The Three-Fund Portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
rleonardh
Posts: 153
Joined: Wed Jun 11, 2014 1:08 pm

Re: The Three Fund Portfolio

Postby rleonardh » Sun Jun 29, 2014 7:09 am

yes they are both good for a taxable and nontaxable.

User avatar
BrandonBogle
Posts: 1874
Joined: Mon Jan 28, 2013 11:19 pm

Re: The Three Fund Portfolio

Postby BrandonBogle » Sun Jun 29, 2014 8:46 am

selftalk wrote:This works for me but I have no bond fund whatsoever because I have a solid pension and am receiving social security. I only have the Total Stock Market Index fund and the Total International fund ( VTI, VXUS ) 60% and 40% respectively. I trust the both of these funds are good selections for the taxable and tax sheltered accounts aren`t they?


The funds themselves are good funds/ETFs for your stock allocation. There are the two funds that make up the stock portion of this model and are often felt to be some of the best (if not the best) choices for stock equity holdings.

However, if you are looking for discussion around the 60/40 split between them, how much of them relative to the value of your pension and SS, or a discussion around the best placement, I would open a new "Help with a Personal Investments" thread for a discussion around your specifics rather than this thread about the model in general.

A good template for how to create this type of thread is available here: Asking Portfolio Questions

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three Fund Portfolio

Postby Taylor Larimore » Sun Jun 29, 2014 10:24 am

selftalk wrote:This works for me but I have no bond fund whatsoever because I have a solid pension and am receiving social security. I only have the Total Stock Market Index fund and the Total International fund ( VTI, VXUS ) 60% and 40% respectively. I trust the both of these funds are good selections for the taxable and tax sheltered accounts aren`t they?

Selftalk:

Total Stock Market and Total International are two excellent, very diversified, low-cost, tax-efficient funds that are suitable for taxable and tax-sheltered accounts.

In my opinion, every investor should own bonds or a bond fund for diversification. The stock market is not an actuarial table with a known outcome.

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

davdmrl
Posts: 12
Joined: Fri Nov 29, 2013 8:09 pm

Re: The Three Fund Portfolio

Postby davdmrl » Tue Jul 08, 2014 11:58 am

I've read through the majority of this thread, and I'm very close to being fully convinced on a three fund portfolio. However, I seem to have a persistent 'shoulder devil', tempting me to complicate things with REITs, small, value, emerging markets, small international, etc. I have a long time horizon (age 25, retirement >25 years away) , and I believe I have 2/3 of Mr. Swedroe's qualifiers for adding portfolio risk (willingness and ability). I am not dissuaded by adding portfolio complexity, and I do not fear the added difficulty of re-balancing or tracking error. I admit that I can only estimate my own risk tolerance, due to the fact that I have not experienced a bear market (investing <1 year).

After reading different long-term market forecasts (Mr. Bogles, Mr. Ferri's), part of me wants to attempt to beat the 4-5% predicted real return going forward. After reading about the returns of the past century (the bond yields alone had me yearning), and how very few believe they will persist, part of me feels that I need to 'do something' to help make up for low returns going forward.

I believe I am in a good position regarding most other investing/personal finance factors, I live on approximately 25% of my income, I'm aggressively paying off student loan debt (should be done this year), and I'm investing a large portion of my income, 20% now, 50% once loans are paid, in low cost, broad based index funds, while not hindering my lifestyle in anyway. I have a natural aversion to lifestyle inflation and no interest in keeping up with the Jones'.

I guess my question comes down to, for investors just beginning their careers (early-mid twenties), would it behoove someone like me to add funds that may (or may not) improve portfolio returns over the decades to come? I realize even if I did slice and dice, I wouldn't be hoping for more than 1-1.5% increased return, but that certainly adds up over a lifetime.

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

The dream of a perfect plan

Postby Taylor Larimore » Tue Jul 08, 2014 12:17 pm

I guess my question comes down to, for investors just beginning their careers (early-mid twenties), would it behoove someone like me to add funds that may (or may not) improve portfolio returns over the decades to come?

davdmrl:

Your question is best answered on the Help With Personal Investments forum; but remember this sage advice:
"The enemy of a good plan is the dream of a perfect plan." -- Jack Bogle

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

Stan Dup
Posts: 762
Joined: Fri May 10, 2013 10:25 am

Re: The Three Fund Portfolio

Postby Stan Dup » Tue Jul 08, 2014 12:22 pm

davdmrl wrote:I guess my question comes down to, for investors just beginning their careers (early-mid twenties), would it behoove someone like me to add funds that may (or may not) improve portfolio returns over the decades to come? I realize even if I did slice and dice, I wouldn't be hoping for more than 1-1.5% increased return, but that certainly adds up over a lifetime.


You will not know, and no one else will, whether it is a good idea until it is all over. So go ahead if you wish.The most important thing is to get started. The Three Fund Portfolio is a great idea if it motivates you to make the necessary changes. It is not magic. Many people here have many different portfolios, and that is okay. Simplicity is best.

To show you how many different ways you can invest and do okay, here are 150 of them: http://whitecoatinvestor.com/150-portfo ... han-yours/
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti

pingo
Posts: 2567
Joined: Sat Sep 19, 2009 8:24 pm

Re: The Three Fund Portfolio

Postby pingo » Tue Jul 08, 2014 2:08 pm

I'll second the above two posts.

One doesn't have to move away from The Three Fund Portfolio to increase the risk/return profile of the portfolio: rather than adding EM, SV or whatever, one can merely increase the overall allocation to stocks in order to take on more risk. It's not perfect, it has its limitations, and it's not a recommendation per se, but it is one way to maintain portfolio simplicity a la Three Fund Portfolio while adapting it to one's desire for additional risk in *hopes* of the additional returns.

Of course, there are still no guarantees.
Last edited by pingo on Tue Jul 08, 2014 5:03 pm, edited 1 time in total.

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Three Fund Portfolio beat 87.7% of managed funds.

Postby Taylor Larimore » Tue Jul 08, 2014 4:57 pm

Bogleheads:

This study by Rick Ferri found that for the 10-year period (2003-2012) The Three Fund Portfolio outperformed 87.7% of its managed fund counterparts.

A Case For Index Fund Portfolios

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

dognose
Posts: 256
Joined: Sun Apr 11, 2010 7:57 pm
Location: Arizona

Re: The Three Fund Portfolio

Postby dognose » Wed Jul 09, 2014 12:42 pm

I have used the three-fund portfolio for many years with great success. I was fortunate to learn about the Bogleheads philosophy just before I received a major windfall from my employer in terms of stock options. I later exercised the options, paid my taxes, and put the proceeds into the three-fund portfolio. In my case, the bond fund is the Vanguard Intermediate Term Tax Exempt fund, because more than 90 percent of my portfolio is in a taxable account. I rebalance once per year, if necessary, and I only rebalance on my birthday, which somehow amuses my accountant.

I used to have a relatively small "play money" account for trading individual stocks. I guess it was a fun hobby, but I quickly learned how foolish it is to dabble in individual stocks. I have since sold that off and folded the proceeds into my core three-fund account.

I have read extensively about various investing philosophies, and have sometimes been tempted by them, particularly the highly intelligent small/value tilts recommended by Larry Swedroe and others. But, when all the shouting is over, I have remained faithful to the three-fund approach. It's simple to set up and maintain, and my returns have been excellent. I can rebalance my account with a couple of mouse clicks once a year, and then get on with the rest of my life. Isn't that what really matters?

User avatar
abuss368
Posts: 11267
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: The Three Fund Portfolio

Postby abuss368 » Wed Jul 09, 2014 9:15 pm

dognose wrote:In my case, the bond fund is the Vanguard Intermediate Term Tax Exempt fund, because more than 90 percent of my portfolio is in a taxable account.


I have always found the Three Fund Portfolio interesting from the bond aspect. The Three Fund Portfolio, as recommended by Taylor, has never been complicated with TIPS or International Bonds.

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

User avatar
abuss368
Posts: 11267
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: "If You Can"

Postby abuss368 » Wed Jul 09, 2014 9:17 pm

Taylor Larimore wrote:Bogleheads:

Bill Bernstein may be the most intelligent man (and one of the nicest) I ever met. He recommends The Three Fund Portfolio (without international bonds) in his latest book:

If You Can

Best wishes.
Taylor


I enjoyed this article and found the advice very good. Since Vanguard launched the new Total International Bond Index fund, I have yet to read Jack Bogle, David Swensen, Rick Ferri, Bill Bernstein, and even Warren Buffett (with his Treasury bond fund recommendation for his wife's portfolio) recommend international bonds.

Just the opposite, they recommend to avoid the fund!!!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

George-J
Posts: 170
Joined: Sat Oct 06, 2007 2:28 pm

Re: The Three Fund Portfolio

Postby George-J » Sat Jul 12, 2014 9:29 am

Two quick points
First again much thanks to Taylor Larimore. All the best to you
And I just posted a reference to this thread at FWF in Canada - Vanguard-Canada-ETF => Overview and Primer

dbp7777
Posts: 14
Joined: Sun Jul 13, 2014 7:02 am

Re: The Three Fund Portfolio

Postby dbp7777 » Sun Jul 13, 2014 7:06 am

I am following Taylor's general guidance by utilizing a 4-fund portfolio - splitting bond investments equally between Vanguard TBM and Vanguard TIPS....any thoughts or input?

User avatar
LadyGeek
Site Admin
Posts: 38183
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: The Three Fund Portfolio

Postby LadyGeek » Sun Jul 13, 2014 10:58 am

Welcome! Splitting between TIPS and the total bond market is often recommended here. It's also in The Bogleheads' Guide to Investing.

I have some TIPS myself, but at less than an equal split. It's more of a "comfort factor" than anything. The choice is up to you.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
abuss368
Posts: 11267
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: The Three Fund Portfolio

Postby abuss368 » Sun Jul 13, 2014 1:33 pm

dbp7777 wrote:I am following Taylor's general guidance by utilizing a 4-fund portfolio - splitting bond investments equally between Vanguard TBM and Vanguard TIPS....any thoughts or input?


Your strategy appears to be very reasonable. Many Bogleheads often recommend a 20% - 50% allocation of fixed income to TIPS. Combined with the Vanguard Total Bond Index Fund (or Intermediate Term Tax Exempt in taxable) this is a good combination. Bogleheads typically do not recommend the new Vanguard Total International Bond Index Fund.

I have often followed a strategy that one or two bonds funds maximum is all that is needed. Anything more is too much.

You may want to consider starting a new thread if you have additional questions.
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

sai
Posts: 182
Joined: Tue Apr 15, 2014 12:09 pm

Re: The Three Fund Portfolio

Postby sai » Mon Jul 21, 2014 9:38 am

I am not able to find the source, but this is what it said.

S&P500 owns 50% of commercial real estate in USA. Example: mcdonalds owns very nice prime locations of NYC street corners, similarly many shipping companies may own warehouse real estates, but those companies won't be treated as REIT though there is enough real estate in their portfolios.

Once I got to know that, I got rid of REIT from my list to own, Thus now only 3 funds.

disclosure: I have 3 funds portfolio, planning on adding one more. i.e. TaxExcempt muni bond if I run out of space in tax deferred accounts for bond portions.

P.S. This 3 fund portfolio and education on index funds has saved me from most of the tensions of investing, as well gave a lot of confidence in what I am doing. Thanks to Modern portfolio theory, EMH and to all the Bogleheads.

User avatar
abuss368
Posts: 11267
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: The Three Fund Portfolio

Postby abuss368 » Mon Jul 21, 2014 10:23 am

sayeesh wrote:I am not able to find the source, but this is what it said.

S&P500 owns 50% of commercial real estate in USA. Example: mcdonalds owns very nice prime locations of NYC street corners, similarly many shipping companies may own warehouse real estates, but those companies won't be treated as REIT though there is enough real estate in their portfolios.

Once I got to know that, I got rid of REIT from my list to own, Thus now only 3 funds.

disclosure: I have 3 funds portfolio, planning on adding one more. i.e. TaxExcempt muni bond if I run out of space in tax deferred accounts for bond portions.

P.S. This 3 fund portfolio and education on index funds has saved me from most of the tensions of investing, as well gave a lot of confidence in what I am doing. Thanks to Modern portfolio theory, EMH and to all the Bogleheads.


Hi Sayeesh,

You have an excellent portfolio. REITs are not necessary if you have no desire to own them. We hold a large REIT allocation in our portfolio with both US and International REITs.

You are correct in that many large companies have substantial real estate. However, REITs are the business of renting the real estate where many companies that own real estate are not in the business of rental income but rather it is an asset on the Balance Sheet.

McDonald's USA, LLC is a great example. Many years ago (i.e. 2002 - 2003), the organization was under a lot of pressure from a Hedge fund to spin off the real estate as a REIT. That may happen someday in an attempt to unlock additional Shareholder value. Most McDonald's owner/operator's do not own the real estate. When you read the organization's financial statements, real estate is one of the largest asset line items.

Overall the Three Fund Portfolio is an excellent choice. Many Bogleheads use Intermediate Term Tax Exempt in taxable accounts too. The most important point going forward is to follow Jack Bogle's advice and "stay the course"!

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

aj44
Posts: 139
Joined: Sat May 10, 2014 11:22 am

Re: The Three Fund Portfolio

Postby aj44 » Wed Jul 23, 2014 5:51 pm

I got an email today that my company is going to start offering total bond VBTLX in their 401k, I can finally 3 fund it there without having to balance with my IRA. I left the feedback in our voice of the employee that they should add exactly that fund a couple of months ago (coincidence I'm guessing, I assume they seen the poor performance of the more expensive managed bond fund they offered the last couple years but I'll count it as a victory!)

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

401(k)s and Total Market Index Funds

Postby Taylor Larimore » Wed Jul 23, 2014 5:58 pm

aj44:

It is gratifying to learn that 401k administrators are beginning to recognize the many benefits of Total Market Index Funds.

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

gvsucavie03
Posts: 1179
Joined: Sat Feb 16, 2013 8:30 am

Re: 401(k)s and Total Market Index Funds

Postby gvsucavie03 » Thu Jul 24, 2014 3:38 pm

Taylor Larimore wrote:It is gratifying to learn that 401k administrators are beginning to recognize the many benefits of Total Market Index Funds.


Especially with other markets besides S&P 500, 400, 1000 or other US stock indexes. My dad's 401(k) only has a Schwab 1000 index fund, but does have a good line-up of TR funds.

User avatar
abuss368
Posts: 11267
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: The Three Fund Portfolio

Postby abuss368 » Fri Jul 25, 2014 4:11 pm

While I really like The Three Fund Portfolio and recommend it to most Bogleheads and investors, I will say I am noticing a clear trend with Vanguard. That is The Three Fund Portfolio is (or has become) The Four Fund Portfolio. The inclusion of the new Total International Bond Index Fund and the marketing of such by Vanguard is a little surprising. The more I read about this asset class in terms of research and investment experts, there really is not a convincing argument for including the fund. However, fund assets are now approximately $25 BILLION! This must be the result of including the fund in the Target and Life Strategy offerings to increase net assets.
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

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

A very nice comment from "clearwater."

Postby Taylor Larimore » Sun Jul 27, 2014 1:30 pm

I want to thank "clearwater" for this recent post:
Taylor's "Three Fund Portfolio" postings win hands down for the best thing I've ever read on any finance site, anywhere, ever. That he faithfully introduces people to it with great charm, graciousness, and wisdom, makes it even more special. If the Bogleheads database got wiped out, I would hope the very first post is Taylor introducing the Three Fund Portfolio.

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

Trelin946
Posts: 40
Joined: Sat Dec 28, 2013 4:20 am

Re: The Three Fund Portfolio

Postby Trelin946 » Sun Jul 27, 2014 10:48 pm

8RQADL83L8XG

Yours is spicy while mine is hot. While my core portfolio consists of total stock market index, total bond market index and total international stock market index, I added REITS and total midcap index for tilts. Well no risk, no reward. :sharebeer

User avatar
abuss368
Posts: 11267
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: The Three Fund Portfolio

Postby abuss368 » Fri Aug 01, 2014 12:26 pm

Trelin946 wrote:8RQADL83L8XG

Yours is spicy while mine is hot. While my core portfolio consists of total stock market index, total bond market index and total international stock market index, I added REITS and total midcap index for tilts. Well no risk, no reward. :sharebeer


Hi Trelin946,

In case you are not aware, Midcaps are included in the Total Stock Market Index Fund.

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

columbia
Posts: 427
Joined: Tue Aug 27, 2013 5:30 am

Re: The Three Fund Portfolio

Postby columbia » Fri Aug 01, 2014 7:49 pm

It's nice to log in to this forum and see "The Three Thread Portfolio" at the top, while other outlets are predicting the imminent demise of....well, just about anything market related.
VT + TIAA Traditional

User avatar
mundus
Posts: 9
Joined: Fri Feb 01, 2013 9:36 am

Re: The Three Fund Portfolio

Postby mundus » Sat Aug 02, 2014 3:38 pm

Mr. Taylor
If is not to much trouble for you Sir, please can you include as a signature on your posts "The Three Funds Portfolio", as a link where we can click and transferred to the page/post with actual three funds and the percentages for each of them. As you can see Sir, already are 17 pages and new visitors have to search through the threads to find the actual "TFP".

Thank You

User avatar
LadyGeek
Site Admin
Posts: 38183
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: The Three Fund Portfolio

Postby LadyGeek » Sat Aug 02, 2014 3:46 pm

Welcome! The percentages will vary, as it depends on your asset allocation preferences.

The wiki has full details, see: Three fund lazy portfolios, also: Three-fund portfolio

I see you have a thread started: rolling over 401K [Portfolio Help]

Why don't you ask that question in your thread? It keeps all of the information in one spot and allow us to give you advice appropriate for your situation. Consider editing Post #1 in the Asking Portfolio Questions format. If you don't understand something, just ask in the thread. No worries, you'll get plenty of help.

Update: Sorry, I didn't answer your question. What is the specific link you are looking for?
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three Fund Portfolio

Postby Taylor Larimore » Sat Aug 02, 2014 6:21 pm

mundus wrote:Mr. Taylor
If is not to much trouble for you Sir, please can you include as a signature on your posts "The Three Funds Portfolio", as a link where we can click and transferred to the page/post with actual three funds and the percentages for each of them. As you can see Sir, already are 17 pages and new visitors have to search through the threads to find the actual "TFP".

Thank You

Mundus:

I asked LadyGeek to give you a reply. I'm not sure about adding a second link to my signature.

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

Aish
Posts: 128
Joined: Thu Mar 20, 2014 7:49 pm

Re: The Three Fund Portfolio

Postby Aish » Sat Aug 02, 2014 9:39 pm

There are certainly common ratios for the Three Fund Portfolio, but unless I'm mistaken, there is no true "one" TFP as the AA should vary for investors with different goals and ability to take risk.

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three Fund Portfolio has no fixed allocation.

Postby Taylor Larimore » Sat Aug 02, 2014 10:00 pm

Aish wrote:There are certainly common ratios for the Three Fund Portfolio, but unless I'm mistaken, there is no true "one" TFP as the AA should vary for investors with different goals and ability to take risk.

Aish:

You are correct. There is no fixed allocation for The Three Fund Portfolio. Each investor can adjust the three total market index funds according to their own goals and ability to take risk.

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

Stone14
Posts: 2
Joined: Sat Aug 02, 2014 10:10 pm

Re: The Three Fund Portfolio

Postby Stone14 » Sat Aug 02, 2014 10:15 pm

What's the best way to maintain AA while maintaining tax efficiency?

For a given AA if I can't maintain my bond allocation in my 401k and Roth IRA due to contribution limits should I simply add bonds to my taxable account alongside VTSAX and VTIAX or is there some better method?

Thanks

Aish
Posts: 128
Joined: Thu Mar 20, 2014 7:49 pm

Re: The Three Fund Portfolio

Postby Aish » Sun Aug 03, 2014 1:25 am

Stone14 wrote:What's the best way to maintain AA while maintaining tax efficiency?

For a given AA if I can't maintain my bond allocation in my 401k and Roth IRA due to contribution limits should I simply add bonds to my taxable account alongside VTSAX and VTIAX or is there some better method?

Thanks


Buy municipal bonds. Vanguard offers state-specific municipal bonds as well, but only for a few states. I would suggest the Intermediate Term Tax-Exempt as a replacement to Total Bond in your taxable portfolio. (VWIUX)

User avatar
mundus
Posts: 9
Joined: Fri Feb 01, 2013 9:36 am

Re: The Three Fund Portfolio

Postby mundus » Mon Aug 04, 2014 3:53 pm

Mr Taylor,
For taxable account, why NOT instead of:
VBTLX ----- 40% ------ ER = 0.08%
VTSAX ----- 40% ------ ER = 0.05%
VGTSX ----- 20% ------ ER = 0.22%
----------------------------------------------------
Portfolio ----- 100% ------ ER ~ 0.1%

this one? :
Tax-Managed Balanced
VTMFX ----- 100% -----ER = 0.12%

On last 10 years:
40/40/20 ---- average return ~ 6.81%
VTMFX --- average return 6.71%

I want to understand the TAX influence on over all total return.

Thank You

Aish
Posts: 128
Joined: Thu Mar 20, 2014 7:49 pm

Re: The Three Fund Portfolio

Postby Aish » Mon Aug 04, 2014 4:05 pm

mundus wrote:Mr Taylor,
For taxable account, why NOT instead of:
VBTLX ----- 40% ------ ER = 0.08%
VTSAX ----- 40% ------ ER = 0.05%
VGTSX ----- 20% ------ ER = 0.22%
----------------------------------------------------
Portfolio ----- 100% ------ ER ~ 0.1%

this one? :
Tax-Managed Balanced
VTMFX ----- 100% -----ER = 0.12%

On last 10 years:
40/40/20 ---- average return ~ 6.81%
VTMFX --- average return 6.71%

I want to understand the TAX influence on over all total return.

Thank You


Another reason, outside of tax reasons, is that an individual might not want a 60/40 stock/bond AA.

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Tax-Managed Balanced vs. The Three Fund Portfolio

Postby Taylor Larimore » Mon Aug 04, 2014 6:35 pm

mundus wrote:Mr Taylor,
For taxable account, why NOT instead of:
VBTLX ----- 40% ------ ER = 0.08%
VTSAX ----- 40% ------ ER = 0.05%
VGTSX ----- 20% ------ ER = 0.22%
----------------------------------------------------
Portfolio ----- 100% ------ ER ~ 0.1%

this one? :
Tax-Managed Balanced
VTMFX ----- 100% -----ER = 0.12%

On last 10 years:
40/40/20 ---- average return ~ 6.81%
VTMFX --- average return 6.71%

I want to understand the TAX influence on over all total return.

Thank You

Mundus:

There are several reason I believe The Three Fund Portfolio is superior to 100% in Vanguard's Tax-Managed Balanced Fund (VTMFX) for most investors:

* Tax Managed Balance Fund has a $10,000 minimum investment. The Three Fund Portfolio minimum is $3,000.

* Tax-Managed Balanced Fund does not include International stocks.

* Low-income investors do not benefit from tax-exempt bonds.

* Tax-Managed Balanced Fund holds approximately 50% stocks and 50% tax-exempt bonds. Nearly all authorities agree that young investors should own more than 50% stocks and older investors more than 50% bonds. VTMFX suits neither.

* Tax-Managed Balanced Fund uses tax-exempt bonds. Taxable bonds in tax-advantaged accounts normally have higher returns.

* Tax-Managed Balanced Fund holds approximately 2,000 securities. The Three Fund Portfolio is more diversified with 10,000 securities (lower risk).

* It is impossible to sell or add stocks and bonds separately in VTMFX.

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

gvsucavie03
Posts: 1179
Joined: Sat Feb 16, 2013 8:30 am

Re: Tax-Managed Balanced vs. The Three Fund Portfolio

Postby gvsucavie03 » Tue Aug 05, 2014 8:11 pm

Taylor Larimore wrote:The Three Fund Portfolio minimum is $3,000.

For LifeStrategy and Target Retirement (containing similar funds), the minimum is $1,000.

User avatar
LadyGeek
Site Admin
Posts: 38183
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: The Three Fund Portfolio

Postby LadyGeek » Wed Aug 06, 2014 6:12 pm

New member bowtie is asking about the use of CDs in a 3-fund portfolio. I moved the question into a new thread: [CD Questions, use in a 3-fund portfolio]
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
LadyGeek
Site Admin
Posts: 38183
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: The Canadian Three Fund Portfolio

Postby LadyGeek » Wed Aug 06, 2014 9:34 pm

The three-fund portfolio is now available for Canadians! It's been available for a while, but we just added it to the wiki.

See: Lazy portfolios, under Canadian versions of lazy portfolios.

I'm not the only wiki editor. This is a collaboration with our sister Canadian forum, Financial Wisdom Forum. The discussion thread is here: Simple Portfolios 2014.

Thanks to longinvest for providing this helpful reference: The role of home bias in global asset allocation decisions - A decision framework to divide the stock allocation between domestic and international.

Although we can answer Canadian investor questions, the best guidance comes from your home country forum. Canadian investors are encouraged to ask their questions in the Financial Wisdom Forum. You'll get expert advice.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
abuss368
Posts: 11267
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: The Three Fund Portfolio

Postby abuss368 » Fri Aug 08, 2014 1:42 pm

My favorite two portfolio's are:

1) The Core Four by Rick Ferri (not the Four Fund recommendation by Vanguard with International Bonds).

2) The Three Fund Portfolio by Taylor Larimore

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

HButler
Posts: 14
Joined: Mon Aug 06, 2007 1:20 pm
Contact:

Comparing past performance

Postby HButler » Fri Aug 08, 2014 7:00 pm

Does anyone like to use the Treynor, Sharpe, or similar ratios to compare performance?

Past performance does not forecast future performance.

Best wishes.
Taylor

User avatar
mundus
Posts: 9
Joined: Fri Feb 01, 2013 9:36 am

Re: The Three Fund Portfolio

Postby mundus » Sat Aug 09, 2014 10:31 am

Mr. Taylor,
I'm not convinced on international stock being part of portfolio. Please enlight me Sir.
Our mentor, Mr Bogle, clearly is against it most of the time. Lately he puts a 0-20%
if you want it.
The IF is very toned.
Data shows similar trend but with VTSMX out performing VGTSX :

--------- VGTSX VTSMX
1-year 22.34% 25.04%
3-year 5.83% 16.33%
5-year 11.01% 19.29%
10-year 7.42% 8.31%

Since incep. 5.32% 9.60%

Yes, I know that past performers do not dictate the future performers, but like every single study is based on past, I brought the above chart to compare.
I do not see the benefits beside having completed the "diversification". Mathematically there is NO gain having VGTSX.
What I'm missing????

Thank You

pingo
Posts: 2567
Joined: Sat Sep 19, 2009 8:24 pm

Re: The Three Fund Portfolio

Postby pingo » Sat Aug 09, 2014 10:39 am

There's quite a discussion happening on that very topic:

viewtopic.php?f=10&t=143927&newpost=2148900

User avatar
mundus
Posts: 9
Joined: Fri Feb 01, 2013 9:36 am

Re: The Three Fund Portfolio

Postby mundus » Sat Aug 09, 2014 10:48 am

Thanks!

Whickey58
Posts: 1
Joined: Mon Oct 07, 2013 10:31 am

Re: The Three Fund Portfolio

Postby Whickey58 » Sat Aug 09, 2014 4:12 pm

I like the idea but what about international bonds? I have put 10% into Vanguards new index in that area.

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Adding Total International Bond Index Fund?

Postby Taylor Larimore » Sat Aug 09, 2014 4:23 pm

Whickey:

Welcome to the Bogleheads Forum!
I like the idea but what about international bonds? I have put 10% into Vanguards new index in that area.

It is always tempting to add additional funds to the Three Fund Portfolio and overlook their additional costs 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 Vanguard added only a small amount of the new bond fund to their Target and Life Strategy funds. Total International Bond fund represents only 2.0% of the 2060 Target Fund and only 4.0% of the Life Strategy Growth Fund. It's largest allocation is 14% in the Target Retirement Income fund. These allocations are nearly meaningless.

Adding another fund inside a single Target or Life-Strategy fund adds no complexity to the investor. However, I doubt if it is worth complicating The Three Fund Portfolio with another small fund containing several disadvantages: More political risk; higher expense ratios (.23% and .20% Adm.); longer duration (6.6 years) and relatively week credit quality compared with Total Bond Market which is already in The Three Fund Portfolio to provide safety and income.

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

User avatar
BrandonBogle
Posts: 1874
Joined: Mon Jan 28, 2013 11:19 pm

Re: The Three Fund Portfolio

Postby BrandonBogle » Sat Aug 09, 2014 5:51 pm

I wholeheartedly agree with Taylor's post above. I will add one more comment. What would be trying to accomplish by adding this extra fund? If you are trying to reduce risk, the amounts Vanguard is "testing the waters" with will be nearly meaningless to your portfolio. Then, as Taylor points out, you have all the added complexity and tracking by doing it yourself. If instead, you are looking for a better return than Total US Bond, ask yourself why. Most of us hold bonds to reduce our risk and exposure. If you truly want a greater return, take the risk in your allocation to equities.

Personally, I do not hold target date funds and manually hold a three fund portfolio. If I however did hold a target date fund, then I would probably "live with" the Internationap Bond allocation Vanguard put in. When tracking manually though, I would reevaluate my risk tolerance and decide if my equity allocation is appropriate before/instead of adding International Bonds.

pingo
Posts: 2567
Joined: Sat Sep 19, 2009 8:24 pm

Re: The Three Fund Portfolio

Postby pingo » Sat Aug 09, 2014 8:37 pm

Whickey58 wrote:I like the idea but what about international bonds? I have put 10% into Vanguards new index in that area.


The importance of International Bonds is a non-issue for me. Bonds are important to have. To include International Bonds may also be a qualitative or philosophical consideration:

Will having international Bonds help you sleep better at night?
- Use 'em.

Will having International Bonds make portfolio management too cumbersome?
- Skip 'em.

Does it add zero complexity to your personal investment/account situation?
- Use 'em.

Per Taylor Larimore, would not having International Bonds make the portfolio easy to understand and manage for a retiree, owner, spouse, caregivers and heirs?
- Skip 'em.

For your consideration:

Discussion: How important are Int'l Bonds?

Discussion: International Bond Allocation?

William Bernstein: Don't Bother With International Bonds

A few posts from deep in this thread for review as well:

viewtopic.php?f=10&t=88005&start=650#p1991960

viewtopic.php?f=10&t=88005&start=650#p1991984

viewtopic.php?f=10&t=88005&start=750#p2068967

viewtopic.php?f=10&t=88005&start=500#p1836708

viewtopic.php?f=10&t=88005&start=550#p1855306

captainperson
Posts: 1
Joined: Sun Aug 10, 2014 8:33 pm

Re: The Three Fund Portfolio

Postby captainperson » Sun Aug 10, 2014 8:37 pm

Do most people do 33.33% of each of the 3 funds index in their portfolio?

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: The Three Fund Portfolio

Postby Leeraar » Sun Aug 10, 2014 9:17 pm

captainperson wrote:Do most people do 33.33% of each of the 3 funds index in their portfolio?

Captain,

Let me be the first to welcome you!

It depends mostly on you age, but 1/3 each is a pretty good starting point. Or, just pick Vanguard Life Strategy Moderate and be done with it. The fact that it holds some international bonds is more or less irrelevant.

Simplify!

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

User avatar
Taylor Larimore
Advisory Board
Posts: 25525
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Three Fund Allocation

Postby Taylor Larimore » Mon Aug 11, 2014 5:59 am

Captainperson:

Welcome to the Bogleheads Forum!
Do most people do 33.33% of each of the 3 funds index in their portfolio?

Your asset-allocation between the three funds depends on your goals, time-frame, risk-tolerance, and personal financial situation. Use this link (in the Opening Post) to help make a decision:

https://personal.vanguard.com/us/funds/ ... mmendation

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


Return to “Investing - Theory, News & General”

Who is online

Users browsing this forum: AE81, arcticpineapplecorp., Avo, BD., David Jay, FootballFan5548, jdb, nedsaid, Salmon, sjwoo, SpringMan, StoneBob, TD2626, wrongfunds and 86 guests