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
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.