The Three-Fund Portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
ionball
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Re: The Three-Fund Portfolio

Post by ionball » Sat Sep 29, 2018 8:37 am

kayanco wrote:
Sat Sep 29, 2018 8:17 am
If you have i-bonds, should that be counted as part of the bond fund in 3-bond portfolio (for asset allocation)?
Yes.

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Taylor Larimore
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I-Bonds?

Post by Taylor Larimore » Sat Sep 29, 2018 12:17 pm

kayanco wrote:
Sat Sep 29, 2018 8:17 am
If you have i-bonds, should that be counted as part of the bond fund in the 3-fund portfolio (for asset allocation)?
kayanco:

Answer: "Yes." Any safe, liquid, fixed-income investment can be counted as part of your bond allocation. I prefer total bond market index fund because, not only is it safe (worst annual loss was -2.33%) and liquid, but also because of its great diversification (the only "free lunch").

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 » Sat Sep 29, 2018 12:40 pm

ionball wrote:
Sat Sep 29, 2018 8:37 am
kayanco wrote:
Sat Sep 29, 2018 8:17 am
If you have i-bonds, should that be counted as part of the bond fund in 3-bond portfolio (for asset allocation)?
Yes.
Yes, it should be included in the bond allocation. Perhaps you can eventually sell and hold only Vanguard Total Bond Index.

Strive for simplicity!
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

datadatum
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Re: The Three-Fund Portfolio

Post by datadatum » Sat Sep 29, 2018 7:46 pm

Taylor - just posting here for the first time, but I read all the threads and the books a few years ago. I don't always follow all the advice, but I do use it as a measuring stick against my personal strategies.

A few years ago I was researching investment advisers... they surely must know more than me, right? This web site, espousing Jack Bogle's strategies, turned me 180 degrees.

Thank you for communicating with such transparency and in such an accessible way. I think you have done a remarkable job setting a culture here that shares knowledge, empowers investors, and engenders self confidence.

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Taylor Larimore
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"Investing advice inspired by Jack Bogle"

Post by Taylor Larimore » Sat Sep 29, 2018 9:19 pm

datadatum wrote:
Sat Sep 29, 2018 7:46 pm
Taylor - just posting here for the first time, but I read all the threads and the books a few years ago. I don't always follow all the advice, but I do use it as a measuring stick against my personal strategies.

A few years ago I was researching investment advisers... they surely must know more than me, right? This web site, espousing Jack Bogle's strategies, turned me 180 degrees.

Thank you for communicating with such transparency and in such an accessible way. I think you have done a remarkable job setting a culture here that shares knowledge, empowers investors, and engenders self confidence.
datadatum:

Welcome to the Bogleheads forum! I appreciate your kind words.

When we get off-track by investors trying to "beat the market," I remind Bogleheads about our purpose stated in this forum's headline: "Investing Advice Inspired by Jack Bogle"

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

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Re: I-Bonds?

Post by kayanco » Sun Sep 30, 2018 3:56 pm

Taylor Larimore wrote:
Sat Sep 29, 2018 12:17 pm
kayanco wrote:
Sat Sep 29, 2018 8:17 am
If you have i-bonds, should that be counted as part of the bond fund in the 3-fund portfolio (for asset allocation)?
kayanco:

Answer: "Yes." Any safe, liquid, fixed-income investment can be counted as part of your bond allocation. I prefer total bond market index fund because, not only is it safe (worst annual loss was -2.33%) and liquid, but also because of its great diversification (the only "free lunch").

Best wishes.
Taylor
abuss368 wrote:
Sat Sep 29, 2018 12:40 pm
ionball wrote:
Sat Sep 29, 2018 8:37 am
kayanco wrote:
Sat Sep 29, 2018 8:17 am
If you have i-bonds, should that be counted as part of the bond fund in 3-bond portfolio (for asset allocation)?
Yes.
Yes, it should be included in the bond allocation. Perhaps you can eventually sell and hold only Vanguard Total Bond Index.

Strive for simplicity!

Thank you for answering and clarifying.

hionbusa
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Re: The Three-Fund Portfolio

Post by hionbusa » Thu Oct 04, 2018 12:05 am

Hello everyone,

I’m new to the forum and ecstatic came across such community.
Considering the current abnormal state of the markets (Bonds, rates, equities, EM) at what rate or velocity should one invest let say $100k into a 3 fund type of portofolio?

Set it and forget or take more of linear or exponential approach.


Taxable: I’m in 2 year notes and tax free money market
Retirement: Somewhat of an organized chaos of etfs & stocks
Thanks,

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Re: The Three-Fund Portfolio

Post by ruralavalon » Thu Oct 04, 2018 8:46 am

Welcome to the forum :)

hionbusa wrote:
Thu Oct 04, 2018 12:05 am
Hello everyone,

I’m new to the forum and ecstatic came across such community.
Considering the current abnormal state of the markets (Bonds, rates, equities, EM) at what rate or velocity should one invest let say $100k into a 3 fund type of portofolio?

Set it and forget or take more of linear or exponential approach.


Taxable: I’m in 2 year notes and tax free money market
Retirement: Somewhat of an organized chaos of etfs & stocks
Thanks,
The market is always in a state.

I lean toward investing it all at once and be done with it, set it and forget it.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Thu Oct 04, 2018 9:17 am

hionbusa:

Welcome to the forum!

I agree with ruralavalon:
The market is always in a state.

I lean toward investing it all at once and be done with it, set it and forget it.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

UpperNwGuy
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Re: The Three-Fund Portfolio

Post by UpperNwGuy » Thu Oct 04, 2018 9:34 am

ruralavalon wrote:
Thu Oct 04, 2018 8:46 am
Welcome to the forum :)

hionbusa wrote:
Thu Oct 04, 2018 12:05 am
Hello everyone,

I’m new to the forum and ecstatic came across such community.
Considering the current abnormal state of the markets (Bonds, rates, equities, EM) at what rate or velocity should one invest let say $100k into a 3 fund type of portofolio?

Set it and forget or take more of linear or exponential approach.


Taxable: I’m in 2 year notes and tax free money market
Retirement: Somewhat of an organized chaos of etfs & stocks
Thanks,
The market is always in a state.

I lean toward investing it all at once and be done with it, set it and forget it.
I agree.

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Re: The Three-Fund Portfolio

Post by LadyGeek » Wed Oct 10, 2018 2:45 pm

New member Sinsji has a question which I've moved into a stand-alone thread. See: [The Three-Fund Portfolio - Netherlands]
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Re: The Three-Fund Portfolio

Post by LadyGeek » Sat Oct 13, 2018 10:37 am

m@ver1ck has a question which I've moved into an earlier thread. See: Re: Financial situation/Health checkup - Stocks vs. Real Estate?
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Donut_man
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Re: The Three-Fund Portfolio

Post by Donut_man » Sun Oct 14, 2018 3:00 am

After much reading, I have strong conviction of the three-fund portfolio (I wish i could have read earlier :oops: )

Right now, apart from holding the 3 etfs, I am also holding on to individual shares(sitting on paper loss of about 10%).. Should I sell all the shares now or should I just leave it and continue to build my etfs ?

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Re: The Three-Fund Portfolio

Post by LadyGeek » Sun Oct 14, 2018 9:00 am

Welcome! May I suggest you ask that question in your first thread? Investing in ETF (different currencies) (Taxation is an important consideration. Please state your home country in that thread, as I see you are investing on the London Stock Exchange.)
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Re: The Three-Fund Portfolio

Post by AMJoshua » Sun Oct 14, 2018 9:12 am

I'm new to the Boglehead forum but I've been with Vanguard since an employer plan switched back around 2000. In 2002 I read "The Millionaire Next Door" by Stanley & Danko as well as "The Armchair Millionaire" by Schiff & Gerlach. "The Millionaire Next Door" made me realize the importance of investing for my future and "The Armchair Millionaire" made me realize that even a regular guy like myself could successfully invest for my future.
From 2002 to 2017 I followed the Armchair strategy which called for 33% in US Small Cap Index funds, 33% in International Index Funds and 34% in Large Cap Index funds. This strategy has done quite well for me. I plan on being able to retire on January 1st, 2025 (the year I turn 55) if all goes as planed.
At the end of last year, since I was 7 years away from when I would like to retire, I modified the Armchair Millionaire strategy to include bonds. Now I am at 25% Large-Cap US Index funds, 25% Small-Cap US Index funds, 25% International Index Funds and 25% Bond Index funds.
Unfortunately, my current 401(k) uses John Hancock Investments rather than Vanguard so my fees are higher than I'd like but the company contributes up to an additional 12% of my salary in the form of profit sharing into the John Hancock accounts so I'll take what I can get for now.
And I firmly believe in the 'set & forget' mentality of retirement plans other than a bi-annual re-balancing when necessary to keep the ratios correct.

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Re: The Three-Fund Portfolio

Post by LadyGeek » Sun Oct 14, 2018 9:55 am

Welcome! AMJoshua has a question which is posted here: [How much should I contribute to my 401k?]
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Re: The Three-Fund Portfolio

Post by KJVanguard » Sun Oct 14, 2018 12:02 pm

Taylor Larimore wrote:
Sun Jan 01, 2012 6:02 pm
* Less worry. Never under-performs the market.
True, a #1 concern for professional money managers who get fired for underperforming the market by too much (substantially all of them underperform the "market" -- typically defined as the S&P 500 -- by expenses & hidden costs, but you don't get fired for lagging by 1% every single year forever).

As an individual investor I don't have to care. I get to overweight international & EM (including VSS & DGS) as I couldn't care less what the S&P 500 does, and I certainly don't give myself an annual performance review where my job is on the line if I underperform this arbitrary benchmark.

I would agree the Three Fund Portfolio is simplicity at its best and indeed optimal for most (not all) investors. Some of us still want to make bets on things like EM, small & value, bets that we may win or lose, but we keep our "job" as manager no matter how things turn out.
Taylor Larimore wrote:
Sun Jan 01, 2012 6:02 pm
* More free time.
For me & you and most reading this, investing is a hobby we actually enjoy, so it doesn't matter if investing takes time away from golf which I don't care for anyhow.

I do have some problem with "mindlessly" following the markets though. How has TSM done if measured from its March 2000 peak? How has a Japan Fund done if measured from December of 1989? Just buying the market can mean buying a bubble, something you might not do if you gave it some thought. Keep in mind that in June 1990 Vanguard started their international index funds (European & Pacific). Their board of directors saw Japan was a bubble, so instead of giving investors an EAFE fund they broke the EAFE into Pacific & Europe, so that investors could intentionally avoid too much Japan rather than "never under-performing the EAFE market."

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Re: I-Bonds?

Post by KJVanguard » Sun Oct 14, 2018 12:08 pm

Taylor Larimore wrote:
Sat Sep 29, 2018 12:17 pm
I prefer total bond market index fund because, not only is it safe (worst annual loss was -2.33%) and liquid, but also because of its great diversification (the only "free lunch").
I prefer ST Investment Grade Admiral because not only is it "safe" and liquid, but also because of its great diversification. "Safe" means low interest rate risk and roughly a third of assets in government or AAA-rated bonds.

I personally would not want to own all the treasuries contained in TBM, especially the 20 & 30 year T-bonds that IMO it makes no sense at all for an individual investor to own. Such bonds make sense if you are an insurance company with liabilities decades out to match them too, but I don't need nor want a bond that matures when I reach age 75 (assuming I live that long, which I may or may not).

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Vanguard Short-Term Investment Grade or Total Bond Market?

Post by Taylor Larimore » Sun Oct 14, 2018 3:33 pm

KJVanguard wrote:
Sun Oct 14, 2018 12:08 pm
Taylor Larimore wrote:
Sat Sep 29, 2018 12:17 pm
I prefer total bond market index fund because, not only is it safe (worst annual loss was -2.33%) and liquid, but also because of its great diversification (the only "free lunch").
I prefer ST Investment Grade Admiral because not only is it "safe" and liquid, but also because of its great diversification. "Safe" means low interest rate risk and roughly a third of assets in government or AAA-rated bonds.

I personally would not want to own all the treasuries contained in TBM, especially the 20 & 30 year T-bonds that IMO it makes no sense at all for an individual investor to own. Such bonds make sense if you are an insurance company with liabilities decades out to match them too, but I don't need nor want a bond that matures when I reach age 75 (assuming I live that long, which I may or may not).
KJVanguard:

Study these figures and you may want to reconsider:

2008 Stock Bear Market (Bonds are for safety)

-4.65% Vanguard Short-Term Investment-Grade Admiral (VFSUX)
+5.05% Vanguard Total Bond Market Index Fund Admiral (VBTLX)
9.7% difference

15-year annualized return

+3.66% Vanguard Short-Term Investment-Grade Admiral (VFSUX)
+5.06% Vanguard Total Bond Market Index Fund Admiral(VBTLX)

Diversification
1,806 Bonds in Vanguard Short-Term Investment-Grade Admiral (VFSUX)
8,523 Bonds in Vanguard Total Bond Market Index Fund Admiral (VBTLX)

Source: Vanguard and Morningstar

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

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Re: Vanguard Short-Term Investment Grade or Total Bond Market?

Post by KJVanguard » Sun Oct 14, 2018 5:47 pm

Taylor Larimore wrote:
Sun Oct 14, 2018 3:33 pm
Study these figures and you may want to reconsider:

2008 Stock Bear Market (Bonds are for safety)

-4.65% Vanguard Short-Term Investment-Grade Admiral (VFSUX)
+5.05% Vanguard Total Bond Market Index Fund Admiral (VBTLX)
9.7% difference
Yes, I remember that year well. Anything that wasn't a Treasury (or GNMA, so backed by the Treasury) traded like junk on the verge of default. I owned ST Investment Grade that year and I believe I tax loss harvested. It bounced back rather quickly, seeing how the world did not end and I don't believe any bonds in the fund actually defaulted.
Taylor Larimore wrote:
Sun Oct 14, 2018 3:33 pm
15-year annualized return

+3.66% Vanguard Short-Term Investment-Grade Admiral (VFSUX)
+5.06% Vanguard Total Bond Market Index Fund Admiral(VBTLX)
Interest rates have fallen quite a bit since 2003. A long-term bond fund would have beaten both of them. What does your crystal ball say about interest rates over the next 15 years?

We both know current yield is the best predictor of future bond fund returns. We both know VBTLX isn't yielding over 5% today. To be exact, Total Bond is yielding 3.32%. ST Investment-Grade is yielding 3.33%.
Taylor Larimore wrote:
Sun Oct 14, 2018 3:33 pm
Diversification
1,806 Bonds in Vanguard Short-Term Investment-Grade Admiral (VFSUX)
8,523 Bonds in Vanguard Total Bond Market Index Fund Admiral (VBTLX)
If 1,800 isn't enough to diversify away all the risk that can be diversified away, then more bonds aren't going to help. One GNMA has the same default risk as every GNMA. One Treasury has the same risk as owning every Treasury.

You can own 10,000 stocks in over 40 nations too with just two funds as well. And that diversified stock portfolio still dropped about 50% in both 2000 & 2008 just like funds that owned a mere hundred stocks.

Best Wishes,
Karl

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Fixed income securities

Post by Taylor Larimore » Mon Oct 15, 2018 11:00 am

KJVanguard:

There is more than one road to Dublin (especially in fixed-income securities).

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

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Re: Fixed income securities

Post by KJVanguard » Mon Oct 15, 2018 3:20 pm

Taylor Larimore wrote:
Mon Oct 15, 2018 11:00 am
KJVanguard:

There is more than one road to Dublin (especially in fixed-income securities).

Best wishes.
Taylor
I would like to clarify that I don't wish to insult Total Bond Market. It is surely far better than 99% of bond funds offered by the many other firms out there. I just don't think it's better than all the other bond funds offered by Vanguard. I'm sure you'd agree that Vanguard offers a wide array of excellent bond funds. They all have VERY low expenses, which is the key to a great bond fund.

I've owned a variety of Vanguard bond funds over the last 24 years, though for some time ST Investment-Grade Admiral has been my one & only fixed income holding. I take the view that I take enough risk in my stock funds that my bond fund money should be safe. Admittedly, a Treasury fund would be even safer, though Investment-Grade is "safe enough" for my personal standards.

If interest rates rose high enough I would consider moving to an intermediate-term fund. I have never owned a long-term fund, and don't imagine I ever will.

Karl

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Taylor Larimore
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Vanguard Total Bond Market Index Fund

Post by Taylor Larimore » Fri Oct 19, 2018 4:13 pm

I would like to clarify that I don't wish to insult Total Bond Market. It is surely far better than 99% of bond funds offered by the many other firms out there. I just don't think it's better than all the other bond funds offered by Vanguard.
KJVanguard:

Total Bond Market may not be the best for every investor, but TBM offers one big advantage--it is more diversified -- the only "free lunch" in investing. In its long history, TBMs worst annual decline was -2.7%

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

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"VTSAX Review: Vanguard Total Stock Market Index Fund"

Post by Taylor Larimore » Mon Oct 22, 2018 1:29 pm

Bogleheads:

The Wall Street Physician has written an excellent article about the Vanguard Total Stock Market Index Fund. This is one of the funds that I that selected for The Three-Fund Portfolio. This is the author's "Conclusion.":
Vanguard Total Stock Market Index Fund (VTSAX) is the largest mutual fund in the world, and for good reason. It is one of the most well-run index funds in the world and has provided millions of investors with simple, low-cost diversification to the entire U.S. stock market. Vanguard investors should use it as the centerpiece of their portfolios. There are excellent alternatives for investors at other brokerages such as Fidelity and Schwab, but I fully expect VTSAX to remain the largest mutual fund in the world for years to come.
VTSAX Review: Vanguard Total Stock Market Index Fund

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

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Re: The Three-Fund Portfolio

Post by cryptormorf » Thu Oct 25, 2018 11:56 am

For the fixed income allocation portion, what is the case for Total Bond Market (BND) vs 20+ Yr Treasury bonds (TLT)? I understand the fallacies and risks of back-testing, but tests of 3-fund or even 2-fund portfolios with TLT vs BND over various time periods show a 1.5+ CAGR advantage for TLT with equivalent or lower max draw-downs. I'm not looking at anything more complicated than simply substituting TLT for BND.

Thank you!

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Thu Oct 25, 2018 2:56 pm

cryptormorf wrote:
Thu Oct 25, 2018 11:56 am
For the fixed income allocation portion, what is the case for Total Bond Market (BND) vs 20+ Yr Treasury bonds (TLT)? I understand the fallacies and risks of back-testing, but tests of 3-fund or even 2-fund portfolios with TLT vs BND over various time periods show a 1.5+ CAGR advantage for TLT with equivalent or lower max draw-downs. I'm not looking at anything more complicated than simply substituting TLT for BND.

Thank you!
cryptormorf:

Bonds are for safety. Stocks are best for higher return.

During the past 10 years BND's worst annual decline was -2.1%. TLTs worst 10-year annual decline was -21.8%.

Stay with BND and increase your stock allocation if you want more expected return AND expected risk.

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

Leesbro63
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Re: The Three-Fund Portfolio

Post by Leesbro63 » Fri Oct 26, 2018 8:39 am

Taylor Larimore wrote:
Thu Oct 25, 2018 2:56 pm
cryptormorf wrote:
Thu Oct 25, 2018 11:56 am
For the fixed income allocation portion, what is the case for Total Bond Market (BND) vs 20+ Yr Treasury bonds (TLT)? I understand the fallacies and risks of back-testing, but tests of 3-fund or even 2-fund portfolios with TLT vs BND over various time periods show a 1.5+ CAGR advantage for TLT with equivalent or lower max draw-downs. I'm not looking at anything more complicated than simply substituting TLT for BND.

Thank you!
cryptormorf:

Bonds are for safety. Stocks are best for higher return.

During the past 10 years BND's worst annual decline was -2.1%. TLTs worst 10-year annual decline was -21.8%.

Stay with BND and increase your stock allocation if you want more expected return AND expected risk.

Best wishes.
Taylor
This post made me wonder about 1973-4-5. I know that BND did not exist then. But I'm wondering how an overall stock/bond (say 60/40 or even 50/50) portfolio did then. I'm not sure that a mere 10 year period says much about the safety of BND.

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Safety of Total Bond Market?

Post by Taylor Larimore » Fri Oct 26, 2018 9:11 am

Leesbro63 wrote: I'm not sure that a mere 10 year period says much about the safety of BND.
Leesbro63:

Since the inception of Vanguard Total Bond Market Index Fund in 1986 (32 years ago), the fund's worst annual return was -2.77%. In 1986 (it gained +16% in 1987).

In the 2008 Bear Market for stocks, TBM gained +5%.

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 » Fri Oct 26, 2018 9:31 am

Leesbro63 wrote:
Fri Oct 26, 2018 8:39 am
Taylor Larimore wrote:
Thu Oct 25, 2018 2:56 pm
cryptormorf wrote:
Thu Oct 25, 2018 11:56 am
For the fixed income allocation portion, what is the case for Total Bond Market (BND) vs 20+ Yr Treasury bonds (TLT)? I understand the fallacies and risks of back-testing, but tests of 3-fund or even 2-fund portfolios with TLT vs BND over various time periods show a 1.5+ CAGR advantage for TLT with equivalent or lower max draw-downs. I'm not looking at anything more complicated than simply substituting TLT for BND.

Thank you!
cryptormorf:

Bonds are for safety. Stocks are best for higher return.

During the past 10 years BND's worst annual decline was -2.1%. TLTs worst 10-year annual decline was -21.8%.

Stay with BND and increase your stock allocation if you want more expected return AND expected risk.

Best wishes.
Taylor
This post made me wonder about 1973-4-5. I know that BND did not exist then. But I'm wondering how an overall stock/bond (say 60/40 or even 50/50) portfolio did then. I'm not sure that a mere 10 year period says much about the safety of BND.
A good question and by extension I am curious how TIPS would have performed during that time. In my opinion the Three Fund Portfolio works in all markets.
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

longinvest
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Re: The Three-Fund Portfolio

Post by longinvest » Fri Oct 26, 2018 10:43 am

Leesbro63 wrote:
Fri Oct 26, 2018 8:39 am
This post made me wonder about 1973-4-5. I know that BND did not exist then. But I'm wondering how an overall stock/bond (say 60/40 or even 50/50) portfolio did then. I'm not sure that a mere 10 year period says much about the safety of BND.
We can compare how BND-like bonds did, relative to stocks and inflation, during this period.
longinvest wrote:
Fri Aug 26, 2016 8:46 am
Just for reference, here's a total-return chart I made, on another thread, to show the comparative growth of an intermediate-duration ladder-like bond fund and the S&P 500 in the worst high-inflation part of the 1970s to mid-1980s:

viewtopic.php?f=10&t=198104#p3027801
Image

By looking at a nominal chart, we can clearly see that all along, the bond fund had positive annual total returns. The S&P 500 (with dividends reinvested), on the other hand, did as it always does, it fluctuated. In 1973-1975, it had a big down fluctuation, losing 30% while inflation was going up 20%, for example.

We're almost never shown such charts. Usually, the nominal fund returns are combined with the impact of inflation and we're shown inflation-adjusted charts, leading to the impression that bonds are volatile. This impression is compounded, of course, when long-term bonds (which are volatile) are used to represent bond returns.

People invested in intermediate bonds, during the above period, just saw an increasing portfolio balance on their annual statements, unlike stock investors who didn't fare much better, in the end, over that period.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

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Re: The Three-Fund Portfolio

Post by Leesbro63 » Fri Oct 26, 2018 10:50 am

longinvest wrote:
Fri Oct 26, 2018 10:43 am
Leesbro63 wrote:
Fri Oct 26, 2018 8:39 am
This post made me wonder about 1973-4-5. I know that BND did not exist then. But I'm wondering how an overall stock/bond (say 60/40 or even 50/50) portfolio did then. I'm not sure that a mere 10 year period says much about the safety of BND.
We can compare how BND-like bonds did, relative to stocks and inflation, during this period.
longinvest wrote:
Fri Aug 26, 2016 8:46 am
Just for reference, here's a total-return chart I made, on another thread, to show the comparative growth of an intermediate-duration ladder-like bond fund and the S&P 500 in the worst high-inflation part of the 1970s to mid-1980s:

viewtopic.php?f=10&t=198104#p3027801
Image

By looking at a nominal chart, we can clearly see that all along, the bond fund had positive annual total returns. The S&P 500 (with dividends reinvested), on the other hand, did as it always does, it fluctuated. In 1973-1975, it had a big down fluctuation, losing 30% while inflation was going up 20%, for example.

We're almost never shown such charts. Usually, the nominal fund returns are combined with the impact of inflation and we're shown inflation-adjusted charts, leading to the impression that bonds are volatile. This impression is compounded, of course, when long-term bonds (which are volatile) are used to represent bond returns.

People invested in intermediate bonds, during the above period, just saw an increasing portfolio balance on their annual statements, unlike stock investors who didn't fare much better, in the end, over that period.
I think this supports my point that by 1981-2, inflation had pretty much clobbered a "traditional" 60/40 portfolio, and bonds didn't help much.

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Re: The Three-Fund Portfolio

Post by longinvest » Fri Oct 26, 2018 11:00 am

Leesbro63 wrote:
Fri Oct 26, 2018 10:50 am
longinvest wrote:
Fri Oct 26, 2018 10:43 am
Leesbro63 wrote:
Fri Oct 26, 2018 8:39 am
This post made me wonder about 1973-4-5. I know that BND did not exist then. But I'm wondering how an overall stock/bond (say 60/40 or even 50/50) portfolio did then. I'm not sure that a mere 10 year period says much about the safety of BND.
We can compare how BND-like bonds did, relative to stocks and inflation, during this period.
longinvest wrote:
Fri Aug 26, 2016 8:46 am
Just for reference, here's a total-return chart I made, on another thread, to show the comparative growth of an intermediate-duration ladder-like bond fund and the S&P 500 in the worst high-inflation part of the 1970s to mid-1980s:

viewtopic.php?f=10&t=198104#p3027801
Image

By looking at a nominal chart, we can clearly see that all along, the bond fund had positive annual total returns. The S&P 500 (with dividends reinvested), on the other hand, did as it always does, it fluctuated. In 1973-1975, it had a big down fluctuation, losing 30% while inflation was going up 20%, for example.

We're almost never shown such charts. Usually, the nominal fund returns are combined with the impact of inflation and we're shown inflation-adjusted charts, leading to the impression that bonds are volatile. This impression is compounded, of course, when long-term bonds (which are volatile) are used to represent bond returns.

People invested in intermediate bonds, during the above period, just saw an increasing portfolio balance on their annual statements, unlike stock investors who didn't fare much better, in the end, over that period.
I think this supports my point that by 1981-2, inflation had pretty much clobbered a "traditional" 60/40 portfolio, and bonds didn't help much.
Let's just say that Series I Savings Bonds (I Bonds) would have been terrific investments at the time, had they existed.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

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Re: The Three-Fund Portfolio

Post by jwblue » Fri Oct 26, 2018 6:59 pm

101 Question.

I read this.

https://www.bogleheads.org/wiki/Three-fund_portfolio

Nowhere does it mention what percentage of total :moneybag should be allocated to this portfolio. It only gives a breakdown within the portfolio.

What percentage of my total :moneybag should go towards this portfolio?

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Re: The Three-Fund Portfolio

Post by abuss368 » Fri Oct 26, 2018 7:26 pm

jwblue wrote:
Fri Oct 26, 2018 6:59 pm
101 Question.

I read this.

https://www.bogleheads.org/wiki/Three-fund_portfolio

Nowhere does it mention what percentage of total :moneybag should be allocated to this portfolio. It only gives a breakdown within the portfolio.

What percentage of my total :moneybag should go towards this portfolio?
Hi jwblue -

If I understand your question correctly, one would not allocate a percentage of their investment portfolio to the Three Fund Portfolio, but rather they would allocate their entire investment portfolio among the three funds based on their goals, timeframe, and risk tolerance.

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

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Post by jwblue » Fri Oct 26, 2018 7:41 pm

abuss368 wrote:
Fri Oct 26, 2018 7:26 pm

Hi jwblue -

If I understand your question correctly, one would not allocate a percentage of their investment portfolio to the Three Fund Portfolio, but rather they would allocate their entire investment portfolio among the three funds based on their goals, timeframe, and risk tolerance.

Keep investing simple.
From the webpage above.
It is assumed that cash is not counted within the investment portfolio, so it is not included
Why are things so simple to others but so difficult for me? :confused

Am I not understanding something?

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Fri Oct 26, 2018 8:53 pm

jwblue:

If you will go back to the Opening Post you will read this:
Asset Allocation: Use this Investor Questionnaire to help you decide your very important stock/bond allocation. I suggest International stocks = 20% of equity.
I hope this solves your problem. If not, please post your question(s) on the "Investing - Help with Personal Investments" forum.

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

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Re:

Post by 2015 » Fri Oct 26, 2018 11:51 pm

deleted
Last edited by 2015 on Sat Oct 27, 2018 12:01 am, edited 1 time in total.

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Re: The Three-Fund Portfolio

Post by 2015 » Sat Oct 27, 2018 12:00 am

KJVanguard wrote:
Sun Oct 14, 2018 12:02 pm
Taylor Larimore wrote:
Sun Jan 01, 2012 6:02 pm
Taylor Larimore wrote:
Sun Jan 01, 2012 6:02 pm
* More free time.
For me & you and most reading this, investing is a hobby we actually enjoy, so it doesn't matter if investing takes time away from golf which I don't care for anyhow.
...
Investing a hobby? Really? There is a sinkhole in anyone's future who regards investing as "fun", "interesting", or a "hobby". It's just a matter of time.

Time would be much better spent taking up golf, badminton, or croquet, or at least learning the solid history of failures on the part of those who regarded themselves as the smartest in the room.
Last edited by 2015 on Sat Oct 27, 2018 11:40 pm, edited 1 time in total.

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Re:

Post by abuss368 » Sat Oct 27, 2018 9:50 am

jwblue wrote:
Fri Oct 26, 2018 7:41 pm

Why are things so simple to others but so difficult for me? :confused

Am I not understanding something?
It is probably new to you as you continue on your journey. I would recommend a good book(s). A few of my favorites that really taught me a lot are:

* John Bogle "The Little Book of Common Sense Investing"
* John Brennan "Straight Talk on Investing"
* Taylor Larimore "The Bogleheads Guide to the Three Fund Portfolio"
* The Bogleheads Guide to Investing
* The Bogleheads Guide to Retirement Planning

And notably don't forget the forum! We are here to provide support and assist with any questions or concerns you may have.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Re:

Post by 2015 » Sat Oct 27, 2018 11:37 pm

abuss368 wrote:
Sat Oct 27, 2018 9:50 am
jwblue wrote:
Fri Oct 26, 2018 7:41 pm

Why are things so simple to others but so difficult for me? :confused

Am I not understanding something?
It is probably new to you as you continue on your journey. I would recommend a good book(s). A few of my favorites that really taught me a lot are:

* John Bogle "The Little Book of Common Sense Investing"
* John Brennan "Straight Talk on Investing"
* Taylor Larimore "The Bogleheads Guide to the Three Fund Portfolio"
* The Bogleheads Guide to Investing
* The Bogleheads Guide to Retirement Planning

And notably don't forget the forum! We are here to provide support and assist with any questions or concerns you may have.
This.
abuss368 provides excellent advice (as always). Read the books and things will become much clearer.

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Re: The Three-Fund Portfolio

Post by Mako52 » Wed Oct 31, 2018 10:44 am

For those who want more Mid and Small cap exposure than S&P (IVV, VOO, etc), are there any particularly strong candidates at Schwab, Vanguard, or Fidelity? Other than VO, VB, SCHA, IJR, etc.

On the equity side I want 60-70% (at most) in Large Cap/S&P and the balance evenly split between Mid and Small caps (US only).

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Wed Oct 31, 2018 2:15 pm

Mako52 wrote:
Wed Oct 31, 2018 10:44 am
For those who want more Mid and Small cap exposure than S&P (IVV, VOO, etc), are there any particularly strong candidates at Schwab, Vanguard, or Fidelity? Other than VO, VB, SCHA, IJR, etc.

On the equity side I want 60-70% (at most) in Large Cap/S&P and the balance evenly split between Mid and Small caps (US only).
Mako52:

The primary benefit of The Three-Fund Portfolio is its simplicity (see link below). If you think you can "beat the market" by adding additional securities, please post on another topic. It will also be helpful, and you will get more replies, if you add the name of the funds/ETFs because few of us have memorized the ticker symbols.

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 LadyGeek » Wed Nov 07, 2018 4:34 pm

Freshdo has a question which I've moved into another thread. See: Saving for something 20 years from now
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Re: The Three-Fund Portfolio

Post by Mndiver » Wed Nov 07, 2018 7:54 pm

I’m a strong proponent of the 3 bond fund and currently have my 403b mostly invested this way. I am currently in FXNAX for bonds, FSKAX for total market and FTIEX for total international. I do have a smaller percentage in a medical and technology index fund. My main question is about FTIEX. I’m not sure this is the right fund for International and wanted to see if there are better options with lower expenses and better returns. I currently have about $26,000 in FTIEX and hate to see a fund losing 8.84% in the past year of a bull market. All funds are with Fidelity and need to remain there.

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Wed Nov 07, 2018 9:36 pm

Mndiver wrote:
Wed Nov 07, 2018 7:54 pm
I’m a strong proponent of the 3 bond fund and currently have my 403b mostly invested this way. I am currently in FXNAX for bonds, FSKAX for total market and FTIEX for total international. I do have a smaller percentage in a medical and technology index fund. My main question is about FTIEX. I’m not sure this is the right fund for International and wanted to see if there are better options with lower expenses and better returns. I currently have about $26,000 in FTIEX and hate to see a fund losing 8.84% in the past year of a bull market. All funds are with Fidelity and need to remain there.
Mndiver:

According to Morningstar, your international managed fund (FTIEX) has a 10-year cost projection of $1,398 which comes out of your return. Thanks to competition from Vanguard, Fidelity recently introduced an international index fund (FZILX) with "zero" cost. Talk to Fidelity about switching.

Best wishes.
Taylor
Last edited by Taylor Larimore on Mon Nov 12, 2018 7:34 pm, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by cashboy » Fri Nov 09, 2018 5:43 pm

great thread.

I fell over this thread and forum via a google search; it changed my investing 'life' for the better.

in the spirit of the thread - 'Three-Fund Portfolio', I thought I would share the following 2 short stories.


story #1

I am 61. I have my 'core' assets (assets I 'must' have for a comfortable retirement; all planned out) in an IRA at Fidelity (contains rolled over 401ks). I manage it myself.

As a result of this thread, and others like it, I have now consolidated several funds (some that I had selected...sigh....) into 3 major funds:

FXNAX Fidelity® U.S. Bond Index Fund Institutional Premium Class
FSPSX Fidelity® International Index Fund Institutional Premium Class
FXAIX Fidelity® 500 Index Fund Institutional Premium Class

I will not repeat all of the benefits that come with such a consolidation (since they are already covered so well in this thread). But, I will say that I could not be happier, and I only wish that I had done it a long time ago.


I still have a 'non-core' asset (an asset I can take some degree of a chance with) outside of the 3 fund portfolio. I have had it a long time and it has been good to me.

FCNTX Fidelity® Contrafund® Fund




story #2

I asked my sister how she has her money invested (my guess is under $1,000,000).

She said she uses Fidelity. After meeting with a Fidelity rep she went with their 'active management' at a cost of $7,000 a year (ouch) and they manage her AA.

I asked her for a list of the funds they have her in (expecting maybe 7 or 8). She gave me the list that consisted of 17 Funds. I repeat, 17 funds.

She says she is happy with it, so I will not mention anything to her about other options (she can get crazy sometimes :happy ).

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Re: The Three-Fund Portfolio

Post by Mndiver » Sun Nov 11, 2018 7:45 pm

Taylor Larimore wrote:
Wed Nov 07, 2018 9:36 pm
Mndiver wrote:
Wed Nov 07, 2018 7:54 pm
I’m a strong proponent of the 3 bond fund and currently have my 403b mostly invested this way. I am currently in FXNAX for bonds, FSKAX for total market and FTIEX for total international. I do have a smaller percentage in a medical and technology index fund. My main question is about FTIEX. I’m not sure this is the right fund for International and wanted to see if there are better options with lower expenses and better returns. I currently have about $26,000 in FTIEX and hate to see a fund losing 8.84% in the past year of a bull market. All funds are with Fidelity and need to remain there.
Mndiver:

According to Morningstar, your international managed fund (FTIEX) has a 10-year cost projection of $1,398 which comes out of your return. Thanks to competition from Vanguard, Fidelity recently introduced an international index fund (VZILX) with "zero" cost. Talk to Fidelity about switching.

Best wishes.
Taylor
Thanks Taylor,
Is this fund not listed yet? I can’t find it in my Fidelity app. Wondering if I need to contact Fidelity directly?

[ quote fixed by admin LadyGeek]

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Re: The Three-Fund Portfolio

Post by tooluser » Sun Nov 11, 2018 9:38 pm

Create the three-fund portfolio from the investment options offered by my employer - should be simple enough? Maybe not. My employer recently made major changes in the retirement plans. I post this hoping someone in a similar position may learn something from it.

In our new plan, there is no total US stock market fund, but there is an S&P500, an extended US market, an international stock, and a total bond market fund. There is precisely one choice of each, which makes me think someone in there knew what they were doing in making the choices available.

For a 75%/25% stocks/bonds allocation, with 30% of stocks international, and assuming the S&P500 accounts for 80% of total US market cap, one ends up with the following:

Allocation, Fund Name, (Symbol), Expense Ratio:
42.0% Fidelity 500 Index Fund - Institutional Class (FXSIX) 0.015%
10.5% State Street U.S. Extended Market Index Non-Lending Series Fund Class C (No Symbol*) 0.042%
22.5% iShares MSCI Total International Index Fund Class K (BDOKX) 0.11%
25.0% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) 0.04%
* - The State Street funds are not mutual funds, but Collective Investment Trusts, which are not traded openly. My sources (Bogleheads, thefinancebuff.com) say this is not a concern, though I can see this as an issue if I want to transfer the account somewhere after I retire.
Weighted ER: 0.045% (not bad!)

So you can have the three-fund portfolio but must use four funds from four companies to get there. Given the resulting total expense ratio, on balance this is undesirable but not a big deal. I'm thankful that the option exists, but you have to be a bit discerning to pick it out from all the choices and marketing materials, and to figure out the asset allocations. I don't think most people would have the time, patience, or financial & mathematical acumen to do that.

The "simple" option is a State Street Target Retirement fund, which has other stuff in it, in various ratios depending on the target date:
Bloomberg Barclays 1-10 Year Government Inflation-Linked Bond Index
Bloomberg Barclays 1-3 Year Government/ Credit Index
Bloomberg Barclays Long Government Bond Index
Bloomberg Barclays US Aggregate Bond Index
Bloomberg Barclays US High Yield Very Liquid Index
Bloomberg Barclays US TIPS Bond Index
Bloomberg Roll Select Commodity IndexSM
FTSE EPRA/NAREIT Developed Liquid Index
MSCI AC World Index ex USA IMI Index
Russell Small Cap Completeness Index
S&P 500

Which I have looked at in detail, and they don't look terrible in the end (ER 0.12%), but...really? Most people don't have the time or patience to check this stuff out.

Under the old plan, one could simply invest in the three funds directly in one or two fund companies. In the future there will be a brokerage option that theoretically enables one to invest more simply, but it will have its own hoops and fees. I don't appreciate the administrative hurdles that have been put in place to get there. On the other hand, the ER is probably better than the old plan.

Forced complexity and everyone wins, sort of. The employee gets a cheaper option, the employer has lower expenses, and the plan administrator makes more money (perhaps unfairly). But the employee has to do more homework and has a greater administrative burden.
"A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness." -- Albert Einstein, just before he won the Nobel Prize.

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Re: The Three-Fund Portfolio

Post by bluerafters » Mon Nov 12, 2018 2:50 pm

Listened to the third episode of the Bogleheads podcast this morning. I have a Roth IRA that I regard as my most aggressive investment. The Roth is currently sitting at $12,000-$15,000 in VTSAX depending on the market on any given day. In early January 2019 I was going to lump sum $6000 to the VGTSX ($4000) and top up the VTSAX ($2000). At that point I would have the a total stock (US) and total international. After the Bogleheads episode, it's got me really thinking, doesn't it make more sense to move everything into:

https://investor.vanguard.com/mutual-fu ... file/VTWSX

I'm not fond of the lack of Admiral shares though. I would also cut down on ER by moving to the single fund. Any other downsides?

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Re: The Three-Fund Portfolio

Post by Duckie » Mon Nov 12, 2018 5:06 pm

Mndiver wrote:
Taylor Larimore wrote:Thanks to competition from Vanguard, Fidelity recently introduced an international index fund (VZILX) with "zero" cost. Talk to Fidelity about switching.
Is this fund not listed yet? I can’t find it in my Fidelity app. Wondering if I need to contact Fidelity directly?
It's FZILX, not VZILX. (FZILX) Fidelity Zero International Index Fund (0.00%)

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