The Three-Fund Portfolio

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Total Bond Market ?

Post by Taylor Larimore » Sat Nov 07, 2015 7:30 pm

To those of you in Total Bond Market, are you experiencing losses currently?

Soli:

Use this link to see returns of all Vanguard funds: https://investor.vanguard.com/mutual-fu ... funds-list

It is important to understand that the primary purpose of bonds is for safety when stocks crash. Be wary of looking only at bond returns. Higher bond return nearly always reflects higher risk. Use stocks for higher return.

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

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Re: The Three Fund Portfolio

Post by Taylor Larimore » Sun Nov 08, 2015 4:31 pm

Bogleheads:

CNN Money, has an article by Walter Updegrave titled: "The only funds you need in your portfolio now." Mr. Updegrave is a former editor of Money magazine and author of four investment books. These are excerpts:
"A lot of people have the mistaken impression that to successfully invest for retirement you've got to assemble a portfolio of at least a half dozen or more mutual funds or ETFs. -- That's nonsense."

"If you choose funds that hold a broad range of stocks and bonds and work in synch with each other, you can put together a well-diversified portfolio with two or three funds, or in some cases, just one."

"Some advisers will suggest that you're missing out unless you spread your money among all manner of exotic investments (which they're more than happy to sell you)."

"I suggest that as you review your investment strategy for the New Year and beyond, you consider a streamlined approach that allows you to get by with lower fees and fewer funds."

The Only Funds You Need in Your Portfolio Now

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

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History of The Three-Fund Portfolio

Post by Taylor Larimore » Mon Nov 09, 2015 3:51 pm

Bogleheads:

I copied this post by RadAudit from another forum commenting on the History of The Three-Fund Portfolio:
Taylor Larimore wrote: With the introduction of the Total International Index Fund by Mr. Bogle in 1996, I realized that it was possible for investors to be invested in three-funds with over 15,000 world-wide securities for lower risk and possibly higher returns.

To my knowledge, this was the beginning of The Three-Fund Portfolio that I first posted (including a money market fund) in 1999 on the Morningstar Vanguard forum.

RadAudit wrote: I find it amazing how quickly a really good idea can gain traction among so many people. Thanks for advocating this remarkable approach to investing. It has done a great deal of good for a large number of people.

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 Nov 10, 2015 1:38 pm

Bogleheads,

I am surprised that our mentor, Jack Bogle, and his recommended Two Fund Portfolio that includes Total U.S. Stock & Bond, is not more popular on the forum. Jack is looking very good regarding his international advice!

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 -- The Evolution

Post by Taylor Larimore » Thu Nov 12, 2015 2:52 pm

Bogleheads:

I came across this post made over two years ago. It belongs in this thread:
clearwater wrote:
Taylor, I'm really very curious on how the three fund version came about. There has to be (as Paul Harvey used to say) a "rest of the story."

I replied:
Clearwater:

My interest in investing is inherited. My grandfather, Christopher Foster Coombs, was one of three principals heading United Founders Group, the largest group of investment trusts (now called mutual funds) in the late 1920s. He was a multi-millionaire who became bankrupt in the 30s (stocks bought on margin).

I began investing in 1950 with a neighborhood investment club and spent most of my life trying to "beat the market" by succumbing to Wall Street's marketing machine, and later succumbing to the lure of market-timing newsletters. When I finally realized that all my time and effort trying to beat the market was unsuccessful, I began reading financial literature (over 300 books) and to study academic research.

A Random Walk Down Wall Street by Professor Burton Malkiel and Bogle on Mutual Funds by our mentor, both based on academic research, were two books that had the greatest influence on me. I found it impossible to read these books and not be convinced of the power of total market indexing and the benefits of simplicity.

Most (not all) Wall Street firms and advisors hate simple portfolios and low-cost indexing because it minimizes or eliminates their services. The Three Fund Portfolio is a tough sell against their billion dollar marketing campaigns. Nevertheless, many leading authorities, mostly academics and conflict-free authors, have gone on record as favoring total market index funds. Vanguard experts now recommend similar portfolios.

Its time has come.

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 » Thu Nov 12, 2015 9:10 pm

I moved this post by Soli, along with a few replies, into a stand-alone thread: Total Bond Market - are you experiences losses currently?
Soli wrote:To those of you in Total Bond Market,
Are you experiencing losses currently?
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Re: The Three Fund Portfolio

Post by LadyGeek » Fri Nov 20, 2015 1:46 pm

FYI - I moved a question by Badmash (and its reply) into a stand-alone thread: [Keep DFA funds and Advisor, or go with Three-fund portfolio?]
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"The Simplest Wealth Plan Ever"

Post by Taylor Larimore » Sat Nov 21, 2015 3:36 pm

Bogleheads:

A Forbes review of Bill Bernstein's latest book features this sound advice:
* Save 15 percent of your salary annually and put it into a 401(k), Individual Retirement Account, taxable account or all three.

* Put equal amounts of that 15 percent in a) US Total Stock Market Index Fund, b) International Total Stock Market Index fund, and c) US Total Bond Market Index Fund.

* Rebalance once a year to ensure that each fund contains equal amounts (one-third to each for those doing the brutal arithmetic).

The Simplest Wealth Plan Ever

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

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Re: The Three Fund Portfolio

Post by fds2 » Tue Dec 01, 2015 12:20 am

Please bear with me - I am trying to understand.

Is there a downside to using:
1) VTTVX (target 2025) to get a right mix of stocks/bonds
or
2) VBIAX (60% stock and 40% bonds)

I am leaning towards the TFP - but wanted to think about options

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Re: The Three Fund Portfolio

Post by CABob » Tue Dec 01, 2015 10:25 am

fds2 wrote:Is there a downside to using:
1) VTTVX (target 2025) to get a right mix of stocks/bonds
or
2) VBIAX (60% stock and 40% bonds)
No I don't think there is a downside. They are other approaches to a simple portfolio.
If your account is large enough to qualify for Admiral class shares your expense ration would be slightly less than if your were using a Target fund. That might be considered a downside, but I don't think it is enough of a factor to be that important.
Bob

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Re: The Three Fund Portfolio

Post by gvsucavie03 » Tue Dec 01, 2015 6:34 pm

CABob wrote:
fds2 wrote:Is there a downside to using:
1) VTTVX (target 2025) to get a right mix of stocks/bonds
or
2) VBIAX (60% stock and 40% bonds)
No I don't think there is a downside. They are other approaches to a simple portfolio.
If your account is large enough to qualify for Admiral class shares your expense ration would be slightly less than if your were using a Target fund. That might be considered a downside, but I don't think it is enough of a factor to be that important.


There is a great deal of simplicity and "hands off" that goes with a TR fund. I think it is very wise to go this route.

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Re: The Three Fund Portfolio

Post by fds2 » Fri Dec 04, 2015 11:38 am

Thanks all.

Last question: VTTVX has an expense ration of 0.17. Does the .17 include the expenses of the 4 below (which it consist of) or do each of them have an additional expense ration.

1 Vanguard Total Stock Market Index Fund Investor Shares 40.7%
2 Vanguard Total International Stock Index Fund Investor Shares 26.5%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 23.0%
4 Vanguard Total International Bond Index Fund Investor Shares 9.8%

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Re: The Three Fund Portfolio

Post by newuser123 » Fri Dec 04, 2015 11:41 am

fds2 wrote:Thanks all.

Last question: VTTVX has an expense ration of 0.17. Does the .17 include the expenses of the 4 below (which it consist of) or do each of them have an additional expense ration.

1 Vanguard Total Stock Market Index Fund Investor Shares 40.7%
2 Vanguard Total International Stock Index Fund Investor Shares 26.5%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 23.0%
4 Vanguard Total International Bond Index Fund Investor Shares 9.8%


It includes all the expenses, no additional fee.

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Re: The Three Fund Portfolio

Post by ND Fan 1 » Sun Dec 06, 2015 9:29 pm

Slowly working my way to the 3 Fund Portfolio. Transferring some accounts to Vanguard and consolidating. Had multiple ETFs, but think I'm just going to go with VG Admiral Mutual Funds.

Question: Can I use the TSP G Fund as my only bond allocation instead of the Total Bond Index Fund? Will have almost all my TSP in the G Fund, along with a small percentage of the C,S,I, funds so I can re-balance within that account.

As the end of the day my portfolio will look like this

Will have 85/15 stock/bond, with 20% International.

TSP
G Fund

His Roth IRA
Vanguard Total Stock Market Index Admiral
Vanguard Total International Index Admiral

Her Roth IRA
Vanguard Total Stock Market Index Admiral
Vanguard Total International Index Admiral

Taxable
Vanguard Total Stock Market Index Admiral
Vanguard Total International Index Admiral

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Substituting the TSP G Fund for Total Bond Market?

Post by Taylor Larimore » Sun Dec 06, 2015 9:50 pm

Question: Can I use the TSP G Fund as my only bond allocation instead of the Total Bond Index Fund?

ND Fan 1:

Yes. The lower yielding, but less volatile. TSP G Fund is a good substitute for the Total Bond Market Index Fund.

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: Substituting the TSP G Fund for Total Bond Market?

Post by ND Fan 1 » Sun Dec 06, 2015 11:48 pm

Taylor Larimore wrote:
Question: Can I use the TSP G Fund as my only bond allocation instead of the Total Bond Index Fund?

ND Fan 1:

Yes. The lower yielding, but less volatile. TSP G Fund is a good substitute for the Total Bond Market Index Fund.

There is more than one road to Dublin.


Best wishes.
Taylor


Thanks Taylor, with a long time horizon, age 30, retiring around 60, am I sacrificing too much return by using the G Fund? I guess its a personal preference, but I don't know a lot about bonds, so I do like the simplicity of the G Fund. I also think it will allow my to maintain a higher equity allocation for a longer period.

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Re: Substituting the TSP G Fund for Total Bond Market?

Post by packet » Mon Dec 07, 2015 8:49 am

ND Fan 1 wrote:... am I sacrificing too much return by using the G Fund?...

Bonds help you sleep well... equities help you eat well (as Mr. Larimore would say).

Don't worry about G Fund return, it's there to help reduce volatility... that's all.
Once you're comfortable with your equity/bond mix, you're done.

Search these forums for more specifically on the G Fund... or post a new thread... lots more information to be had.

:beerCheers,
packet
First round’s on me.

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Re: The Three Fund Portfolio

Post by wiseowl » Fri Dec 25, 2015 2:23 am

The key thing about any of the discussions about 'this is the best allocation', you can actually remove all of the qualitative discourse (he said, she said, in the last year its performance was good etc.) by calculating the risk adjusted return of the said portfolio over different time horizons.. Then you just get an objective answer without any of the talking heads needing to tell you which is better or worse.. We are Bogleheads.. we don't need talking heads.

For the 3-ticker portfolio, for instance, over it's life time, a 33% VTSMX, 33%VGTSX and 34% VBMFX gives a 7.2% yoy return with a monthly risk of 3.08%.
this may sound very abstract.. but this means that over its life time, this portfolio has varied between +9.84% to -8.64% during any given month. If you can tolerate that volatility, you are rewarded with a 7.2% YoY returns..

If you do not like this proportion, then using simple tools you can calculate the most optimal point (i.e., the maximum risk adjusted return with these 3 funds). It comes to be 5.52% YoY with a monthly risk of 1.27%.

The fund risk/return and portfolio risk/return along with covariance (how these assets interact w/ each other) is @ https://goo.gl/photos/gFtQXnix5K8VZm8p9

The efficiency curve (risk-adjusted return range of feasibility) is @ https://goo.gl/photos/w96pwTNboiRJzREx9

If you have any other interesting portfolio with tickers that you either have (or) interested in exploring, let me know. With the advances in compute technology and cloud based deployments, the analytics are totally at your fingertips and it will remove all the guess work and you can safely eliminate the 'expert commentary' in the television channels!

Happy Holidays,
WiseOwl

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Re: The Three Fund Portfolio

Post by Alex Frakt » Fri Dec 25, 2015 11:45 am

wiseowl wrote:The key thing about any of the discussions about 'this is the best allocation', you can actually remove all of the qualitative discourse (he said, she said, in the last year its performance was good etc.) by calculating the risk adjusted return of the said portfolio over different time horizons...

For the 3-ticker portfolio, for instance, over it's life time, a 33% VTSMX, 33%VGTSX and 34% VBMFX gives a 7.2% yoy return with a monthly risk of 3.08%.
this may sound very abstract.. but this means that over its life time, this portfolio has varied between +9.84% to -8.64% during any given month. If you can tolerate that volatility, you are rewarded with a 7.2% YoY returns..

No you aren't. You were rewarded with a 7.2% return. Past performance really does not guarantee future returns. Investing is not a physical science, people's preferences change over time and activities in the real world can and do result in dramatic shifts in the returns of various asset classes. For example we appear to be coming to the end of a decades-long fall in interest rates. How will this portfolio perform in a rising interest rate environment?

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Re: The Three Fund Portfolio

Post by wiseowl » Sat Dec 26, 2015 2:27 am

While past performanec is not a guarantee of future returns, if the path you covered in the past is full of rocks and thorns, it is not going to become a bed of roses all of a sudden. Let's take a couple of points you raised and I try to address them one by one
1) People's preferences change over time: Absolutely.. so, people need to take a stock of how their porfolio risks/returns are doing (not just the returns) about once a quarter - not once a year (or) not never. A tool that shows visually your risk/return profile eliminates a lot of manual number crunching and saves a lot of time.
2) changes in macroeconomic factors affecting the returns and risks: It will and if some body says it does not, they are lying. Now, with the analysis over many time horizons, you have a reasonably educated guess of how these indexes performed during one of the past macroeconomic shifts. Now, that is not going to be completely reflective of what is going to happen in the near future. But no tool can provide that clarity, unless it claims to predict the future..

My point is not to pick an argument with you. Yes, you are right, the returns *were* 7.2% and not a guarantee for future. And macroeconomic factors are a real independent variables that determine the outcome of stocks return in the future. But, the risk adjusted return analysis over different time horizons has a strong mathematical foundation and is a very useful tool if used with the right context.

WiseOwl.

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Re: The Three Fund Portfolio

Post by Seattlenative » Wed Dec 30, 2015 5:02 pm

wiseowl wrote:The key thing about any of the discussions about 'this is the best allocation', you can actually remove all of the qualitative discourse (he said, she said, in the last year its performance was good etc.) by calculating the risk adjusted return of the said portfolio over different time horizons.. Then you just get an objective answer without any of the talking heads needing to tell you which is better or worse.. We are Bogleheads.. we don't need talking heads.

For the 3-ticker portfolio, for instance, over it's life time, a 33% VTSMX, 33%VGTSX and 34% VBMFX gives a 7.2% yoy return with a monthly risk of 3.08%. this may sound very abstract.. but this means that over its life time, this portfolio has varied between +9.84% to -8.64% during any given month. If you can tolerate that volatility, you are rewarded with a 7.2% YoY returns..

If you do not like this proportion, then using simple tools you can calculate the most optimal point (i.e., the maximum risk adjusted return with these 3 funds). It comes to be 5.52% YoY with a monthly risk of 1.27%.

The fund risk/return and portfolio risk/return along with covariance (how these assets interact w/ each other) is @ https://goo.gl/photos/gFtQXnix5K8VZm8p9

The efficiency curve (risk-adjusted return range of feasibility) is @ https://goo.gl/photos/w96pwTNboiRJzREx9

If you have any other interesting portfolio with tickers that you either have (or) interested in exploring, let me know. With the advances in compute technology and cloud based deployments, the analytics are totally at your fingertips and it will remove all the guess work and you can safely eliminate the 'expert commentary' in the television channels! Happy Holidays, WiseOwl


Thank you for the reminder that the simplest, cheapest, least complicated approach (even weighting of US + international stock + US aggregate bond) stands the test of time and is as likely as "fancier" approaches to provide decent risk-adjusted, inflation-adjusted real rates of return.

Happy New Year to everyone!

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Re: The Three-Fund Portfolio

Post by LadyGeek » Mon Jan 11, 2016 4:01 pm

mj13f150 is asking whether to use mutual funds or ETFs, which I moved into a stand-alone thread: The Three-Fund Portfolio [Mutual funds or ETFs?]
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Re: The Three-Fund Portfolio

Post by ramonsito » Thu Jan 14, 2016 9:18 pm

Mr. Larimore,
I have read most everything that you have written, as well as Mr. Bogle, and Mr. Swedroe. Thank you for your wisdom in the endeavor of investing. I constantly refer back to this 3-fund portfolio post (and thread) to remind myself of the path to financial security (as far as investments are concerned). I have made many investment mistakes over the years (despite boglehead wisdom), but buying-and-holding index funds is NOT one of them. And if I keep reading your words of wisdom - I will never make such a mistake. Many thanks.
Ramonsito

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A better three fund portfolio?

Post by mbauman » Fri Jan 15, 2016 4:09 pm

Backtesting since 2000 I find that this allocation is tough to beat:

50% VWINX

30% VWELX

20% VBMFX

And, if you plug in PIMIX for VBMFX it gets even better, but PIMIX limits the length of the backtest. Anyway, you can see how this compares to the traditional three fund portfolio by plugging the numbers into Portfolio Visualizer: https://www.portfoliovisualizer.com/bac ... sisResults. Any comments, caveats or alternatives are welcome :happy

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Re: The Three-Fund Portfolio

Post by LadyGeek » Fri Jan 15, 2016 4:17 pm

mbauman, Welcome! Here's the fund names:

50% VWINX - Vanguard Wellesley® Income

30% VWELX - Vanguard Wellington™ Fund

20% VBMFX - Vanguard Total Bond Market Index

Are you asking for your own situation? If so, please start a thread in the Investing - Help with Personal Investments and post your info using the Asking Portfolio Questions. The format contains the information we need to point you in the right direction. Going by a single portfolio composition without knowing the underlying details may not result in the best advice.
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Re: A better three fund portfolio?

Post by gvsucavie03 » Fri Jan 15, 2016 7:16 pm

mbauman wrote:Backtesting since 2000 I find that this allocation is tough to beat:

50% VWINX

30% VWELX

20% VBMFX

And, if you plug in PIMIX for VBMFX it gets even better, but PIMIX limits the length of the backtest. Anyway, you can see how this compares to the traditional three fund portfolio by plugging the numbers into Portfolio Visualizer: https://www.portfoliovisualizer.com/bac ... sisResults. Any comments, caveats or alternatives are welcome :happy


Isn't there a lot of overlapping in this allocation?

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Re: A better three fund portfolio?

Post by mbauman » Fri Jan 15, 2016 10:59 pm

gvsucavie03 wrote:
mbauman wrote:Backtesting since 2000 I find that this allocation is tough to beat:

50% VWINX

30% VWELX

20% VBMFX

And, if you plug in PIMIX for VBMFX it gets even better, but PIMIX limits the length of the backtest. Anyway, you can see how this compares to the traditional three fund portfolio by plugging the numbers into Portfolio Visualizer: https://www.portfoliovisualizer.com/bac ... sisResults. Any comments, caveats or alternatives are welcome :happy


Isn't there a lot of overlapping in this allocation?


Well, it does skew the allocation more towards stocks, but it handily beats the traditional three fund composition of Vanguard Total US Stocks, Vanguard Total Bond and Vanguard International stocks (VTI,VXUS,BND) when back-testing from the year 2000.

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Re: A better three fund portfolio?

Post by gvsucavie03 » Sat Jan 16, 2016 3:52 pm

mbauman wrote:Well, it does skew the allocation more towards stocks...


That's why it is the winner. When you assume more risk with equities, you generally earn higher returns over time.

Although these funds may have won the last 15 years, its no guarantee that it will do better the next 15 years.

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Re: A better three fund portfolio?

Post by mbauman » Sat Jan 16, 2016 11:45 pm

gvsucavie03 wrote:
mbauman wrote:Well, it does skew the allocation more towards stocks...


That's why it is the winner. When you assume more risk with equities, you generally earn higher returns over time.

Although these funds may have won the last 15 years, its no guarantee that it will do better the next 15 years.



Absolutely, but a 15 year track record is no flash in the pan when it comes to buy and hold. Also, there is a considerable bond component to the allocation I presented in addition to the stocks. One *could* attempt the Janet Brown strategy of "No Load Fund X" fame which involves rotating into the hot funds of the moment and then dropping the ones that fall out of the top 20 or so, but this requires lots of active tracking and trading. Anyway, since this thread concerns the Three Fund Portfolio, I'm curious what yours might be.

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Re: A better three fund portfolio?

Post by gvsucavie03 » Sun Jan 17, 2016 9:24 am

mbauman wrote:
gvsucavie03 wrote:
mbauman wrote:Well, it does skew the allocation more towards stocks...


That's why it is the winner. When you assume more risk with equities, you generally earn higher returns over time.

Although these funds may have won the last 15 years, its no guarantee that it will do better the next 15 years.



Absolutely, but a 15 year track record is no flash in the pan when it comes to buy and hold. Also, there is a considerable bond component to the allocation I presented in addition to the stocks. One *could* attempt the Janet Brown strategy of "No Load Fund X" fame which involves rotating into the hot funds of the moment and then dropping the ones that fall out of the top 20 or so, but this requires lots of active tracking and trading. Anyway, since this thread concerns the Three Fund Portfolio, I'm curious what yours might be.


I think you've missed the point of Taylor's thread and the overall BH philosophy. The point is to buy and hold the entire market. Yes, there are some flaws often discussed and some folks choose to buy more funds to create even greater diversification (TIPS, hi-yield bond, EM, international bonds), but the TFP is the simplest way to achieve maximum diversification with minimal complication.

15 year rolling periods have a lot of fluctuation, too. Market conditions could favor one area/sector/stock more than another. Comparing scorecards is easy looking back, but terribly challenging looking forward. There are probably a few dozen stock/bond fund combinations that have beaten the TFP over the last 15 years, but there are probably hundreds, even thousands that the TFP has crushed.

Not discussed is the added risk of portfolio managers in actively traded fund. According to Jack Bogle, Benjamin Graham and the other investing giants, vanilla is the best way to earn your share of market returns.

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Re: A better three fund portfolio?

Post by mbauman » Sun Jan 17, 2016 2:12 pm

gvsucavie03 wrote:
mbauman wrote:
gvsucavie03 wrote:
mbauman wrote:Well, it does skew the allocation more towards stocks...


That's why it is the winner. When you assume more risk with equities, you generally earn higher returns over time.

Although these funds may have won the last 15 years, its no guarantee that it will do better the next 15 years.



Absolutely, but a 15 year track record is no flash in the pan when it comes to buy and hold. Also, there is a considerable bond component to the allocation I presented in addition to the stocks. One *could* attempt the Janet Brown strategy of "No Load Fund X" fame which involves rotating into the hot funds of the moment and then dropping the ones that fall out of the top 20 or so, but this requires lots of active tracking and trading. Anyway, since this thread concerns the Three Fund Portfolio, I'm curious what yours might be.


I think you've missed the point of Taylor's thread and the overall BH philosophy. The point is to buy and hold the entire market. Yes, there are some flaws often discussed and some folks choose to buy more funds to create even greater diversification (TIPS, hi-yield bond, EM, international bonds), but the TFP is the simplest way to achieve maximum diversification with minimal complication.

15 year rolling periods have a lot of fluctuation, too. Market conditions could favor one area/sector/stock more than another. Comparing scorecards is easy looking back, but terribly challenging looking forward. There are probably a few dozen stock/bond fund combinations that have beaten the TFP over the last 15 years, but there are probably hundreds, even thousands that the TFP has crushed.

Not discussed is the added risk of portfolio managers in actively traded fund. According to Jack Bogle, Benjamin Graham and the other investing giants, vanilla is the best way to earn your share of market returns.



Well, lets examine the Vanguard Wellington fund which has been in existence more than 75 years! From the Bogle Financial Markets Research Center:

"Founded by Walter L. Morgan on December 27, 1928, Wellington Fund has followed the same balanced approach to investing ever since it began operations in mid-1929. Without exception, it has maintained an extremely broad diversification of stock and bond investments, and, with only a few intermittent aberrations (later corrected), a relentless focus on high investment quality.

From the very outset, Wellington’s three-fold objective has remained constant: (1) Conservation of Capital, (2) Reasonable Current Income, and (3) Profits Without Undue Risk. These goals have stood the test of time, and have been importantly responsible for the remarkable string of 298 consecutive quarterly dividends paid to the Fund’s shareholders. The Fund’s stalwart consistency in hewing to its conservative investment approach has played a major role in its asset growth and acceptance by millions of investors."

That sounds pretty bogle-esque to me. And how about the Vanguard Wellesley Fund:

"This 40 year-old, income-oriented balanced fund offers exposure to stocks and investment-grade bonds. Balanced funds typically offer a higher allocation to stocks; however, this fund is unique in allocating about one-third to stocks and two-thirds to bonds. The fund’s stock holdings are focused on companies that have historically paid a larger-than-average dividend or that have expectations of increasing dividends."

Anyway, as you have mentioned, these funds are not truly representative of the pure BH philosophy, but they are Vanguard Funds that have been in existence for for 75 and 40 years respectively, and have rewarded their shareholders over the long haul. I will concede your assertion that I have probably skirted the letter of the law of the BH philosophy, but I'm sticking to my allocation and I'm sorry if I have gone astray of the underlying philosophy of this thread.

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Re: A better three fund portfolio?

Post by gvsucavie03 » Sun Jan 17, 2016 2:18 pm

mbauman wrote:That sounds pretty bogle-esque to me. And how about the Vanguard Wellesley Fund:

"This 40 year-old, income-oriented balanced fund offers exposure to stocks and investment-grade bonds. Balanced funds typically offer a higher allocation to stocks; however, this fund is unique in allocating about one-third to stocks and two-thirds to bonds. The fund’s stock holdings are focused on companies that have historically paid a larger-than-average dividend or that have expectations of increasing dividends."

Anyway, as you have mentioned, these funds are not truly representative of the pure BH philosophy, but they are Vanguard Funds that have been in existence for for 75 and 40 years respectively, and have rewarded their shareholders over the long haul. I will concede your assertion that I have probably skirted the letter of the law of the BH philosophy, but I'm sticking to my allocation and I'm sorry if I have gone astray of the underlying philosophy of this thread.


It's definitely not a bad traditional fund, but the mindset of "X funds beat the TFP over the last 15 years" is the argument that I'm trying to counter. Owning an actively managed fund (especially those of Vanguard) is probably not a terrible idea, but, IMO, they should not be the core assets of a retirement portfolio. Reversion to the mean is a dangerously consistent principle of investing.

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Re: The Three-Fund Portfolio

Post by RevYoung » Sun Jan 17, 2016 3:01 pm

As Taylor has reminded us in the past (no pun intended):

“Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea.” — Bill Schultheis

That said, this sounds like a great "Wellington/Wellesley vs. Three Fund Portfolio (or Passive Indexing)" debate for a different thread. :wink:

Here's a good one that already exists:

Convince me to use 3fund rather than Wellesley/Wellington

Here are a bunch more:

50/50 Wellington & Wellesley?
Bonds vs. Wellesley fnd question
Wellesley, Wellington, Three Fund Portfolio, Retirement
Input on Vanguard funds[Three-fund portfolio vs. Wellington]
Wellington Fund or Total Stock Market Index Fund?

Or start one of your own. :beer

Taylor's post in that last thread about using past performance to predict future returns may be of particular interest, though:

This is what investing authorities (and the government) say about using past performance to pick mutual funds.

There are a lot worse actively managed funds out there. Just know what you are getting into, and that neither you nor anyone else can predict future returns by looking back — and certainly not at a relatively small (15-year) window of time.

EDIT: I couldn't resist adding this one final quote. I think Taylor said it best a few months back:

Vanguard's Wellington Fund has an excellent record. Whether this is the result of skill or luck, no one knows. In my opinion it is much safer for a retiree to invest in index funds without manager risk (manager's change, you know). You are also assured of never being below the market's performance.
“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 mbauman » Sun Jan 17, 2016 9:53 pm

RevYoung wrote:As Taylor has reminded us in the past (no pun intended):

“Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea.” — Bill Schultheis

That said, this sounds like a great "Wellington/Wellesley vs. Three Fund Portfolio (or Passive Indexing)" debate for a different thread. :wink:

Here's a good one that already exists:

Convince me to use 3fund rather than Wellesley/Wellington

Here are a bunch more:

50/50 Wellington & Wellesley?
Bonds vs. Wellesley fnd question
Wellesley, Wellington, Three Fund Portfolio, Retirement
Input on Vanguard funds[Three-fund portfolio vs. Wellington]
Wellington Fund or Total Stock Market Index Fund?

Or start one of your own. :beer

Taylor's post in that last thread about using past performance to predict future returns may be of particular interest, though:

This is what investing authorities (and the government) say about using past performance to pick mutual funds.

There are a lot worse actively managed funds out there. Just know what you are getting into, and that neither you nor anyone else can predict future returns by looking back — and certainly not at a relatively small (15-year) window of time.

EDIT: I couldn't resist adding this one final quote. I think Taylor said it best a few months back:

Vanguard's Wellington Fund has an excellent record. Whether this is the result of skill or luck, no one knows. In my opinion it is much safer for a retiree to invest in index funds without manager risk (manager's change, you know). You are also assured of never being below the market's performance.


Rev, thanks for that. I'm new here and I appreciate the links - looks like I have some reading to do.

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Re: The Three-Fund Portfolio

Post by AnotherGuyInOhio » Mon Jan 18, 2016 5:39 pm

I have a government (or I will have one when I retire in 20 - 30 years). . . How should that effect bond allocation in the 3 fund portfolio?

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Re: The Three-Fund Portfolio

Post by Avo » Mon Jan 18, 2016 5:52 pm

It reduces your need to take risk, but increases your ability to take risk. That means it becomes more of a personal choice.

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Does a pension effect the bond allocation?

Post by Taylor Larimore » Mon Jan 18, 2016 7:24 pm

AnotherGuyInOhio wrote:I have a government (pension) (or I will have one when I retire in 20 - 30 years). . . How should that effect bond allocation in the 3 fund portfolio?

AnotherGuyInOhio:

A government pension should allow a lower bond allocation. However, a lot can happen in "20-30 years." Also, you must consider your portfolio risk-tolerance which may have little to do with a future pension.

I suggest you use the Vanguard Questionnaire to help decide your stock/bond allocation. There is a link in my opening post.

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 Jan 19, 2016 6:42 am

AnotherGuyInOhio wrote:I have a government (or I will have one when I retire in 20 - 30 years). . . How should that effect bond allocation in the 3 fund portfolio?


It may reduce your need to take risk but also your ability to take risk.

I will still consider the overall risk to the investment 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 Simplest Wealth Plan Ever"

Post by thanirs » Wed Jan 20, 2016 9:33 pm

Hi Taylor, Always read your posts with much interest.

Can you all please explain the downsides of the 3-fund over adding a 4th fund (TIPS). Am I already covered against inflation with the 3-fund? 3-fund portfolio being US equities (VTSAX), Intl equities (VTIAX), and Bond index funds (VBTLX)?

Thanks much!

Taylor Larimore wrote:Bogleheads:

A Forbes review of Bill Bernstein's latest book features this sound advice:
* Save 15 percent of your salary annually and put it into a 401(k), Individual Retirement Account, taxable account or all three.

* Put equal amounts of that 15 percent in a) US Total Stock Market Index Fund, b) International Total Stock Market Index fund, and c) US Total Bond Market Index Fund.

* Rebalance once a year to ensure that each fund contains equal amounts (one-third to each for those doing the brutal arithmetic).

The Simplest Wealth Plan Ever

Best wishes.
Taylor

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Adding more funds?

Post by Taylor Larimore » Wed Jan 20, 2016 11:32 pm

Can you all please explain the downsides of the 3-fund over adding a 4th fund (TIPS). Am I already covered against inflation with the 3-fund? 3-fund portfolio being US equities (VTSAX), Intl equities (VTIAX), and Bond index funds (VBTLX)? Thanks much!

thanirs:

There is always a temptation to add more funds to a portfolio -- but there is nearly always a downside.

For example, if you had substituted Vanguard TIPS fund (VIPSX) for a portion of Total Bond Market Index Fund (VBTLX), the bond portion of your portfolio would have had lower returns during the past 1, 3, 5, and 10-years.

Ambassador Laura Dogu, my co-author of "The Bogleheads' Guide to Retirement Planning," wrote:
"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."

Strive for simplicity--not complexity.

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

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Re: "The Simplest Wealth Plan Ever"

Post by CABob » Thu Jan 21, 2016 12:01 am

thanirs wrote:Can you all please explain the downsides of the 3-fund over adding a 4th fund (TIPS). Am I already covered against inflation with the 3-fund? 3-fund portfolio being US equities (VTSAX), Intl equities (VTIAX), and Bond index funds (VBTLX)?
I will just add my thoughts to your question. You will not know the effect of adding a TIPS fund to performance until after the fact. In any case the difference will probably be very small. I think that if one is early in ones investing experience with a high allocation to equities they will have be affected by inflation and the addition of a small allocation to TIPS would have a negligible effect. With a higher allocation to bonds the TIPS might have a significant effect, but probably not change performance over a period of years.
Bob

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Re: The Three-Fund Portfolio

Post by thanirs » Thu Jan 21, 2016 8:03 am

Thanks Taylor and CABob.

Makes complete sense. In other words, keep it simple. :)

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Re: "The Simplest Wealth Plan Ever"

Post by abuss368 » Thu Jan 21, 2016 1:04 pm

thanirs wrote:Hi Taylor, Always read your posts with much interest.

Can you all please explain the downsides of the 3-fund over adding a 4th fund (TIPS). Am I already covered against inflation with the 3-fund? 3-fund portfolio being US equities (VTSAX), Intl equities (VTIAX), and Bond index funds (VBTLX)?

Thanks much!

Taylor Larimore wrote:Bogleheads:

A Forbes review of Bill Bernstein's latest book features this sound advice:
* Save 15 percent of your salary annually and put it into a 401(k), Individual Retirement Account, taxable account or all three.

* Put equal amounts of that 15 percent in a) US Total Stock Market Index Fund, b) International Total Stock Market Index fund, and c) US Total Bond Market Index Fund.

* Rebalance once a year to ensure that each fund contains equal amounts (one-third to each for those doing the brutal arithmetic).

The Simplest Wealth Plan Ever

Best wishes.
Taylor


Hi thanirs,

Many years ago we sold our Vanguard Intermediate Term TIPS fund and consolidated with Total Bond Index. In hindsight, this was a good decision. I do not feel a TIPS fund and the additional complexity is needed on the bond side.

The Three Fund Portfolio is an excellent portfolio that is very low cost and diversified with thousands of securities.

Stay the course.
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

talltodd
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Re: The Three-Fund Portfolio

Post by talltodd » Thu Jan 21, 2016 4:29 pm

A few of the target date funds hold short term tips.

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Re: The Three-Fund Portfolio

Post by abuss368 » Thu Jan 21, 2016 7:30 pm

talltodd wrote:A few of the target date funds hold short term tips.


Indeed. As well as international bonds.
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 epicahab » Fri Jan 22, 2016 1:44 pm

Question: now that I have adopted this portfolio in my 401k, would it be prudent to also set this up in my children's 529 college plan?

Conventional wisdom is that they are so young that they should take more risk but I also want the downside protection that the Three-Fund Portfolio provides.

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Re: The Three-Fund Portfolio

Post by CABob » Fri Jan 22, 2016 2:05 pm

epicahab wrote:Question: now that I have adopted this portfolio in my 401k, would it be prudent to also set this up in my children's 529 college plan?
I think that a 3 fund portfolio would be appropriate for a 529 plan, but you may want a different asset allocation than your longer term retirement portfolio.
Bob

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Re: The Three-Fund Portfolio

Post by epicahab » Fri Jan 22, 2016 2:08 pm

CABob wrote:
epicahab wrote:Question: now that I have adopted this portfolio in my 401k, would it be prudent to also set this up in my children's 529 college plan?
I think that a 3 fund portfolio would be appropriate for a 529 plan, but you may want a different asset allocation than your longer term retirement portfolio.


Thank you. My current allocation in 401k is 44% total bond, then the rest split between total stock and total international.

I guess something like a 20% bond would be good for the kids.

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Re: The Three-Fund Portfolio

Post by Wneils » Sun Jan 24, 2016 10:38 am

Nubie old guy here and wish it was 40 years ago :(
So do I have to be with Vanguard to buy these funds? With Scottrade I put in the symbols of these 3 funds and nada. The symbol VTI or VT comes up no bond fun at all.
Time to move?

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Re: The Three-Fund Portfolio

Post by LadyGeek » Sun Jan 24, 2016 12:12 pm

Welcome! No, you certainly don't need Vanguard.

The wiki shows you 9 different providers other than Vanguard: Other than Vanguard, Boglehead-style

To go into more detail, why don't you start a thread in the Investing - Help with Personal Investments and post your portfolio using the Asking Portfolio Questions format? We'll get you pointed in the right direction.
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