The Three-Fund Portfolio

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Re: The Three-Fund Portfolio

Post by LadyGeek » Mon Nov 07, 2016 6:35 pm

New member 1stlink is requesting assistance with a 3-fund portfolio asset allocation, which I've moved into a stand-alone thread. See: [The Three-Fund Portfolio, Portfolio help requested]
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Re: The Three-Fund Portfolio

Post by Fieldsy1024 » Wed Nov 09, 2016 9:20 am

After [the elections --admin LadyGeek], does my
Total Stock Admiral 70%
Total Bond Index 15%
Total Int'l 15%

still look ok? This is my first election where I had a Roth IRA

Thanks in advance



Fieldsy

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Re: The Three-Fund Portfolio

Post by dbr » Wed Nov 09, 2016 9:24 am

Fieldsy1024 wrote:After [the elections --admin LadyGeek], does my
Total Stock Admiral 70%
Total Bond Index 15%
Total Int'l 15%

still look ok? This is my first election where I had a Roth IRA

Thanks in advance



Fieldsy


Of course. You don't go running around changing asset allocations due to elections. I can't comment on whether or not this allocation was ok to start with.

More exactly, you choose your asset allocation in anticipation that things happen, including this election and all other elections. A choice of an asset allocation brings with it a commitment to live with that allocation.

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Re: The Three-Fund Portfolio

Post by Fieldsy1024 » Wed Nov 09, 2016 11:15 am

dbr wrote:
Fieldsy1024 wrote:After [the elections --admin LadyGeek], does my
Total Stock Admiral 70%
Total Bond Index 15%
Total Int'l 15%

still look ok? This is my first election where I had a Roth IRA

Thanks in advance



Fieldsy


Of course. You don't go running around changing asset allocations due to elections. I can't comment on whether or not this allocation was ok to start with.

More exactly, you choose your asset allocation in anticipation that things happen, including this election and all other elections. A choice of an asset allocation brings with it a commitment to live with that allocation.


Thank you dbr.

I am 32 years old and honestly didn't have any bonds until about a week-2 weeks ago. I guess I will just stay put.

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Re: The Three-Fund Portfolio

Post by abuss368 » Wed Nov 09, 2016 12:49 pm

Fieldsy1024 wrote:After [the elections --admin LadyGeek], does my
Total Stock Admiral 70%
Total Bond Index 15%
Total Int'l 15%

still look ok? This is my first election where I had a Roth IRA

Thanks in advance



Fieldsy


Hi Fieldsy1024,

An election should not change your investment strategy. The Three Fund Portfolio is an excellent portfolio that is low cost and diversified with many numerous benefits as noted on this thread.

Your best option is to stay the course!
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: The Three-Fund Portfolio

Post by Drew31 » Wed Nov 09, 2016 2:20 pm

Since I'm debating removing my tilts for a 3fund in another thread I'm curious for those that have held the 3 fund for s number of years have you had any regrets? Ever felt as if you were "missing out"?

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Wed Nov 09, 2016 2:48 pm

Drew31 wrote:Since I'm debating removing my tilts for a 3fund in another thread I'm curious for those that have held the 3 fund for s number of years have you had any regrets? Ever felt as if you were "missing out"?

Drew31:

There are ALWAYS funds that have superior performance over any specific time-period.

Nevertheless, three-fund investors know that each of their total market index funds are outperforming (risk & return) the vast majority of investors.

Try to beat the market and the odds are great that the market will beat you.

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 » Wed Nov 09, 2016 5:46 pm

Drew31 wrote:Since I'm debating removing my tilts for a 3fund in another thread I'm curious for those that have held the 3 fund for s number of years have you had any regrets? Ever felt as if you were "missing out"?


Hi Drew31,

In my opinion the Three Fund Portfolio is an excellent investment portfolio. Investors would be wise to consider such a simple and effective approach.

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

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"Investing Should Be Simple. A three-fund portfolio is all you need"

Post by Taylor Larimore » Mon Nov 14, 2016 8:14 pm

Bogleheads:

Allan Roth, MBA, CPA, CFP, has written an excellent AARP magazine article featuring The Three-Fund Portfolio . These are excerpts:
Whether or not an investment portfolio is working for the investor typically rests with its level of complexity. Some of the worst portfolios I've seen have been so mind-numbingly complex that the investors had no idea what strategy, if any, they were following to achieve such horrible performance.

This three-fund portfolio consists of: Vanguard Total Stock Market Index Fund; Vanguard Total International Stock Index Fund and Vanguard Total Bond Market Index Fund.

With the two stock funds, you own virtually every publicly held company on earth. Buying additional stock funds virtually assures you less diversification, since you will likely own more of some industries and companies than the entire global stock market represents.

There is even more brilliance in such simplicity, in that this portfolio is very tax-efficient.

My advice: Be smart enough not to outsmart yourself. Own the entire market at the lowest cost.

Pick an allocation between stocks and bonds that you feel is right for your age, your goals and your tolerance for risk — and stick with it.

I tell people that if they can't explain their investment strategy to an 8-year-old, they have a bad strategy. And bad strategies make for bad portfolios — and poor investment results.

Investing Should Be Simple. A three-fund portfolio is all you need.

Thank you, Allan Roth!

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

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Re: The Three-Fund Portfolio

Post by kienthoang » Sat Nov 19, 2016 1:39 pm

From reading many posts in this thread (I've made it to page 30) and many research papers by Vanguard and books/speeches by Mr. Bogle and other Bogleheads. Here are the three 3 rules (I call them the Three Big Rules of Numbers) that are often repeating themes in all of the literature I've read:

1. The rule of arithmetics (by Professor Sharpe: http://www.stanford.edu/~wfsharpe/art/active/active.htm)
Aggregate investor return = Aggregate market return - Costs/Taxes

2. The rule of compounding interest: (I also think of it as the rule of multiplication)
30% of return two years in a row does not lead to a total of 60% return: 1.3 * 1.3 = 1.69 which means an actual 69% of actual total return. Similarly, a 50% gain one year and 40% loss the next does not lead to a 10% overall gain: 1.5 * 0.6 = 0.9 => It's actually a 10% loss!

3. Rule of Simplicity or some would call the law of 80:20
In economics, this also manifests as the law of decreasing marginal benefit and increasing marginal cost. The majority of the returns/results (some say 80%) are provided by the minority of costs/effort (some say 20%)

My take on these rules: They directly or indirectly support the Three-Fund Portfolio and correspond to some of the rationales that go into its construction: The benefits of low-cost index funds, the majesty of simplicity, etc.

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"Three Big Rules of Numbers"

Post by Taylor Larimore » Sat Nov 19, 2016 3:20 pm

kienthoang wrote:From reading many posts in this thread (I've made it to page 30) and many research papers by Vanguard and books/speeches by Mr. Bogle and other Bogleheads. Here are the three 3 rules (I call them the Three Big Rules of Numbers) that are often repeating themes in all of the literature I've read:

1. The rule of arithmetics (by Professor Sharpe: http://www.stanford.edu/~wfsharpe/art/active/active.htm)
Aggregate investor return = Aggregate market return - Costs/Taxes

2. The rule of compounding interest: (I also think of it as the rule of multiplication)
30% of return two years in a row does not lead to a total of 60% return: 1.3 * 1.3 = 1.69 which means an actual 69% of actual total return. Similarly, a 50% gain one year and 40% loss the next does not lead to a 10% overall gain: 1.5 * 0.6 = 0.9 => It's actually a 10% loss!

3. Rule of Simplicity or some would call the law of 80:20
In economics, this also manifests as the law of decreasing marginal benefit and increasing marginal cost. The majority of the returns/results (some say 80%) are provided by the minority of costs/effort (some say 20%)

My take on these rules: They directly or indirectly support the Three-Fund Portfolio and correspond to some of the rationales that go into its construction: The benefits of low-cost index funds, the majesty of simplicity, etc.

I am pleased that your "Three Big Rules of Numbers" support The Three-Fund Portfolio.

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 hovbuild » Tue Nov 22, 2016 8:17 am

I am in Fidelity and find it hard to find comparable funds. I pulled out of bonds a month ago and now have quite a bit of cash on hand. With everythig so overvalued should I wait to reinvest some of this cash?

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Re: The Three-Fund Portfolio

Post by abuss368 » Tue Nov 22, 2016 9:07 am

hovbuild wrote:I am in Fidelity and find it hard to find comparable funds. I pulled out of bonds a month ago and now have quite a bit of cash on hand. With everythig so overvalued should I wait to reinvest some of this cash?


Hi hovbuild,

Welcome to the Bogleheads!

Your question is a very good one but does not seem related to the title of this thread "The Three Fund Portfolio". I would recommend that you consider starting a new thread. You will probably receive better quality responses.

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

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Re: The Three-Fund Portfolio

Post by Kompass » Tue Nov 22, 2016 1:44 pm

** I may be putting this in the wrong thread, I want to focus on the three fund portfolio without going into a complete biography though, I hope this is alright.

I have what I think is a pretty good opportunity to set things up right from the get go and would like to check my theory and ask for some general advice. I am a newbie in need of the braintrust.

I have some funds that I can set up without much in the way of tax problems, the cost basis was reset 18 months ago and I can now move it around. I have read several books; Common Sense Investing, Investors Manifesto, Bogelheads Guide to Investing just arrived, and others. I have read this Three Funds thread, the Wiki on Tax efficient Fund Placement (exactly what I was looking for) other Wikis and too many threads to count. I am convinced that the three fund portfolio makes the most sense for me as someone who likes to sleep at night.

At this point I am down to deciding on my allocation between deferred and taxable accounts. I will use round numbers for ease of example but they are close enough, I should note that I am 55yo and do have to take RMDs from the deferred portfolio (inherited IRA) it has been age adjusted. I should also note that I have other assets and will not need to make any withdrawals from the taxable portfolio.

Assume $1mm dollars investable for the deferred portfolio and another $1mm investable for the taxable portfolio and a comfort level of 50/50AA. It looks to me that the simplest thing would be to put all of the deferred assets into Total Bond and then split the taxable into 80% Total Stock Market and 20% Total International. This would give me a 50/50 with all bonds in deferred and all equities in taxable. Sounds straight forward, but…

I am concerned about my own psycological reactions to this when I see the full brunt of volatility on the occasions that I peek with them totally separated. I wonder if I might be better off having some blending within each portfolio and then would also be better able to rebalance when/if needed. That then brings up the question of how to balance them against each other, maybe the taxable at 80/20-70/30 and the deferred 20/80-30/70? If I do split it like this should I use a tax-exempt fund instead of Total Bond in the taxable portion?

What would you folks recommend as a splitting point? Arguments for or against either approach? Ideas, thoughts, alternatives all welcome. Thank you.
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Fund Placement?

Post by Taylor Larimore » Tue Nov 22, 2016 2:51 pm

Kompass wrote: I have read several books; Common Sense Investing, Investors Manifesto, Bogelheads Guide to Investing just arrived, and others. I have read this Three Funds thread, the Wiki on Tax efficient Fund Placement (exactly what I was looking for) other Wikis and too many threads to count. I am convinced that the three fund portfolio makes the most sense for me as someone who likes to sleep at night.

Kompass:

I am pleased to read your endorsement of The Three-Fund Portfolio. Regarding fund placement, I think it is usually a mistake to put similar stock/bond portfolios in both a taxable and tax-deferred account because either your stocks or your bonds will be in the wrong type account.

I suggest you follow the advice in the Opening Post (OP):
"Fund Placement For Maximum Tax-Efficiency: Place Total Bond Market in tax-advantaged account(s). If full, use a tax-exempt bond fund in a taxable account. Place Total Stock Market and Total International Stock Market in either a tax-advantaged account (best) or a taxable account."

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

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Re: The Three-Fund Portfolio

Post by Kompass » Tue Nov 22, 2016 4:18 pm

Wow, I didn't expect a reply from Mr Larimore himself! :shock: I'm honored.

It sounds like my initial thinking was correct before I started equivocating.

Kompass wrote:Assume $1mm dollars investable for the deferred portfolio and another $1mm investable for the taxable portfolio and a comfort level of 50/50AA. It looks to me that the simplest thing would be to put all of the deferred assets into Total Bond and then split the taxable into 80% Total Stock Market and 20% Total International. This would give me a 50/50 with all bonds in deferred and all equities in taxable.


Thank you Sir. :beer
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Re: The Three-Fund Portfolio

Post by abuss368 » Wed Nov 23, 2016 9:11 am

Kompass wrote:Assume $1mm dollars investable for the deferred portfolio and another $1mm investable for the taxable portfolio and a comfort level of 50/50AA. It looks to me that the simplest thing would be to put all of the deferred assets into Total Bond and then split the taxable into 80% Total Stock Market and 20% Total International. This would give me a 50/50 with all bonds in deferred and all equities in taxable.

[/quote]

Hi Kompass,

The Three Fund Portfolio is an excellent strategy and a very sophisticated one indeed. You have selected three total funds that are very low cost and diversified. There is no manager or style risk. In addition, there is no risk of the fund getting to big.

Set your asset allocation and stay the course.

I like your strategy.
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: The Three-Fund Portfolio

Post by abuss368 » Wed Nov 23, 2016 9:18 am

Kompass wrote:** I may be putting this in the wrong thread, I want to focus on the three fund portfolio without going into a complete biography though, I hope this is alright.

I have what I think is a pretty good opportunity to set things up right from the get go and would like to check my theory and ask for some general advice. I am a newbie in need of the braintrust.

I have some funds that I can set up without much in the way of tax problems, the cost basis was reset 18 months ago and I can now move it around. I have read several books; Common Sense Investing, Investors Manifesto, Bogelheads Guide to Investing just arrived, and others. I have read this Three Funds thread, the Wiki on Tax efficient Fund Placement (exactly what I was looking for) other Wikis and too many threads to count. I am convinced that the three fund portfolio makes the most sense for me as someone who likes to sleep at night.

At this point I am down to deciding on my allocation between deferred and taxable accounts. I will use round numbers for ease of example but they are close enough, I should note that I am 55yo and do have to take RMDs from the deferred portfolio (inherited IRA) it has been age adjusted. I should also note that I have other assets and will not need to make any withdrawals from the taxable portfolio.

Assume $1mm dollars investable for the deferred portfolio and another $1mm investable for the taxable portfolio and a comfort level of 50/50AA. It looks to me that the simplest thing would be to put all of the deferred assets into Total Bond and then split the taxable into 80% Total Stock Market and 20% Total International. This would give me a 50/50 with all bonds in deferred and all equities in taxable. Sounds straight forward, but…

I am concerned about my own psycological reactions to this when I see the full brunt of volatility on the occasions that I peek with them totally separated. I wonder if I might be better off having some blending within each portfolio and then would also be better able to rebalance when/if needed. That then brings up the question of how to balance them against each other, maybe the taxable at 80/20-70/30 and the deferred 20/80-30/70? If I do split it like this should I use a tax-exempt fund instead of Total Bond in the taxable portion?

What would you folks recommend as a splitting point? Arguments for or against either approach? Ideas, thoughts, alternatives all welcome. Thank you.


Hi Kompass,

I have more of an "equal location" strategy rather than an "asset location" strategy. That is I have a bond fund in each account. For tax advantage accounts this include Total Bond Index. For our taxable account, this includes Intermediate Term Tax Exempt. This is investor preference. For us, this involved no additional complexity and has worked well. An investor has to decide what works best for them and allows them to sleep well at night. We like have bonds in each account which provides support in times of market stress or trauma to each account and also the opportunity to rebalance.

You will hear both strategies. In my opinion it is nearly meaningless and we are dancing on the head of a needle. The bigger decisions are asset allocation, low cost investing, index funds, simplicity, low taxes, comapred to individual stock picking, active management, turnover, high fees, high expense ratio's, financial salesman, multiple brokerage accounts, owning 100's of stocks and mutual funds, overlap, and so forth.

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

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Re: The Three-Fund Portfolio

Post by Redcap » Wed Nov 23, 2016 12:48 pm

Fieldsy1024 wrote:
dbr wrote:
Fieldsy1024 wrote:After Trump winning, does my
Total Stock Admiral 70%
Total Bond Index 15%
Total Int'l 15%

still look ok? This is my first election where I had a Roth IRA

Thanks in advance



Fieldsy


Of course. You don't go running around changing asset allocations due to elections. I can't comment on whether or not this allocation was ok to start with.

More exactly, you choose your asset allocation in anticipation that things happen, including this election and all other elections. A choice of an asset allocation brings with it a commitment to live with that allocation.


Thank you dbr.

I am 32 years old and honestly didn't have any bonds until about a week-2 weeks ago. I guess I will just stay put.


Fieldsy, do you mind me asking why you only allocated to bonds 1-2 weeks ago? Was it just due to a sell off in bonds or more than that?

To the group, a quick poll, does anyone have VXF incorporated into their portfolios? VXF is the extended index fund with the top 10 holdings only making up about 4.5% of the total portfolio (compared to about 15% for VTI).

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Re: The Three-Fund Portfolio

Post by Fieldsy1024 » Wed Nov 23, 2016 4:38 pm

Honestly, even though 15% is still a bit agressive, I'd still give Bonds a shot for a while and see why so many people like them. Since I bought bonds, it dropped about 80 bucks.

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Re: The Three-Fund Portfolio

Post by abuss368 » Wed Nov 23, 2016 6:45 pm

Should equities pull back, an investor will be thankful for having an allocation to bonds.

The Three Fund Portfolio does just that.

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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Re: The Three-Fund Portfolio

Post by LadyGeek » Wed Nov 23, 2016 7:46 pm

New member mundus has a question which I've moved into a stand-alone thread: [The Three-Fund Portfolio - portfolio help]
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Re: The Three-Fund Portfolio

Post by LXEX55 » Sun Nov 27, 2016 6:40 am

In his book YES, YOU CAN STILL RETIRE COMFORTABLY! Ben Stein recommends something very similar:
50% total stock market index; 50% total bond market. He offers an alternative: 25% total U.S. Bond Market Index, 25% total U.S. stock market index, 25% inflation indexed bonds, 25% international stock.

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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Nov 27, 2016 5:00 pm

LXEX55 wrote:In his book YES, YOU CAN STILL RETIRE COMFORTABLY! Ben Stein recommends something very similar:
50% total stock market index; 50% total bond market. He offers an alternative: 25% total U.S. Bond Market Index, 25% total U.S. stock market index, 25% inflation indexed bonds, 25% international stock.


Hi LXEX55,

The addition of TIPS to the Three Fund Portfolio adds additional complexity that in my opinion is not needed.

The Three Fund Portfolio is easy but very sophisticated. This investment portfolio is very low cost, diversified, no manager risk, no style or drift risk, and easy to understand.

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

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Re: The Three-Fund Portfolio

Post by bobcat2 » Sun Nov 27, 2016 11:19 pm

abuss368 wrote:The addition of TIPS to the Three Fund Portfolio adds additional complexity that in my opinion is not needed.
The Three Fund Portfolio is easy but very sophisticated.

No.
A three fund portfolio consisting of US Total Stock Market, International Total Stock, and US nominal Bond Market Index fund is simplistic.

If you want a sophisticated retirement portfolio consisting of only three funds the appropriate funds would be a global stock market index fund, a ST TIPS fund, and a LT TIPS fund. The weighted average duration of the two TIPS funds would be matched to the duration of the retirement income stream from the beginning of retirement to the age of average life expectancy.

See the following articles:

https://www.advisorperspectives.com/articles/2016/06/28/meeting-retirement-goals-with-dimensional-s-target-date-retirement-income-funds

https://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/Merton-Applying-life-cycle-economics,PDF.pdf

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Nov 27, 2016 11:27 pm

bobcat2 wrote:
abuss368 wrote:The addition of TIPS to the Three Fund Portfolio adds additional complexity that in my opinion is not needed.
The Three Fund Portfolio is easy but very sophisticated.

No.
A three fund portfolio consisting of US Total Stock Market, International Total Stock, and US nominal Bond Market Index fund is simplistic.

If you want a sophisticated retirement portfolio consisting of only three funds the appropriate funds would be a global stock market index fund, a ST TIPS fund, and a LT TIPS fund. The weighted average duration of the two TIPS funds would be matched to the duration of the retirement income stream from the beginning of retirement to the age of average life expectancy.

See the following articles:

https://www.advisorperspectives.com/articles/2016/06/28/meeting-retirement-goals-with-dimensional-s-target-date-retirement-income-funds

https://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/Merton-Applying-life-cycle-economics,PDF.pdf

BobK


Hi BobK,

In my opinion, the Three Fund Portfolio of Total Stock, Total International Stock, and Total Bond is both simplistic and sophisticated. There are many advantages as noted in this thread.

As such, the alternative portfolio you noted, I would assume provides less cash flows from dividends as a result of the bond portion being all TIPS.

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

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Topic: The Three-Fund Portfolio

Post by Taylor Larimore » Sun Nov 27, 2016 11:38 pm

Bogleheads:

This topic is about "The Three-Fund Portfolio." Please discuss other portfolios elsewhere.

150 Portfolios Better Than Yours

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 bobcat2 » Sun Nov 27, 2016 11:58 pm

If we are going to discuss the three fund portfolio it is reasonable to discuss what are the best funds to be in the best three fund portfolio.

DFA's target date funds consist of a global stock market fund and two TIPS funds for the most part. Early in the process they include a global bond market fund in lieu of the ST TIPS fund.

The DFA approach is an eminently reasonable approach to three fund investing, particularly if the goal of the portfolio is retirement income.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Re: The Three-Fund Portfolio

Post by 2015 » Mon Nov 28, 2016 9:08 pm

bobcat2 wrote:If we are going to discuss the three fund portfolio it is reasonable to discuss what are the best funds to be in the best three fund portfolio.

DFA's target date funds consist of a global stock market fund and two TIPS funds for the most part. Early in the process they include a global bond market fund in lieu of the ST TIPS fund.

The DFA approach is an eminently reasonable approach to three fund investing, particularly if the goal of the portfolio is retirement income.

BobK


Emphasis mine.

One of the most helpful phrases I just read in the last two weeks is "there is no perfect portfolio, strategy, or investment." An Occam's Razor philosophy of simplicity beats complexity every time for the "no-nothing investor." As the one at the poker table who knows he's the patsy, I personally wouldn't go near DFA and the added complexity.

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Mon Nov 28, 2016 9:21 pm

2015:

This is not the place to debate (endlessly) about using DFA or other portfolios.

Bobcat2 graciously started a new conversation about the Vanguard 3-Fund Portfolio compared with other portfolios here: viewtopic.php?f=10&t=204183&newpost=3130034

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 cutebean » Mon Dec 05, 2016 11:03 pm

Hi, newbie here back in September when I learned about the 3 fund portfolio and adopted that.

About three months ago, I switched all of my retirement funds into:

60% FSTVX (total market index)
20% FTIPX (total international index)
20% FSITX (US bond)

Three months have passed and there was no increase overall in my account except that the FSTVX was 3% up while the other two are both 2-3% down.

Am I on the right track?

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Tue Dec 06, 2016 10:39 am

cutebean wrote:Hi, newbie here back in September when I learned about the 3 fund portfolio and adopted that.

About three months ago, I switched all of my retirement funds into:

60% FSTVX (total market index)
20% FTIPX (total international index)
20% FSITX (US bond)

Three months have passed and there was no increase overall in my account except that the FSTVX was 3% up while the other two are both 2-3% down.

Am I on the right track?


cutebean:

Yes, you are on the right track. Compare it to the hodge-podge of 26 funds that you owned when you came to this forum.

Stay the course.

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

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Re: The Three-Fund Portfolio

Post by cutebean » Wed Dec 07, 2016 12:37 am

Taylor Larimore wrote:
cutebean wrote:Hi, newbie here back in September when I learned about the 3 fund portfolio and adopted that.

About three months ago, I switched all of my retirement funds into:

60% FSTVX (total market index)
20% FTIPX (total international index)
20% FSITX (US bond)

Three months have passed and there was no increase overall in my account except that the FSTVX was 3% up while the other two are both 2-3% down.

Am I on the right track?


cutebean:

Yes, you are on the right track. Compare it to the hodge-podge of 26 funds that you owned when you came to this forum.

Stay the course.

Best wishes.
Taylor


Thanks Taylor. I agree that it was a hodge podge back then though it was around 5% up since the beginning of the year. After the switch it is only 1% up since September. I know that I should put all of these into a longer perspective historically etc. but just cannot stop thinking about the alternatives. Cannot help peeking into the retirement data everytime I buy and sell some small stocks :)

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Re: The Three-Fund Portfolio

Post by LadyGeek » Thu Dec 08, 2016 4:11 pm

New member bighatnohorse is requesting help with his portfolio, which I've moved into a new thread. See: The Three-Fund Portfolio [Portfolio help]
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Re: The Three-Fund Portfolio

Post by LadyGeek » Thu Dec 08, 2016 6:46 pm

RoadRat is also looking for help with his portfolio, which I've moved into a new thread here: The Three-Fund Portfolio [Help with portfolio allocations]

While this thread does indeed discuss the Three-fund portfolio, members looking for help with their own investments should start a thread in the Investing - Help with Personal Investments forum. We can then provided detailed information to help you with your own situation.

I recommend posting your questions using this format: Asking Portfolio Questions
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.

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Re: The Three-Fund Portfolio

Post by Fieldsy1024 » Fri Dec 09, 2016 6:39 pm

Redcap wrote:
Fieldsy1024 wrote:
dbr wrote:
Fieldsy1024 wrote:After Trump winning, does my
Total Stock Admiral 70%
Total Bond Index 15%
Total Int'l 15%

still look ok? This is my first election where I had a Roth IRA

Thanks in advance



Fieldsy


Of course. You don't go running around changing asset allocations due to elections. I can't comment on whether or not this allocation was ok to start with.

More exactly, you choose your asset allocation in anticipation that things happen, including this election and all other elections. A choice of an asset allocation brings with it a commitment to live with that allocation.


Thank you dbr.

I am 32 years old and honestly didn't have any bonds until about a week-2 weeks ago. I guess I will just stay put.


Fieldsy, do you mind me asking why you only allocated to bonds 1-2 weeks ago? Was it just due to a sell off in bonds or more than that?

To the group, a quick poll, does anyone have VXF incorporated into their portfolios? VXF is the extended index fund with the top 10 holdings only making up about 4.5% of the total portfolio (compared to about 15% for VTI).


I am just putting and staying with 10% bonds for now. ( I said 15, I meant 10), TS 75%, TB 10%, Intl 15

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Re: The Three-Fund Portfolio

Post by brianrhull » Wed Dec 21, 2016 1:42 am

Mr. Larimore,
I am considering the three fund portfolio and am wondering why you have chosen VTIAX as your international fund. It appears that VWIGX has outperformed VTIAX over time. I am thinking management risk is one reason. I currently have DODFX as my International exposure. I would appreciate your thoughts. Thanks.
-Brian

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Re: The Three-Fund Portfolio

Post by gvsucavie03 » Wed Dec 21, 2016 7:04 am

brianrhull wrote:Mr. Larimore,
I am considering the three fund portfolio and am wondering why you have chosen VTIAX as your international fund. It appears that VWIGX has outperformed VTIAX over time. I am thinking management risk is one reason. I currently have DODFX as my International exposure. I would appreciate your thoughts. Thanks.
-Brian


VTIAX has over 6,000 stocks, VWIGX has only 126. The former is much more diversified than the latter.

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Wed Dec 21, 2016 11:57 am

brianrhull wrote:Mr. Larimore,
I am considering the three fund portfolio and am wondering why you have chosen VTIAX as your international fund. It appears that VWIGX has outperformed VTIAX over time. I am thinking management risk is one reason. I currently have DODFX as my International exposure. I would appreciate your thoughts. Thanks.
-Brian

Brian:

I picked VTIAX (Total International Index Fund) for The Three-Fund Portfolio primarily because it is a total market index fund. Below is a portion of a post I made in December, 2013 explaining the advantages of index funds (VTIAX) vs managed funds (VWIGX):
1. Low cost: Research has shown that "low-cost" is the best predictor of future returns. Index funds have much lower costs than most managed funds.

2. Higher returns: Index funds (on average) have higher returns than managed funds (play the odds).

3. Diversification: The increased diversification of index funds results in lower risk. Baer & Ginsler did a study of Standard Deviation for actively managed funds vs. the total stock market over both 5 and 10-year periods. Their conclusion: "The returns of actively managed funds were 20 to 25% more volatile than the broad market."

4. Consistency: Vanguard's Total Stock Market Index Fund ranked among the top 25% of large-blend funds in just three of the past 10 years. Nevertheless, because of it's consistency, never falling below average, it outpaced 93 % of all large-blend stocks after taxes (12/31/2014).

5. Continuation: Of 355 actively managed equity mutual funds around in 1974, less than half survive today. Indexers do not have to worry that their fund will disappear.

6. No style drift: We know that asset allocation determines about 90% of portfolio performance. Managed fund allocations often change.

7. No overlap: It is almost inevitable that a portfolio of managed funds will have overlap. This is not a problem with index funds.

8. No manager changes: History tells us that the average manager leaves within five years. Index fund investors do not worry about manager changes.

9. No worry about underperforming a benchmark index: Many current best performing managed funds later seriously underperform (U.S. Growth, Magellan, Legg Mason Value Trust, etc.). It is much more important to avoid losses than to achieve extra gains.

10. No worry about "asset bloat" which often causes large successful funds to underperform (Magellan, once the world's largest fund).

11. Less cash dilution. Index funds hold less cash than active funds.

12. Less worry that a manager has "lost his touch." Index funds are expected to return to profitability.

13. Tax-Efficiency: Index funds are significantly more tax-efficient than most managed funds. It is after-tax return that counts.

14. Low maintenance: Index funds are simple, predictible, and easy to understand, explain, and maintain.

15. Peace of mind: Indexers know the averages are always working for them. The index investor has much less worry and more free time to spend with family and other more enjoyable endeavors.

Jack Bogle: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."

Happy Holiday!
Taylor
Last edited by Taylor Larimore on Wed Dec 21, 2016 4:58 pm, edited 2 times in total.
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Re: The Three-Fund Portfolio

Post by selftalk » Wed Dec 21, 2016 4:32 pm

Unfortunately a lot of folks are PEEKING at this time and seeing how the international arena is under performing the U.S. and are getting worried and impatient. We`ve read a lot about the performances of different asset classes on this website and intellectually we all know about reversion to the mean AND YET THE HUMAN EMOTIONS TAKE HOLD and try to motivate us into action. Stay the course is not for sissies I suppose. Have and muster up GRIT as it will most probably get you where you want to go in the long run by doing what`s been proven successful in years gone past.

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Re: The Three-Fund Portfolio

Post by brianrhull » Thu Dec 22, 2016 9:12 pm

Taylor: Thanks again! Happy Holidays!
-Brian

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"Can Bogleheads Have Fun Too"

Post by Taylor Larimore » Thu Dec 22, 2016 9:52 pm

Bogleheads:

A first-time poster asked: "Can Bogleheads Have Fun Too." This was my reply:
Sizz: If you began using The Three-Fund Portfolio five years ago with $10,000 in each fund ($30,000), and stayed-the-course, this would be your return today:

Total Stock Market (VTSAX) = $20,225
Total International (VTIAX) = $13,170
Total Bond Market (VBTLX) = $11,102
BOGLEHEAD "FUN" MONEY---- $44,497

Happy Holiday!
Taylor
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"Three-Fund Portfolio Update" by Barry Barnitz

Post by Taylor Larimore » Wed Jan 04, 2017 10:45 pm

Bogleheads:

Barry Barnetz has prepared an update of The Three-Fund Portfolio including pie-charts and other material we have not seen before:

* 2016 returns for the portfolio’s constituent Vanguard funds (investor class).

* Four different allocations devoting 30% of the stock allocation to international stocks.

* 2016 portfolio returns ranging from an aggressive portfolio holding 80% stocks to a conservative portfolio consisting of 20% stocks.

* Three-Fund Portfolio returns from 1997 through 2016.

* 3-year, 5-year, 10-year, 15-year, and 20-year compound returns and volatility statistics for each three-fund portfolio allocation.

* Variance drain over the 1997 to 2016 period.

* Returns data for an assortment of international stock allocations (20%,40%,50% of the equity allocation).

Three fund portfolio 2016 update

Barry, thank you very much for your very informative contribution!

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

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Re: The Three-Fund Portfolio

Post by wesgreen » Thu Jan 05, 2017 10:31 am

Very useful. Thank you both!

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Re: The Three-Fund Portfolio

Post by Brokepilot » Thu Jan 05, 2017 9:35 pm

Question:

Vanguard Wellesley Income Fund Investor Shares (VWINX) instead of Vanguard Total Bond Market VBMFX. I feel that investing in VBMFX at 31 is just wasted opportunity. Vanguard Wellesley Income Fund is 60% bonds and has a good history (i know I shouldn't base any decision on that) but I like it. Much better possible ROI with little inured additional risk. I can stomach alittle more risk. I have 80% of my current investments in Stocks and 20% in Bonds. Figured I need to get to 25% and VWINX will do it.

Unless.. There is a better substitutions for Total Bond Market then the Wellesley Income Fund?


Thanks in advance.

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Wrong topic

Post by Taylor Larimore » Thu Jan 05, 2017 9:47 pm

Brokepilot:

To keep this Three-Fund Portfolio topic manageable, please post alternate funds and alternate portfolios in a new topic.

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 Duffydog1 » Sat Jan 14, 2017 10:56 am

What percent of the 3 fund portfolio should go into the Total International Stock Market. My AA is 70 bonds and 20 stock. I am 76 years old.

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Re: The Three-Fund Portfolio

Post by dbr » Sat Jan 14, 2017 11:15 am

Duffydog1 wrote:What percent of the 3 fund portfolio should go into the Total International Stock Market. My AA is 70 bonds and 20 stock. I am 76 years old.


Bogleheads conclusively agree that between 0% and 50% of the stock allocation should be international. I think that when you are only 20% stock (or should it be 30%?) that maybe putting nothing in international would be fine as the fraction of your portfolio there is very small. If you are 30% stocks and you want someone else to tell you how much in international then splitting that 30% as 20% US and 10% OUS would surely be fine.

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Re: The Three-Fund Portfolio

Post by LadyGeek » Sat Jan 14, 2017 11:16 am

dbr wrote:
Duffydog1 wrote:What percent of the 3 fund portfolio should go into the Total International Stock Market. My AA is 70 bonds and 20 stock. I am 76 years old.


Bogleheads conclusively agree that between 0% and 50% of the stock allocation should be international. I think that when you are only 20% stock (or should it be 30%?) that maybe putting nothing in international would be fine as the fraction of your portfolio there is very small. If you are 30% stocks and you want someone else to tell you how much in international then splitting that 30% as 20% US and 10% OUS would surely be fine.

Duffydog1, Welcome! dbr is giving good advice.

It's best to keep all of your information in one spot. If you have any other questions on what to do, or if you don't understand something, ask in your first thread Change Asset Allocation.

Don't worry about the questions being somewhat different - they're all related to how you manage your portfolio.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Sat Jan 14, 2017 3:49 pm

Is there an easy way to see returns for comparable lazy portfolios of Vanguard funds? I am interested to see how they compare to portfolios that have the same philosophy (I think) but are more complex


MarketWatch has a comparison of eight "Lazy Portfolios." The Three-Fund Portfolio (Second Grader) had the top return during the past 1-year and 10-years. It also did well in the 5-year and 15-year periods.

Past performance does not forecast future performance.

Total Returns For Eight Lazy Portfolios

Best wishes.
Taylor
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