The Three-Fund Portfolio

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Re: The Three-Fund Portfolio

Post by LadyGeek » Sat Dec 09, 2017 10:03 am

JCE66 wrote:
Sat Dec 09, 2017 8:07 am
Unfortunately, my 401K will have to remain a 4-fund portfolio since we do not have a total US market fund (I use FXSIX and FSEVX to approximate). I keep asking our 401K fund committee to add FSTVX. A work in progress, I guess.
From an asset allocation perspective (what really counts), I'd say you're "good enough" as a three-fund portfolio. Your 401k committee gave you what's needed. Changing funds is an effort, so I'd recommend putting your request on the back-burner and focus on reducing high cost funds (if they have them).

Total Market = FXSIX - Fidelity ® 500 Index Fund + Fidelity® Extended Market Index Fund

See the wiki: Extended market index fund

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Re: The Three-Fund Portfolio

Post by Rowan Oak » Sat Dec 09, 2017 10:22 am

After years of reading on Bogleheads trying to understand the fundamental principles of many different investment strategies discussed here it always seems to come back to the same inescapable conclusion:

You either choose the simple 3-fund (or ETF) portfolio of Total Stock Market, Total International, and Total Bond Market, properly allocated OR you try to beat the market by tilting/factors/market timing.

Is this too simplistic? Is this not what it all boils down to?

I greatly appreciate the discussion and debate and I think it's critical to the investment community to have a place where we can come to share ideas and get answers. It has been life changing for my family.

note: I understand that some may leave out the Total International index such as Jack Bogle himself.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: The Three-Fund Portfolio

Post by saltycaper » Sun Dec 10, 2017 12:42 am

Rowan Oak wrote:
Sat Dec 09, 2017 10:22 am

You either choose the simple 3-fund (or ETF) portfolio of Total Stock Market, Total International, and Total Bond Market, properly allocated OR you try to beat the market by tilting/factors/market timing.

Is this too simplistic? Is this not what it all boils down to?
The three-fund portfolio discussed in this thread has many merits, but it is not the market portfolio, so just because you hold something else doesn't mean you are tilting or attempting to invest in different equity factors, nor are you necessarily attempting to beat the market. Also, holding something other than the three-fund portfolio certainly isn't market timing, and holding the three-fund portfolio doesn't preclude one from timing the market. I wouldn't say your statement is an oversimplification per se, but I would say it's incorrect.
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Re: The Three-Fund Portfolio

Post by KSOC » Sun Dec 10, 2017 7:06 am

My 23 YO daughter started new job. Company offered a nice 403b match of 6% (100%!) thru Fidelity Netbenefits. I was estatic about the match & also that the provider was Fidelity. Since my wife's 403b with Fidelity has well over 100 funds available, predominatley Fidelity I assumed they'd be similar. I offered my daughter my oversight & she accepted. I did my research ahead of time for my daughter. At her age I selected Fidelity TSM & Fidelity Total International. She got her Fidelity package in the mail, called me & sent screen shots of her choices. I was surprised there were only 26 funds. 22 were Vanguard. 1 Fidelity, 1 T. Rowe Price, 1 American Fund & 1 Parnassus. Only 4 were index funds.

We conferred on the phone and ended up with Vanguard S&P 500 Institutional Index Fund (VINIX - 0.035) & & Vanguard Small Cap Institutional Index Fund (VIMAX - 0.06). The small cap fund gives her 44% mid & 56% small. There were no Total Stock Market Funds or Extended available.

She'll start with a 10% contribution. If a good International Index Fund comes along in the future, we'll consider adding it. Bonds much later. I'm happy how she is positioned and what this opportunity could provide for her in 40 years. It's an entry level at her dream job, of which she intends to pursue her Masters while working.

The point of my post was I tried to stay true to low cost funds, Three Fund, long term mindset. You take what they give you. I hoped to utilize what I've learned here on this forum to my daughters advantage. 5 years ago I'd have been much less help.
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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Dec 10, 2017 9:44 am

Rowan Oak wrote:
Sat Dec 09, 2017 10:22 am
After years of reading on Bogleheads trying to understand the fundamental principles of many different investment strategies discussed here it always seems to come back to the same inescapable conclusion:

You either choose the simple 3-fund (or ETF) portfolio of Total Stock Market, Total International, and Total Bond Market, properly allocated OR you try to beat the market by tilting/factors/market timing.

Is this too simplistic? Is this not what it all boils down to?

I greatly appreciate the discussion and debate and I think it's critical to the investment community to have a place where we can come to share ideas and get answers. It has been life changing for my family.

note: I understand that some may leave out the Total International index such as Jack Bogle himself.
Hi Rowan Oak -

You are correct! Our mentor, Jack Bogle, has often said "simplicity is the master key to financial success". No better words have been said in the investing realm.

We gave up trying to beat the market many years ago. For every home run and great return, we had many painful disappointments. Now we are very satisfied with owning a few total market index funds. The Three Fund Portfolio does just that.

Keep investing simple.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Dec 10, 2017 9:46 am

saltycaper wrote:
Sun Dec 10, 2017 12:42 am
Rowan Oak wrote:
Sat Dec 09, 2017 10:22 am

You either choose the simple 3-fund (or ETF) portfolio of Total Stock Market, Total International, and Total Bond Market, properly allocated OR you try to beat the market by tilting/factors/market timing.

Is this too simplistic? Is this not what it all boils down to?
The three-fund portfolio discussed in this thread has many merits, but it is not the market portfolio, so just because you hold something else doesn't mean you are tilting or attempting to invest in different equity factors, nor are you necessarily attempting to beat the market. Also, holding something other than the three-fund portfolio certainly isn't market timing, and holding the three-fund portfolio doesn't preclude one from timing the market. I wouldn't say your statement is an oversimplification per se, but I would say it's incorrect.
I would suspect that the "market" includes an investors allocation between U.S. and International stocks and bonds. Everything else is just a piece of that puzzle.

The Three Fund Portfolio is, while simple, a very sophisticated investment portfolio.
Last edited by abuss368 on Sun Dec 10, 2017 11:06 am, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by Rowan Oak » Sun Dec 10, 2017 9:50 am

saltycaper wrote:
Sun Dec 10, 2017 12:42 am
Rowan Oak wrote:
Sat Dec 09, 2017 10:22 am

You either choose the simple 3-fund (or ETF) portfolio of Total Stock Market, Total International, and Total Bond Market, properly allocated OR you try to beat the market by tilting/factors/market timing.

Is this too simplistic? Is this not what it all boils down to?
The three-fund portfolio discussed in this thread has many merits, but it is not the market portfolio, so just because you hold something else doesn't mean you are tilting or attempting to invest in different equity factors, nor are you necessarily attempting to beat the market. Also, holding something other than the three-fund portfolio certainly isn't market timing, and holding the three-fund portfolio doesn't preclude one from timing the market. I wouldn't say your statement is an oversimplification per se, but I would say it's incorrect.
Thank you for your response. What is your definition of the market portfolio?
Last edited by Rowan Oak on Mon Jan 08, 2018 9:53 pm, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Dec 10, 2017 9:51 am

KSOC wrote:
Sun Dec 10, 2017 7:06 am
My 23 YO daughter started new job. Company offered a nice 403b match of 6% (100%!) thru Fidelity Netbenefits. I was estatic about the match & also that the provider was Fidelity. Since my wife's 403b with Fidelity has well over 100 funds available, predominatley Fidelity I assumed they'd be similar. I offered my daughter my oversight & she accepted. I did my research ahead of time for my daughter. At her age I selected Fidelity TSM & Fidelity Total International. She got her Fidelity package in the mail, called me & sent screen shots of her choices. I was surprised there were only 26 funds. 22 were Vanguard. 1 Fidelity, 1 T. Rowe Price, 1 American Fund & 1 Parnassus. Only 4 were index funds.

We conferred on the phone and ended up with Vanguard S&P 500 Institutional Index Fund (VINIX - 0.035) & & Vanguard Small Cap Institutional Index Fund (VIMAX - 0.06). The small cap fund gives her 44% mid & 56% small. There were no Total Stock Market Funds or Extended available.

She'll start with a 10% contribution. If a good International Index Fund comes along in the future, we'll consider adding it. Bonds much later. I'm happy how she is positioned and what this opportunity could provide for her in 40 years. It's an entry level at her dream job, of which she intends to pursue her Masters while working.

The point of my post was I tried to stay true to low cost funds, Three Fund, long term mindset. You take what they give you. I hoped to utilize what I've learned here on this forum to my daughters advantage. 5 years ago I'd have been much less help.
Hi KSOC -

That is surprising. Honestly, considering her age, beginning of her career, and your continued support, I agree that one could pass on the bonds for a while. While not a "problem" per se, I would consider removing the Small Cap fund and simply invest in the S&P 500 Index. She will understand this approach and it will align with Warren Buffett's advice to his wife: "Just invest in the Vanguard S&P 500."

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Dec 10, 2017 9:53 am

Rowan Oak wrote:
Sun Dec 10, 2017 9:50 am
Thank you for your response. What is your definition on the market portfolio?
Rowan Oak -

In my opinion a market portfolio is a few total market funds, or the individual funds, which cover the world's investable assets. The individual allocations between stocks and bonds, as well as any sub allocations within stocks and bonds are purely based on an investors goals, timeframe, and tolerance for risk.

Perhaps we should start a new thread if we want to discuss in greater detail.

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by saltycaper » Sun Dec 10, 2017 10:24 am

Rowan Oak wrote:
Sun Dec 10, 2017 9:50 am

Thank you for your response. What is your definition on the market portfolio?
The market portfolio would include market cap-weighted allocations to all publicly investable assets, particularly stocks and bonds. Exactly what the allocations would be is open to some interpretation, such as free-float adjustment, the definition of publicly investable real estate, etc. (If you search the board for "market portfolio", you will find plenty of discussion.) But, even without agreement on such details, the three-fund portfolio discussed in this thread leaves out international bonds, and it also allows the investor to determine their US/ex-US equity split, and these things alone make it something else other than the market portfolio. That is not to say that there aren't reasonable arguments in favor of these omissions or allowances. It just means it's not the market portfolio.

There also are other portfolios one may hold that do not seek to beat the market, factor tilt, market time, etc. For instance, some people choose an all-in-one fund that includes something a bit closer to the market portfolio, some people replace Total Bond with TIPS, some people replace Total US Stock and Total Int'l Stock with Total World Stock, etc. Again, I'm not trying to say any one alternative is superior, only that there are other portfolios that fit your description.
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Re: The Three-Fund Portfolio

Post by saltycaper » Sun Dec 10, 2017 10:27 am

abuss368 wrote:
Sun Dec 10, 2017 9:46 am

I would suspect that the "market" includes an investors allocation between U.S. and International stocks and bonds. Everything else is just a piece of that puzzle.

The Three Fund Portfolio is, while simple, and very sophisticated investment portfolio.
I agree for the most part re: the market portfolio. I didn't say the three-fund isn't simple or sophisticated, just that it isn't the market. :happy
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Re: The Three-Fund Portfolio

Post by Rowan Oak » Sun Dec 10, 2017 10:44 am

abuss368 wrote:
Sun Dec 10, 2017 9:53 am
Rowan Oak wrote:
Sun Dec 10, 2017 9:50 am
Thank you for your response. What is your definition on the market portfolio?
Rowan Oak -

In my opinion a market portfolio is a few total market funds, or the individual funds, which cover the world's investable assets. The individual allocations between stocks and bonds, as well as any sub allocations within stocks and bonds are purely based on an investors goals, timeframe, and tolerance for risk.

Perhaps we should start a new thread if we want to discuss in greater detail.

Best.
saltycaper wrote:
Sun Dec 10, 2017 10:24 am
Rowan Oak wrote:
Sun Dec 10, 2017 9:50 am

Thank you for your response. What is your definition on the market portfolio?
The market portfolio would include market cap-weighted allocations to all publicly investable assets, particularly stocks and bonds. Exactly what the allocations would be is open to some interpretation, such as free-float adjustment, the definition of publicly investable real estate, etc. (If you search the board for "market portfolio", you will find plenty of discussion.) But, even without agreement on such details, the three-fund portfolio discussed in this thread leaves out international bonds, and it also allows the investor to determine their US/ex-US equity split, and these things alone make it something else other than the market portfolio. That is not to say that there aren't reasonable arguments in favor of these omissions or allowances. It just means it's not the market portfolio.

There also are other portfolios one may hold that do not seek to beat the market, factor tilt, market time, etc. For instance, some people choose an all-in-one fund that includes something a bit closer to the market portfolio, some people replace Total Bond with TIPS, some people replace Total US Stock and Total Int'l Stock with Total World Stock, etc. Again, I'm not trying to say any one alternative is superior, only that there are other portfolios that fit your description.
Thank you both for taking the time. Hadn't thought about it that way exactly.

My goal is to create a portfolio that most effectively implements what Jack Bogle says: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk."

In the end, for me, simplicity is the most important quality of the Three-Fund Portfolio. I'll rebalance once per year and then in 20-30 years I'll peek. Although, to this point, I haven't found a way to rebalance without peeking.

Again, thank you for your time
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Re: The Three-Fund Portfolio

Post by saltycaper » Sun Dec 10, 2017 11:13 am

Rowan Oak wrote:
Sun Dec 10, 2017 10:44 am

In the end, for me, simplicity is the most important quality of the Three-Fund Portfolio. I'll rebalance once per year and then in 20-30 years I'll peek. Although, to this point, I haven't found a way to rebalance without peeking.
Assuming we can forget advisors who would do the rebalancing, the only other way to rebalance without peeking is to use a balanced fund or an all-in-one fund where the fund does the rebalancing for you. But, I think the spirit of Bogle's "don't peek" message is really "don't fiddle". Of course it's fine to look at your portfolio to rebalance, and one should check statements regularly to make sure there aren't any errors.
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Re: The Three-Fund Portfolio

Post by dbr » Sun Dec 10, 2017 11:26 am

saltycaper wrote:
Sun Dec 10, 2017 11:13 am
Rowan Oak wrote:
Sun Dec 10, 2017 10:44 am

In the end, for me, simplicity is the most important quality of the Three-Fund Portfolio. I'll rebalance once per year and then in 20-30 years I'll peek. Although, to this point, I haven't found a way to rebalance without peeking.
Assuming we can forget advisors who would do the rebalancing, the only other way to rebalance without peeking is to use a balanced fund or an all-in-one fund where the fund does the rebalancing for you. But, I think the spirit of Bogle's "don't peek" message is really "don't fiddle". Of course it's fine to look at your portfolio to rebalance, and one should check statements regularly to make sure there aren't any errors.
Yes, it means don't fiddle. It is really stupid to not look at your investments frequently to verify correct bookkeeping, no glitches in adding, transferring, or withdrawing money, making sure the account and access to the account is up to date, making sure one gets and acts on any administrative notices, changes, etc., checking that there are no strange or fraudulent activities, and so on. Accounts with no activity can actually be closed and one wants to be sure contact information is verified to be up to date.

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Re: The Three-Fund Portfolio

Post by Prudence » Sun Dec 10, 2017 11:49 am

Taylor, over the years, in your three fund portfolio, have you adjusted your stock/bond allocation using some rule of thumb such as age in bonds?
Thanks,
Jim

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Sun Dec 10, 2017 1:26 pm

Prudence wrote:
Sun Dec 10, 2017 11:49 am
Taylor, over the years, in your three fund portfolio, have you adjusted your stock/bond allocation using some rule of thumb such as age in bonds?
Thanks,
Jim
Jim:

The money I cannot afford to lose is in diversified, reasonably safe, Vanguard Total Bond Market Index Fund and cash in the bank. My exact bond allocation has changed with my increasing age, death of one son and my wife (fewer heirs to care for), small inheritance, health and life expectancy.

After safeguarding what I think I will need in TBM, I have simplified my stupid 16 fund stock allocation to one fund -- Vanguard S&P 500 Index. My caregivers and heirs will be be delighted with my portfolio simplicity. :happy

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

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Re: The Three-Fund Portfolio

Post by Munir » Sun Dec 10, 2017 2:05 pm

Taylor Larimore wrote:
Sun Dec 10, 2017 1:26 pm
Prudence wrote:
Sun Dec 10, 2017 11:49 am
Taylor, over the years, in your three fund portfolio, have you adjusted your stock/bond allocation using some rule of thumb such as age in bonds?
Thanks,
Jim
Jim:

The money I cannot afford to lose is in diversified, reasonably safe, Vanguard Total Bond Market Index Fund and cash in the bank. My exact bond allocation has changed with my increasing age, death of one son and my wife (fewer heirs to care for), small inheritance, health and life expectancy.

After safeguarding what I think I will need in TBM, I have simplified my stupid 16 fund stock allocation to one fund -- Vanguard S&P 500 Index. My caregivers and heirs will be be delighted with my portfolio simplicity. :happy

Best wishes.
Taylor
Hi Taylor,

Thank you for all you contribute to this forum and its participants and wish you continuing good health.

May I ask why you chose the S&P 500 Index Fund and not the Total stock Market Index Fund (VTSAX)?

Munir

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Sun Dec 10, 2017 2:37 pm

Munir wrote:
Sun Dec 10, 2017 2:05 pm
Taylor Larimore wrote:
Sun Dec 10, 2017 1:26 pm
Prudence wrote:
Sun Dec 10, 2017 11:49 am
Taylor, over the years, in your three fund portfolio, have you adjusted your stock/bond allocation using some rule of thumb such as age in bonds?
Thanks,
Jim
Jim:

The money I cannot afford to lose is in diversified, reasonably safe, Vanguard Total Bond Market Index Fund and cash in the bank. My exact bond allocation has changed with my increasing age, death of one son and my wife (fewer heirs to care for), small inheritance, health and life expectancy.

After safeguarding what I think I will need in TBM, I have simplified my stupid 16 fund stock allocation to one fund -- Vanguard S&P 500 Index. My caregivers and heirs will be be delighted with my portfolio simplicity. :happy

Best wishes.
Taylor
Hi Taylor,

Thank you for all you contribute to this forum and its participants and wish you continuing good health.

May I ask why you chose the S&P 500 Index Fund and not the Total stock Market Index Fund (VTSAX)?

Munir
Munir:

For tax reasons, many years ago I purchased Vanguard Tax-Managed Growth and Income Fund for our taxable account (I didn't realize that Vanguard Total Stock Market Index Fund is just as tax-efficient). The Tax-Managed fund did well. As a result, I became "locked-in" with large capital-gains. In 2014 the Tax-Managed fund (and my capital-gains) were merged into the 500 Index Fund.

If I could do it over, and know what I know now, I would have started out with the broader diversification of Vanguard Total Stock Market Index Fund in The Three-Fund Portfolio.

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

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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Dec 10, 2017 3:43 pm

Taylor Larimore wrote:
Sun Dec 10, 2017 2:37 pm
Munir wrote:
Sun Dec 10, 2017 2:05 pm
Taylor Larimore wrote:
Sun Dec 10, 2017 1:26 pm
Prudence wrote:
Sun Dec 10, 2017 11:49 am
Taylor, over the years, in your three fund portfolio, have you adjusted your stock/bond allocation using some rule of thumb such as age in bonds?
Thanks,
Jim
Jim:

The money I cannot afford to lose is in diversified, reasonably safe, Vanguard Total Bond Market Index Fund and cash in the bank. My exact bond allocation has changed with my increasing age, death of one son and my wife (fewer heirs to care for), small inheritance, health and life expectancy.

After safeguarding what I think I will need in TBM, I have simplified my stupid 16 fund stock allocation to one fund -- Vanguard S&P 500 Index. My caregivers and heirs will be be delighted with my portfolio simplicity. :happy

Best wishes.
Taylor
Hi Taylor,

Thank you for all you contribute to this forum and its participants and wish you continuing good health.

May I ask why you chose the S&P 500 Index Fund and not the Total stock Market Index Fund (VTSAX)?

Munir
Munir:

For tax reasons, many years ago I purchased Vanguard Tax-Managed Growth and Income Fund for our taxable account (I didn't realize that Vanguard Total Stock Market Index Fund is just as tax-efficient). The Tax-Managed fund did well. As a result, I became "locked-in" with large capital-gains. In 2014 the Tax-Managed fund (and my capital-gains) were merged into the 500 Index Fund.

If I could do it over, and know what I know now, I would have started out with the broader diversification of Vanguard Total Stock Market Index Fund in The Three-Fund Portfolio.

Best wishes.
Taylor
Thank you Taylor!
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by Munir » Sun Dec 10, 2017 4:22 pm

Taylor, thank you for the explanation.

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Re: The Three-Fund Portfolio

Post by Prudence » Mon Dec 11, 2017 8:50 am

Taylor Larimore wrote:
Sun Dec 10, 2017 1:26 pm
Prudence wrote:
Sun Dec 10, 2017 11:49 am
Taylor, over the years, in your three fund portfolio, have you adjusted your stock/bond allocation using some rule of thumb such as age in bonds?
Thanks,
Jim
Jim:

The money I cannot afford to lose is in diversified, reasonably safe, Vanguard Total Bond Market Index Fund and cash in the bank. My exact bond allocation has changed with my increasing age, death of one son and my wife (fewer heirs to care for), small inheritance, health and life expectancy.

After safeguarding what I think I will need in TBM, I have simplified my stupid 16 fund stock allocation to one fund -- Vanguard S&P 500 Index. My caregivers and heirs will be be delighted with my portfolio simplicity. :happy

Best wishes.
Taylor
Morning Taylor,
Your reply was very important to me.
Thank you,
Jim

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Mon Dec 11, 2017 8:51 am

Jim:

Glad I could help.

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

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Re: The Three-Fund Portfolio

Post by KSOC » Mon Dec 11, 2017 9:06 am

abuss368 wrote:
Sun Dec 10, 2017 9:51 am
KSOC wrote:
Sun Dec 10, 2017 7:06 am
My 23 YO daughter started new job. Company offered a nice 403b match of 6% (100%!) thru Fidelity Netbenefits. I was estatic about the match & also that the provider was Fidelity. Since my wife's 403b with Fidelity has well over 100 funds available, predominatley Fidelity I assumed they'd be similar. I offered my daughter my oversight & she accepted. I did my research ahead of time for my daughter. At her age I selected Fidelity TSM & Fidelity Total International. She got her Fidelity package in the mail, called me & sent screen shots of her choices. I was surprised there were only 26 funds. 22 were Vanguard. 1 Fidelity, 1 T. Rowe Price, 1 American Fund & 1 Parnassus. Only 4 were index funds.

We conferred on the phone and ended up with Vanguard S&P 500 Institutional Index Fund (VINIX - 0.035) & & Vanguard Small Cap Admiral Index Fund (VSMAX - 0.06). The small cap fund gives her 44% mid & 56% small. There were no Total Stock Market Funds or Extended available.

She'll start with a 10% contribution. If a good International Index Fund comes along in the future, we'll consider adding it. Bonds much later. I'm happy how she is positioned and what this opportunity could provide for her in 40 years. It's an entry level at her dream job, of which she intends to pursue her Masters while working.

The point of my post was I tried to stay true to low cost funds, Three Fund, long term mindset. You take what they give you. I hoped to utilize what I've learned here on this forum to my daughters advantage. 5 years ago I'd have been much less help.
Hi KSOC -

That is surprising. Honestly, considering her age, beginning of her career, and your continued support, I agree that one could pass on the bonds for a while. While not a "problem" per se, I would consider removing the Small Cap fund and simply invest in the S&P 500 Index. She will understand this approach and it will align with Warren Buffett's advice to his wife: "Just invest in the Vanguard S&P 500."

Best.
Hi abuss368,

Thank you for your reply! Always love feedback. Going 100% S&P was my first thought as well. I thought of Buffett then thought of Bogle's "Own the Market". When I looked at the make-up of Small Cap Fund, I liked her having more of the market. It is very similar to Vanguards Extended Market VEXAX which I always read (BH Wiki) as complimenting the S&P Fund. When I ran it thru portfolio analyzer from 2001 to 2017, the 60/40 allocation (SP/SC) returns looked like a good combo. (I know, Past performance...) She'll add international when a decent index becomes available. Bonds too will come. She has some bonds in a Roth IRA she contributes to that's a Target Date 2055 (VFFVX) that we opened a few years back as we wanted to get her started & it was only $1000 to open.
Too soon old, too late smart.

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Re: The Three-Fund Portfolio

Post by abuss368 » Mon Dec 11, 2017 2:25 pm

KSOC wrote:
Mon Dec 11, 2017 9:06 am
abuss368 wrote:
Sun Dec 10, 2017 9:51 am
KSOC wrote:
Sun Dec 10, 2017 7:06 am
My 23 YO daughter started new job. Company offered a nice 403b match of 6% (100%!) thru Fidelity Netbenefits. I was estatic about the match & also that the provider was Fidelity. Since my wife's 403b with Fidelity has well over 100 funds available, predominatley Fidelity I assumed they'd be similar. I offered my daughter my oversight & she accepted. I did my research ahead of time for my daughter. At her age I selected Fidelity TSM & Fidelity Total International. She got her Fidelity package in the mail, called me & sent screen shots of her choices. I was surprised there were only 26 funds. 22 were Vanguard. 1 Fidelity, 1 T. Rowe Price, 1 American Fund & 1 Parnassus. Only 4 were index funds.

We conferred on the phone and ended up with Vanguard S&P 500 Institutional Index Fund (VINIX - 0.035) & & Vanguard Small Cap Admiral Index Fund (VSMAX - 0.06). The small cap fund gives her 44% mid & 56% small. There were no Total Stock Market Funds or Extended available.

She'll start with a 10% contribution. If a good International Index Fund comes along in the future, we'll consider adding it. Bonds much later. I'm happy how she is positioned and what this opportunity could provide for her in 40 years. It's an entry level at her dream job, of which she intends to pursue her Masters while working.

The point of my post was I tried to stay true to low cost funds, Three Fund, long term mindset. You take what they give you. I hoped to utilize what I've learned here on this forum to my daughters advantage. 5 years ago I'd have been much less help.
Hi KSOC -

That is surprising. Honestly, considering her age, beginning of her career, and your continued support, I agree that one could pass on the bonds for a while. While not a "problem" per se, I would consider removing the Small Cap fund and simply invest in the S&P 500 Index. She will understand this approach and it will align with Warren Buffett's advice to his wife: "Just invest in the Vanguard S&P 500."

Best.
Hi abuss368,

Thank you for your reply! Always love feedback. Going 100% S&P was my first thought as well. I thought of Buffett then thought of Bogle's "Own the Market". When I looked at the make-up of Small Cap Fund, I liked her having more of the market. It is very similar to Vanguards Extended Market VEXAX which I always read (BH Wiki) as complimenting the S&P Fund. When I ran it thru portfolio analyzer from 2001 to 2017, the 60/40 allocation (SP/SC) returns looked like a good combo. (I know, Past performance...) She'll add international when a decent index becomes available. Bonds too will come. She has some bonds in a Roth IRA she contributes to that's a Target Date 2055 (VFFVX) that we opened a few years back as we wanted to get her started & it was only $1000 to open.
Awesome. You are on a great path and journey!
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by OffGridder » Tue Dec 12, 2017 10:46 pm

The money I cannot afford to lose is in diversified, reasonably safe, Vanguard Total Bond Market Index Fund and cash in the bank. My exact bond allocation has changed with my increasing age, death of one son and my wife (fewer heirs to care for), small inheritance, health and life expectancy.

After safeguarding what I think I will need in TBM, I have simplified my stupid 16 fund stock allocation to one fund -- Vanguard S&P 500 Index. My caregivers and heirs will be be delighted with my portfolio simplicity. :happy

Best wishes.
Taylor
Hi Taylor,
Did you ditch your International allocation? It was my understanding 20% of your equities was International.
Thanks,
Dave
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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Wed Dec 13, 2017 10:12 am

Dave:

It is true that until recently I had two taxable funds: 500 Index and Total International. I held both of these fund for many years and both have significant capital-gains. My Total International gains were much less than the 500 Index gains. I needed the money so I sold Total International for it's lower percentage tax bite.

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

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"Building a Vanguard Three-Fund Portfolio.."

Post by Taylor Larimore » Wed Dec 13, 2017 10:44 am

Bogleheads:

I ran across a nice article by The Wall Street Physician. It is about The Three-Fund Portfolio:

Building a Vanguard Three-Fund Portfolio..

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

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Re: The Three-Fund Portfolio

Post by UpperNwGuy » Wed Dec 13, 2017 11:06 am

It's a very clearly written and well-organized article. I was surprised that the author avoids mentioning Investor Shares in the article and instead recommends that the new investor begin with ETFs and then transition to Admiral Shares. I suspect most new investors begin with Investor Shares and then transition to Admiral Shares.

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Another recommendation for The Three-Fund Portfolio

Post by Taylor Larimore » Thu Dec 14, 2017 11:48 am

Bogleheads:

Christine Benz is Director of Personal Finance at Morningstar and a fan of The Three-Fund Portfolio. This is what she wrote in "Retirement Matters Week":
I'm a big fan of mutual funds and exchange-traded funds that provide broad diversification at a very low cost and require very little in the way of ongoing oversight. From that standpoint, it's hard to beat a portfolio that’s anchored in total market index funds: a total U.S. market index fund, a total foreign-stock index fund, and a total bond market fund. Retirees might also consider adding an inflation-protected bond fund, since those bonds don't appear in total bond market index funds.
http://news.morningstar.com/Cover/video ... ?id=840074

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

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Re: "Building a Vanguard Three-Fund Portfolio.."

Post by abuss368 » Thu Dec 14, 2017 3:52 pm

Taylor Larimore wrote:
Wed Dec 13, 2017 10:44 am
Bogleheads:

I ran across a nice article by The Wall Street Physician. It is about The Three-Fund Portfolio:

Building a Vanguard Three-Fund Portfolio..

Best wishes.
Taylor
Hi Taylor -

Thank you for sharing that very well written article about the Three Fund Portfolio. I actually liked all the funds he noted and the overall theme of the article.

:sharebeer
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by CyclingDuo » Fri Dec 15, 2017 5:13 am

UpperNwGuy wrote:
Wed Dec 13, 2017 11:06 am
It's a very clearly written and well-organized article. I was surprised that the author avoids mentioning Investor Shares in the article and instead recommends that the new investor begin with ETFs and then transition to Admiral Shares. I suspect most new investors begin with Investor Shares and then transition to Admiral Shares.
It's because the ETF's have the same ER fee as Admiral mutual fund shares. A new investor can get Admiral share pricing from the get to if they purchase the ETF's as there is no minimum such as if one bought Admiral Shares of the mutual fund.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: The Three-Fund Portfolio

Post by southpaw328 » Fri Dec 15, 2017 6:35 pm

Hey, I am about to move about 40% of my assets from a managed fund to a 3 Fund Portfolio in Vanguard.

first question, should I do it all at once? It's in the low to mid 5-figures amount of money.

second question, should I use the ETF or MF 3 fund portfolio? It appears that the ETF has a bit of lower ER (ex: VTI is 0.04% and VTSMX is 0.15%). Is that the only essential difference and if so, I should just use the ETF, correct?

Thanks for your help.

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Fri Dec 15, 2017 6:52 pm

Southpaw328:

Please ask your personal finance questions on the "Help With Personal Investments" forum where you will get more personal suggestions:

viewforum.php?f=1

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

Post by Captain kangaroo » Sat Dec 16, 2017 1:36 am

Would it be appropriate to use a Municipal Tax-Exempt Bond Fund instead of the Total Bond Fund for a taxable account with 1,000,000+ dollars?

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Re: The Three-Fund Portfolio

Post by saltycaper » Sat Dec 16, 2017 1:52 am

The current expense ratios for the three-fund portfolio at Vanguard are (Admiral Shares or ETF)/(Investor Shares):

Vanguard Total Stock Market Index Fund: 0.04%/0.15%

Vanguard Total International Stock Index: 0.11%/0.18%

Vanguard Total Bond Market Index Fund: 0.05%/0.15%

If you purchased just under $10,000 of each fund and used Investor Shares instead of the ETF, the differences in ER would cost you slightly less than an extra $11 + $7 + $10 = $28 annually in expenses, the most you could possibly pay above the ETF or Admiral Shares ER while holding any allocation to three-fund portfolio that uses only Investor Shares. Presumably, even if you did not buy additional shares, the money would eventually grow so you had more than $10,000, and you would be able to upgrade to Admiral Shares.

I wouldn't really entertain using ETFs for the three-fund portfolio on the basis of ERs, as I don't think the difference in ERs are material for amounts less than $10,000, and once you reach that point, there are no differences in ERs between ETFs and mutual funds for these index funds.
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Re: The Three-Fund Portfolio

Post by bluerafters » Mon Dec 18, 2017 8:21 pm

What's the non admiral option for the VBTLX in 2018? (It's not in the OP.)

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Mon Dec 18, 2017 8:30 pm

bluerafters wrote:
Mon Dec 18, 2017 8:21 pm
What's the non admiral option for the VBTLX in 2018? (It's not in the OP.)
bluerafters:

VBMFX (Total Bond Market Index Fund) is the mutual fund option for VBTLX. It's minimum investment is $3,000. BND is the ETF version with no minimum investment requirement (that I am aware of).

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

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Re: The Three-Fund Portfolio

Post by bluerafters » Tue Dec 19, 2017 10:48 pm

Many thanks T!

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"The Case for Owning The U.S. Market Portfolio"

Post by Taylor Larimore » Tue Dec 26, 2017 11:06 pm

Bogleheads:

Morningstar has published an article explaining why they recommend the Vanguard Total Stock Market Index Fund in The Three-Fund Portfolio.

In the last 20 years:
"Only 11% of 391 funds that were available in the (large-blend) category at the start of the period went on to survive and outperform Vanguard Total Stock Market Index (VTSMX)."
This is the link: The Case For Owning the U.S. Market Portfolio
Jack Bogle, "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." -- "The odds of outpacing an all-market index fund are, well, terrible."
Best wishes.
Taylor
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Re: "The Case for Owning The U.S. Market Portfolio"

Post by BogleMelon » Tue Dec 26, 2017 11:10 pm

Taylor Larimore wrote:
Tue Dec 26, 2017 11:06 pm
Bogleheads:

Morningstar has published an article explaining why they recommend the Vanguard Total Stock Market Index Fund in The Three-Fund Portfolio.

In the last 20 years:
"Only 11% of 391 funds that were available in the (large-blend) category at the start of the period went on to survive and outperform Vanguard Total Stock Market Index (VTSMX)."
This is the link: The Case For Owning the U.S. Market Portfolio
Jack Bogle, "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." -- "The odds of outpacing an all-market index fund are, well, terrible."
Best wishes.
Taylor
Thank you Mr. Larimore. Unfortunately the article is for subscribed users only!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: The Three-Fund Portfolio

Post by boyntonstu » Tue Dec 26, 2017 11:25 pm

I am seeking data on the merits of investing in bonds in addition to US and world stocks.

IOW How much draw down cushion does the bond segment provide?

Assuming 33.33% for the three, how would 2008 looked?

:?:

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Re: "The Case for Owning The U.S. Market Portfolio"

Post by saltycaper » Tue Dec 26, 2017 11:37 pm

BogleMelon wrote:
Tue Dec 26, 2017 11:10 pm

Thank you Mr. Larimore. Unfortunately the article is for subscribed users only!
I'm not a subscriber, but I can read the article, so I think it only requires registration. There is no charge for registering on M*. (There is a charge for subscribing.) They just ask for your email address, name, and perhaps another small detail or two. They hardly ever bug me with promotional emails.
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Re: The Three-Fund Portfolio

Post by boyntonstu » Wed Dec 27, 2017 9:49 am

How to "harvest" the 3 ETF portfolio if cash is needed?

Do you draw down equally, or from the best or worst performer?

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Re: The Three-Fund Portfolio

Post by BogleMelon » Wed Dec 27, 2017 9:57 am

boyntonstu wrote:
Wed Dec 27, 2017 9:49 am
How to "harvest" the 3 ETF portfolio if cash is needed?

Do you draw down equally, or from the best or worst performer?
You withdraw in a way to maintain your asset allocation. If your initial AA is 60-40, you withdraw from both bonds and stocks to keep your remaining invested money 60-40
PS: it is better to not invest the cash you would need soon
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Re: The Three-Fund Portfolio

Post by abuss368 » Wed Dec 27, 2017 9:25 pm

boyntonstu wrote:
Tue Dec 26, 2017 11:25 pm
I am seeking data on the merits of investing in bonds in addition to US and world stocks.

IOW How much draw down cushion does the bond segment provide?

Assuming 33.33% for the three, how would 2008 looked?

:?:
Hi boyntonstu -

I do not quite understand your question. Would it be possible to rephrase?

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by abuss368 » Wed Dec 27, 2017 9:27 pm

boyntonstu wrote:
Wed Dec 27, 2017 9:49 am
How to "harvest" the 3 ETF portfolio if cash is needed?

Do you draw down equally, or from the best or worst performer?
You would draw down from any fund that is over allocated to bring everything back in line to the desired allocation.

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by BogleMelon » Wed Dec 27, 2017 9:30 pm

abuss368 wrote:
Wed Dec 27, 2017 9:25 pm
boyntonstu wrote:
Tue Dec 26, 2017 11:25 pm
I am seeking data on the merits of investing in bonds in addition to US and world stocks.

IOW How much draw down cushion does the bond segment provide?

Assuming 33.33% for the three, how would 2008 looked?

:?:
Hi boyntonstu -

I do not quite understand your question. Would it be possible to rephrase?

Best.
I think he is trying to backtest a portfolio specifically during the 2008 crash with 1/3 US stock, 1/3 Intl Stocks, and 1/3 bonds
OP: Try this: https://www.portfoliovisualizer.com/backtest-portfolio
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Re: The Three-Fund Portfolio

Post by abuss368 » Wed Dec 27, 2017 9:36 pm

BogleMelon wrote:
Wed Dec 27, 2017 9:30 pm
I think he is trying to backtest a portfolio specifically during the 2008 crash with 1/3 US stock, 1/3 Intl Stocks, and 1/3 bonds
OP: Try this: https://www.portfoliovisualizer.com/backtest-portfolio
Thank you. The portfolio back-tester link is really neat. Thank you for sharing.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by boyntonstu » Wed Dec 27, 2017 10:18 pm

BogleMelon wrote:
Wed Dec 27, 2017 9:30 pm
abuss368 wrote:
Wed Dec 27, 2017 9:25 pm
boyntonstu wrote:
Tue Dec 26, 2017 11:25 pm
I am seeking data on the merits of investing in bonds in addition to US and world stocks.

IOW How much draw down cushion does the bond segment provide?

Assuming 33.33% for the three, how would 2008 looked?


I think he is trying to backtest a portfolio specifically during the 2008 crash with 1/3 US stock, 1/3 Intl Stocks, and 1/3 bonds
OP: Try this: https://www.portfoliovisualizer.com/backtest-portfolio
Yes!! Many thanks!

Not too impressive:

VTSMX Vanguard Total Stock Mkt Idx Inv 33.30%
VGTSX Vanguard Total Intl Stock Index Inv 33.30%
VBTLX Vanguard Total Bond Market Index Adm 33.40%

Initial Bal Final Bal CAGR Stdev Best Yr Worst Yr Max. Draw Sharpe Ratio Sortino Ratio US Mkt Corron
1 $10,000 $21,255 6.53% 10.44% 23.80% -25.30% -37.33% 0.56 0.82 0.95

More impressive holding Con ED stock:

2 $10,000 $47,230 10.25% 14.63% 30.82% -15.76% -21.78% 0.66 1.04 0.16

I found http://www.paceretfs.com/ where they choose high cash flow stocks for their ETF's. Too new to backtest, but very interesting.
Last edited by boyntonstu on Thu Dec 28, 2017 6:25 am, edited 1 time in total.

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Re: The Three-Fund Portfolio in a Bear Market

Post by Taylor Larimore » Wed Dec 27, 2017 10:34 pm

boyntonstu wrote:
Tue Dec 26, 2017 11:25 pm
I am seeking data on the merits of investing in bonds in addition to US and world stocks.

IOW How much draw down cushion does the bond segment provide?

Assuming 33.33% for the three, how would 2008 looked?

:?:
boyntonstu:

Barry Barnitz, on his Financial Page, provided data on how The Three-Fund Portfolio performed during the 2008 bear market. Total International is assumed to be 30% of total stocks:

-31.35% 80% stocks/20% bonds
-23.55% 60% stocks/40% bonds
-15.75% 40% stocks/60% bonds
-7.04% 20% stocks/80% bonds

The Three-Fund Portfolio For Taxable Accounts

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

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