The Three-Fund Portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
jbdvm1988
Posts: 8
Joined: Sun Jul 31, 2016 12:38 pm

Re: The Three-Fund Portfolio

Post by jbdvm1988 »

I’m thinking of moving from three fund to a Vanguard life strategy fund. The expense ratio is .14%. The fund is VASGX which is an 80/20 with 49% US equity, 32 % Int’l equity, 14% US bonds and 6% Int’l bond. I’m not in favor of so much international equity but I like that it gets rebalanced automatically. Basically I can buy it and forget it. Any feedback is welcome
tpsomerville
Posts: 6
Joined: Sun Nov 25, 2018 5:48 pm

Re: Basic 3 Fund Question

Post by tpsomerville »

LXEX55 wrote: Tue Sep 01, 2020 2:09 pm Is the three fund portfolio also a good asset allocation once a person is retired, as opposed to saving for retirement?
We went from 60/40 in the Three-Fund Portfolio a few years ago to 50/50 as I approach retirement (Dec. 31!), and we're planning to keep 50/50 in the Three-Fund Portfolio going forward.

There seem to be many retirees who comment in this thread as fans of the Three-Fund Portfolio, starting with the thread author. Just look through the thread.

tpsomerville
Kompass
Posts: 204
Joined: Sat Oct 01, 2016 5:42 pm

Re: The Three-Fund Portfolio

Post by Kompass »

jbdvm1988 wrote: Tue Sep 01, 2020 7:13 pm I’m thinking of moving from three fund to a Vanguard life strategy fund. The expense ratio is .14%. The fund is VASGX which is an 80/20 with 49% US equity, 32 % Int’l equity, 14% US bonds and 6% Int’l bond. I’m not in favor of so much international equity but I like that it gets rebalanced automatically. Basically I can buy it and forget it. Any feedback is welcome
I use VSCGX a 40/60 Lifestrategy in an IRA as a way to treat it like a pension. With automated investing and rebalancing and then automated withdrawals (RMDs) it is a set and forget supplement for income. At four funds it is only slightly more than a three fund portfolio. I am very happy with the simplicity of my choice.
The large print giveth and the fine print taketh away.
AlanGartner
Posts: 10
Joined: Mon Aug 17, 2020 6:50 am

Re: The Three-Fund Portfolio

Post by AlanGartner »

No don't invest for the short-term, invest for the long-term. Very broad diversification and low expense ratios are still the criteria to use.

1) Still use a very broadly diversified domestic stock fund, a total market fund if available.

2) For a non-U.S. investors "international" means other than the home country.

3) "bonds" can include any kind of fixed income investment including CDs, online savings accounts, Ibonds, money market funds. A very broadly diversified bond fund or Treasury fund is still the best choice in my opinion.
Thanks, good advice.

I have simplified my portfolio to keep only:
  • an all-market diversified value fund (IWVL) - currently 25% of my total assets incl pension fund
  • my current bond investments (various country specific investments that have guaranteed rate) - currently 38% of my total assets incl pension fund
  • an international fund (EIMI) - currently 6% of my total assets incl pension fund
  • and 200k cash for emergencies - 31% of my total of my total assets incl pension fund
What do you think?
User avatar
ruralavalon
Posts: 19469
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: The Three-Fund Portfolio

Post by ruralavalon »

jbdvm1988 wrote: Tue Sep 01, 2020 7:13 pm I’m thinking of moving from three fund to a Vanguard life strategy fund. The expense ratio is .14%. The fund is VASGX which is an 80/20 with 49% US equity, 32 % Int’l equity, 14% US bonds and 6% Int’l bond. I’m not in favor of so much international equity but I like that it gets rebalanced automatically. Basically I can buy it and forget it. Any feedback is welcome
In my opinion a LifeStrategy fund is a nice ultra-simple one fund portfolio, even though I don't like their large international stock allocation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
ruralavalon
Posts: 19469
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: The Three-Fund Portfolio

Post by ruralavalon »

AlanGartner wrote: Fri Sep 04, 2020 3:53 am
No don't invest for the short-term, invest for the long-term. Very broad diversification and low expense ratios are still the criteria to use.

1) Still use a very broadly diversified domestic stock fund, a total market fund if available.

2) For a non-U.S. investors "international" means other than the home country.

3) "bonds" can include any kind of fixed income investment including CDs, online savings accounts, Ibonds, money market funds. A very broadly diversified bond fund or Treasury fund is still the best choice in my opinion.
Thanks, good advice.

I have simplified my portfolio to keep only:
  • an all-market diversified value fund (IWVL) - currently 25% of my total assets incl pension fund
  • my current bond investments (various country specific investments that have guaranteed rate) - currently 38% of my total assets incl pension fund
  • an international fund (EIMI) - currently 6% of my total assets incl pension fund
  • and 200k cash for emergencies - 31% of my total of my total assets incl pension fund
What do you think?
iShares Edge MSCI World Value Factor UCITS ETF (IWVL)
iShares Core MSCI EM IMI ETF USD Acc (EIMI)

I can't say what's reasonable for you for fund selection or asset allocation, because I don't know your country location, age, years to retirement, debt, dependents, size of pension, etc.

I do wonder why you use an emerging markets fund for international stocks, and why a large cash allocation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
bhusa
Posts: 20
Joined: Mon Mar 14, 2016 4:48 pm
Location: upstate NY

Re: The Three-Fund Portfolio

Post by bhusa »

jbdvm1988 wrote: Tue Sep 01, 2020 7:13 pm I’m thinking of moving from three fund to a Vanguard life strategy fund. The expense ratio is .14%. The fund is VASGX which is an 80/20 with 49% US equity, 32 % Int’l equity, 14% US bonds and 6% Int’l bond. I’m not in favor of so much international equity but I like that it gets rebalanced automatically. Basically I can buy it and forget it. Any feedback is welcome
Vanguard Life strategy fund will not be able to taking advantage of foreign tax credit (i.e. it has less than 50% of foreign funds)
viewtopic.php?p=1263932#p1263932
User avatar
abuss368
Posts: 21627
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: The Three-Fund Portfolio

Post by abuss368 »

bhusa wrote: Sat Sep 05, 2020 9:14 pm
jbdvm1988 wrote: Tue Sep 01, 2020 7:13 pm I’m thinking of moving from three fund to a Vanguard life strategy fund. The expense ratio is .14%. The fund is VASGX which is an 80/20 with 49% US equity, 32 % Int’l equity, 14% US bonds and 6% Int’l bond. I’m not in favor of so much international equity but I like that it gets rebalanced automatically. Basically I can buy it and forget it. Any feedback is welcome
Vanguard Life strategy fund will not be able to taking advantage of foreign tax credit (i.e. it has less than 50% of foreign funds)
viewtopic.php?p=1263932#p1263932
I believe this would be the case with any fund of funds correct? Total World also is an example. Years ago Total International was a fund of funds and thus did not have a foreign tax credit for shareholders.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
ruralavalon
Posts: 19469
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: The Three-Fund Portfolio

Post by ruralavalon »

abuss368 wrote: Sat Sep 05, 2020 10:01 pm
bhusa wrote: Sat Sep 05, 2020 9:14 pm
jbdvm1988 wrote: Tue Sep 01, 2020 7:13 pm I’m thinking of moving from three fund to a Vanguard life strategy fund. The expense ratio is .14%. The fund is VASGX which is an 80/20 with 49% US equity, 32 % Int’l equity, 14% US bonds and 6% Int’l bond. I’m not in favor of so much international equity but I like that it gets rebalanced automatically. Basically I can buy it and forget it. Any feedback is welcome
Vanguard Life strategy fund will not be able to taking advantage of foreign tax credit (i.e. it has less than 50% of foreign funds)
viewtopic.php?p=1263932#p1263932
I believe this would be the case with any fund of funds correct? Total World also is an example. Years ago Total International was a fund of funds and thus did not have a foreign tax credit for shareholders.
If that's too much international for you, the consider Vanguard Balanced Index Fund (VBIAX) ER v0.07%, which has a 60/40 asset allocation with no international stocks or bobr.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
Topic Author
Taylor Larimore
Advisory Board
Posts: 29969
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Three Largest Funds On The Planet

Post by Taylor Larimore »

Bogleheads:

Below are the largest funds in their category according to the September 2020 issue of Kiplinger's Finance magazine:

* Largest U.S. stock mutual fund: Vanguard Total U.S. Stock Market Index Admiral: $728.9 Billion.

* Largest International stock mutual fund: Vanguard Total International Stock Market Index Admiral: $378.9 Billion.

* Largest Bond Mutual Fund: Vanguard Total Bond Market Index Admiral: $220.6 Billion.

It is reassuring to know that institutional investors (who own about 80% of equity market capitalization) chose the same funds in The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "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."
"Simplicity is the master key to financial success." -- Jack Bogle
000
Posts: 2818
Joined: Thu Jul 23, 2020 12:04 am

Re: Three Largest Funds On The Planet

Post by 000 »

Taylor Larimore wrote: Tue Sep 15, 2020 8:25 pm Bogleheads:

Below are the largest funds in their category according to the September 2020 issue of Kiplinger's Finance magazine:

* Largest U.S. stock mutual fund: Vanguard Total U.S. Stock Market Index Admiral: $728.9 Billion.

* Largest International stock mutual fund: Vanguard Total International Stock Market Index Admiral: $378.9 Billion.

* Largest Bond Mutual Fund: Vanguard Total Bond Market Index Admiral: $220.6 Billion.

It is reassuring to know that institutional investors (who own about 80% of equity market capitalization) chose the same funds in The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "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."
Taylor, you're tempting the contrarian in me :twisted:
User avatar
abuss368
Posts: 21627
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Three Largest Funds On The Planet

Post by abuss368 »

Taylor Larimore wrote: Tue Sep 15, 2020 8:25 pm Bogleheads:

Below are the largest funds in their category according to the September 2020 issue of Kiplinger's Finance magazine:

* Largest U.S. stock mutual fund: Vanguard Total U.S. Stock Market Index Admiral: $728.9 Billion.

* Largest International stock mutual fund: Vanguard Total International Stock Market Index Admiral: $378.9 Billion.

* Largest Bond Mutual Fund: Vanguard Total Bond Market Index Admiral: $220.6 Billion.

It is reassuring to know that institutional investors (who own about 80% of equity market capitalization) chose the same funds in The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "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."
Thanks Taylor! That is a vote of confidence. I am curious as that appears to be Admiral shares only. When including the ETF share class of these funds, the fund sizes must be even higher.
John C. Bogle: “Simplicity is the master key to financial success."
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

Assuming a 3 fund portfolio (generally VTI/VXUS + BNDW), are bonds calculated as 130 - age OK in today's world? I had originally decided I was going to wait for bonds until age 40, then realized "130 - age" for equity allocation was a good enough formula for me.
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: The Three-Fund Portfolio

Post by dbr »

manlymatt83 wrote: Tue Sep 22, 2020 12:37 pm Assuming a 3 fund portfolio (generally VTI/VXUS + BNDW), are bonds calculated as 130 - age OK in today's world? I had originally decided I was going to wait for bonds until age 40, then realized "130 - age" for equity allocation was a good enough formula for me.
How did you decide it was a good enough formula for you?

I would advocate not using a formula but rather thinking through your need, ability, and willingness to take risk as described by Larry Swedroe in some of his books. This requires thinking about what you want and what situation you are in. In any case the answer will never be precise. A difference of ten percentage points is meaningless and choices across even twenty or thirty points may not be huge. One factor is that the possible outcomes of any choice are so widely dispersed that your asset allocation is not a very good predictor of what will happen to you. There is no good predictor of that.
User avatar
Topic Author
Taylor Larimore
Advisory Board
Posts: 29969
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Stock/Bond Allocation?

Post by Taylor Larimore »

manlymatt83 wrote: Tue Sep 22, 2020 12:37 pm Assuming a 3 fund portfolio (generally VTI/VXUS + BNDW), are bonds calculated as 130 - age OK in today's world? I had originally decided I was going to wait for bonds until age 40, then realized "130 - age" for equity allocation was a good enough formula for me.
manlymatt83:

It is a mistake to calculate your bond allocation based only on "age."

Consider Mr. Bogle's "Words of Wisdom" below. You can use this Vanguard Questionnaire to help with your asset allocation decision.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Choose a balance of stocks and bonds according to your unique circumstances--your investment objective, your time horizon, your level of comfort with risk, and your financial resources."
"Simplicity is the master key to financial success." -- Jack Bogle
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: Stock/Bond Allocation?

Post by manlymatt83 »

Taylor Larimore wrote: Tue Sep 22, 2020 12:50 pm
manlymatt83 wrote: Tue Sep 22, 2020 12:37 pm Assuming a 3 fund portfolio (generally VTI/VXUS + BNDW), are bonds calculated as 130 - age OK in today's world? I had originally decided I was going to wait for bonds until age 40, then realized "130 - age" for equity allocation was a good enough formula for me.
manlymatt83:

It is a mistake to calculate your bond allocation based only on "age."

Consider Mr. Bogle's "Words of Wisdom" below. You can use this Vanguard Questionnaire to help with your asset allocation decision.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Choose a balance of stocks and bonds according to your unique circumstances--your investment objective, your time horizon, your level of comfort with risk, and your financial resources."
Thanks Taylor. I took that test and it said 100% equity. I'll go 100% equity for now and re-take it every year.
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

Am I making a big mistake holding VT in a taxable instead of VTI/VXUS where I won't be eligible for the Foreign Tax Credit? There's something to be said for simplicity and I'd really rather just hold one fund there if I can.
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: The Three-Fund Portfolio

Post by dbr »

manlymatt83 wrote: Thu Sep 24, 2020 12:20 pm Am I making a big mistake holding VT in a taxable instead of VTI/VXUS where I won't be eligible for the Foreign Tax Credit? There's something to be said for simplicity and I'd really rather just hold one fund there if I can.
The best answer to a tax question is for you to compute tax returns for each of the alternatives using estimated numbers and then comparing the tax costs. Actual tax cost is dependent on so many things there is seldom a generic answer. Also a clear cut case of "better" may be by such a small magnitude that you won't care. That is likely true here.
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

Interesting. I saw this in another post:
The traditional three-fund portfolio starting at world market cap ratio and not reinvesting dividends will continue to track world market cap on its own if you don't touch it, anyway.
Is this true? If I start VTI and VXUS at market weight holdings (looks to be about 57.9% US and 42.1% ex-US as of today), don't reinvest dividends, and always split any new contributions 50/50 ($5k into VTI, $5k into VXUS), will I always be in global market weight balance without looking?
User avatar
abuss368
Posts: 21627
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: The Three-Fund Portfolio

Post by abuss368 »

manlymatt83 wrote: Tue Sep 22, 2020 12:37 pm Assuming a 3 fund portfolio (generally VTI/VXUS + BNDW), are bonds calculated as 130 - age OK in today's world? I had originally decided I was going to wait for bonds until age 40, then realized "130 - age" for equity allocation was a good enough formula for me.
"Age in Bonds" was discussed by Jack Bogle as a starting point. That is, Mr. Bogle would recommend that perhaps the bond allocation should have something to do with an investors age. Something that perhaps increased over time.

That said, it is important to base your asset allocation decision on goals, timeframe, and tolerance for risk.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 21627
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: The Three-Fund Portfolio

Post by abuss368 »

manlymatt83 wrote: Thu Sep 24, 2020 12:53 pm Interesting. I saw this in another post:
The traditional three-fund portfolio starting at world market cap ratio and not reinvesting dividends will continue to track world market cap on its own if you don't touch it, anyway.
Is this true? If I start VTI and VXUS at market weight holdings (looks to be about 57.9% US and 42.1% ex-US as of today), don't reinvest dividends, and always split any new contributions 50/50 ($5k into VTI, $5k into VXUS), will I always be in global market weight balance without looking?
No. The investment markets - stocks and bonds - rise and fall every single day around the world. Review your portfolio periodically and rebalance if needed.
John C. Bogle: “Simplicity is the master key to financial success."
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

abuss368 wrote: Thu Sep 24, 2020 2:05 pm
manlymatt83 wrote: Thu Sep 24, 2020 12:53 pm Interesting. I saw this in another post:
The traditional three-fund portfolio starting at world market cap ratio and not reinvesting dividends will continue to track world market cap on its own if you don't touch it, anyway.
Is this true? If I start VTI and VXUS at market weight holdings (looks to be about 57.9% US and 42.1% ex-US as of today), don't reinvest dividends, and always split any new contributions 50/50 ($5k into VTI, $5k into VXUS), will I always be in global market weight balance without looking?
No. The investment markets - stocks and bonds - rise and fall every single day around the world. Review your portfolio periodically and rebalance if needed.
But if you own total world via VTI and VXUS aren’t you capturing that change?
User avatar
abuss368
Posts: 21627
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: The Three-Fund Portfolio

Post by abuss368 »

manlymatt83 wrote: Thu Sep 24, 2020 2:08 pm
abuss368 wrote: Thu Sep 24, 2020 2:05 pm
manlymatt83 wrote: Thu Sep 24, 2020 12:53 pm Interesting. I saw this in another post:
The traditional three-fund portfolio starting at world market cap ratio and not reinvesting dividends will continue to track world market cap on its own if you don't touch it, anyway.
Is this true? If I start VTI and VXUS at market weight holdings (looks to be about 57.9% US and 42.1% ex-US as of today), don't reinvest dividends, and always split any new contributions 50/50 ($5k into VTI, $5k into VXUS), will I always be in global market weight balance without looking?
No. The investment markets - stocks and bonds - rise and fall every single day around the world. Review your portfolio periodically and rebalance if needed.
But if you own total world via VTI and VXUS aren’t you capturing that change?
Sure. However Total World has less companies (i.e. diversification) than Total Stock and Total International Stock. Still it is more simplified.

Total World may not provide the Foreign Tax Credit at times. I believe the international allocation of the fund must be above 50% but I am not certain.
John C. Bogle: “Simplicity is the master key to financial success."
snailderby
Posts: 1216
Joined: Thu Jul 26, 2018 11:30 am

Re: The Three-Fund Portfolio

Post by snailderby »

manlymatt83 wrote: Thu Sep 24, 2020 12:53 pm Interesting. I saw this in another post:
The traditional three-fund portfolio starting at world market cap ratio and not reinvesting dividends will continue to track world market cap on its own if you don't touch it, anyway.
Is this true? If I start VTI and VXUS at market weight holdings (looks to be about 57.9% US and 42.1% ex-US as of today), don't reinvest dividends, and always split any new contributions 50/50 ($5k into VTI, $5k into VXUS), will I always be in global market weight balance without looking?
The highlighted portion would be problematic if you want your U.S./ex-U.S. ratio to track global market weight.
User avatar
spdoublebass
Posts: 742
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: The Three-Fund Portfolio

Post by spdoublebass »

abuss368 wrote: Thu Sep 24, 2020 2:24 pm
manlymatt83 wrote: Thu Sep 24, 2020 2:08 pm
abuss368 wrote: Thu Sep 24, 2020 2:05 pm
manlymatt83 wrote: Thu Sep 24, 2020 12:53 pm Interesting. I saw this in another post:
The traditional three-fund portfolio starting at world market cap ratio and not reinvesting dividends will continue to track world market cap on its own if you don't touch it, anyway.
Is this true? If I start VTI and VXUS at market weight holdings (looks to be about 57.9% US and 42.1% ex-US as of today), don't reinvest dividends, and always split any new contributions 50/50 ($5k into VTI, $5k into VXUS), will I always be in global market weight balance without looking?
No. The investment markets - stocks and bonds - rise and fall every single day around the world. Review your portfolio periodically and rebalance if needed.
But if you own total world via VTI and VXUS aren’t you capturing that change?
Sure. However Total World has less companies (i.e. diversification) than Total Stock and Total International Stock. Still it is more simplified.

Total World may not provide the Foreign Tax Credit at times. I believe the international allocation of the fund must be above 50% but I am not certain.
The amount of companies has nothing to do with it.

If you purchase the market weight of VTI/VXUS and never touch it, yes it will stay at market weight. Meaning it would adjust as VT would.

You have to look at VT and see what the ratio is though. It's not 50/50. For each purchase you would have to look.

That's why people just buy VT. It's simpler.
I'm trying to think, but nothing happens
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

How does everyone factor private investments or any other such alternatives you happen to have (precious metals, crypto, etc.) into a three fund portfolio for stock/bond ratio purposes?

Should they be held against your total equity holdings, or allocated outside of the TSM/bond split?

Mostly asking what the “spreadsheet” should look like.
snailderby
Posts: 1216
Joined: Thu Jul 26, 2018 11:30 am

Re: The Three-Fund Portfolio

Post by snailderby »

manlymatt83 wrote: Fri Sep 25, 2020 10:59 am How does everyone factor private investments or any other such alternatives you happen to have (precious metals, crypto, etc.) into a three fund portfolio for stock/bond ratio purposes?

Should they be held against your total equity holdings, or allocated outside of the TSM/bond split?

Mostly asking what the “spreadsheet” should look like.
Alternatives like cryptocurrency or gold are different enough that they should probably be classified separately. A portfolio that includes substantial holdings in cryptocurrency or gold is no longer a three-fund portfolio, in my opinion, but some variant of it.
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

snailderby wrote: Fri Sep 25, 2020 11:12 am
manlymatt83 wrote: Fri Sep 25, 2020 10:59 am How does everyone factor private investments or any other such alternatives you happen to have (precious metals, crypto, etc.) into a three fund portfolio for stock/bond ratio purposes?

Should they be held against your total equity holdings, or allocated outside of the TSM/bond split?

Mostly asking what the “spreadsheet” should look like.
Alternatives like cryptocurrency or gold are different enough that they should probably be classified separately. A portfolio that includes substantial holdings in cryptocurrency or gold is no longer a three-fund portfolio, in my opinion, but some variant of it.
I have a fixed dollar amount of some things, but don’t plan to add to them, so that % would fall over time. Maybe makes sense to fill into a 5% “play” category?

What about private investments? Same deal. Made them in the past. Don’t plan to add to them.
snailderby
Posts: 1216
Joined: Thu Jul 26, 2018 11:30 am

Re: The Three-Fund Portfolio

Post by snailderby »

manlymatt83 wrote: Fri Sep 25, 2020 11:15 am
snailderby wrote: Fri Sep 25, 2020 11:12 am
manlymatt83 wrote: Fri Sep 25, 2020 10:59 am How does everyone factor private investments or any other such alternatives you happen to have (precious metals, crypto, etc.) into a three fund portfolio for stock/bond ratio purposes?

Should they be held against your total equity holdings, or allocated outside of the TSM/bond split?

Mostly asking what the “spreadsheet” should look like.
Alternatives like cryptocurrency or gold are different enough that they should probably be classified separately. A portfolio that includes substantial holdings in cryptocurrency or gold is no longer a three-fund portfolio, in my opinion, but some variant of it.
I have a fixed dollar amount of some things, but don’t plan to add to them, so that % would fall over time. Maybe makes sense to fill into a 5% “play” category?

What about private investments? Same deal. Made them in the past. Don’t plan to add to them.
Sure. Lumping them together into a "play" or "other" category seems reasonable, if your alternative investments don't make up a significant portion of the portfolio, and you don't plan to add to them.
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

snailderby wrote: Fri Sep 25, 2020 11:17 am
manlymatt83 wrote: Fri Sep 25, 2020 11:15 am
snailderby wrote: Fri Sep 25, 2020 11:12 am
manlymatt83 wrote: Fri Sep 25, 2020 10:59 am How does everyone factor private investments or any other such alternatives you happen to have (precious metals, crypto, etc.) into a three fund portfolio for stock/bond ratio purposes?

Should they be held against your total equity holdings, or allocated outside of the TSM/bond split?

Mostly asking what the “spreadsheet” should look like.
Alternatives like cryptocurrency or gold are different enough that they should probably be classified separately. A portfolio that includes substantial holdings in cryptocurrency or gold is no longer a three-fund portfolio, in my opinion, but some variant of it.
I have a fixed dollar amount of some things, but don’t plan to add to them, so that % would fall over time. Maybe makes sense to fill into a 5% “play” category?

What about private investments? Same deal. Made them in the past. Don’t plan to add to them.
Sure. Lumping them together into a "play" or "other" category seems reasonable, if your alternative investments don't make up a significant portion of the portfolio, and you don't plan to add to them.
So then the question becomes, do I include those values in my Stock/bond calculation, or only factor in my VT holdings?

If I want to be 80/20 VT/BNDW, do I rebalance into bonds if my VT is 80% of my total holdings and my alternatives are 5%?
User avatar
HuckFinn
Posts: 93
Joined: Sun Oct 18, 2015 8:41 pm
Location: Austin, TX

Re: The Three-Fund Portfolio

Post by HuckFinn »

We recently made a few small changes to the portfolio. We are now a Pure Three-Fund (actually etf...) portfolio!

Taxable -
VTI - Total Stock Market Index Fund - 49% of Portfolio

Rollover IRA's (Husband and Wife combined)
VXUS - Total International Stock Index - 8% of Portfolio
BIV - Intermediate-Term Bond Index - 41% of Portfolio

Roth (Husband and Wife Combined)
VTI - Total Stock Market Index Fund - 2% of Portfolio

Age 52 - Husband Retired - Wife works part time and contributes earnings to Roth.

Expense ratio - 4.22 basis points
Asset Allocation - 60% Stock 40% Bond
International allocation - No less than 10% no more than 15%
Action - Each year convert a portion of the Rollover to Roth
Rebalance Plan - When Asset Allocation is plus or minus 5% rebalance to 60/40

Thanks Taylor, The Bogleheads, Jack and Vanguard!
User avatar
Topic Author
Taylor Larimore
Advisory Board
Posts: 29969
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore »

manlymatt83:

"The Three-Fund Portfolio" and its many benefits (including "simplicity") contains only the three total-market index funds. There is no such thing as adding different funds and calling it "The Bogleheads' Three-Fund Portfolio."

Your question is better placed on another forum.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Selecting funds that will significantly exceed market returns, a search in which hope springs eternal and in which past performance has proven of virtually no predictive value, is a loser’s game.”
"Simplicity is the master key to financial success." -- Jack Bogle
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

Taylor Larimore wrote: Fri Sep 25, 2020 12:07 pm manlymatt83:

"The Three-Fund Portfolio" and its many benefits (including "simplicity") contains only the three total-market index funds. There is no such thing as adding different funds and calling it "The Bogleheads' Three-Fund Portfolio."

Your question is better placed on another forum.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Selecting funds that will significantly exceed market returns, a search in which hope springs eternal and in which past performance has proven of virtually no predictive value, is a loser’s game.”
Taylor,

Thank you as always for your thoughts. I think the question still applies. In a hypothetical 1MM portfolio -- if you inherited $50k of something you didn't want to hold, but couldn't sell it, you wouldn't ignore that $50k as part of your overall asset allocation. So where would you put it? Or would you ignore it entirely? I made it clear I wasn't planning on adding to any of these "alternative" investments, but can't redeem them.
User avatar
LadyGeek
Site Admin
Posts: 66443
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: The Three-Fund Portfolio

Post by LadyGeek »

manlymatt83 - You're asking a general question about asset allocation for private / alternative investments (how to classify it). May I suggest you start a new thread in this forum?

If you need help managing your portfolio, start a thread in the Personal Investments forum.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

LadyGeek wrote: Fri Sep 25, 2020 12:23 pm manlymatt83 - You're asking a general question about asset allocation for private / alternative investments (how to classify it). May I suggest you start a new thread in this forum?

If you need help managing your portfolio, start a thread in the Personal Investments forum.
OK, thank you. Sorry.
User avatar
LadyGeek
Site Admin
Posts: 66443
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: The Three-Fund Portfolio

Post by LadyGeek »

No worries, it's all part of the learning process. It sometimes takes a few posts to figure out what to do.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
Topic Author
Taylor Larimore
Advisory Board
Posts: 29969
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore »

So then the question becomes, do I include those values in my Stock/bond calculation, or only factor in my VT holdings?
manlymatt83:

I apologize not answering your question directly. Here's my answer:

You should include those values in my Stock/bond calculations.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The odds of outpacing an all-market index fund are, well, terrible."
"Simplicity is the master key to financial success." -- Jack Bogle
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

Taylor Larimore wrote: Fri Sep 25, 2020 12:26 pm
So then the question becomes, do I include those values in my Stock/bond calculation, or only factor in my VT holdings?
manlymatt83:

I apologize not answering your question directly. Here's my answer:

You should include those values in my Stock/bond calculations.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The odds of outpacing an all-market index fund are, well, terrible."
Thank you!
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: The Three-Fund Portfolio

Post by dbr »

manlymatt83 wrote: Fri Sep 25, 2020 12:24 pm
LadyGeek wrote: Fri Sep 25, 2020 12:23 pm manlymatt83 - You're asking a general question about asset allocation for private / alternative investments (how to classify it). May I suggest you start a new thread in this forum?

If you need help managing your portfolio, start a thread in the Personal Investments forum.
OK, thank you. Sorry.
It is both a good question and would be an interesting thread. The question also applies to how to treat a large position in an individual stock among mutual funds and may also apply to the frequently asked question of how to account for real estate in a portfolio. Note that university endowments comprise all sorts of odd assets and are yet managed as a portfolio. To anticipate, the issue hinges on how to ascertain the expected return, the expected volatility (perhaps standard deviation of periodic returns), and the correlation of periodic returns between this asset and the other assets. At least that is the traditional model expected in portfolio theory. From this information one can derive the expected return and the expected volatility of the portfolio in order to (hopefully, very hopefully)* make decisions about what proportions to hold.

*I wonder what the grammarians say about using a parenthetical expression to split an infinitive.
User avatar
HuckFinn
Posts: 93
Joined: Sun Oct 18, 2015 8:41 pm
Location: Austin, TX

Re: The Three-Fund Portfolio

Post by HuckFinn »

HuckFinn wrote: Fri Sep 25, 2020 12:03 pm We recently made a few small changes to the portfolio. We are now a Pure Three-Fund (actually etf...) portfolio!

Taxable -
VTI - Total Stock Market Index Fund - 49% of Portfolio

Rollover IRA's (Husband and Wife combined)
VXUS - Total International Stock Index - 8% of Portfolio
BIV - Intermediate-Term Bond Index - 41% of Portfolio

Roth (Husband and Wife Combined)
VTI - Total Stock Market Index Fund - 2% of Portfolio

Age 52 - Husband Retired - Wife works part time and contributes earnings to Roth.

Expense ratio - 4.22 basis points
Asset Allocation - 60% Stock 40% Bond
International allocation - No less than 10% no more than 15%
Action - Each year convert a portion of the Rollover to Roth
Rebalance Plan - When Asset Allocation is plus or minus 5% rebalance to 60/40

Thanks Taylor, The Bogleheads, Jack and Vanguard!
(For Taylor...) - BTW we did update the bond portion above to BND (Total Bond Market Index Fund). We had some timing reasons it had to wait until today. So now we are "Total" everything.
User avatar
Topic Author
Taylor Larimore
Advisory Board
Posts: 29969
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore »

HuckFinn:

Your new portfolio has many advantages:

* Avoids wasted time, confusion and the possibility of mistakes trying to pick the best of thousands of mutual funds and ETFs.
* Very diversified with over 15,000 worldwide securities (lower risk).
* Very low expense ratios.
* Very low (hidden) turnover costs.
* Very tax-efficient.
* The many Advantages of Simplicity.
* Fewer but larger funds results in earlier eligibility for low-cost Admiral shares.
* No adviser risk.
* No fund manager risk.
* No style drift.
* No asset bloat.
* No tracking error to cause abandonment of the strategy.
* No fund overlap.
* No front-running that reduces sub-index returns.
* Automatic rebalancing within each fund.
* Less worry. Never under-performs the market.
* Easy to maintain for the owner, spouse, caregivers and heirs.
* More free time.
* Mathematically certain to out-perform most investors.

Stay the course.
Taylor
Jack Bogle's Words of Wisdom: "The odds of outpacing an all-market index fund are, well, terrible."
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
HuckFinn
Posts: 93
Joined: Sun Oct 18, 2015 8:41 pm
Location: Austin, TX

Re: The Three-Fund Portfolio

Post by HuckFinn »

Taylor Larimore wrote: Tue Sep 29, 2020 7:57 am HuckFinn:

Your new portfolio has many advantages:

* Avoids wasted time, confusion and the possibility of mistakes trying to pick the best of thousands of mutual funds and ETFs.
* Very diversified with over 15,000 worldwide securities (lower risk).
* Very low expense ratios.
* Very low (hidden) turnover costs.
* Very tax-efficient.
* The many Advantages of Simplicity.
* Fewer but larger funds results in earlier eligibility for low-cost Admiral shares.
* No adviser risk.
* No fund manager risk.
* No style drift.
* No asset bloat.
* No tracking error to cause abandonment of the strategy.
* No fund overlap.
* No front-running that reduces sub-index returns.
* Automatic rebalancing within each fund.
* Less worry. Never under-performs the market.
* Easy to maintain for the owner, spouse, caregivers and heirs.
* More free time.
* Mathematically certain to out-perform most investors.

Stay the course.
Taylor
Jack Bogle's Words of Wisdom: "The odds of outpacing an all-market index fund are, well, terrible."
Thanks Taylor!
User avatar
bertilak
Posts: 7847
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: The Three-Fund Portfolio

Post by bertilak »

Until yesterday, I was in a four-fund portfolio, similar to what Vanguard recommends and uses in their Life Strategy and Target date funds and what William Bernstein recommends in his "If You Can" booklet.

I use S&P500 instead of Total Stock Market and Intermediate Bond instead of Total Bond. This is only because I switched to those in a recent TLH. Someday market conditions may reverse that.

What I did yesterday is eliminate the International Bond fund, putting proceeds into an Intermediate Bond (US) fund. All was accomplished in my IRA so there were no tax consequences.

I am now a Three-Funder!

My Rationale:
  1. Everything Taylor and others have said in favor of the Three-Fund portfolio.
  2. My belief that international bonds are no better at fulfilling the purpose of bonds in a portfolio than are domestic (US) bonds.
  3. Any diversification benefit over straight US bonds is negligible. The fact that it adds diversification is unquestionable; if that is a benefit IS questionable.
  4. International bonds added complexity to my portfolio: A) an extra fund, and B) currency hedging (which might even negate some of the purported diversification benefit).
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
abuss368
Posts: 21627
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: The Three-Fund Portfolio

Post by abuss368 »

Taylor Larimore wrote: Tue Sep 29, 2020 7:57 am HuckFinn:

Your new portfolio has many advantages:

* Avoids wasted time, confusion and the possibility of mistakes trying to pick the best of thousands of mutual funds and ETFs.
* Very diversified with over 15,000 worldwide securities (lower risk).
* Very low expense ratios.
* Very low (hidden) turnover costs.
* Very tax-efficient.
* The many Advantages of Simplicity.
* Fewer but larger funds results in earlier eligibility for low-cost Admiral shares.
* No adviser risk.
* No fund manager risk.
* No style drift.
* No asset bloat.
* No tracking error to cause abandonment of the strategy.
* No fund overlap.
* No front-running that reduces sub-index returns.
* Automatic rebalancing within each fund.
* Less worry. Never under-performs the market.
* Easy to maintain for the owner, spouse, caregivers and heirs.
* More free time.
* Mathematically certain to out-perform most investors.

Stay the course.
Taylor
Jack Bogle's Words of Wisdom: "The odds of outpacing an all-market index fund are, well, terrible."
This post, which Taylor has complied and shared over the years really impacted me. The advantages are numerous and one feels the impact right away and moving forward. I could not stress enough the many advantages noted above.

Sometimes we may not allocate enough thoughts and weight to is the possible impact to family and spouses should anything happen. Death. Maybe disability. This list above addresses those concerns.

I have made a non stop focus on simplifying and it is really paying off. I no longer use various spreadsheets, have no paper records, shredded tons, only hold total market index funds, one bank account, one credit card, spouse knows to “call Vanguard PAS” if something happens, all cash and loans with one bank. My office closet is almost empty!

It is getting to the point if I “did” anything else financially with our processes it would be creating or looking for “work” which does not interest me at this stage!
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
1789
Posts: 1733
Joined: Fri Aug 16, 2019 3:31 pm

Re: The Three-Fund Portfolio

Post by 1789 »

abuss368 wrote: Thu Oct 08, 2020 11:40 am
Taylor Larimore wrote: Tue Sep 29, 2020 7:57 am HuckFinn:

Your new portfolio has many advantages:

* Avoids wasted time, confusion and the possibility of mistakes trying to pick the best of thousands of mutual funds and ETFs.
* Very diversified with over 15,000 worldwide securities (lower risk).
* Very low expense ratios.
* Very low (hidden) turnover costs.
* Very tax-efficient.
* The many Advantages of Simplicity.
* Fewer but larger funds results in earlier eligibility for low-cost Admiral shares.
* No adviser risk.
* No fund manager risk.
* No style drift.
* No asset bloat.
* No tracking error to cause abandonment of the strategy.
* No fund overlap.
* No front-running that reduces sub-index returns.
* Automatic rebalancing within each fund.
* Less worry. Never under-performs the market.
* Easy to maintain for the owner, spouse, caregivers and heirs.
* More free time.
* Mathematically certain to out-perform most investors.

Stay the course.
Taylor
Jack Bogle's Words of Wisdom: "The odds of outpacing an all-market index fund are, well, terrible."
This post, which Taylor has complied and shared over the years really impacted me. The advantages are numerous and one feels the impact right away and moving forward. I could not stress enough the many advantages noted above.

Sometimes we may not allocate enough thoughts and weight to is the possible impact to family and spouses should anything happen. Death. Maybe disability. This list above addresses those concerns.

I have made a non stop focus on simplifying and it is really paying off. I no longer use various spreadsheets, have no paper records, shredded tons, only hold total market index funds, one bank account, one credit card, spouse knows to “call Vanguard PAS” if something happens, all cash and loans with one bank. My office closet is almost empty!

It is getting to the point if I “did” anything else financially with our processes it would be creating or looking for “work” which does not interest me at this stage!
So many benefits! For me the biggest item is the “easy to maintain for heirs”
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
macav933
Posts: 27
Joined: Sun Jun 22, 2014 7:02 am

Re: The Three-Fund Portfolio

Post by macav933 »

I am about to move my 401k from a Schwab Intelligent Portfolio into a 3 Fund Schwab EFT Portfolio next week. Was stunned at the number of funds and expense ratios within the intelligent portfolio. I plan on selling it all and moving into the 3 fund the same day. Any feedback on if this presents any issues?
Thanks
zie
Posts: 149
Joined: Sun Mar 22, 2020 4:35 pm

Re: The Three-Fund Portfolio

Post by zie »

macav933 wrote: Sat Oct 10, 2020 7:51 am I am about to move my 401k from a Schwab Intelligent Portfolio into a 3 Fund Schwab EFT Portfolio next week. Was stunned at the number of funds and expense ratios within the intelligent portfolio. I plan on selling it all and moving into the 3 fund the same day. Any feedback on if this presents any issues?
Thanks
In your 401k you have no taxes to worry about, but in a taxable account you have to worry about the taxes(capital gains, etc).

The only other thing, since I'm not familiar with the Schwab funds(ETF or MF's), check their expense ratios and compare them to the Vanguard versions, you might be better off buying the Vanguard ETF's/Mutual Funds @ Schwab(assuming your account will let you). The wiki has this: https://www.bogleheads.org/wiki/Charles_Schwab which seems like a great starting point to figuring that out.
User avatar
Topic Author
Taylor Larimore
Advisory Board
Posts: 29969
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Latest article featuring "The Three-Fund Portfolio"

Post by Taylor Larimore »

Bogleheads:

The Personal Finance Club has written this nice article featuring the Three-Fund Portfolio:

The Three-Fund Portfolio

Best wishes
Taylor
Jack Bogle's Words of Wisdom:"The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan."
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
abuss368
Posts: 21627
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Latest article featuring "The Three-Fund Portfolio"

Post by abuss368 »

Taylor Larimore wrote: Sat Oct 10, 2020 11:20 am Bogleheads:

The Personal Finance Club has written this nice article featuring the Three-Fund Portfolio:

The Three-Fund Portfolio

Best wishes
Taylor
Jack Bogle's Words of Wisdom:"The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan."
I enjoyed the article Taylor and thank you for sharing. Appears to follow Vanguard’s advice with the international stock allocation and no international bond allocation.
John C. Bogle: “Simplicity is the master key to financial success."
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: The Three-Fund Portfolio

Post by manlymatt83 »

For those holding VT/BNDW as part of the "three-fund" -- is it OK to hold VT/BNDW in both taxable and tax-advantaged so that rebalancing between VT and BNDW can only be done in tax advantaged and you never have to touch the taxable holdings?

I realize VTI/VXUS has a lower expense ratio and the benefit of the foreign tax credit but for simplicity I would just like to hold VT in all accounts. Just making sure there's nothing I'm missing about holding it in multiple accounts. Thanks!
Post Reply