The Three-Fund Portfolio

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abuss368
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Re: The Three-Fund Portfolio

Post by abuss368 » Fri Jan 11, 2019 8:00 am

LocalHero wrote:
Fri Jan 11, 2019 5:33 am
Taylor,
Just a quick note on a nit in The Bogleheads Guide to the Three-Fund Portfolio. On page xxi, note 1, the word Yachts is missing from the title. I just received the book yesterday and its been a great read so far. Thanks for sharing your knowledge.
Best wishes,
JB aka Localhero
I have heard much about that booked but have never read it. Please share your thoughts when you finish.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by LocalHero » Sat Jan 12, 2019 8:41 pm

abuss368
If you read Taylor's original post in this thread you will have the gist of the book. Taylor is consistent throughout his many posts on this forum. The book describes his investing journey from stock picking to following newsletters to picking funds via Morningstar data ... to reading Jack Bogle's Bogle on Mutual funds and Burton Malkiel's A Random Walk Down Wall Street from which he saw the light. He moved all his investments to Vanguard and has never looked back. It details all the many advantages of total market index funds.
The most important takeaways for me are the simplicity of the scheme, the emphasis on low costs, and the stay the course message.
Recommended read.
Best wishes,
JB aka LocalHero
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Re: The Three-Fund Portfolio

Post by LadyGeek » Sat Jan 12, 2019 8:55 pm

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.

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Re: The Three-Fund Portfolio

Post by Tatala » Sun Jan 20, 2019 6:22 pm

If my account is taxable one and I am doing a 50/50 split stocks to bonds.Should I put the whole 50% portion if bonds in a muni index fund.
Are Muni funds as safe as a Total Bond Index Fund?
Thank you

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Re: The Three-Fund Portfolio

Post by Dialectical Investor » Sun Jan 20, 2019 8:42 pm

Tatala wrote:
Sun Jan 20, 2019 6:22 pm

Are Muni funds as safe as a Total Bond Index Fund?
The safety of municipal bonds differs depending on the particular type of bond (general obligation, specific to a particular project, pre-refunded, etc.) as well as the state of issue. Ratings also are not equal even if the rating is the same, so most people would rank AAA Treasury above AAA muni above AAA corporate. Duration also should be considered--might differ from Total Bond. While you can pick apart fund performance under various historic economic situations (e.g., how did the fund perform in 2008-09), safety as relates to muni bonds could involve unique risks that would not be releaved in any historic scenarios, just like any other asset. On a quantitative scale, the risk may be comparable, judged by historical observations, oscillating slightly in one direction or the other. Qualitatively, the answer is unclear, and likely undeterminable. In such a scenario, one logical response is not to concentrate holdings in only one asset class.

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Re: The Three-Fund Portfolio

Post by KJVanguard » Mon Jan 21, 2019 12:00 am

Now that Total World will soon have Admiral Shares, is anybody willing to step forward and advocate a two-fund portfolio? 33% less funds, for even greater simplicity! :D

Yes, I know the idea would kill John Bogle if St. Jack hadn't already passed, but the lower valuations of international stocks are compelling. I can't think of any real reason to not cap weight the world other than the past performance of the EAFE as compared to the S&P, but then there is a reason why mutual fund ads must state that past performance is not indicative of future results.

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Re: The Three-Fund Portfolio

Post by lostdog » Mon Jan 21, 2019 9:34 am

KJVanguard wrote:
Mon Jan 21, 2019 12:00 am
Now that Total World will soon have Admiral Shares, is anybody willing to step forward and advocate a two-fund portfolio? 33% less funds, for even greater simplicity! :D

Yes, I know the idea would kill John Bogle if St. Jack hadn't already passed, but the lower valuations of international stocks are compelling. I can't think of any real reason to not cap weight the world other than the past performance of the EAFE as compared to the S&P, but then there is a reason why mutual fund ads must state that past performance is not indicative of future results.
ETF two fund portfolio:

VT Vanguard Total World Equity
BNDW Vanguard Total World Bond

Index two fund portfolio:

VTWAX-Vanguard Total World Admiral
VBTLX -Vanguard Total Bond

Simple

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Re: The Three-Fund Portfolio

Post by Tatala » Mon Jan 21, 2019 9:35 am

Dialectical Investor wrote:
Sun Jan 20, 2019 8:42 pm
Tatala wrote:
Sun Jan 20, 2019 6:22 pm

Are Muni funds as safe as a Total Bond Index Fund?
The safety of municipal bonds differs depending on the particular type of bond (general obligation, specific to a particular project, pre-refunded, etc.) as well as the state of issue. Ratings also are not equal even if the rating is the same, so most people would rank AAA Treasury above AAA muni above AAA corporate. Duration also should be considered--might differ from Total Bond. While you can pick apart fund performance under various historic economic situations (e.g., how did the fund perform in 2008-09), safety as relates to muni bonds could involve unique risks that would not be releaved in any historic scenarios, just like any other asset. On a quantitative scale, the risk may be comparable, judged by historical observations, oscillating slightly in one direction or the other. Qualitatively, the answer is unclear, and likely undeterminable. In such a scenario, one logical response is not to concentrate holdings in only one asset class.

I was thinking of using ETF MUB or a Vanguard IndexMuni Fund....

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Re: The Three-Fund Portfolio

Post by DB2 » Mon Jan 21, 2019 12:02 pm

So, is the Total Bond Index fund considered the "safest" bond fund to invest in? For example, if we were to enter a severe economic downturn, would this *probably* be the best bond fund to be in? I realize anything is ultimately almost anything is possible and unpredictable.

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Re: The Three-Fund Portfolio

Post by Dialectical Investor » Mon Jan 21, 2019 12:21 pm

DB2 wrote:
Mon Jan 21, 2019 12:02 pm
So, is the Total Bond Index fund considered the "safest" bond fund to invest in? For example, if we were to enter a severe economic downturn, would this *probably* be the best bond fund to be in? I realize anything is ultimately almost anything is possible and unpredictable.
"Safe" and "best" are relative and ambiguous words. If you view credit quality as a component of safety, Total Bond definitely would not be the safest fund. That would be a US Treasury fund. Ex-post, the safest fund will depend on what was driving the downturn. So we cannot know whether a short-term Treasury fund or long-term Treasury fund, or specifically a TIPS fund, will perform the best. Standing alone, and notwithstanding liquidity risk, a short-term TIPS fund is arguably the safest bond fund available to US investors. This does not mean, however, that it would perform the best in a downturn. A long-term nominal Treasury fund often has performed best, as modern downturns have been more deflationary than inflationary. But it is questionable to label a long-term Treasury fund as "safer" in absolute terms, given its higher interest-rate risk and unexpected-inflation risk. So it very much depends on how you want to define safety and best, and what conditions you think you will be operating in. The makeup of the rest of your portfolio ought to be considered too. But there are no definitions of "downturn," "safe," and "best," that I can think of that would make Total Bond the number one choice.

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Mon Jan 21, 2019 12:27 pm

DB2 wrote:
Mon Jan 21, 2019 12:02 pm
So, is the Total Bond Index fund considered the "safest" bond fund to invest in? For example, if we were to enter a severe economic downturn, would this *probably* be the best bond fund to be in? I realize anything is ultimately almost anything is possible and unpredictable.
DB2:

In my opinion, ANY good quality, low-cost, diversified, short- or intermediate-term bond fund will do the job of proving safety and income in a portfolio. There is no "free-lunch" (except diversification). The higher the yield -- the higher the risk.

I selected Vanguard Total Bond Fund in The Three-Fund Portfolio primarily for its safety and diversification. TBMs worst annual loss was -2.66% in 1994 (it gained +16% in 1995). Vanguard Total Bond Market Index Fund is now the largest bond fund in the world for good reasons.

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

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Re: The Three-Fund Portfolio

Post by jbdvm1988 » Mon Jan 21, 2019 5:16 pm

Excellent and simple advice. My brokerage account is currently with Schwab. Would it be best to purchase Schwab funds equivalent to vanguard or buy vanguard funds through Schwab. Some of the Schwab equivalent funds sound like they occasionally use derivatives and other techniques to improve results. No details are given above what I mentioned

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Mon Jan 21, 2019 8:25 pm

jbdvm1988 wrote:
Mon Jan 21, 2019 5:16 pm
Excellent and simple advice. My brokerage account is currently with Schwab. Would it be best to purchase Schwab funds equivalent to vanguard or buy vanguard funds through Schwab. Some of the Schwab equivalent funds sound like they occasionally use derivatives and other techniques to improve results. No details are given above what I mentioned.
The many benefits of low-cost total market index funds are becoming known. In addition to Vanguard, Schwab and Fidelity are now (reluctantly) offering these funds. All are excellent.

Check out Schwab's SWTSX (Total US Stock Market), SWISX (Total International Stock Market) and SWAGX (Total Bond Market).

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 » Mon Jan 21, 2019 8:28 pm

DB2 wrote:
Mon Jan 21, 2019 12:02 pm
So, is the Total Bond Index fund considered the "safest" bond fund to invest in? For example, if we were to enter a severe economic downturn, would this *probably* be the best bond fund to be in? I realize anything is ultimately almost anything is possible and unpredictable.
Hi DB2 -

In my opinion it is a very good fund and now the largest bond fund on the PLANET! The fund holds thousands of high quality bonds. It does the job day in and day out of providing safety and income to an investment portfolio.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by bluquark » Mon Jan 21, 2019 8:41 pm

DB2 wrote:
Mon Jan 21, 2019 12:02 pm
So, is the Total Bond Index fund considered the "safest" bond fund to invest in? For example, if we were to enter a severe economic downturn, would this *probably* be the best bond fund to be in? I realize anything is ultimately almost anything is possible and unpredictable.
It is not the safest. It is average AA (not AAA) credit rating and it is intermediate (not short) duration. Vanguard rates its risk level as "2" and offers many other funds with a risk level of "1", such as Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX). Total Bond provides a yield premium for the modest and calculated amount of risk that it takes over the very safest bond funds.

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Re: The Three-Fund Portfolio

Post by cryptormorf » Mon Jan 21, 2019 8:44 pm

In a few Jack Bogle interviews that I heard from 2018, he said that he had a problem with the Total Bond Index fund because its treasury allocation was too high. He said the he prefers (and uses) the slightly riskier and higher yielding Vanguard Intermediate-Term Bond Index Fund because it holds more corporate bonds. Any thoughts on this approach? I know that in the long term it probably doesn't matter, but it's interesting nonetheless.

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Re: The Three-Fund Portfolio

Post by bluquark » Mon Jan 21, 2019 8:52 pm

cryptormorf wrote:
Mon Jan 21, 2019 8:44 pm
In a few Jack Bogle interviews that I heard from 2018, he said that he had a problem with the Total Bond Index fund because its treasury allocation was too high. He said the he prefers (and uses) the slightly riskier and higher yielding Vanguard Intermediate-Term Bond Index Fund because it holds more corporate bonds. Any thoughts on this approach? I know that in the long term it probably doesn't matter, but it's interesting nonetheless.
It's splitting hairs. Total Bond has AA average credit rating and 3.22% SEC yield, and Intermediate-Term Bond has A average credit rating and 3.32% SEC yield. My thoughts on this is that Vanguard has too many bond funds and their branding is inconsistent and confusing :)

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Re: The Three-Fund Portfolio

Post by friar1610 » Mon Jan 21, 2019 10:16 pm

cryptormorf wrote:
Mon Jan 21, 2019 8:44 pm
In a few Jack Bogle interviews that I heard from 2018, he said that he had a problem with the Total Bond Index fund because its treasury allocation was too high. He said the he prefers (and uses) the slightly riskier and higher yielding Vanguard Intermediate-Term Bond Index Fund because it holds more corporate bonds. Any thoughts on this approach? I know that in the long term it probably doesn't matter, but it's interesting nonetheless.
I use both the Total Bond Market Index Fund and the Short Term Bond Index Fund. Last week I had a discussion with one of VG's PAS planners who had prepared an investment plan for me. This plan basically kept my overall bond allocation close to where it is now but repackaged it by adding investment grade funds of various durations and significantly cutting back on TB Index. The planner said that since Total Bond was 70% Government, it would be prudent to add more corporate to increase the expected yield. (This essentially echoes Jack Bogle's comments on TB.) Not necessarily wanting to increase the number of funds, I asked him if it might be better to use Intermediate Term BOND Index. This would reduce Government to 50% with the other half in corporate. His problem with that is that it would lower the overall bond quality since that fund has more lower rated issues. So, it seems to me you can find something to pick at with almost every bond fund and you just have to decide what the most important characteristics are for you: bond quality, yield, etc. I'm personally not convinced there's anything better for my situation than TB but others could easily reach a different (and just as valid) conclusion.

BTW, I'm 73 with a 72 year old spouse. Both retired. Safety is high on our list of desirable characteristics so 70% Government is perfectly fine.
Friar1610

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Re: The Three-Fund Portfolio

Post by Dialectical Investor » Mon Jan 21, 2019 10:28 pm

friar1610 wrote:
Mon Jan 21, 2019 10:16 pm

I use both the Total Bond Market Index Fund and the Short Term Bond Index Fund. Last week I had a discussion with one of VG's PAS planners who had prepared an investment plan for me. This plan basically kept my overall bond allocation close to where it is now but repackaged it by adding investment grade funds of various durations and significantly cutting back on TB Index. The planner said that since Total Bond was 70% Government, it would be prudent to add more corporate to increase the expected yield. (This essentially echoes Jack Bogle's comments on TB.) Not necessarily wanting to increase the number of funds, I asked him if it might be better to use Intermediate Term BOND Index. This would reduce Government to 50% with the other half in corporate. His problem with that is that it would lower the overall bond quality since that fund has more lower rated issues. So, it seems to me you can find something to pick at with almost every bond fund and you just have to decide what the most important characteristics are for you: bond quality, yield, etc. I'm personally not convinced there's anything better for my situation than TB but others could easily reach a different (and just as valid) conclusion.

BTW, I'm 73 with a 72 year old spouse. Both retired. Safety is high on our list of desirable characteristics so 70% Government is perfectly fine.
That's surprising, the bit about VPAS. Reduce bond quality to increase yield, but it has to be just the right amount of decrease, and not an issue more. Gone from split hairs to splitting atoms. Cynical, but I do wonder if conservative and generally well-meaning advisors don't muck around on the bond side to make it seem like they are doing something without causing harm.

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Re: The Three-Fund Portfolio

Post by Dialectical Investor » Mon Jan 21, 2019 10:30 pm

jbdvm1988 wrote:
Mon Jan 21, 2019 5:16 pm
Excellent and simple advice. My brokerage account is currently with Schwab. Would it be best to purchase Schwab funds equivalent to vanguard or buy vanguard funds through Schwab. Some of the Schwab equivalent funds sound like they occasionally use derivatives and other techniques to improve results. No details are given above what I mentioned
The warnings could be anything from standard boilerplate language to major red flags. I don't use any Schwab funds, but if you link to or post the language of concern, someone here ought to have an idea.

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Re: The Three-Fund Portfolio

Post by ruralavalon » Tue Jan 22, 2019 9:56 am

cryptormorf wrote:
Mon Jan 21, 2019 8:44 pm
In a few Jack Bogle interviews that I heard from 2018, he said that he had a problem with the Total Bond Index fund because its treasury allocation was too high. He said the he prefers (and uses) the slightly riskier and higher yielding Vanguard Intermediate-Term Bond Index Fund because it holds more corporate bonds. Any thoughts on this approach? I know that in the long term it probably doesn't matter, but it's interesting nonetheless.
Vanguard offers so many good intermediate-term bond funds just to aggravate us and make it difficult to choose :wink:

Both are good choices, and either will do the job. I use Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: The Three-Fund Portfolio

Post by ruralavalon » Tue Jan 22, 2019 10:05 am

Welcome to the forum :)

jbdvm1988 wrote:
Mon Jan 21, 2019 5:16 pm
Excellent and simple advice. My brokerage account is currently with Schwab. Would it be best to purchase Schwab funds equivalent to vanguard or buy vanguard funds through Schwab. Some of the Schwab equivalent funds sound like they occasionally use derivatives and other techniques to improve results. No details are given above what I mentioned
In an account at Schwab I would use Schwab funds. In a taxable brokerage account at Schwab you could consider:
1) Schwab Total Stock Market Index Fund (SWSTX) ER 0.03%; and
2) Schwab International Index Fund (developed markets only) (SWISX) ER 0.06%.

Bond funds are not very tax-efficient, so it's better to place a bond fund in a tax-advantaged account like a 401k or IRA.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: The Three-Fund Portfolio

Post by jbdvm1988 » Tue Jan 22, 2019 10:35 am

Dialectical investor:
Some Schwab index funds state they always invest at least 80% but typically it’s much higher. They go on to say they may use derivative such as futures contracts and lend it’s securities to minimize the gap in performance that naturally exists between any index fund and the corresponding index

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Re: The Three-Fund Portfolio

Post by BlueSkies » Tue Jan 22, 2019 8:07 pm

Yes, a three-fund portfolio, as Taylor described it, seems a great choice: diversity and simplicity. Low expenses at Vanguard and others make it even better.
I hope to reach out to novice investors with that philosophy via my blog.
Grandma Sylvia
https://grandmasinvestingforbeginners.blog/

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Re: The Three-Fund Portfolio

Post by Dialectical Investor » Tue Jan 22, 2019 8:26 pm

jbdvm1988 wrote:
Tue Jan 22, 2019 10:35 am
Dialectical investor:
Some Schwab index funds state they always invest at least 80% but typically it’s much higher. They go on to say they may use derivative such as futures contracts and lend it’s securities to minimize the gap in performance that naturally exists between any index fund and the corresponding index
I think the 80% figure is regulatory related, where funds have to invest at least 80% of funds in the type(s) of securities suggested by the name of the fund. The question then becomes, is the fund using this language because it is required, while they really intend to invest all or almost all of the assets in this way, or do they intend to use the leeway to invest in something else. So, this language by itself would not eliminate a fund from my consideration. The particular fund in question likely matters very much, as well as the extent to which you trust fund management to maintain their past or current strategy, even if they legally are not required to do so. Likewise, I don't think derivatives by themselves are unusual. It's the extent to which management uses them.

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Re: The Three-Fund Portfolio

Post by DB2 » Wed Jan 23, 2019 12:55 pm

cryptormorf wrote:
Mon Jan 21, 2019 8:44 pm
In a few Jack Bogle interviews that I heard from 2018, he said that he had a problem with the Total Bond Index fund because its treasury allocation was too high. He said the he prefers (and uses) the slightly riskier and higher yielding Vanguard Intermediate-Term Bond Index Fund because it holds more corporate bonds. Any thoughts on this approach? I know that in the long term it probably doesn't matter, but it's interesting nonetheless.
I do know corporations have a heck of a lot of debt right now. Jeffrey Gundlach raised a flag about this recently, so I wonder if that can/will be affecting future yields. It does seems like Total Bond Index would be a bit safer.

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Re: The Three-Fund Portfolio

Post by pascalwager » Fri Jan 25, 2019 10:03 pm

I only use TBM in a barbell (60/40) with a MMF to reduce duration. And I only use TBM if a Treasury fund(s) is(are) not available.

I do understand that the increased duration of TBM (6.0 years), compared to the past, is determined by the average investor, but I'm definitely not that average investor.

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Re: The Three-Fund Portfolio

Post by pascalwager » Fri Jan 25, 2019 10:33 pm

I've gotten closer to a 3-fund portfolio recently by doing an account exchange between fund management entities, but I do have one very mature taxable account* that has a size/value design which I never change in any way. This account is 53% of my equities, but the remaining 47% is in total market US and international funds. To rebalance between overall US and international, I simply make exchanges between the two US and international total market funds; and my Google spreadsheet, with constantly-displayed percentages, makes this very easy.

*This account does not allow internal exchanges or new money, but does allow reinvestment of distributions.

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Re: The Three-Fund Portfolio

Post by jinaz » Sat Jan 26, 2019 10:10 am

This thread is a goldmine of information. :D So much to learn but excited about it all.

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Re: The Three-Fund Portfolio

Post by Bacardi » Thu Jan 31, 2019 8:23 pm

Hi all,
I’m am trying to find a yearly total and net return of the three fund portfolio. Let me explain, I use two different benchmarks to gauge my portfolio returns against benchmark returns. Vanguard Balanced fund is one of those benchmarks. I’d like to find long term data for the three fund. Does Simba’s spreadsheet have this?

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Thu Jan 31, 2019 8:33 pm

Bacardi wrote:
Thu Jan 31, 2019 8:23 pm
Hi all,
I’m am trying to find a yearly total and net return of the three fund portfolio. Let me explain, I use two different benchmarks to gauge my portfolio returns against benchmark returns. Vanguard Balanced fund is one of those benchmarks. I’d like to find long term data for the three fund. Does Simba’s spreadsheet have this?
Bacardi:

Sorry, I don't know if Simba's spreadsheet has past returns for The Three Fund Portfolio. Frankly, I don't pay much attention to past performance (which is interesting but seldom repeats).

Barry Barnitz provides 2018 returns for various three-fund portfolio allocations here:

https://finpage.blog/2019/01/03/three-f ... 18-update/

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

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Re: The Three-Fund Portfolio

Post by schweitzer » Fri Feb 01, 2019 2:29 am

As a new poster on this site, my hearty congratulations for your wonderful succinct book— the three fund portfolio

Given its international relevance, please consider appendices for non US investors such as myself (Australia)

For example, European/Uk, Oceania/ Pacific etc

I have gifted copies to my good friends too

Keep up the good investing missionary work!

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Re: The Three-Fund Portfolio

Post by celerity » Sat Feb 02, 2019 1:22 pm

Two-fund portfolio is even better.

1. MSCI ACWI (a global cap-weighted index)
2. Total Bond Market

The advantage of the above is the no need to rebalance (except for stocks/bonds). You get the exact proportion of USA in the global stock market (currently 50%) all the time.

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Re: The Three-Fund Portfolio

Post by 2015 » Sat Feb 02, 2019 1:38 pm

Taylor Larimore wrote:
Mon Jan 21, 2019 12:27 pm
DB2 wrote:
Mon Jan 21, 2019 12:02 pm
So, is the Total Bond Index fund considered the "safest" bond fund to invest in? For example, if we were to enter a severe economic downturn, would this *probably* be the best bond fund to be in? I realize anything is ultimately almost anything is possible and unpredictable.
DB2:

In my opinion, ANY good quality, low-cost, diversified, short- or intermediate-term bond fund will do the job of proving safety and income in a portfolio. There is no "free-lunch" (except diversification). The higher the yield -- the higher the risk.

I selected Vanguard Total Bond Fund in The Three-Fund Portfolio primarily for its safety and diversification. TBMs worst annual loss was -2.66% in 1994 (it gained +16% in 1995). Vanguard Total Bond Market Index Fund is now the largest bond fund in the world for good reasons.

Best wishes
Taylor
Agreed!

The White Coat Investor had an excellent post this mornings which encapsulates why I don't screw around with my total bond fund in the attempt to maximize my 3 fund portfolio:
Jack was a huge fan of simplicity. He liked to call it "The Majesty of Simplicity." This last month has illustrated well to me just how beneficial simplicity can be. 3-5 times a day I am pitched an investment. When you have an audience, everyone wants to tell you about what they're doing in hopes that you will help publicize it. As a result, it seems like every cockamamie investment idea comes across my desk at some point. Most of the time it is someone interested in advertising here. As you know, I'm pretty picky about who I partner with. I don't pretend to have done complete due diligence on every single company I sell an ad to, but I am careful who I associate with because I know many of you view an ad around here as an endorsement. While Warren Buffett is right that there are no called strikes in investing, sometimes it would be a lot more fun to sit in the dugout with a cold drink than stand up there at the plate all month watching pitches go by.

A simple investing plan provides you the equivalent of the ability to sit in the dugout instead of standing at the plate all day. Then instead of learning about every single investment idea anyone ever has, you can concentrate on what really matters- your patients, your family, and your health. Do not underestimate the value of recapturing some of your life by using a simple portfolio. When you are tempted to make things more complex, reflect upon the words of Jack Bogle in 1999:

"During this "Personal Finance" conference, you'll hear a lot of good common sense. Pay attention to it. But you'll also hear a considerable amount of investment wizardry, financial legerdemain, and tempting solutions, often from the apparently omniscient. Disregard it.

My keynote message this morning, I suspect, will be the most basic: To earn the highest returns that are realistically possible, you should invest with simplicity. Rely on the ordinary virtues that intelligent human beings have relied on for centuries: common sense, thrift, realistic expectations, patience, and perseverance. Call them "character." And in investing, over the long run, character will be rewarded.

The great paradox of this remarkable age is that the more complex the world around us becomes, the more simplicity we must seek in order to realize our financial goals. Please underrate neither the majesty of simplicity nor its proven effectiveness as a long-term strategy for productive investing. Simplicity is the master key to financial success. "

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Re: The Three-Fund Portfolio

Post by fortyofforty » Sat Feb 02, 2019 4:27 pm

celerity wrote:
Sat Feb 02, 2019 1:22 pm
Two-fund portfolio is even better.

1. MSCI ACWI (a global cap-weighted index)
2. Total Bond Market

The advantage of the above is the no need to rebalance (except for stocks/bonds). You get the exact proportion of USA in the global stock market (currently 50%) all the time.
One-fund portfolio, for the win. Choose the LifeStrategy fund closest to your desired stock/bond allocation, and move on with life. Let someone else do the heavy lifting while you reap the rewards.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Taylor Larimore
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One Fund Portfolio?

Post by Taylor Larimore » Sat Feb 02, 2019 5:37 pm

One-fund portfolio, for the win. Choose the LifeStrategy fund closest to your desired stock/bond allocation, and move on with life. Let someone else do the heavy lifting while you reap the rewards.
Bogleheads:

I agree that a Life Strategy fund (or Target fund) may be the best portfolio for investors with only tax-advantaged accounts. Unfortunately, the taxable bonds in fund-of-funds are tax-inefficient making them unsuitable for taxable accounts.

The Three-Fund Portfolio allows the investor to put tax-efficient funds (Total Stock and Total International) in the taxable account and put tax-inefficient (Total Bond) in the tax-advantaged account(s).

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

TX5
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Re: The Three-Fund Portfolio

Post by TX5 » Sun Feb 03, 2019 11:06 am

Mr. Larimore:

I am new to the forum, and apologize if my question has previously been addressed. My wife and I are using the three fund portfolio strategy within her IRA and our joint brokerage account. The assets in my Vanguard individual 401(k) are currently split between five funds. I would like to use the same strategy in this account, however, it appears that VTSAX,VTIAX and VBTLX cannot be purchased within my 401(k). After reading your book, my understanding is that I should consider using a target retirement fund like VTTHX as an alternative to the three fund portfolio. I'm not asking for a recommendation on a particular fund, but I would appreciate input from others before I begin exchanging funds.

Is the use of a target retirement fund the recommended alternative using the 3 fund strategy within a self directed 401(k)?


David

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Re: The Three-Fund Portfolio

Post by bertilak » Sun Feb 03, 2019 3:00 pm

TX5 wrote:
Sun Feb 03, 2019 11:06 am
Mr. Larimore:

I am new to the forum, and apologize if my question has previously been addressed. My wife and I are using the three fund portfolio strategy within her IRA and our joint brokerage account. The assets in my Vanguard individual 401(k) are currently split between five funds. I would like to use the same strategy in this account, however, it appears that VTSAX,VTIAX and VBTLX cannot be purchased within my 401(k). After reading your book, my understanding is that I should consider using a target retirement fund like VTTHX as an alternative to the three fund portfolio. I'm not asking for a recommendation on a particular fund, but I would appreciate input from others before I begin exchanging funds.

Is the use of a target retirement fund the recommended alternative using the 3 fund strategy within a self directed 401(k)?


David
I'm not Mr. Larimore but I guess my comments qualify as "input from others."
  • If your 401(k) doesn't offer those particular three Vanguard funds, perhaps there are similar funds offered. For example Vanguard's VFIAX (SP 500 Index) can act as a replacement for VTSAX. It's the asset class (and reasonable expense ratio) you are after, not the specific fund.
  • Does the 401(k) have non-Vanguard funds that might cover the same asset classes with reasonable ERs?
  • Depending on your age or state of employment perhaps you can roll your 401(k) over to an IRA.
  • A Target date fund will shift its AA. You may not want that. A "lifestyle" fund will maintain its AA. Perhaps one of these is available in the 401(k).
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

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Re: The Three-Fund Portfolio

Post by LadyGeek » Sun Feb 03, 2019 3:13 pm

TX5, Welcome! May I recommend you start a new thread in the Personal Investments forum and post your portfolio using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask in your new thread.
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Re: The Three-Fund Portfolio

Post by TX5 » Sun Feb 03, 2019 3:15 pm

Thanks, I will do so.

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Re: The Three Fund Portfolio

Post by yosemite_mountain » Mon Feb 04, 2019 1:43 am

Taylor Larimore wrote:
Thu Jan 05, 2012 3:17 pm
Hi Cid:
What would be recommended as a substitute for Total Bond in the Three Fund Portfolio if money has to be invested in a taxable account? I would lean towards Intermediate Term Tax Exempt, but I live in New Jersey, so New Jersey Long Term Tax Exempt is a possibility.
I was surprised to see that Morningstar gives both funds the same credit quality. Duration is similar.

If you are in a high income tax bracket the tax-exempt fund might be favored--otherwise I'd probably go with the more diversified non-state specific fund for more safety and sleeping well.

I think that either of the two funds you mention should provide safety and Income in a taxable account.

If you have stocks in tax-advantaged accounts, they are taking up valuable space better used for higher yielding taxable bonds.

Best wishes
Taylor
Hi Taylor.

I’m 30. Tax Rate is 32% Federal, 9.2% State. I have a 80:20 stocks:bonds asset allocation. All my bonds are in my 401k and are invested in Vanguard Total Bond Market Index Fund. I also have stocks in my 401k.

Question
Since I plan to use part of the 20% bond allocation for a down payment in 5-7 years, should I have some of the bond allocation invested in the Vanguard California Intermediate-Term Tax Exempt and or Vanguard Intermediate-Term Tax Exempt in my taxable account to go towards a downpayment fund? Or should I keep all bonds in tax advantaged accounts?

I appreciate any feedback/insight!

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Personal Finance Question -- Wrong Forum

Post by Taylor Larimore » Mon Feb 04, 2019 10:55 am

yosemite_mountain wrote:
Mon Feb 04, 2019 1:43 am

Question
Since I plan to use part of the 20% bond allocation for a down payment in 5-7 years, should I have some of the bond allocation invested in the Vanguard California Intermediate-Term Tax Exempt and or Vanguard Intermediate-Term Tax Exempt in my taxable account to go towards a downpayment fund? Or should I keep all bonds in tax advantaged accounts?
yosemit_mountain:

This is a difficult personal finance question. Please read Lady Geek's post above.

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 michaeljmroger » Thu Feb 07, 2019 9:38 am

Now that VTWAX is officially available, I honestly think the two-fund portfolio should become the default recommendation at Vanguard. Should we update the wiki?

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Re: The Three-Fund Portfolio

Post by LadyGeek » Thu Feb 07, 2019 7:42 pm

michaeljmroger wrote:
Thu Feb 07, 2019 9:38 am
Now that VTWAX is officially available, I honestly think the two-fund portfolio should become the default recommendation at Vanguard. Should we update the wiki?
Not so fast. Let's compare the funds.

First, let's compare the performance of "Total Stock" and "Total International" which is the stock portion of the 3-fund portfolio.

- VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares | Vanguard and note the "Hypothetical growth of $10,000" chart.
- VTIAX - Vanguard Total International Stock Index Fund Admiral Shares | Vanguard and note the "Hypothetical growth of $10,000" chart.

Now, look at the proposed replacement: Vanguard Total World Stock Index Fund Admiral Shares (VTWAX) and note the "Hypothetical growth of $10,000" chart.
We cannot display data because this fund is less than 1 month old.
There's absolutely no track record for this fund. It's far too soon to draw any conclusions.

Although past performance does not predict future performance, past performance is a good indicator for understanding how funds perform relative to each other. Ideally, a new fund should track identically with its intended replacement. It would be interesting to see a comparison when the fund gets a few more months of performance under its belt.

The relative percentages of the Total US / Total International funds would have to match the Total World performance. This may be difficult to do, as they are tracking different markets.
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Re: The Three-Fund Portfolio

Post by michaeljmroger » Thu Feb 07, 2019 8:33 pm

The historical performance of 57% VTSAX + 43% VTIAX is almost exactly the same as the Total World Stock ETF (which is essentially the same as the new VTWAX).

In my opinion, the minuscule difference between their performance doesn’t justify the complexity of avoiding VTWAX, and it’d avoid a lot of unproductive discussions around the appropriate international allocation :wink:

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Re: The Three-Fund Portfolio

Post by bgf » Thu Feb 07, 2019 8:56 pm

the fundamental ideas and purpose of the "three fund" are what matter, not the practical implementation of it.

going world + bond isnt a mark against the three fund. if anything its high praise.
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Re: The Three-Fund Portfolio

Post by CABob » Thu Feb 07, 2019 9:03 pm

By having separate domestic and international equity funds one can control the ratio between the two rather than accept someone else's opinion. This may or may not be a perceived advantage to an individual.
Bob

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Re: The Three-Fund Portfolio

Post by LadyGeek » Thu Feb 07, 2019 9:29 pm

One can't overlook the simplicity of two funds. Going simpler are the "all-in-one" funds, such as the Target date funds or fixed asset allocation Vanguard LifeStrategy Funds (or equivalent by any other company, such as Fidelity).

If you aren't comfortable managing two or three funds, there's absolutely nothing wrong with an "all-in-one" ("Set and forget") fund. Yes, they are somewhat more expensive. But... if you don't know what you're doing, or don't want to spend time taking care of your investments, they are just fine. If finances are stressful for you, these funds can do wonders. Pick a fund and don't worry about anything until it's time to take withdrawals.
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Re: The Three-Fund Portfolio

Post by 2pedals » Thu Feb 07, 2019 9:31 pm

CABob wrote:
Thu Feb 07, 2019 9:03 pm
By having separate domestic and international equity funds one can control the ratio between the two rather than accept someone else's opinion. This may or may not be a perceived advantage to an individual.
Total-market foreign index can be (depending on your top marginal tax) more tax efficient due to foreign tax credits so you may wish to fill your % allocation of foreign in taxable accounts first.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

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Re: The Three-Fund Portfolio

Post by fortyofforty » Sat Feb 16, 2019 2:36 pm

CABob wrote:
Thu Feb 07, 2019 9:03 pm
By having separate domestic and international equity funds one can control the ratio between the two rather than accept someone else's opinion. This may or may not be a perceived advantage to an individual.
I don't think the ratio is set by "someone else's opinion", but by market capitalization. I could be wrong.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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