfolio some, which was good but, not good enough. Of course, I have learned much, much more now and I will fine tune to this 3 fund portfolio, which I really like.

I still have some questions and I will ask those in the appropriate “help with personal investments” section - I learned a lot from Lady Geek in terms of that :happy

At any rate, I have nothing of real substance to add to this post, but I really felt compelled to at least use my first post to thank the original author, Taylor; and the many people who have made this thread so enjoyable/valuable. This information is priceless.

A sincere thank you

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Re: The Three-Fund Portfolio

Post by bertilak » Sat May 07, 2016 5:04 am

phanas wrote:I now understand the implication of managing across tax and tax deferred accounts using Target Funds. I basically am forced to manage separate buckets with Target Funds sitting in Tax advantaged accounts and becoming core holding.

What exactly is being forced? Use of multiple accounts, both taxable and tax advantaged? Or is it the that your tax-advantaged accounts only have target date funds available to them? The IRA should be able to hold ANY investment.

Taxable account is a bit of patch work to maintain overall AA.

I look at it just the other way around. All else being equal, taxable accounts should hold tax-efficient funds, for example total stock market. IRA, and possibly 401(k), can hold a variety of assets with so no tax consequences due to choice of asset mix. Therefore one can maintain one's desired AA by adjusting that variety -- assuming there is enough money in those account(s) to do so -- and there will be no tax consequences.
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Re: The Three-Fund Portfolio

Post by phanas » Sat May 07, 2016 1:26 pm

bertilak wrote:
phanas wrote:I now understand the implication of managing across tax and tax deferred accounts using Target Funds. I basically am forced to manage separate buckets with Target Funds sitting in Tax advantaged accounts and becoming core holding.

What exactly is being forced? Use of multiple accounts, both taxable and tax advantaged? Or is it the that your tax-advantaged accounts only have target date funds available to them? The IRA should be able to hold ANY investment.

Taxable account is a bit of patch work to maintain overall AA.

I look at it just the other way around. All else being equal, taxable accounts should hold tax-efficient funds, for example total stock market. IRA, and possibly 401(k), can hold a variety of assets with so no tax consequences due to choice of asset mix. Therefore one can maintain one's desired AA by adjusting that variety -- assuming there is enough money in those account(s) to do so -- and there will be no tax consequences.


Yes, I now see as Taylor and you explained the 3 Funds strategy helps maintain AA across multiple taxable-tax advantaged accounts.

I want to use convenience of using single TR Fund, but since I have 3 main accounts IRA, 401k and Taxable.. only way I can use TR is to select one TR in IRA, one in 401k and in Taxable I can use TR or simulate 3 Funds with Muni Bond. That's what I am referring to as managing buckets.

Is there any other way to manage across accounts using Target Funds?

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Help With Personal Investments

Post by Taylor Larimore » Sat May 07, 2016 2:23 pm

phanas:

You should avoid using bonds in taxable accounts unless your tax-advantaged accounts are all full of bonds. For this reason, put tax-efficient Total Stock Market or Total International in your taxable account, and use the appropriate target funds to match the overall stock/bond ratio you desire.

If this is not clear, please post your question on the HELP WITH PERSONAL INVESTMENTS FORUM

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 » Sat May 07, 2016 4:14 pm

phanas wrote:ok Taylor, now I understand this issue better.

So I have a single Vanguard Target Retirement Fund in IRA account, a single Fidelity Target Retirement in employee 401k account. In taxable account I have a few slice-dice funds mostly tilted towards emerging markets and US small value stocks. I am trying to gradually simplify and align to 3 funds model but the Bond money will need tax-free fund. What will be best way to manage 20% Bond potion in Taxable account? Vanguard Tax Exempt Bond Index Fund?

I now understand the implication of managing across tax and tax deferred accounts using Target Funds. I basically am forced to manage separate buckets with Target Funds sitting in Tax advantaged accounts and becoming core holding. Taxable account is a bit of patch work to maintain overall AA.


Hi phanas,

One option that would work is to place a Target fund in each tax advantaged account and the Three Fund Portfolio in the taxable account. With the taxable account you could select Total Stock, Total International, and Intermediate Term Tax Exempt. Run each account separately but review everything overall.
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Re: The Three-Fund Portfolio

Post by phanas » Sat May 07, 2016 10:21 pm

Excellent inputs, its clear to me now. 3 Funds strategy gives better the tax efficiency. But if I want to use Target Retirement Funds with multiple taxable and tax advantage accounts, I seem to have two options:

1. As abuss368 suggested, use TR in tax advantage accounts and create 3 Funds in Taxable account using Intermediate Tax Exempt Bond
2. As Taylor suggested, remove Bonds from Taxable account but select earlier TR Fund year in IRA/401k to get higher Bonds composition to achieve overall AA

Thanks folks

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Taylor Larimore
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Jack Treynor

Post by Taylor Larimore » Mon May 16, 2016 4:10 pm

Bogleheads:

Jack Traynor, one of the great market theorists and editor of the CFA Financial Analyst Journal died on May 11.

Mr. Traynor wrote: "The market itself is the simple optimal mean-variance efficient portfolio."

Mr. Treynor helped convince me that combining three total market index funds would result in the very efficient Three-Fund Portfolio.

Thank you, Mr. Treynor.

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

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Fieldsy1024
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Re: The Three-Fund Portfolio

Post by Fieldsy1024 » Wed May 18, 2016 7:24 am

Taylor (or anyone),

Have you ever thought about adding NAESX to the 3 fund to make it 4 funds? If so, what would be a good AA for an aggressive 31 yr old with your 3 fund + naesx.

If not, why not?

What would be a good AA for an aggressive 31 yr old with your 3 fund?

I'd like to keep Bonds at 10%-15%, but I know a lot of well known people think that isn't high enough.

Right now I have in my Roth (31yr old male)
Total Stock Admiral 75%
Total Int'l Stock 8%
Total Bond 10%
NAESX 7%

For months my AA has been up a little, down a little, not much movement.

Thoughts?

Thank you in advance!

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Re: The Three-Fund Portfolio

Post by bertilak » Wed May 18, 2016 8:04 am

Fieldsy1024 wrote:Taylor (or anyone),

Have you ever thought about adding NAESX to the 3 fund to make it 4 funds? If so, what would be a good AA for an aggressive 31 yr old with your 3 fund + naesx.

Thoughts?

Thank you in advance!

My thoughts?

It's not likely to make any difference for two reasons:
  1. Looking at Morningstar. The two funds take turns leading each other with neither one being a long-term standout.
  2. Such a small percentage will leave NAESX swampd by Total Stock Market (VTSAX) in any case.

You will have added complexity for essentially no gain.
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Re: The Three-Fund Portfolio

Post by matjen » Wed May 18, 2016 8:10 am

Regarding ^...My thoughts as a slicer and dicer in general,

No. If you are going to add to a classic three-fund portfolio it seems to me you should follow what most of the academic literature and thought leaders do/have done. That really isn't small cap. It is however small cap value or for others it may be a REIT fund. In the Vanguard world Vanguard S&P Small-Cap 600 Value ETF VIOV. IJS is the same fund but a tad more $ but much more volume.
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Re: The Three-Fund Portfolio

Post by Fieldsy1024 » Wed May 18, 2016 8:24 am

Thanks for the replies. If I got rid of NAESX and stuck with the 3 fund, would this be too aggressive even for someone who is aggressive and is 31.

Total Stock Admiral 70%
Total Intl 12%
Total Bonds 18%

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matjen
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Re: The Three-Fund Portfolio

Post by matjen » Wed May 18, 2016 8:30 am

Fieldsy1024 wrote:Thanks for the replies. If I got rid of NAESX and stuck with the 3 fund, would this be too aggressive even for someone who is aggressive and is 31.

Total Stock Admiral 70%
Total Intl 12%
Total Bonds 18%


This is a personal decision that has no right answer. However, your asset allocation is actually a bit on the conservative side. As good a guide as any on this topic is to look at what Vanguard chooses for asset allocation in its Target Retirement Funds. For your age bracket they are at 10% bonds.

https://investor.vanguard.com/mutual-fu ... dings/0699
Last edited by matjen on Wed May 18, 2016 10:45 am, edited 1 time in total.
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Taylor Larimore
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Adding More Funds?

Post by Taylor Larimore » Wed May 18, 2016 9:32 am

Fieldsy1024 » Wed May 18, 2016 7:24 am

Taylor (or anyone), Have you ever thought about adding NAESX to the 3 fund to make it 4 funds.

Fieldsy1024:

There is always a temptation to add more funds to The Three-Fund Portfolio. The problem is that if we add more funds we lose The Three-Fund Portfolio's great advantage of Simplicity. The three-fund portfolio already holds over 15,000 non-overlapping securities including all the stocks in NAESX.
"The enemy of a good plan is the dream of a perfect plan." -- Jack Bogle

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

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Re: Adding More Funds?

Post by bertilak » Wed May 18, 2016 9:44 am

Taylor Larimore wrote:Jack Traynor wrote: "The market itself is the simple optimal mean-variance efficient portfolio."

Taylor Larimore wrote:The three-fund portfolio already holds over 15,000 non-overlapping securities including all the stocks in NAESX.

Those two quotes should be contemplated together! Focus on the parts I underlined.
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Re: The Three-Fund Portfolio

Post by bikechuck » Wed May 18, 2016 9:57 am

When I retire later this year or early next year I plan to move my 401Ks to Vanguard and adopt the three fund approach however I have access to two investments that I think might make sense to keep as part of my bond portfolio.

1) TIAA Traditional currently paying 4% guaranteed
2) A similar fixed annuity (not yet annuitized) paying a guaranteed minimum 4.5%. I opened this ~ 30 years ago, it is in an IRA with a highly rated insurance co. and I can add to it or withdraw up to 10% per year from it with no penalties.

I would prefer the simplicity of a "pure" three fund portfolio but I would be very interested in Mr. Larimore's opinion if my thinking is correct that it would make more sense to keep these two investments as components of the Bond portion of my portfolio.

Thanks in advance for your opinion and thank you to Taylor for starting this thread and for those who have contributed to it.

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Fieldsy1024
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Re: The Three-Fund Portfolio

Post by Fieldsy1024 » Wed May 18, 2016 11:35 am

matjen wrote:
Fieldsy1024 wrote:Thanks for the replies. If I got rid of NAESX and stuck with the 3 fund, would this be too aggressive even for someone who is aggressive and is 31.

Total Stock Admiral 70%
Total Intl 12%
Total Bonds 18%


This is a personal decision that has no right answer. However, your asset allocation is actually a bit on the conservative side. As good a guide as any on this topic is to look at what Vanguard chooses for asset allocation in its Target Retirement Funds. For your age bracket they are at 10% bonds.

https://investor.vanguard.com/mutual-fu ... dings/0699


Thanks all!

I may go 13% bonds, 12% int'l, and the rest total stock (75%)

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Personal Portfolio Questions

Post by Taylor Larimore » Wed May 18, 2016 2:14 pm

Bogleheads:

Questions about personal portfolios are best posted on the "Help with Personal Investments Forum".

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 » Wed May 18, 2016 4:27 pm

Fieldsy1024 wrote:Thanks for the replies. If I got rid of NAESX and stuck with the 3 fund, would this be too aggressive even for someone who is aggressive and is 31.

Total Stock Admiral 70%
Total Intl 12%
Total Bonds 18%


This is a very personal decision and choice. Either way you will be fine. However, I am prefer a simple strategy using total market index funds.
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 Franko1966 » Wed May 18, 2016 7:20 pm

Over 15,000 non-overlapping securities is very impressive! I own Lifestrategy Growth in my Roth and 2030 Target Fund in my Tradational IRA...with the Vanguard International Bond what would that number be of non-overlapping securities? Just curious!

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Re: The Three-Fund Portfolio

Post by abuss368 » Wed May 18, 2016 8:45 pm

Franko1966 wrote:Over 15,000 non-overlapping securities is very impressive! I own Lifestrategy Growth in my Roth and 2030 Target Fund in my Tradational IRA...with the Vanguard International Bond what would that number be of non-overlapping securities? Just curious!


Vanguard Target Date funds include Total International Bond Index Fund.
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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