The Three-Fund Portfolio

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Taylor Larimore
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"He Has Read Over 250 Investing Books"

Post by Taylor Larimore »

Bogleheads:

Another nice article about The Three Fund Portfolio:

HE HAS READ OVER 250 INVESTING BOOKS

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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CABob
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Re: "He Has Read Over 250 Investing Books"

Post by CABob »

Taylor Larimore wrote:Bogleheads:

Another nice article about The Three Fund Portfolio:

HE HAS READ OVER 250 INVESTING BOOKS

Best wishes.
Taylor
Yes, a nice article about a nice gentleman. Thank you Taylor.
Bob
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Re: "He Has Read Over 250 Investing Books"

Post by PhysicianOnFIRE »

Taylor Larimore wrote:Bogleheads:

Another nice article about The Three Fund Portfolio:

HE HAS READ OVER 250 INVESTING BOOKS

Best wishes.
Taylor
Thank you for the mention and the inspiration, and for all that you do.

Best,
-PoF
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Re: The Three-Fund Portfolio

Post by wizzard »

Thanks for posting that up!
I must say, I certainly need to catch up on my reading after seeing that list :shock:
"In uncertain times, show equanimity. Otherwise you are an unfit shareholder" -Charlie Munger
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Re: The Three-Fund Portfolio

Post by PhysicianOnFIRE »

wizzard wrote:Thanks for posting that up!
I must say, I certainly need to catch up on my reading after seeing that list :shock:
Don't worry. You've got plenty of time. Some of the titles are more than thirty years old.

The best part is, Taylor has read them so you don't have to. Three Funds and you're done!
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Re: The Three-Fund Portfolio

Post by abuss368 »

Awesome Taylor! Many thanks for your tireless contributions!
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by abuss368 »

Hi Taylor,

Do you think Vanguard will ever go back to the Three Fund Portfolio?

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by wizzard »

PhysicianOnFIRE wrote:
wizzard wrote:Thanks for posting that up!
I must say, I certainly need to catch up on my reading after seeing that list :shock:
Don't worry. You've got plenty of time. Some of the titles are more than thirty years old.

The best part is, Taylor has read them so you don't have to. Three Funds and you're done!
I sure do, I've read 4 books in the past 2 months so little by little!

It's so simple, yet so many people make it harder than it should be. Sure its not exciting, but it works!
"In uncertain times, show equanimity. Otherwise you are an unfit shareholder" -Charlie Munger
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Re: The Three-Fund Portfolio

Post by abuss368 »

wizzard wrote:
It's so simple, yet so many people make it harder than it should be. Sure its not exciting, but it works!
Remember our mentor Jack Bogle's excellent advice "Simplicity is the master key to financial success".
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

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abuss368 wrote:Hi Taylor,

Do you think Vanguard will ever go back to the Three Fund Portfolio?
I'm not Taylor but what do you mean by Vanguard going back? The have had and will continue to have all of the "ingredients" for the 3-fund.
Or are you referring to their target date and Life Strategy funds where they have relatively recently added international bond funds making them 4-funds? From what I have heard from VG I think they are convinced that international bonds are a good addition to a diversified portfolio so I suspect they will stay with them for the foreseeable future.
But the question remains as to whether Taylor will start a new conversation to promote a Four Fund Portfolio?
:confused (I think not) :P
Bob
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Re: The Three-Fund Portfolio

Post by abuss368 »

CABob wrote:
abuss368 wrote:Hi Taylor,

Do you think Vanguard will ever go back to the Three Fund Portfolio?
I'm not Taylor but what do you mean by Vanguard going back? The have had and will continue to have all of the "ingredients" for the 3-fund.
Or are you referring to their target date and Life Strategy funds where they have relatively recently added international bond funds making them 4-funds? From what I have heard from VG I think they are convinced that international bonds are a good addition to a diversified portfolio so I suspect they will stay with them for the foreseeable future.
But the question remains as to whether Taylor will start a new conversation to promote a Four Fund Portfolio?
:confused (I think not) :P
Do you invest in international bonds?
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by abuss368 »

CABob wrote:
abuss368 wrote:Hi Taylor,

Do you think Vanguard will ever go back to the Three Fund Portfolio?
I'm not Taylor but what do you mean by Vanguard going back? The have had and will continue to have all of the "ingredients" for the 3-fund.
Or are you referring to their target date and Life Strategy funds where they have relatively recently added international bond funds making them 4-funds? From what I have heard from VG I think they are convinced that international bonds are a good addition to a diversified portfolio so I suspect they will stay with them for the foreseeable future.
But the question remains as to whether Taylor will start a new conversation to promote a Four Fund Portfolio?
:confused (I think not) :P
For a while, Vanguard essentially had a Three Fund Portfolio before adding international bonds. There recommendation tool also noted the three funds.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by abuss368 »

CABob wrote:
abuss368 wrote:Hi Taylor,

Do you think Vanguard will ever go back to the Three Fund Portfolio?
I'm not Taylor but what do you mean by Vanguard going back? The have had and will continue to have all of the "ingredients" for the 3-fund.
Or are you referring to their target date and Life Strategy funds where they have relatively recently added international bond funds making them 4-funds? From what I have heard from VG I think they are convinced that international bonds are a good addition to a diversified portfolio so I suspect they will stay with them for the foreseeable future.
But the question remains as to whether Taylor will start a new conversation to promote a Four Fund Portfolio?
:confused (I think not) :P
Actually, I started the "Vanguard - Four Fund Portfolio" thread a while ago and there were very Good responses. I would like to keep it going.
John C. Bogle: “Simplicity is the master key to financial success."
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Adding more funds to The Three-Fund Portfolio?

Post by Taylor Larimore »

But the question remains as to whether Taylor will start a new conversation to promote a Four Fund Portfolio?
Abuss:

Among the benefits of the The Three-Fund Portfolio is its low-cost, extraordinary diversification (over 17,000 securities), its tax-efficiency and simplicity (see link below). It is a sophisticated and superior portfolio for most investors.

I have no reason to promote a more complex four, five or ten-fund fund portfolio.
"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
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Re: The Three-Fund Portfolio

Post by Cruncher »

Taylor,

I hang on the fringes of Bogle forum time ... thank you for your contribution to society.

I know that be a little heavy, but thanks anyway.

Ditto your work with my grandpa a generation ago.

Regarding the 3-fund portfolio, I have just recently converted to a 3-fund portfolio. I've been a slice 'n dicer for the last 7 years or so ...

Cheers my friend!

Adam
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"The Best Way to Diversify Equity Risk"

Post by Taylor Larimore »

Bogleheads:

In a recent study, Morningstar reported: "Despite a proliferation of diversification alternatives, high-quality bonds remained among the best asset classes to diversify equity risk over numerous periods. Notably, the correlation between the S&P 500 and the Barclays US Aggregate Bond Index over the three-, five-, and 10-year periods was 0.1, -0.17, and 0.04, respectively."

Vanguard high-quality Total Bond Market Index Fund is the bond portion of The Three-Fund Portfolio.

The Best Way to Diversify Equity Risk

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by Kitty Telltales »

While placing an order for VTSMX, the Vanguard site asked if I would like to change it the Total Stock Market Index Admiral 0585 due to lower costs. Would the Bogleheads advice this switch?
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Re: The Three-Fund Portfolio

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Kitty Telltales wrote:While placing an order for VTSMX, the Vanguard site asked if I would like to change it the Total Stock Market Index Admiral 0585 due to lower costs. Would the Bogleheads advice this switch?
Yes, no question about it. You get a lower expense ratio and no downside.
Bob
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Re: The Three-Fund Portfolio

Post by Kitty Telltales »

Thanks CABob1 I see that they make the suggestion due to minimum investment amounts, but is it really the same? I should be reading the fine print before hitting buy, I know. :wink: :wink:
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Re: The Three-Fund Portfolio

Post by dbr »

CABob wrote:
Kitty Telltales wrote:While placing an order for VTSMX, the Vanguard site asked if I would like to change it the Total Stock Market Index Admiral 0585 due to lower costs. Would the Bogleheads advice this switch?
Yes, no question about it. You get a lower expense ratio and no downside.
Yes, but it should be understood this is not really a switch as it is just selecting one share class of the same fund instead of another one. It wasn't investment advice to invest in something different. In fact I think Vanguard will have changed the investment over without asking if the amount invested exceeds the minimum. I am not sure you can invest in an investor share class rather than the Admiral version if the investment exceeds the minimum. Has anyone done that?
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Investor shares vs. Admiral shares ?

Post by Taylor Larimore »

Kitty Telltales wrote:While placing an order for VTSMX, the Vanguard site asked if I would like to change it the Total Stock Market Index Admiral 0585 due to lower costs. Would the Bogleheads advice this switch?
Kitty:

Vanguard was trying to help you by alerting you to the lower cost Admiral shares (0.05%/$10,000 minimum) vs. higher cost Investor shares (0.16%/$3,000 minimum).

This is one of the advantages of having fewer but larger funds.

Make the no-cost switch.

Best wishes.
Taylor
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Re: The Three-Fund Portfolio

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Kitty Telltales wrote:Thanks CABob1 I see that they make the suggestion due to minimum investment amounts, but is it really the same? I should be reading the fine print before hitting buy, I know. :wink: :wink:
Perhaps this link about share classes will be informative.
Bob
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Re: The Three-Fund Portfolio

Post by Kitty Telltales »

Thank you Bob for the web page which precisely answered my question, and especially Taylor for giving me confidence with his wise words. I'm making decisions from the center of Europe, where it's surprisingly calm and favorable sailing, despite the Brexit vote last week. I wouldn't have the confidence I've needed without what I've learned from the Bogleheads....again thanks so much.
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Re: The Three-Fund Portfolio

Post by abuss368 »

Jack Bogle:

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.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by boglephreak »

tl:dr - should i purchase small cap in taxable to complement my S&P 500 in 401k to emulate the TSM? or just treat S&P 500 as the same as TSM?

75% of our retirement money is in my 401k, which only offers a S&P 500 index (other funds are active with 1.0%+ ER). all of our bonds are in my wife's 401k and I dont want to put anything else in there (this is about 15% of our total retirement money). i am currently building our TISM in our taxable account (thanks brexit!). once we get the TISM up to our preferred allocation, should we then allocate future contributions to TSM/TISM to maintain the allocation between US/int'l (necessarily treating TSM and S&P 500 as the same)? or should i purchase small cap in the taxable account to make the S&P 500 look more like TSM (effectively changing it to a four fund portfolio) as well as TISM to maintain the allocation? i am concerned that with S&P 500 we are not getting the benefit of small cap that we would with TSM, and that it is heavily weighted towards large cap.

also, if we should buy small cap. which Vanguard fund (our taxable account is at VG) and how much percentage S&P 500:Small Cap to emulate TSM?

if it matters, we are aiming for 70:20:10 (US, Int'l, Bonds); we are currently 75:10:15 but quickly approaching the desired allocation. also, i am using new money to build the portfolio, i am not selling anything.

thanks!
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Re: The Three-Fund Portfolio

Post by LadyGeek »

boglephreak - Those are good questions, but the answer on how to allocate your funds depends on what you have now.

It's best to keep all of your information in one spot. I recommend you bump your earlier thread and ask there. 401k Portfolio Advice
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Re: The Three-Fund Portfolio

Post by boglephreak »

Thanks LadyGeek. I was wondering about the issue as more theoretical than me specifically, but I will go ahead and update/bump my old thread so people have my information available to answer.
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Re: The Three-Fund Portfolio

Post by Fieldsy1024 »

If I wanted to test myself by taking out the bond portion of this portfolio, would going 80 VTSAX/ 20 Int'l be something that might be a good portfolio (for someone who wants 100% stocks).

I'd like to try it, but would like to hear from Taylor and others who have a lot of experience with this 3 fund. I'd like as few funds as possible, so that is why I was just thinking of keeping that two. Is another two fund or 3 fund (100% stocks) better than the 80/20 I listed above.

Thank you so much.
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"Why Buy Bonds?"

Post by Taylor Larimore »

Fieldsy1024 wrote:If I wanted to test myself by taking out the bond portion of this portfolio, would going 80 VTSAX/ 20 Int'l be something that might be a good portfolio (for someone who wants 100% stocks)?
Yes. I think it would be an excellent all-stock portfolio.

However, I believe there are very few investors who should have 100% stock portfolios. Jason Zweig, is one of the most knowledgeable personal finance writers in the business. I saved this article from 1999:


WHY BUY BONDS?

Best wishes.
Taylor
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Re: The Three-Fund Portfolio

Post by abuss368 »

Fieldsy1024 wrote:If I wanted to test myself by taking out the bond portion of this portfolio, would going 80 VTSAX/ 20 Int'l be something that might be a good portfolio (for someone who wants 100% stocks).

I'd like to try it, but would like to hear from Taylor and others who have a lot of experience with this 3 fund. I'd like as few funds as possible, so that is why I was just thinking of keeping that two. Is another two fund or 3 fund (100% stocks) better than the 80/20 I listed above.

Thank you so much.
Hi Fieldsy1024,

That is a lot of risks which may or may not make much difference over time. I recall Warren Buffett's mentor Benjamin Grahan noted that all investors should have at least 25% or so in bonds.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: "Why Buy Bonds?"

Post by Fieldsy1024 »

Taylor Larimore wrote:
Fieldsy1024 wrote:If I wanted to test myself by taking out the bond portion of this portfolio, would going 80 VTSAX/ 20 Int'l be something that might be a good portfolio (for someone who wants 100% stocks)?
Yes. I think it would be an excellent all-stock portfolio.

However, I believe there are very few investors who should have 100% stock portfolios. Jason Zweig, is one of the most knowledgeable personal finance writers in the business. I saved this article from 1999:


WHY BUY BONDS?

Best wishes.
Taylor
Thank you and abuss for feedback.
Last edited by Fieldsy1024 on Fri Jul 08, 2016 2:10 pm, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by dbr »

I don't understand the concept expressed here of "testing myself" or "trying out" an asset allocation. This is not attempting to run a mile 15 seconds faster than you did before to test yourself or trying out a certain model of car to see if you like it. The important features of an asset allocation need enough time to develop that there really isn't a second time. Some experiences that might happen might just as well never happen. Worse than that, even if one discerns that a certain outcome has in fact materialized one cannot make the mistake of confusing outcome and strategy.
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Re: The Three-Fund Portfolio

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dbr wrote:I don't understand the concept expressed here of "testing myself" or "trying out" an asset allocation. This is not attempting to run a mile 15 seconds faster than you did before to test yourself or trying out a certain model of car to see if you like it. The important features of an asset allocation need enough time to develop that there really isn't a second time. Some experiences that might happen might just as well never happen. Worse than that, even if one discerns that a certain outcome has in fact materialized one cannot make the mistake of confusing outcome and strategy.
I simply want to try this allocation while I am 31 years old and I feel like it.
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Re: "Why Buy Bonds?"

Post by gvsucavie03 »

Taylor Larimore wrote:
Fieldsy1024 wrote:If I wanted to test myself by taking out the bond portion of this portfolio, would going 80 VTSAX/ 20 Int'l be something that might be a good portfolio (for someone who wants 100% stocks)?
Yes. I think it would be an excellent all-stock portfolio.

However, I believe there are very few investors who should have 100% stock portfolios. Jason Zweig, is one of the most knowledgeable personal finance writers in the business. I saved this article from 1999:


WHY BUY BONDS?

Best wishes.
Taylor
Great article!
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Re: The Three-Fund Portfolio

Post by golfallday »

Great stuff Taylor, as always. I learn something every time I read your posts and threads. I don't have a TSM fund in my 457, so my 3 fund portfolio is:

55% VIIIX (.02% ER)
15% Northern Trust Collective Trust MSCI ACWI ex-US Index (.09% ER)
30% VBTIX (.06% ER)

It's a simple AA, but as Dr Bernstein stated in one of his books, "Get over it!" I auto rebalance the first week of December. I'm comfortable with this allocation for the foreseeable future. I'm 52 and will keep this mix until I'm 60.
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Re: The Three-Fund Portfolio

Post by Lieutenant.Columbo »

does one hold the VERY SAME three broad funds during de-accumulation (retirement) as they did during accumulation?

if so, why?

if not, why not?

thank you
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Same 3 Funds in Retirement ?

Post by Taylor Larimore »

JLMA wrote:does one hold the VERY SAME three broad funds during de-accumulation (retirement) as they did during accumulation?

if so, why?

if not, why not?

thank you
JLMA:

Yes, hold the same three funds for the many reasons in my opening post.

You will probably want to increase your Total Bond Fund allocation (for less risk) as you get older.

Best wishes.
Taylor
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Total Bond Market or Tax-Exempt Bond Fund?

Post by Taylor Larimore »

abuss368 wrote:
"What tax bracket maximum is best for Total Bond in taxable accounts?"

Tax-expert, David Grabner replied:
"My rule of thumb is that corporate and municipal bonds of equal risk are priced to break even in a 25% bracket. Therefore, I recommend Total Bond Market in a 25% bracket unless Vanguard has a muni fund for your state, you live in a state which has an income tax but exempts all munis, or you are in some tax phase-out (for example, the child tax credit; muni income is not counted for this phase-out)."
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Re: The Three-Fund Portfolio

Post by mc2 »

Fieldsy1024 wrote:
dbr wrote:I don't understand the concept expressed here of "testing myself" or "trying out" an asset allocation. This is not attempting to run a mile 15 seconds faster than you did before to test yourself or trying out a certain model of car to see if you like it. The important features of an asset allocation need enough time to develop that there really isn't a second time. Some experiences that might happen might just as well never happen. Worse than that, even if one discerns that a certain outcome has in fact materialized one cannot make the mistake of confusing outcome and strategy.
I simply want to try this allocation while I am 31 years old and I feel like it.
Ya know, I can relate. I was a long time lurker and often had bogle-esque investment mindset with interests in low-cost VG funds. I then read a lot, educated myself and gave my self-designed allocation a whirl. As I got a little older, I learned the value of simplicity and now am a happy 3-funder. Interestingly enough, I used to have a number of funds via 401k that were not index and those have lagged the S&P 500 at 1 and 3 year benchmarks. It was proof enough that I don't have to overthink anything and ignoring the noise has been very freeing.

Adjusting to Admiral and 3 fund cut my expense ratio by over 0.5% and my portfolio is performing very well.

So...I think it's good to start somewhere by yourself and with time, you'll learn even more and make good investment decisions as long as you keep your ears open and listen.

Good luck!
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Re: Total Bond Market or Tax-Exempt Bond Fund?

Post by Lieutenant.Columbo »

Taylor Larimore wrote:abuss368 wrote:
"What tax bracket maximum is best for Total Bond in taxable accounts?"

Tax-expert, David Grabner replied:
"My rule of thumb is that corporate and municipal bonds of equal risk are priced to break even in a 25% bracket. Therefore, I recommend Total Bond Market in a 25% bracket unless Vanguard has a muni fund for your state, you live in a state which has an income tax but exempts all munis, or you are in some tax phase-out (for example, the child tax credit; muni income is not counted for this phase-out)."
Taylor,

Does this mean that someone in the 30%plus Tax bracket should not hold Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) in TAXABLE? Which one instead?

thank you
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Tax-advantaged accounts filled with Total Bond Market?

Post by Taylor Larimore »

JLMA wrote:
Taylor Larimore wrote:abuss368 wrote:
"What tax bracket maximum is best for Total Bond in taxable accounts?"

Tax-expert, David Grabner replied:
"My rule of thumb is that corporate and municipal bonds of equal risk are priced to break even in a 25% bracket. Therefore, I recommend Total Bond Market in a 25% bracket unless Vanguard has a muni fund for your state, you live in a state which has an income tax but exempts all munis, or you are in some tax phase-out (for example, the child tax credit; muni income is not counted for this phase-out)."
Taylor,

Does this mean that someone in the 30% plus Tax bracket should not hold Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) in TAXABLE? Which one instead?

thank you
JLMA:

Assume you have filled your tax-advantaged accounts (IRA, 401k, etc.) with Total Bond Market, and want more bonds:

* If you are in a 25% income-tax bracket or less Total Bond Market is OK in taxable.

* If your income-tax bracket is over 25%, then Vanguard Intermediate-Term Tax-Exempt Fund in a taxable account is a good choice to complete your bond allocation.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Tax-advantaged accounts filled with Total Bond Market?

Post by Lieutenant.Columbo »

Taylor Larimore wrote:JLMA:

Assume you have filled your tax-advantaged accounts (IRA, 401k, etc.) with Total Bond Market, and want more bonds:

* If you are in a 25% income-tax bracket or less Total Bond Market is OK in taxable.

* If your income-tax bracket is over 25%, then Vanguard Intermediate-Term Tax-Exempt Fund in a taxable account is a good choice to complete your bond allocation.

Best wishes.
Taylor

understood; thank you very much

so, would you say that someone currently in a tax bracket higher than 25%, would be better off by eventually selling all the Intermediate-Term Tax-Exempt Fund held in the Taxable account and replacing it with the Total Bond Market fund When/if the tax bracket goes down to or below 25%?

thanks
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Re: Tax-advantaged accounts filled with Total Bond Market?

Post by Taylor Larimore »

JLMA wrote:
Taylor Larimore wrote:JLMA:

Assume you have filled your tax-advantaged accounts (IRA, 401k, etc.) with Total Bond Market, and want more bonds:

* If you are in a 25% income-tax bracket or less Total Bond Market is OK in taxable.

* If your income-tax bracket is over 25%, then Vanguard Intermediate-Term Tax-Exempt Fund in a taxable account is a good choice to complete your bond allocation.

Best wishes.
Taylor

understood; thank you very much

so, would you say that someone currently in a tax bracket higher than 25%, would be better off by eventually selling all the Intermediate-Term Tax-Exempt Fund held in the Taxable account and replacing it with the Total Bond Market fund When/if the tax bracket goes down to or below 25%?

thanks
JLMA:

Yes--assuming capital gains are not large (which they shouldn't be).

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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longvest and The Three-Fund Portfolio

Post by Taylor Larimore »

longvest wrote:
I have learned that by living below my means and investing in Total Market index funds using a Three-Fund Portfolio, I will reap my fair share of the future returns of three broad markets, whatever these returns are.

No more anxiety trying to get a specific target rate of return. No more worry about selecting the best asset allocation. I just needed to select a reasonable ratio of bonds (at least 25%) and of stocks (at least 25%), and to decide what ratio of the stock allocation (at least 20%, at most market cap) to invest internationally. The only required ongoing maintenance is to rebalance my portfolio once a year, if the allocation gets too far off target.
Thank you for sharing.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: longvest and The Three-Fund Portfolio

Post by Lieutenant.Columbo »

Taylor Larimore wrote:longinvest wrote:
... I just needed to select a reasonable ratio of bonds (at least 25%) and of stocks (at least 25%), and to decide what ratio of the stock allocation (at least 20%, at most market cap) to invest internationally. The only required ongoing maintenance is to rebalance my portfolio once a year, if the allocation gets too far off target.
Thank you for sharing.

Best wishes
Taylor
Taylor,

what did
longinvest
mean by "at most market cap"?

thank you
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Re: longvest and The Three-Fund Portfolio

Post by longinvest »

JLMA wrote:
Taylor Larimore wrote:longinvest wrote:
... I just needed to select a reasonable ratio of bonds (at least 25%) and of stocks (at least 25%), and to decide what ratio of the stock allocation (at least 20%, at most market cap) to invest internationally. The only required ongoing maintenance is to rebalance my portfolio once a year, if the allocation gets too far off target.
Thank you for sharing.

Best wishes
Taylor
Taylor,

what did
longinvest
mean by "at most market cap"?

thank you
JLMA,

I am not Taylor, but I can explain what I meant.

In the above quote from my post "The Futility of Predicting Future Returns", I meant that one should put no more into international stock markets than their market weighting relative to all world stock markets.

Here's an example. Currently, the U.S. stock market represents approximately 53% of all world stock markets. Correspondingly, international stock markets represent 47% of all world stock markets, for a U.S. investor. So, my suggestion was that a U.S. investor should put between 20% and 50% of his stock allocation into international stocks.

Here's another example. Currently, the Canadian stock market represents approximately 3% of all world stock markets. Correspondingly, international stock markets represent 97% of all world stock markets, for a Canadian investor. So, my suggestion was that a Canadian investor should put between 20% and 95% of his stock allocation into international stocks.

Yes, I've rounded some numbers.

But this diverts from the main object of Taylor's citation, which was about using the Three-Fund Porfolio:

"I have learned that by living below my means and investing in Total Market index funds using a Three-Fund Portfolio, I will reap my fair share of the future returns of three broad markets, whatever these returns are.

No more anxiety trying to get a specific target rate of return. No more worry about selecting the best asset allocation. ...
"
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW
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Re: longvest and The Three-Fund Portfolio

Post by Lieutenant.Columbo »

longinvest wrote:
JLMA wrote:
Taylor Larimore wrote:longinvest wrote:
... I just needed to select a reasonable ratio of bonds (at least 25%) and of stocks (at least 25%), and to decide what ratio of the stock allocation (at least 20%, at most market cap) to invest internationally. The only required ongoing maintenance is to rebalance my portfolio once a year, if the allocation gets too far off target.
Thank you for sharing.

Best wishes
Taylor
Taylor,

what did
longinvest
mean by "at most market cap"?

thank you
JLMA,

I am not Taylor, but I can explain what I meant.

In the above quote from my post "The Futility of Predicting Future Returns", I meant that one should put no more into international stock markets than their market weighting relative to all world stock markets.

Here's an example. Currently, the U.S. stock market represents approximately 53% of all world stock markets. Correspondingly, international stock markets represent 47% of all world stock markets, for a U.S. investor. So, my suggestion was that a U.S. investor should put between 20% and 50% of his stock allocation into international stocks.

Here's another example. Currently, the Canadian stock market represents approximately 3% of all world stock markets. Correspondingly, international stock markets represent 97% of all world stock markets, for a Canadian investor. So, my suggestion was that a Canadian investor should put between 20% and 95% of his stock allocation into international stocks.

Yes, I've rounded some numbers.

But this diverts from the main object of Taylor's citation, which was about using the Three-Fund Porfolio:

"I have learned that by living below my means and investing in Total Market index funds using a Three-Fund Portfolio, I will reap my fair share of the future returns of three broad markets, whatever these returns are.

No more anxiety trying to get a specific target rate of return. No more worry about selecting the best asset allocation. ...
"
Thank you very much for explaining what you meant.

I realize I diverted. But I'm trying to soak in as much as I can from everything I learn at BHs, and these side questions help me understand the message better.
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Re: "Why Buy Bonds?"

Post by TOJ »

Taylor Larimore wrote:
Fieldsy1024 wrote:If I wanted to test myself by taking out the bond portion of this portfolio, would going 80 VTSAX/ 20 Int'l be something that might be a good portfolio (for someone who wants 100% stocks)?
Yes. I think it would be an excellent all-stock portfolio.

However, I believe there are very few investors who should have 100% stock portfolios. Jason Zweig, is one of the most knowledgeable personal finance writers in the business. I saved this article from 1999:


WHY BUY BONDS?

Best wishes.
Taylor
I like that he chastises people who also avoid international stocks.
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Re: The Three-Fund Portfolio

Post by F150HD »

"A financial planner says most people don't need to pay someone to manage their investments
Matt Becker, Mom and Dad Money Aug. 12, 2016, 10:00 AM "

...For example, when Ferri and Benke evaluated a simple three fund portfolio made up of US stocks, international stocks, and US bonds, they found that the index-based portfolio outperformed the actively managed portfolio 82.9% of the time....


http://www.businessinsider.com/most-peo ... 2016-8/#-1

Sorry if this was posted already. Good read.
Long is the way and hard, that out of Hell leads up to light.
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Re: The Three-Fund Portfolio

Post by cfs »

Another article on 3FP

Another good article on The Three-Fund Portfolio by Alex Bryan from Morningstar.

Most Investors Probably Won't Outperform This Simple Portfolio

Good luck with your investments.

Thanks for reading.
~ Member of the Active Retired Force since 2014 ~
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