The Three-Fund Portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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HuckFinn
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Re: The Three-Fund Portfolio

Postby HuckFinn » Mon Jan 25, 2016 12:39 am

Hello Taylor Larimore,

About 6 years ago you provided some suggestions to my wife in the Morningstar Bogleheads forum on portfolio construction advice. BogleBaby was my handle. I just wanted to pass along it’s taken about 6 years now but in a month or so my wife and I should actually be down to a 3 fund portfolio that is very simple, very diversified, and extremely tax efficient. We have all Rollovers, Roth’s and Taxable investments with Vanguard – they won out due to cost and simplicity. The more you start putting the plan into action and working with it the more you understand the benefits.
The two equity funds are VG Total Stock Market Index Fund and VG Total International Stock Market Index Fund. We have not decided if the Bond Fund will be Total Bond Market Index Fund or the new Core Bond market Fund that will be out sometime in the next few months – we are waiting for more information on the new offering.
One of the benefits we enjoy the most is that out of necessity we each own a large chunk of Bond fund in our Rollovers. Each of us also own some Stock index fund in the rollover as well. It’s great to direct the dividends where the asset allocation numbers tell us they should go. (Presently directing Bond dividends into Stock obviously…) But we can literally put this portfolio on cruise control.

It should be noted that in 2004 our taxable investments were spread out in about ten different fund families and we had individual 401K’s that each owned about 3 different funds. So we probably had 12 fund families and 16 different funds we owned. Fund overlap, much higher fund expenses, much less tax efficient and a lot more paperwork at tax time!

Thank You! (and we sincerely mean that)

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Taylor Larimore
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Re: The Three-Fund Portfolio

Postby Taylor Larimore » Mon Jan 25, 2016 10:43 am

HuckFinn:

It is nice to learn (especially on my 92nd birthday) that I helped put a family on the road to financial success.

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

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Equitius
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Re: The Three-Fund Portfolio

Postby Equitius » Mon Jan 25, 2016 11:00 am

.....
Last edited by Equitius on Tue Jan 26, 2016 8:53 am, edited 1 time in total.

2015
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Re: The Three-Fund Portfolio

Postby 2015 » Mon Jan 25, 2016 11:49 am

Equitius wrote:
Taylor Larimore wrote:HuckFinn:

It is nice to learn (especially on my 92nd birthday) that I helped put a family on the road to financial success.

Thank you and best wishes.
Taylor


Taylor, you are a total godsend. Thank you for all you have done for us. Happy birthday!


+100

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HuckFinn
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Re: The Three-Fund Portfolio

Postby HuckFinn » Mon Jan 25, 2016 4:24 pm

Taylor Larimore wrote:HuckFinn:

It is nice to learn (especially on my 92nd birthday) that I helped put a family on the road to financial success.

Thank you and best wishes.
Taylor


Happy Birthday!

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Re: The Three-Fund Portfolio

Postby Wneils » Mon Jan 25, 2016 8:02 pm

Thank you so much Lady Geek!
You got the ball rolling for me!
Been reading about ETF's vs Mutual funds also.

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Re: The Three-Fund Portfolio

Postby Fieldsy1024 » Sat Jan 30, 2016 2:32 am

Is just picking one Target Fund going to make me less money? I am 31, planning on retiring at 58, but I have it all in 2055. (Both Roth and 401k).

My work, I am contemplating putting in 10% from my 2055 401k fund since it is dropping like crazy.

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Re: The Three-Fund Portfolio

Postby hnzw rui » Sat Jan 30, 2016 2:52 am

Fieldsy1024 wrote:Is just picking one Target Fund going to make me less money? I am 31, planning on retiring at 58, but I have it all in 2055. (Both Roth and 401k).

My work, I am contemplating putting in 10% from my 2055 401k fund since it is dropping like crazy.

Risk goes with (potential) reward. You're bound to see short term volatility. There's a decent probability you'll have a positive return over the long term.

I'm 31, planning on retiring at 55 and have everything invested in Target 2040 VFORX. I avoid looking at my accounts so I don't tinker but my cubicle-mate regularly has Yahoo Finance open. It makes me happier when payday falls on market dips so I'm getting more shares for my contributions rather than when market's up.

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Fieldsy1024
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Re: The Three-Fund Portfolio

Postby Fieldsy1024 » Sat Jan 30, 2016 3:07 am

Hey, wouldn't 2055 be a tad riskier than 2040? I want to go high risk high reward but not sure what to get I , stay in, then back out. That is why I chose a far tr fund

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Taylor Larimore
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Help with Personal Investing Forum

Postby Taylor Larimore » Sat Jan 30, 2016 8:30 am

Fieldsy:

Please post personal portfolio questions on the Help With Personal Investing Forum where you will get more focused replies.

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

Postby gvsucavie03 » Sun Jan 31, 2016 6:42 am

Fieldsy1024 wrote:Hey, wouldn't 2055 be a tad riskier than 2040? I want to go high risk high reward but not sure what to get I , stay in, then back out. That is why I chose a far tr fund


Have you read this entire thread? The point is not high performance, but maximizing returns while reasonably controlling risk based on market principle. Choose an asset allocation, stick with it, ignore daily market moves, and you'll do fine.

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Taylor Larimore
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Total Market Index Funds

Postby Taylor Larimore » Mon Feb 01, 2016 12:39 pm

Bogleheads:

A very knowledgeable investor with the user-name "longinvest" made this insightful post about total-market index funds::
It is cheaper, because total-market index funds are almost always cheaper than other index funds.

More tax efficient, because total-market index funds have very low turnover.

It is simpler. Changing the risk of the portfolio, as one advances in age and as the portfolio grows, simply involves increasing the allocation to bonds. There's no need to replace funds within the portfolio.

Lower risk of a significant index change, as the total market is what it is. Various total-market indices only have small differences. On the other hand, indices tracking only a part of the market (like small-cap stocks, or value stocks, or small-cap value stocks) do have significant differences in their composition, because nobody agrees on the definition of what is small, what is value, etc.

No front-running.

Easy to maintain.

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

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Re: The Three-Fund Portfolio by Jane Bryant Quinn

Postby Taylor Larimore » Mon Feb 01, 2016 10:30 pm

Bogleheads:

A recent article by Jane Bryant Quinn is titled: The Easy Way to Make Your Retirement Savings Last. This is the final paragraph:
I urge you to opt for simplicity. The fewer funds you have, the easier your investments are to manage, especially as you advance in years. Your buckets provide you with cash for withdrawals, bonds for liquidity and reasonable safety over the first part of your retirement, and stocks to help you cover the second half of retirement. All with just two or three index funds. That’s it.

http://time.com/money/4161045/retirement-income/

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

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Re: The Three-Fund Portfolio by Jane Bryant Quinn

Postby gvsucavie03 » Tue Feb 02, 2016 8:34 pm

Taylor Larimore wrote:Bogleheads:

A recent article by Jane Bryant Quinn is titled: The Easy Way to Make Your Retirement Savings Last. This is the final paragraph:
I urge you to opt for simplicity. The fewer funds you have, the easier your investments are to manage, especially as you advance in years. Your buckets provide you with cash for withdrawals, bonds for liquidity and reasonable safety over the first part of your retirement, and stocks to help you cover the second half of retirement. All with just two or three index funds. That’s it.

http://time.com/money/4161045/retirement-income/

Best wishes.
Taylor


Excellent! I like the "bucket idea" - a CD ladder could easily substitute for a short-term bond fund. The golf analogy is also very illustrative of the "guarantee" of being good without the high risk of being consistently better.

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"Three-Fund Portfolio 2015 Update"

Postby Taylor Larimore » Wed Feb 03, 2016 9:31 pm

Bogleheads:

Barry Barnitz, a wiki administrator and co-editor of Financial Page, has up-dated The Three- Fund Portfolio information.

Three-Fund Portfolio 2015 Update

Thank you, Barry!

Edit in red

Best wishes.
Taylor
Last edited by Taylor Larimore on Wed Feb 03, 2016 10:44 pm, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: The Three-Fund Portfolio

Postby LadyGeek » Wed Feb 03, 2016 10:21 pm

^^^ Barry Barnitz is a wiki adminstrator (one of the founders, actually - Bogleheads® wiki history) and is maintaining the "unofficial" Bogleheads blog. Our "official" blog was discontinued after a 6 month run. Here's the announcement: The Blog has Moved!

A link to his blog is on the left-side menu of every wiki page: Blog
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Re: "Three-Fund Portfolio 2015 Update"

Postby abuss368 » Wed Feb 03, 2016 10:45 pm

Taylor Larimore wrote:Bogleheads:

Barry Barnitz, a wiki administrator and co-editor of Financial Page, has up-dated The Three- Fund Portfolio information.

Three-Fund Portfolio 2015 Update

Thank you, Barry!

Edit in red

Best wishes.
Taylor


Thanks Taylor.
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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Three-Fund Portfolio Article

Postby Taylor Larimore » Tue Feb 23, 2016 9:43 pm

Bogleheads:

Another article recommending The Three-Fund Portfolio:

Why I Chose the Lazy Approach to Investing

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

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Re: Three-Fund Portfolio Article

Postby abuss368 » Wed Feb 24, 2016 4:33 pm

Taylor Larimore wrote:Bogleheads:

Another article recommending The Three-Fund Portfolio:

Why I Chose the Lazy Approach to Investing

Best wishes.
Taylor


Hi Taylor,

Always great news for the Three Fund Portfolio.

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: Three-Fund Portfolio Article

Postby Taylor Larimore » Wed Feb 24, 2016 5:35 pm

Abuss368 wrote:Hi Taylor,

Always great news for the Three Fund Portfolio.

Best.

Abuss:

We see relatively few articles about The Three-Fund Portfolio. This is because, with few exceptions, the self-serving financial industry does not promote The Three Fund Portfolio because they can't make profits from its low-cost.

I applaud articles like the one above.

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

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Re: Three-Fund Portfolio Article

Postby gvsucavie03 » Wed Feb 24, 2016 6:08 pm

Taylor Larimore wrote:Bogleheads:

Another article recommending The Three-Fund Portfolio:

Why I Chose the Lazy Approach to Investing

Best wishes.
Taylor


So few people will ever hear/see this. I feel fortunate to have gotten here relatively early in my working lifetime.

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Re: Three-Fund Portfolio Article

Postby abuss368 » Wed Feb 24, 2016 6:08 pm

Taylor Larimore wrote:
Abuss368 wrote:Hi Taylor,

Always great news for the Three Fund Portfolio.

Best.

Abuss:

We see relatively few articles about The Three-Fund Portfolio. This is because, with few exceptions, the self-serving financial industry does not promote The Three Fund Portfolio because they can't make profits from its low-cost.

I applaud articles like the one above.

Best wishes.
Taylor


Hi Taylor,

Indeed. Well said.

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

Postby Dick D » Thu Feb 25, 2016 10:48 am

Great simple article about a simple method!

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Two ways to "beat the market"

Postby Taylor Larimore » Sat Feb 27, 2016 6:25 pm

Bogleheads:

A wise and long-time Boglehead contributor (username "bertilak") contributed a post telling us two ways to get better than Total Market Returns:
1. One way is to take a lot of risk and be lucky. This means it is not good enough to (maybe) “beat the market.” One must do so without taking any more risk than the inherent market risk. The more risk you take*, the higher the potential returns, but also the higher the probability that you won’t be lucky! In other contexts, this is known as gambling, or more politely, speculating.

2. The other way is to outsmart everybody else. Yes, there are people who can do this. They have skills, time, resources and information, that are not available to us. Charlie Munger of Berkshire Hathaway says that Perhaps the top 3% or 4% of professional investors can do this. But they have no interest in working for us. We can’t pay them enough to get their attention. Also, we are probably not smart enough to find them.

Kiplinger's Retirement Report: "You'll beat most investors with just three funds that cover the vast majority of global stock and bond markets: Vanguard Total Stock Market; Vanguard Total International Stock Index and Vanguard Total Bond Market Index."

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

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Re: The Three-Fund Portfolio

Postby aasantha » Mon Feb 29, 2016 4:19 am

Very long thread, but it is worth to read,, thanks guys

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Re: The Three-Fund Portfolio

Postby Castanea_d. » Tue Mar 01, 2016 10:50 am

Nice article from Ben Carlson:
"Bogle vs. Goliath"
http://awealthofcommonsense.com/2016/02/bogle-vs-golitath/

He compares the 5 and 10 year results of a Vanguard three-fund portfolio with the results achieved by college/university endowments. The short answer: the three-fund approach came out ahead of almost everyone else.

Vanguard beat the average over the past 5 years for every endowment size and came up just shy of the $1 billion and over group over 10 years while besting the rest of the group averages. Think about these results for a minute — these endowment funds hire the biggest investment consultants, have huge investment committees, connections with alumni at some of the best money managers in the world and fully-staffed investment offices in many cases. All that work, all of those due diligence trips, all of those extra fees paid to money managers and the majority of these funds still couldn’t beat a low-cost Vanguard index portfolio that was simply rebalanced once a year.

And that’s not to mention the risk that these funds tend to take in more private, highly levered, illiquid securities and fund structures. The Vanguard funds have full transparency, daily liquidity and employ no leverage, performance fees or lock-ups. It’s a far more operationally efficient portfolio with no headline risk to speak of.

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Re: The Three-Fund Portfolio

Postby Cruiser » Tue Mar 01, 2016 9:24 pm

Castanea_d. wrote:Nice article from Ben Carlson:
"Bogle vs. Goliath"
http://awealthofcommonsense.com/2016/02/bogle-vs-golitath/

Great article, Castanea_d. Good quote at the end as well:
There’s a ton of ego involved in the college endowment world. No one wants to admit that there’s a much simpler way to be better than average.

Might as well replace 'college endowment' with 'investment' while we're at it.
"The stock market is a giant distraction from the business of investing." Jack Bogle

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"Why Vanguard Total Stock Market Index is the Biggest Fund in the World"

Postby Taylor Larimore » Mon Mar 07, 2016 10:40 pm

Bogleheads:

Kent Thune in About Money, tells us why so many investors love VTSMX:

Why Vanguard Total Stock Market Index is the Biggest Fund in the World

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

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Re: "Why Vanguard Total Stock Market Index is the Biggest Fund in the World"

Postby bertilak » Tue Mar 08, 2016 11:24 am

Taylor Larimore wrote:Bogleheads:

Kent Thune in About Money, tells us why so many investors love VTSMX:

Why Vanguard Total Stock Market Index is the Biggest Fund in the World

Best wishes.
Taylor


From the article:
    When mutual funds sell holdings at a price higher than than the purchase price, it produces a capital gains tax, which is then passed along to investors in the form of “capital gains distributions.”
I'm pretty sure I understand mutual funds' capital gains and I think the above is "off." Cap gains taxes are neither produced by the fund nor passed through to the investor. It is the cap gains themselves that are passed through. Any taxes are a function of an investor's overall situation. Some will pay no taxes at all.

Am I being pedantic? Worse yet, am I wrong?
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Re: "Why Vanguard Total Stock Market Index is the Biggest Fund in the World"

Postby dbr » Tue Mar 08, 2016 2:17 pm

bertilak wrote:
Taylor Larimore wrote:Bogleheads:

Kent Thune in About Money, tells us why so many investors love VTSMX:

Why Vanguard Total Stock Market Index is the Biggest Fund in the World

Best wishes.
Taylor


From the article:
    When mutual funds sell holdings at a price higher than than the purchase price, it produces a capital gains tax, which is then passed along to investors in the form of “capital gains distributions.”
I'm pretty sure I understand mutual funds' capital gains and I think the above is "off." Cap gains taxes are neither produced by the fund nor passed through to the investor. It is the cap gains themselves that are passed through. Any taxes are a function of an investor's overall situation. Some will pay no taxes at all.

Am I being pedantic? Worse yet, am I wrong?


You are correct and not being pedantic. I hate it when someone publishes information that is nonsense or wrong as written.

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Re: The Three-Fund Portfolio

Postby LadyGeek » Thu Mar 10, 2016 9:36 pm

New member RobertLink09 is requesting help with his portfolio, which I have moved into a new thread: [Three fund portfolio plus One]
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Re: The Three-Fund Portfolio

Postby Dulocracy » Fri Mar 11, 2016 2:48 pm

LadyGeek wrote:New member RobertLink09 is requesting help with his portfolio, which I have moved into a new thread: [Three fund portfolio plus One]


I honestly came here expecting LadyGeek to have said, "This topic has run its course and is locked."
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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Re: The Three-Fund Portfolio

Postby LadyGeek » Fri Mar 11, 2016 7:56 pm

^^^ :)

I removed a few posts which replied to this comment, as it was derailing the thread. The importance of this topic is well understood, no further mention is needed.
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Re: "Why Vanguard Total Stock Market Index is the Biggest Fund in the World"

Postby abuss368 » Sun Mar 13, 2016 1:20 pm

Taylor Larimore wrote:Bogleheads:

Kent Thune in About Money, tells us why so many investors love VTSMX:

Why Vanguard Total Stock Market Index is the Biggest Fund in the World

Best wishes.
Taylor


Hi Taylor,

Since we switched our investment portfolio to a total markets approach many years ago, we are very happy for the simplicity and the results. Total Stock Market is a bedrock of that approach.

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

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Re: Three-Fund Portfolio Article

Postby Toons » Sun Mar 13, 2016 2:12 pm

gvsucavie03 wrote:
Taylor Larimore wrote:Bogleheads:

Another article recommending The Three-Fund Portfolio:

Why I Chose the Lazy Approach to Investing

Best wishes.
Taylor


So few people will ever hear/see this. I feel fortunate to have gotten here relatively early in my working lifetime.



+1 :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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Re: The Three-Fund Portfolio

Postby abuss368 » Sun Mar 13, 2016 2:19 pm

Taylor,

This is by far the best thread on the forum!
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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"The best thread on the forum"

Postby Taylor Larimore » Sun Mar 13, 2016 2:31 pm

abuss368 wrote:Taylor,

This is by far the best thread on the forum!

Abuss368:

I appreciate your comment which applies to everyone who has contributed.

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

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Re: "The best thread on the forum"

Postby abuss368 » Sun Mar 13, 2016 3:07 pm

Taylor Larimore wrote:
abuss368 wrote:Taylor,

This is by far the best thread on the forum!

Abuss368:

I appreciate your comment which applies to everyone who has contributed.

Best wishes.
Taylor


Indeed.
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

Postby Tommy » Mon Mar 14, 2016 11:42 am

3 or 4 years ago I read article on Vanguard website (cannot find it anymore), basically what it was saying that if you have less than 500K stay with index funds like TSM, if you have between 500K and 1 mil start adding active management and sector funds, more than 1 mil build portfolio from sector funds , more that 10 mil from individual stocks.

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Re: The Three-Fund Portfolio

Postby Taylor Larimore » Mon Mar 14, 2016 2:01 pm

Tommy wrote:3 or 4 years ago I read article on Vanguard website (cannot find it anymore), basically what it was saying that if you have less than 500K stay with index funds like TSM, if you have between 500K and 1 mil start adding active management and sector funds, more than 1 mil build portfolio from sector funds , more that 10 mil from individual stocks.

Tommy:

With all due respect, I doubt if a Vanguard rep would make such a statement. I am sure the Vanguard mutual fund company would never tell wealthy investors (more than 10 million) to build the portfolio with individual stocks.

I personally know of a Vanguard investor with over 10 million dollars to invest. Vanguard recommended 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

Postby hovbuild » Tue Mar 15, 2016 9:31 am

We are invested with fidelity. 401k two irs and two roths. I like this simplified approach but if and when I decide on the funds do I use them in all or is it better to used closely matching ones.? Any suggestions on funds would be appreciated.

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Re: The Three-Fund Portfolio

Postby packet » Tue Mar 15, 2016 10:31 am

hovbuild wrote:We are invested with fidelity. 401k two irs and two roths. I like this simplified approach but if and when I decide on the funds do I use them in all or is it better to used closely matching ones.? Any suggestions on funds would be appreciated.

You don't need to use Vanguard to do the three fund portfolio...

check out the wiki.

:beerCheers,
packet
First round’s on me.

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Help with Personal Investments

Postby Taylor Larimore » Tue Mar 15, 2016 10:35 am

Hovebuild:

Please post questions about your personal portfolio 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

Postby Taylor Larimore » Wed Mar 16, 2016 1:54 pm

Fieldsy1024:

Please post questions about personal portfolios 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

Postby LadyGeek » Wed Mar 16, 2016 3:47 pm

Taylor Larimore wrote:Fieldsy1024:

Please post questions about personal portfolios on the Help With Personal Investments forum.

Thank you and best wishes.
Taylor

Fieldsy1024's questions are now in a new thread: The Three-Fund Portfolio [Help with asset allocation]
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Taylor Larimore
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"Four Timeless Lessons"

Postby Taylor Larimore » Thu Mar 24, 2016 2:22 pm

Bogleheads:

Mark Hulbert and his Hulbert Financial Digest has tracked hundreds of advisers and financial newsletters for 36 years. In Mr. Hulbert's final newsletter he summarized the four most important "timeless lessons" he has learned:

* It is very difficult to beat the market over the long term. Not just very difficult, but extremely so. You overlook this lesson at your own peril.

• You may find that you can’t resist trying to beat the market. If so, indulge your compulsion
without risking your entire portfolio in the process.

• The best you can hope for is beating the stock market by an annualized average of just a few percentage points, but given the risk associated with doing so you might as well not even try.

• The last timeless lesson I want to leave you with is that short term performance is mostly noise.


These four lessons are the underpinnings of The Three-Fund Portfolio.

Source: http://berkshiremm.com/wp-content/uploa ... 022216.pdf

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

gvsucavie03
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Re: The Three-Fund Portfolio

Postby gvsucavie03 » Thu Mar 24, 2016 3:06 pm

Curious to know if a 4th diversified fund (total international bonds) will make its way into this model. It's a great hedge in this current environment and could be again in the future...

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Taylor Larimore
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Vanguard Total International Bond Fund

Postby Taylor Larimore » Thu Mar 24, 2016 5:07 pm

gvsucavie03 wrote:Curious to know if a 4th diversified fund (total international bonds) will make its way into this model. It's a great hedge in this current environment and could be again in the future...

gvsucavie03:

This earlier post of mine (page 11) answers your question:
Adding Total International Bond Index Fund?
Postby Taylor Larimore » Fri Oct 25, 2013

You ask a very good question and one that I carefully considered when Vanguard first offered their Total International Bond Fund (VTIBX and Admiral VTABX) on May 31, 2013, and later increased its allocation on May 26, 2015 to 30% of nominal fixed income exposure.

It is always tempting to add additional funds to The Three Fund Portfolio and overlook their additional costs, risk and complexity. International bonds represent a large asset class which Vanguard added to their Target and Life-Strategy funds so their new Total International Bond Fund deserves a look.

It is notable that a Target portfolio with a 20% bond allocation will have only 6% international bonds. This is almost meaningless. Adding a Total International Bond fund inside a single Target or Life-Strategy fund adds no complexity to the investor.

Vanguard's diversified Total Bond Market Index Fund has a proven record of providing safety in a portfolio. For example, during the 2008 bear market when Total Stock Market fell -37%, Total Bond market gained +5%.

Adding Total International Bond fund to The Three Fund Portfolio has several disadvantages: Political risk, higher expense ratios, longer duration, relatively week credit quality and more complexity.

Mr. Bogle said this in a Morningstar interview:
The other thing that's typical of an industry that's going kind of marketing-wild is think about [how much] are people saying you should put in these exotic, if you will, (international) bond funds. And they say, well, maybe 5% of your bond position or 10% of your bond position. Well, that's not going to change your returns. They're expensive. They have hedging costs--I guess about half are hedged and half are not. I don't even an opinion about which is which because I wouldn't buy either.


Boglehead author and adviser, Bill Bernstein wrote this article: Don't Bother With International Bonds

During the 2015 Boglehead Conference, my expert co-author, Rick Ferri, told an interviewer: "Forget foreign bonds."

Morningstar article: "Vanguard's Total International Bond exchange-traded fund is a poor investment today" (8-01-14)

For the above reasons, I will not add Total International Bond Index to the very successful Three Fund Portfolio.


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

gvsucavie03
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Re: The Three-Fund Portfolio

Postby gvsucavie03 » Thu Mar 24, 2016 5:20 pm

Thanks!

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abuss368
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Re: The Three-Fund Portfolio

Postby abuss368 » Thu Mar 24, 2016 9:33 pm

gvsucavie03 wrote:Curious to know if a 4th diversified fund (total international bonds) will make its way into this model. It's a great hedge in this current environment and could be again in the future...


Hi gvsucavie03,

Vanguard is really marketing the Four Fund Portfolio. In my opinion the Three Fund Portfolio is very difficult to beat. There are many advantages. That said, if you selected the Vanguard Total International Bond Index fund, I don't believe that would be to your detriment.

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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