The Three-Fund Portfolio

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Re: The Three-Fund Portfolio

Postby LadyGeek » Thu Aug 18, 2016 3:35 pm

New member MrDogg is asking for help to minimize taxes, which I've moved into a new thread: The Three-Fund Portfolio [Minimizing tax impacts]
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"Most Investors Probably Won't Outperform This Simple Portfolio"

Postby Taylor Larimore » Wed Aug 24, 2016 11:54 am

Bogleheads:

Alex Bryan, Director of Passive Strategies Research for Morningstar, wrote this article featuring The Three-Fund Portfolio:

Most Investors Probably Won't Outperform This Simple Portfolio

Best wishes.
Taylor
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Re: "Most Investors Probably Won't Outperform This Simple Portfolio"

Postby abuss368 » Thu Aug 25, 2016 9:30 pm

Taylor Larimore wrote:Bogleheads:

Alex Bryan, Director of Passive Strategies Research for Morningstar, wrote this article featuring The Three-Fund Portfolio:

Most Investors Probably Won't Outperform This Simple Portfolio

Best wishes.
Taylor


Hi Taylor,

Thank you for sharing.
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 wizzard » Fri Aug 26, 2016 2:02 pm

Good read!
Thanks for posting it up
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Re: The Three-Fund Portfolio

Postby Taylor Larimore » Fri Aug 26, 2016 5:48 pm

Bogleheads:

I was pleased to read this endorsement (8/17/2016) by the respected financial author (5 books), Dan Solin, on the Morningstar homepage:

Over a decade ago, I wrote The Smartest Investment Book You'll Ever Read. In it I recommended the same three index funds from Vanguard featured in this article. It was sound advice then and it remains so today.


Thank you Mr. Solin!

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

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Re: The Three-Fund Portfolio

Postby jmndu99 » Fri Aug 26, 2016 9:25 pm

Mr. Larimore,

Thank you for keeping this thread updated from time to time so it is at the top of the list.

I for one, am happy to be reminded.

Semper Fi

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Re: The Three-Fund Portfolio

Postby Portfolio7 » Sun Sep 04, 2016 11:02 pm

I think the three fund portfolio is an excellent and very efficient portfolio. It's the perfect 'set it and forget it' portfolio, that's revisited once per year or so.

I personally use something closer to Bernstein's 'Madonna' portfolio, though it also shares some characteristics of Swenson's portfolio. I'm rather proud of it, since I came up with the internal logic on my own, and it's not only performed very well but when I read Bernstein it made me feel good to be thinking along some similar lines. I will note that The Intelligent Asset Allocator is my favorite investing book so far.

All of that said, I wouldn't recommend my approach to someone else... I'm a tinkerer, and this give me room to nibble around the edges and learn more about this fascinating topic. There is little to be said against the three fund portfolio. It has many strengths, especially across tax status, types of accounts, and types of investors.

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Re: The Three-Fund Portfolio

Postby vladimirb0b » Tue Sep 06, 2016 7:07 pm

What is the "Madonna" portfolio?

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Re: The Three-Fund Portfolio

Postby LadyGeek » Tue Sep 06, 2016 7:20 pm

The details are in this post: Re: WSJ: William Bernstein on bond allocation

Swenson's portfolio is here: Lazy portfolios

In both cases, there are more than 3-funds in each portfolio which makes them more complicated to manage. Do they perform any better? It's hard to say.

This thread is about the Three-fund portfolio, which does just fine using 3 funds.

For even more simplicity, there's absolutely nothing wrong with an "all-in-one" Target date fund.

The bottom line is to do what's comfortable for you. For many investors, either a Target Date fund or 3-fund portfolio will do just fine. The rest of the portfolios are for those who have the time and knowledge to manage the added complexity.
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Re: The Three-Fund Portfolio

Postby mikeguima » Sat Sep 10, 2016 9:31 am

What would be a sample 3 fund portoflio for European (Eurozone, more specifically) investors? There's plenty of examples for US investors, does anyone know of examples for Eurozone investors?

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Re: The Three-Fund Portfolio

Postby msk » Mon Sep 12, 2016 2:11 am

Depends on whether you dabble in your home market or not. I go with iShares SWDA (=IWDA) that has 59% exposure to the USA and the rest to major companies in developed markets, hence also their currencies. As Warren Buffett keeps saying, do not under-estimate the resiliency of the US economy. To me that's enough international exposure, world wide. As for Emerging Markets there are plenty of ETFs but I prefer to dabble in my own country and have managed to do much better than its Index over decades, also much better than the SP500. It really depends on how tiny your own home market is. The smaller the market, the less efficient, and easier to beat its Index. Unfortunately also limited liquidity. Next you can get yourself a medium term corporate bond ETF. To date, after more than 30 years of investing in publicly traded securities, I have never bought a single bond. With the current, very low interest rate environment, I prefer to use fixed term deposits for my "moderating" cash.

PS. Can somebody please explain why buying a medium-term bond ETF now is better than fixed term bank deposits, in our current low interest rate environment with a rate rise seemingly imminent? I fail to see any attraction currently but there must be something I am missing. Next is negative rates?

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Re: The Three-Fund Portfolio

Postby mikeguima » Mon Sep 12, 2016 4:43 am

msk wrote:Depends on whether you dabble in your home market or not. I go with iShares SWDA (=IWDA) that has 59% exposure to the USA and the rest to major companies in developed markets, hence also their currencies. As Warren Buffett keeps saying, do not under-estimate the resiliency of the US economy. To me that's enough international exposure, world wide. As for Emerging Markets there are plenty of ETFs but I prefer to dabble in my own country and have managed to do much better than its Index over decades, also much better than the SP500. It really depends on how tiny your own home market is. The smaller the market, the less efficient, and easier to beat its Index. Unfortunately also limited liquidity. Next you can get yourself a medium term corporate bond ETF. To date, after more than 30 years of investing in publicly traded securities, I have never bought a single bond. With the current, very low interest rate environment, I prefer to use fixed term deposits for my "moderating" cash.

PS. Can somebody please explain why buying a medium-term bond ETF now is better than fixed term bank deposits, in our current low interest rate environment with a rate rise seemingly imminent? I fail to see any attraction currently but there must be something I am missing. Next is negative rates?

My home market is small (Portugal), so I'd rather invest in the whole Eurozone/ Europe, then invest in the entire world other than the Eurozone/ Europe, then choose a fund representing the total eurozone bond market or short/ intermediate duration bonds.

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Re: The Three-Fund Portfolio

Postby Taylor Larimore » Mon Sep 12, 2016 8:25 am

Bogleheads:

Nisiprious has posted an interesting study comparing two factor-based portfolios with The Three-Fund Portfolio. Link below:

An "out of sample" test of two specific factor-based portfolios published pre-2008

Past performance does not predict future performance.

Please post replies on Nesi's topic post--not here.

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

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Re: The Three-Fund Portfolio

Postby msk » Tue Sep 13, 2016 2:22 am

To the BogleHead from Portugal. Perhaps I did not make myself clear enough. The stock market there is probably small and inefficient. If you pay close attention to weeding out the chaff and recognizing the jewels when the annual reports come in, you ought to be able to beat the local market index by a significant to a major extent. Depends on the efficiency of the local market and how diligent you are. Question really is, are you willing to put in the study time? If yes, then you may consider your Portugal stocks to represent your Emerging Markets portfolio. Then all you need is a world wide diversification ETF like iShares SWDA (=IWDA) and a corporate bond ETF like iShares IEAC denominated in Euro. Vanguard has similar products. I.e. World Equity ETF, World Bond ETF, and either your own stock picking on the Portugal market or an Emerging Market ETF.

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Re: The Three-Fund Portfolio

Postby mikeguima » Tue Sep 13, 2016 4:32 am

msk wrote:To the BogleHead from Portugal. Perhaps I did not make myself clear enough. The stock market there is probably small and inefficient. If you pay close attention to weeding out the chaff and recognizing the jewels when the annual reports come in, you ought to be able to beat the local market index by a significant to a major extent. Depends on the efficiency of the local market and how diligent you are. Question really is, are you willing to put in the study time? If yes, then you may consider your Portugal stocks to represent your Emerging Markets portfolio. Then all you need is a world wide diversification ETF like iShares SWDA (=IWDA) and a corporate bond ETF like iShares IEAC denominated in Euro. Vanguard has similar products. I.e. World Equity ETF, World Bond ETF, and either your own stock picking on the Portugal market or an Emerging Market ETF.

I understood what you meant better now. The portuguese market is bot small and inefficient, as you've said. The problem is that Portugal is one of the most financilly illiterate countries in Europe. Most people invest just be looking at the graph and acting however they believe they should act. I think there probably aren't enough investors acting on a fundamental basis to move the market on that basis. I don't know if I'm expressing myself clearly here.

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Re: The Three-Fund Portfolio

Postby msk » Thu Sep 15, 2016 2:20 am

That's an EXCELLENT environment for a stock picker! My home market used to be exactly like that two decades ago and it's been very easy to trounce the index while I was still learning how to evaluate companies. Unfortunately I did have not much savings (young family, etc) but I built up after several years. Frankly, the only difference between myself and the other players was that I actually looked at the Annual Reports while most other investors looked at graphs of the share prices, or traded on rumours. Over the years I made literally millions of USD simply by picking, say, a stock with a low P/E (e.g. 6 to 8) that had a demonstrated growth rate of 15+% p.a. in Net Earnings and then sticking to such stocks for a few years until the P/E rose above 12, as it should. Eventually, even the graph watchers recognize value. Our local market is so naive that they actually think that stock splits are fantastic rewards for the shareholders. Unfortunately, as the years went by, pension funds with professional managers entered our market and it's now much less easy to find gems with absurdly low valuations. I would suggest that you check out your own market and see if there are a handful of companies with absurdly low valuations, and start dabbling. Once I found a mutual fund that was selling at 75% of NAV while the fund was also scheduled to wind up in the next 3 months. Obviously I put in all the cash I had and realized a 25% profit after 3 months. How can that be possible? Only in very inefficient markets :-) I suspect that the US market was similarly under-assessed back in the 1920s when Benjamin Graham did his thing, but currently it's virtually impossible to beat an index fund in any major market and Bogle is right. The Portugal stock market may not be as naive as it looks to you at first sight, but it could be extremely rewarding if indeed it is as naive and as inefficient as it looks at first sight.

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Re: The Three-Fund Portfolio

Postby Taylor Larimore » Thu Sep 15, 2016 6:47 am

Bogleheads:

This Topic is "The Three-Fund Portfolio." Other subjects belong elsewhere.

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 mikeguima » Thu Sep 15, 2016 6:59 am

It's a very good point you're making. Before looking into index investing I read a lot (and invested accordingly) about value investing, but I never really thought about taking advantage of my domestic market's inneficiency to profit more from such strategies. In fact, I always stayed away from it because of its inefficiency and instability (it's hard to find a financially sound company in Portugal; most of them somewhat struggle financially, a little like the country's economy).

I'm still building my investment plan for the future (so far I only hold a few companies I picked through my own understanding of value and quality investing, all of them US companies) and I'll definitely consider combining individual stock picking with index investing. Any suggestions on how to do so?

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Re: The Three-Fund Portfolio

Postby mikeguima » Thu Sep 15, 2016 7:00 am

Taylor Larimore wrote:Bogleheads:

This Topic is "The Three-Fund Portfolio." Other subjects belong elsewhere.

Thank you and best wishes
Taylor

Sorry we strayed away a little from the main topic.

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Re: The Three-Fund Portfolio

Postby Niam » Sun Oct 02, 2016 12:08 am

Question for Taylor based on this post by him in another thread:

Taylor Larimore wrote:
Use this Vanguard Asset-Allocation tool to help you decide your all-important stock/bond ratio:

https://personal.vanguard.com/us/FundsI ... unds/tools


If I could start over, I would utilize The Three-Fund Portfolio.

Best wishes
Taylor


I believe I have heard you say this before (i.e., heard you say some version of if you could start over, you would utilize the three-fund portfolio). I am somewhat confused by why you say that. Aren't most of the people who come here looking for asset allocation advice essentially starting over and moving to (or being advised to move to) a three-fund portfolio? So why can't you also move to a three-fund portfolio, if you believe that is the optimal strategy for anyone who could do so?

Don't mean to probe into personal financial situation...but just wondering if there is some broader strategic point I'm missing.

In theory, can't pretty much everyone who wants switch to a three-fund portfolio?

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Re: The Three-Fund Portfolio

Postby JoinToday » Sun Oct 02, 2016 12:37 am

Niam wrote:Question for Taylor based on this post by him in another thread:

Taylor Larimore wrote:
Use this Vanguard Asset-Allocation tool to help you decide your all-important stock/bond ratio:

https://personal.vanguard.com/us/FundsI ... unds/tools


If I could start over, I would utilize The Three-Fund Portfolio.

Best wishes
Taylor


I believe I have heard you say this before (i.e., heard you say some version of if you could start over, you would utilize the three-fund portfolio). I am somewhat confused by why you say that. Aren't most of the people who come here looking for asset allocation advice essentially starting over and moving to (or being advised to move to) a three-fund portfolio? So why can't you also move to a three-fund portfolio, if you believe that is the optimal strategy for anyone who could do so?

Don't mean to probe into personal financial situation...but just wondering if there is some broader strategic point I'm missing.

In theory, can't pretty much everyone who wants switch to a three-fund portfolio?


Maybe Taylor (like I) wishes he could have started from the beginning with a 3 fund portfolio. Many people make costly mistakes with other asset allocations, market timing etc, before settling on a 3 fund portfolio (or something very close to it)
I wish I had learned about index funds 25 years ago

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Re: The Three-Fund Portfolio

Postby MJW » Sun Oct 02, 2016 1:04 am

Niam wrote:
I believe I have heard you say this before (i.e., heard you say some version of if you could start over, you would utilize the three-fund portfolio). I am somewhat confused by why you say that. Aren't most of the people who come here looking for asset allocation advice essentially starting over and moving to (or being advised to move to) a three-fund portfolio? So why can't you also move to a three-fund portfolio, if you believe that is the optimal strategy for anyone who could do so?

Don't mean to probe into personal financial situation...but just wondering if there is some broader strategic point I'm missing.

In theory, can't pretty much everyone who wants switch to a three-fund portfolio?

Someone sitting on several decades of capital gains may not want to deal with the tax implications of changing positions with investments they've held for a long time.

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Exchanging to a Three-Fund Portfolio?

Postby Taylor Larimore » Sun Oct 02, 2016 1:15 am

JoinToday wrote:
Niam wrote:Question for Taylor based on this post by him in another thread:

Taylor Larimore wrote:
If I could start over, I would utilize The Three-Fund Portfolio.

Niam wrote: I am somewhat confused by why you say that.
In theory, can't pretty much everyone who wants switch to a three-fund portfolio?

Niam:

I started investing many years ago when there were no index funds, no IRAs and no 401ks. Accordingly, most of my funds are in a taxable account with large capital-gains which will be eliminated at my death (I'm 92).

To avoid triggering an unnecessary capital gain tax, I feel it would be a mistake to exchange my taxable funds for the more desirable Three-Fund Portfolio.

Best wishes.
Taylor
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Re: The Three-Fund Portfolio

Postby Drz » Tue Oct 04, 2016 1:32 pm

Hi all again, I have another rather simple question and Hope it doesn't bother anyone.

In the three-fund portfolio wiki page regarding Vanguard ETFs (https://www.bogleheads.org/wiki/Three-f ... head-style) , it has the note [10] which leads to this text:
Investors using The Vanguard FTSE All-World ex-US ETF for international stock allocation need to recall that the fund does not provide exposure to small cap international stocks. Investors wanting to include small cap international stocks in the portfolio can add the Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) .


Which I understand, but The VEU etf is not the total international stock thats recommended on the wiki panel, that would be VXUS. So why does the note refer to VEU, was it it before VXUS the recommended "go to" total international etf or is it meant to reference VXUS but accidently is referring to VEU or is it simply telling more professional investors that if they had picked up VEU over VXUS, they might be interested in VSS?

Kind Regards,

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Re: The Three-Fund Portfolio

Postby abuss368 » Wed Oct 05, 2016 8:34 pm

Drz wrote:Hi all again, I have another rather simple question and Hope it doesn't bother anyone.

In the three-fund portfolio wiki page regarding Vanguard ETFs (https://www.bogleheads.org/wiki/Three-f ... head-style) , it has the note [10] which leads to this text:
Investors using The Vanguard FTSE All-World ex-US ETF for international stock allocation need to recall that the fund does not provide exposure to small cap international stocks. Investors wanting to include small cap international stocks in the portfolio can add the Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) .


Which I understand, but The VEU etf is not the total international stock thats recommended on the wiki panel, that would be VXUS. So why does the note refer to VEU, was it it before VXUS the recommended "go to" total international etf or is it meant to reference VXUS but accidently is referring to VEU or is it simply telling more professional investors that if they had picked up VEU over VXUS, they might be interested in VSS?

Kind Regards,


The Three Fund Portfolio includes the Total International Stock Index fund which I believe includes small caps.

Best.
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Re: The Three-Fund Portfolio

Postby LadyGeek » Wed Oct 05, 2016 8:52 pm

FYI - Birdie55 has a question about changing his/her portfolio to a Three-fund portfolio during retirement, which I've moved into a stand-alone thread: [How do I sell my funds during retirement?]
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Re: The Three-Fund Portfolio

Postby Drz » Thu Oct 06, 2016 4:13 am

abuss368 wrote:
Drz wrote:Hi all again, I have another rather simple question and Hope it doesn't bother anyone.

In the three-fund portfolio wiki page regarding Vanguard ETFs (https://www.bogleheads.org/wiki/Three-f ... head-style) , it has the note [10] which leads to this text:
Investors using The Vanguard FTSE All-World ex-US ETF for international stock allocation need to recall that the fund does not provide exposure to small cap international stocks. Investors wanting to include small cap international stocks in the portfolio can add the Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) .


Which I understand, but The VEU etf is not the total international stock thats recommended on the wiki panel, that would be VXUS. So why does the note refer to VEU, was it it before VXUS the recommended "go to" total international etf or is it meant to reference VXUS but accidently is referring to VEU or is it simply telling more professional investors that if they had picked up VEU over VXUS, they might be interested in VSS?

Kind Regards,


The Three Fund Portfolio includes the Total International Stock Index fund which I believe includes small caps.

Best.


That's what I read as well, the note just confused me. =P

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Re: The Three-Fund Portfolio

Postby hbyron » Thu Oct 13, 2016 9:58 pm

What if a significant majority of capital starts using index funds? Then a minority of investors control the relative prices of the securities within the funds. This minority thus attains significant leverage on their trades. I'm starting to wonder if there's a sophisticated strategy to take advantage of this effect.

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Off topic

Postby Taylor Larimore » Fri Oct 14, 2016 8:32 am

hbyron:

Bogleheads have an ongoing discussion of your topic here

Best wishes.
Taylor
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Investment Newsletters vs. Total U.S. Stock Market

Postby Taylor Larimore » Sun Oct 16, 2016 5:21 pm

Bogleheads:

During the past 26 years, if you had purchased the top performing newletter each year you would have lost an average of -27.6% your second year. If you had simply bought and held the Wilshire 5000 Total Stock Market Index during the same period you would have enjoyed a gain of +12,6%

Source: January 2008 issue of The Hulbert Financial Digest

Best wishes.
Taylor
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Re: The Three-Fund Portfolio

Postby boglephreak » Tue Oct 18, 2016 12:33 pm

Happy to report that as of October 17, 2016, our 401k fund now offers Fidelity Index Funds S&P 500, Extended Market, Total International and Total Bond. Now we have the opportunity to create a quasi-three-fund portfolio entirely within the 401k plan. (It was easier to add than delete, which is why we dont just have total U.S.)

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Re: The Three-Fund Portfolio

Postby Taylor Larimore » Tue Oct 18, 2016 12:45 pm

boglephreak wrote:Happy to report that as of October 17, 2016, our 401k fund now offers Fidelity Index Funds S&P 500, Extended Market, Total International and Total Bond. Now we have the opportunity to create a quasi-three-fund portfolio entirely within the 401k plan. (It was easier to add than delete, which is why we dont just have total U.S.)

Good report!

Best wishes.
Taylor
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Re: Investment Newsletters vs. Total U.S. Stock Market

Postby abuss368 » Wed Oct 26, 2016 12:11 am

Taylor Larimore wrote:Bogleheads:

During the past 26 years, if you had purchased the top performing newletter each year you would have lost an average of -27.6% your second year. If you had simply bought and held the Wilshire 5000 Total Stock Market Index during the same period you would have enjoyed a gain of +12,6%

Source: January 2008 issue of The Hulbert Financial Digest

Best wishes.
Taylor


Incredible! I recently read that The Bull Market Report newsletter just relaunched.
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Re: The Three-Fund Portfolio

Postby Kongbong » Sat Oct 29, 2016 5:19 pm

What are your thoughts of the three-fund portfolio for a non-American citizen? Does it really matter where you're from to invest in mutual funds, given that you currency protect your mutual funds?

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Re: The Three-Fund Portfolio

Postby longinvest » Sat Oct 29, 2016 6:56 pm

Kongbong wrote:What are your thoughts of the three-fund portfolio for a non-American citizen? Does it really matter where you're from to invest in mutual funds, given that you currency protect your mutual funds?

Kongbong,

As a non-American, I would invest into domestic-based index mutual funds or ETFs. I would select:
  • a total-market domestic stock index mutual fund or ETF
  • a total-market international stock index mutual fund or ETF
  • a total-market domestic bond index mutual fund or ETF
where I would replace "domestic" with my Country and "international" with "all the world except my Country".
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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Re: The Three-Fund Portfolio

Postby Kongbong » Sun Oct 30, 2016 1:57 am

longinvest wrote:
Kongbong wrote:What are your thoughts of the three-fund portfolio for a non-American citizen? Does it really matter where you're from to invest in mutual funds, given that you currency protect your mutual funds?

Kongbong,

As a non-American, I would invest into domestic-based index mutual funds or ETFs. I would select:
  • a total-market domestic stock index mutual fund or ETF
  • a total-market international stock index mutual fund or ETF
  • a total-market domestic bond index mutual fund or ETF
where I would replace "domestic" with my Country and "international" with "all the world except my Country".


The problem is that my country's stock exchange consist just ~2% of the world's market cap. Wouldn't a three portfolio significantly overweigh in my domestic markets compared to other markets?

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Re: The Three-Fund Portfolio

Postby bertilak » Sun Oct 30, 2016 12:05 pm

Kongbong wrote:
longinvest wrote:
Kongbong wrote:What are your thoughts of the three-fund portfolio for a non-American citizen? Does it really matter where you're from to invest in mutual funds, given that you currency protect your mutual funds?

Kongbong,

As a non-American, I would invest into domestic-based index mutual funds or ETFs. I would select:
  • a total-market domestic stock index mutual fund or ETF
  • a total-market international stock index mutual fund or ETF
  • a total-market domestic bond index mutual fund or ETF
where I would replace "domestic" with my Country and "international" with "all the world except my Country".


The problem is that my country's stock exchange consist just ~2% of the world's market cap. Wouldn't a three portfolio significantly overweigh in my domestic markets compared to other markets?

You could do a two-fund approach:
    Total World Stock
    Total World Bond
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Fieldsy1024
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Re: The Three-Fund Portfolio

Postby Fieldsy1024 » Mon Oct 31, 2016 10:35 am

I am at 80% VTSAX Total Stock Admiral and 20% Total Int'l Inv.

I am 32, but every couple of years I will slowly start the Bond process.

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Re: The Three-Fund Portfolio

Postby boglephreak » Mon Oct 31, 2016 1:51 pm

Kongbong wrote:
longinvest wrote:
Kongbong wrote:What are your thoughts of the three-fund portfolio for a non-American citizen? Does it really matter where you're from to invest in mutual funds, given that you currency protect your mutual funds?

Kongbong,

As a non-American, I would invest into domestic-based index mutual funds or ETFs. I would select:
  • a total-market domestic stock index mutual fund or ETF
  • a total-market international stock index mutual fund or ETF
  • a total-market domestic bond index mutual fund or ETF
where I would replace "domestic" with my Country and "international" with "all the world except my Country".


The problem is that my country's stock exchange consist just ~2% of the world's market cap. Wouldn't a three portfolio significantly overweigh in my domestic markets compared to other markets?

the three fund portfolio doesnt give % in each fund, it just gives the funds that are recommended. if your country is only 2% of the world's market cap, i would suggest you significantly weight international higher than domestic. but that is a decision you must make for yourself.

Kongbong
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Re: The Three-Fund Portfolio

Postby Kongbong » Mon Oct 31, 2016 3:28 pm

boglephreak wrote:
Kongbong wrote:
longinvest wrote:
Kongbong wrote:What are your thoughts of the three-fund portfolio for a non-American citizen? Does it really matter where you're from to invest in mutual funds, given that you currency protect your mutual funds?

Kongbong,

As a non-American, I would invest into domestic-based index mutual funds or ETFs. I would select:
  • a total-market domestic stock index mutual fund or ETF
  • a total-market international stock index mutual fund or ETF
  • a total-market domestic bond index mutual fund or ETF
where I would replace "domestic" with my Country and "international" with "all the world except my Country".


The problem is that my country's stock exchange consist just ~2% of the world's market cap. Wouldn't a three portfolio significantly overweigh in my domestic markets compared to other markets?

the three fund portfolio doesnt give % in each fund, it just gives the funds that are recommended. if your country is only 2% of the world's market cap, i would suggest you significantly weight international higher than domestic. but that is a decision you must make for yourself.


Are there any benefits from overweighing certain countries and sectors, other than you believe that said country or sector will produce significant returns compared to the rest of the world?

boglephreak
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Re: The Three-Fund Portfolio

Postby boglephreak » Mon Oct 31, 2016 3:35 pm

Kongbong wrote:
boglephreak wrote:
Kongbong wrote:
longinvest wrote:
Kongbong wrote:What are your thoughts of the three-fund portfolio for a non-American citizen? Does it really matter where you're from to invest in mutual funds, given that you currency protect your mutual funds?

Kongbong,

As a non-American, I would invest into domestic-based index mutual funds or ETFs. I would select:
  • a total-market domestic stock index mutual fund or ETF
  • a total-market international stock index mutual fund or ETF
  • a total-market domestic bond index mutual fund or ETF
where I would replace "domestic" with my Country and "international" with "all the world except my Country".


The problem is that my country's stock exchange consist just ~2% of the world's market cap. Wouldn't a three portfolio significantly overweigh in my domestic markets compared to other markets?

the three fund portfolio doesnt give % in each fund, it just gives the funds that are recommended. if your country is only 2% of the world's market cap, i would suggest you significantly weight international higher than domestic. but that is a decision you must make for yourself.


Are there any benefits from overweighing certain countries and sectors, other than you believe that said country or sector will produce significant returns compared to the rest of the world?

i dont really feel qualified to answer that question so take this with a grain of salt. i think the three major considerations are diversification, currency (buying in your own currency rather than foreign) and taxes.

longinvest
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Re: The Three-Fund Portfolio

Postby longinvest » Mon Oct 31, 2016 3:47 pm

Kongbong wrote:
boglephreak wrote:
Kongbong wrote:
longinvest wrote:
Kongbong wrote:What are your thoughts of the three-fund portfolio for a non-American citizen? Does it really matter where you're from to invest in mutual funds, given that you currency protect your mutual funds?

Kongbong,

As a non-American, I would invest into domestic-based index mutual funds or ETFs. I would select:
  • a total-market domestic stock index mutual fund or ETF
  • a total-market international stock index mutual fund or ETF
  • a total-market domestic bond index mutual fund or ETF
where I would replace "domestic" with my Country and "international" with "all the world except my Country".


The problem is that my country's stock exchange consist just ~2% of the world's market cap. Wouldn't a three portfolio significantly overweigh in my domestic markets compared to other markets?

the three fund portfolio doesnt give % in each fund, it just gives the funds that are recommended. if your country is only 2% of the world's market cap, i would suggest you significantly weight international higher than domestic. but that is a decision you must make for yourself.


Are there any benefits from overweighing certain countries and sectors, other than you believe that said country or sector will produce significant returns compared to the rest of the world?

Kongbong,

The idea of the Three-Fund Portfolio is to avoid betting on specific sectors; to simply harvest the returns of the entire market for three different markets: the domestic stock market, the collection of non-domestic stock markets, and the domestic bond market.

Here are some reasons that justify separating the domestic stock market from the collection of non-domestic stock markets: investing internationally exposes one's investments to wild currency fluctuations, foreign countries often impose additional taxes and fees on international investors, domestic investments sometimes have a preferential tax treatment, and the investor might want to encourage his domestic stock market by investing more into it.

I'm Canadian. My country's stock market only represents 3% of all world stock markets, yet I have chosen to invest more than 3% of my stock allocation domestically. This is a personal decision. The beauty of the Three-Fund Portfolio is that it lets investors choose their own allocation to its three assets based on their own circumstances.

I think that I would be best if you started a new thread to further discuss how to apply the Three-Fund Portfolio to your particular situation.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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raven15
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Four Versions of The Three-Fund Portfolio

Postby raven15 » Wed Nov 02, 2016 12:11 am

I've thought quite a bit about the three-fund portfolio recently. According to me, (1) a good portfolio for a US investor should put that investor 50% or less in the US stock market. You know, just in case. (2) Also, there seems to be lots of historical evidence that you should have no more than 40% of a portfolio in bonds because over the course of 30 years or more you are actually reducing your odds of success - unless you really, really can't handle market swings. (3) Finally, 3:2 seems like a good ratio for US:International stocks where possible/desirable, though this is not critical. With those in mind, here are my favorite permutations of the three-fund portfolio in order of increasing bond allocation.

The Aggressive Portfolio: 50% US, 35% International, 15% Bonds. This one is best for very long time horizons, according to back-testing. Of course, it can drop a lot in the short term. It meets my three criteria beautifully.

The Moderate Portfolio: 45% US, 30% International, 25% Bonds. It meets all three criteria perfectly. This one follows Ben Graham's wise advise to keep no less than 25% in bonds.

The Well-Rounded Portfolio: 33% US, 33% International, 33% Bonds. This is one Ben Bernstein recently suggested. I like it. For some reason equal slices seem beautiful. It makes no bets about whether US stocks, International stocks, or Bonds will be the best choice over any given period of the future. Plus, look at all those 3's.

The Bogle Portfolio: 50% US, 10% International, 40% Bonds. Fortunately for US fans, and even more so Mr. Bogle fans, there is a version that both meets my important criteria and aligns with Mr. Bogle's advice perfectly. Only 17% of the stock side is invested internationally per his advise that it should be less than 20%, and 60% stocks : 40% bonds is also his preferred allocation. I think greater exposure to international markets is preferable, but if you don't then this one should work very well for you.

So there you have it. Four versions of the three fund portfolio which I admire. Obviously there are lots of permutations, but those are the ones I think seem nicest. I have wanted to say that for a while, so I had to get it off my chest :mrgreen: .
It's Time. Adding Interest.

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Taylor Larimore
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Four versions of The Three-Fund Portfolio

Postby Taylor Larimore » Wed Nov 02, 2016 8:00 am

So there you have it. Four versions of the three fund portfolio which I admire. Obviously there are lots of permutations, but those are the ones I think seem nicest. I have wanted to say that for a while, so I had to get it off my chest

raven15:

Thank you for your contribution.

Best wishes.
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

Postby Fieldsy1024 » Sun Nov 06, 2016 1:10 pm

Tired of experimenting, sticking with this 3 fund. 75% Stock, 15% Bond, 15% Int'l Stock

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CABob
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Re: The Three-Fund Portfolio

Postby CABob » Sun Nov 06, 2016 3:59 pm

Fieldsy1024 wrote:Tired of experimenting, sticking with this 3 fund. 75% Stock, 15% Bond, 15% Int'l Stock

105% ought to do well.
:twisted:
Bob

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Fudgie
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Re: The Three-Fund Portfolio

Postby Fudgie » Sun Nov 06, 2016 4:21 pm

CABob wrote:
Fieldsy1024 wrote:Tired of experimenting, sticking with this 3 fund. 75% Stock, 15% Bond, 15% Int'l Stock

105% ought to do well.
:twisted:


Image
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Fieldsy1024
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Re: The Three-Fund Portfolio

Postby Fieldsy1024 » Mon Nov 07, 2016 7:09 am

CABob wrote:
Fieldsy1024 wrote:Tired of experimenting, sticking with this 3 fund. 75% Stock, 15% Bond, 15% Int'l Stock

105% ought to do well.
:twisted:


Rats, I meant 70%

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Taylor Larimore
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Re: The Three-Fund Portfolio

Postby Taylor Larimore » Mon Nov 07, 2016 9:52 am

Fieldsy1024 wrote:
CABob wrote:
Fieldsy1024 wrote:Tired of experimenting, sticking with this 3 fund. 75% Stock, 15% Bond, 15% Int'l Stock

105% ought to do well.
:twisted:


Rats, I meant 70%

Fieldsy:

Don't feel bad. We all make mistakes, but some won't admit them. Admitting mistakes is a mark of "character."

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

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Taylor Larimore
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Fund Placement

Postby Taylor Larimore » Mon Nov 07, 2016 3:43 pm

Bogleheads:

In the Opening Post I wrote:
Fund Placement For Maximum Tax-Efficiency: Place Total Bond Market in tax-advantaged account(s). If full, use a tax-exempt bond fund in a taxable account. Place Total Stock Market and Total International Stock Market in either a tax-advantaged account (best) or a taxable account.

Tax expert, David Grabner, adds more information:
If the dividend yields are equal, Total International will probably be slightly more tax-efficient; the foreign tax credit is more than the extra tax on non-qualified dividends.

However, since 2008, international yields have been higher, which makes Total Stock Market slightly more tax efficient except in the 15% tax bracket. (In the 15% tax bracket, the tax rate on Total Stock Market is zero, and the tax rate on Total International is slightly negative unless you run into a limit on your foreign tax credit.)

Thank you, David.

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


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