The Three-Fund Portfolio

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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Sun Oct 20, 2019 11:31 am

Dear 1789:

I am pleased to answer your two questions:

1) In Bogleheads guide to investing (excellent book btw) at one point it is mentioned that all authors of the book have some active vanguard mutual funds. Can you explain what and why do you own an actively managed funds?

I am surprised to read this. However, after thinking about it, I realize that at the time we wrote the book, Pat and I owned the first Vanguard TIPS fund which is a managed fund. It was sold long ago. I am a strong believer in the three total market index funds. My last book, The Bogleheads' Guide to the Three-Fund Portfolio, explains why.

2) In Bogleheads guide to 3-fund portfolio, your first lesson learned is “%100 stocks is dangerous” where you gave example from 1929 - the great depression. Do you still believe strictly that 100% stocks is not appropriate even for a person who is at their 20s?

It is no accident that Vanguard's Retirement Date and LifeCycle Funds, designed by experts, do not offer 100% stocks. Someone in their 20's is unlikely to have suffered a real bear market. It is very unnerving to see all your hard-earned savings slowly disappear in a long bear market--especially when media "experts" and your friends, even your family, keep saying: "Sell now before you lose everything." In addition to lowering risk, I also think it is helpful for young investors to own a small percentage of bonds to help understand how they work. Bonds are very complex.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Our emotions cause us to plunge into stocks at their euphoric highs, and to bail out as they reach depressing lows."
Last edited by Taylor Larimore on Sun Oct 20, 2019 6:22 pm, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle

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1789
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Re: The Three-Fund Portfolio

Post by 1789 » Sun Oct 20, 2019 1:24 pm

Dear Taylor

Thank you for replies. I know you are a strong advocate of passive index strategies as you pointed out in your books. Our family portfolio is all 90% TSM/S&P 500, with 10% tilt on SCV. I am going to re-evaluate getting rid of SCV to make things simpler. However your argument that it would be good to hold some bonds to see how they work makes sense to me and especially considering we haven't experienced any recession for the time we have been investing. We will start with 10% total bonds allocation and increase it as we get older. (We are 35 years old now). So we are going to start with 3 fund portfolio with

US TSM : 90%
US TBM: 10%
International: 0%

I will continue reading more on international and decide if we want/need - and/or percentage allocation of it.

Thank you for your guidance!
"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)

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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Oct 20, 2019 1:45 pm

1789 wrote:
Sun Oct 20, 2019 1:24 pm
Dear Taylor

Thank you for replies. I know you are a strong advocate of passive index strategies as you pointed out in your books. Our family portfolio is all 90% TSM/S&P 500, with 10% tilt on SCV. I am going to re-evaluate getting rid of SCV to make things simpler. However your argument that it would be good to hold some bonds to see how they work makes sense to me and especially considering we haven't experienced any recession for the time we have been investing. We will start with 10% total bonds allocation and increase it as we get older. (We are 35 years old now). So we are going to start with 3 fund portfolio with

US TSM : 90%
US TBM: 10%
International: 0%

I will continue reading more on international and decide if we want/need - and/or percentage allocation of it.

Thank you for your guidance!
I think you are making a wise choice to simplify by removing small cap value and adding Total Bond.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by 1789 » Sun Oct 20, 2019 2:21 pm

abuss368 wrote:
Sun Oct 20, 2019 1:45 pm
1789 wrote:
Sun Oct 20, 2019 1:24 pm
Dear Taylor

Thank you for replies. I know you are a strong advocate of passive index strategies as you pointed out in your books. Our family portfolio is all 90% TSM/S&P 500, with 10% tilt on SCV. I am going to re-evaluate getting rid of SCV to make things simpler. However your argument that it would be good to hold some bonds to see how they work makes sense to me and especially considering we haven't experienced any recession for the time we have been investing. We will start with 10% total bonds allocation and increase it as we get older. (We are 35 years old now). So we are going to start with 3 fund portfolio with

US TSM : 90%
US TBM: 10%
International: 0%

I will continue reading more on international and decide if we want/need - and/or percentage allocation of it.

Thank you for your guidance!
I think you are making a wise choice to simplify by removing small cap value and adding Total Bond.
Thanks abuss368. I am convinced to hold some bonds even small amount to start with.
"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)

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Sun Oct 20, 2019 2:47 pm

I am going to re-evaluate getting rid of SCV to make things simpler.

1789:

I think you are making a wise decision to eliminate your Small Cap Value Fund for several reasons:

* Your Total Stock Market Index Fund ALREADY owns the market weight in Small Cap Value stocks.

* Lower cost.

* Lousy returns. Small Cap Value Funds now have the worst performance of all Morningstar styles:

http://news.morningstar.com/index/indexReturn.html

* If your SMC fund is in a taxable account, this is a good time to sell to minimize capital-gains.

* Exchanging to Total Stock Market will assure that you will never again worry about underperformance.

* SIMPLICITY Read my link below.

You can read my thoughts about international funds here.

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

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Re: The Three-Fund Portfolio

Post by lostdog » Sun Oct 20, 2019 4:12 pm

1789 wrote:
Sun Oct 20, 2019 1:24 pm
Dear Taylor

Thank you for replies. I know you are a strong advocate of passive index strategies as you pointed out in your books. Our family portfolio is all 90% TSM/S&P 500, with 10% tilt on SCV. I am going to re-evaluate getting rid of SCV to make things simpler. However your argument that it would be good to hold some bonds to see how they work makes sense to me and especially considering we haven't experienced any recession for the time we have been investing. We will start with 10% total bonds allocation and increase it as we get older. (We are 35 years old now). So we are going to start with 3 fund portfolio with

US TSM : 90%
US TBM: 10%
International: 0%

I will continue reading more on international and decide if we want/need - and/or percentage allocation of it.

Thank you for your guidance!
Great to choice to simplify. Can you stay the course if the U.S. lags international for decades? Behavior plays a big role even if it's simplified, good luck.
VTWAX and chill.

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Re: The Three-Fund Portfolio

Post by 1789 » Sun Oct 20, 2019 9:04 pm

Hi lostdog

Whatever i say as a response to your question will be a response on paper because i started investing 3 years ago and havent seen any bear market or a recession yet. So i really don't know if i would stay the course for decades of underperformance if US lags International. But thanks for reminding the key for financial success - Staying the course but making sure to be at the right course.
"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)

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Re: The Three-Fund Portfolio

Post by abuss368 » Mon Oct 21, 2019 8:03 am

lostdog wrote:
Sun Oct 20, 2019 4:12 pm
1789 wrote:
Sun Oct 20, 2019 1:24 pm
Dear Taylor

Thank you for replies. I know you are a strong advocate of passive index strategies as you pointed out in your books. Our family portfolio is all 90% TSM/S&P 500, with 10% tilt on SCV. I am going to re-evaluate getting rid of SCV to make things simpler. However your argument that it would be good to hold some bonds to see how they work makes sense to me and especially considering we haven't experienced any recession for the time we have been investing. We will start with 10% total bonds allocation and increase it as we get older. (We are 35 years old now). So we are going to start with 3 fund portfolio with

US TSM : 90%
US TBM: 10%
International: 0%

I will continue reading more on international and decide if we want/need - and/or percentage allocation of it.

Thank you for your guidance!
Great to choice to simplify. Can you stay the course if the U.S. lags international for decades? Behavior plays a big role even if it's simplified, good luck.
The older I get the more I appreciate the impact of investor behavior and how all investors should talk about it more.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by jbdvm1988 » Mon Oct 21, 2019 6:48 pm

I’ve read books on the three fund portfolio and recently Rick Ferri’s asset allocation book. Originally I was going to invest my rollover IRA with the three fund approach but the Ferri book made a strong argument to add small cap and REITs. I understand small caps are not doing well but over several decades is there any objective data to suggest including or excluding specific small cap and REIT funds(vanguard)

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Mon Oct 21, 2019 7:31 pm

jbdvm1988 wrote:
Mon Oct 21, 2019 6:48 pm
I’ve read books on the three fund portfolio and recently Rick Ferri’s asset allocation book. Originally I was going to invest my rollover IRA with the three fund approach but the Ferri book made a strong argument to add small cap and REITs. I understand small caps are not doing well but over several decades is there any objective data to suggest including or excluding specific small cap and REIT funds(vanguard)
jbdvm1988:

The Three Fund Portfolio ALREADY holds the market weight in Small Cap and REIT stocks. Strive for simplicity--not complexity.

Please read my "Simplicity" link below.

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

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Re: The Three-Fund Portfolio

Post by bertilak » Mon Oct 21, 2019 7:35 pm

jbdvm1988 wrote:
Mon Oct 21, 2019 6:48 pm
I’ve read books on the three fund portfolio and recently Rick Ferri’s asset allocation book. Originally I was going to invest my rollover IRA with the three fund approach but the Ferri book made a strong argument to add small cap and REITs. I understand small caps are not doing well but over several decades is there any objective data to suggest including or excluding specific small cap and REIT funds(vanguard)
Small Caps and REITs are contained in Total Market. By adding them you are overweighting them. Don't read "over-weighting" as necessarily negative: many people believe that those asset classes will outperform the rest of the market, but from a diversification point of view there is no need to overweight. Just be sure you understand what you are doing.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: The Three-Fund Portfolio

Post by NearlyRetired » Fri Oct 25, 2019 11:20 am

Hi all

As a UK investor, I have been looking and reading with interest the philosophy of having a 3 fund portfolio. However when I look at the at the 3-funds portfolio wiki page, there is a big warning at the top that the page contains details specific to US investors.

Is that because the Vanguard funds articulated are for the US market, or is the general 3-funds investment philosophy only relevant for the US market itself (I can't believe that, but need to ask).

Assuming that the methodology is relevant regardless of investor location, which Vanguard investments are the equivalent for the UK market?

I can find the following which I think are the equivalent:

Total Stock Market Index Fund: FTSE Developed World ex-U.K. Equity Index Fund (citicode = FPC9 or FPD0)
Total International Stock Market Index Fund: FTSE U.K. All Share Index Unit Trust (citicode = HRP3 or KQX6L))
Total Bond Market Fund: I cant find an equivalent for this- any ideas?

Also, at retirement, do I look to use the income funds, or accumulator funds?

Thanks all
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Re: The Three-Fund Portfolio

Post by BrandonBogle » Fri Oct 25, 2019 5:12 pm

I just wanted to share that I've essentially been following the Boglehead principles for over a decade (and even investing broadly and simply even before opening a Vanguard account in 2005). It wasn't until years later that I found the Bogleheads and fine tuned things as it aligned well with my thoughts and any deviations made perfect sense in the Boglehead manner. I remember reading this thread way back in 2013 and following it actively for a while. Today, after a LONG hiatus of reading this thread, I clicked on "last unread" and saw I left off in September 2015. Reading a few pages from then and the last couple pages from now, I'm pleased to see that "Stay the course!" has been the mantra all along and "the more things change, they more they stay the same."

Taylor's advice here has been invaluable and even though different people are asking the questions now than in 2012, 2013, 2014, and 2015, the ethos remains the same and thus far, the outcome has too!

Three fund portfolio for life!!! :sharebeer

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Re: The Three-Fund Portfolio

Post by Barry Barnitz » Fri Oct 25, 2019 5:33 pm

NearlyRetired wrote:
Fri Oct 25, 2019 11:20 am
Hi all

As a UK investor, I have been looking and reading with interest the philosophy of having a 3 fund portfolio. However when I look at the at the 3-funds portfolio wiki page, there is a big warning at the top that the page contains details specific to US investors.

Is that because the Vanguard funds articulated are for the US market, or is the general 3-funds investment philosophy only relevant for the US market itself (I can't believe that, but need to ask).

Assuming that the methodology is relevant regardless of investor location, which Vanguard investments are the equivalent for the UK market?

I can find the following which I think are the equivalent:

Total Stock Market Index Fund: FTSE Developed World ex-U.K. Equity Index Fund (citicode = FPC9 or FPD0)
Total International Stock Market Index Fund: FTSE U.K. All Share Index Unit Trust (citicode = HRP3 or KQX6L))
Total Bond Market Fund: I cant find an equivalent for this- any ideas?

Also, at retirement, do I look to use the income funds, or accumulator funds?

Thanks all
Hi:
We have sections of the forum (the non-US forum) and the wiki devoted the specific issues confronting non-us and expatriate investors.

You might find this wiki page, UK investing to be more applicable to the investment options, tax and regulatory requirements, and other specifics important to the UK citizen.

regards,
Additional administrative tasks: Financial Page affiliate blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; Wiki Bogleheads® España.

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Re: The Three-Fund Portfolio

Post by LadyGeek » Fri Oct 25, 2019 5:57 pm

We also have a 3-fund portfolio wiki article for non-US investors. See: Simple non-US portfolios

Non-US members are encouraged to start a thread in the Non-US Investing forum and post their portfolio info using the My portfolio: seeking advice format.
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Re: The Three-Fund Portfolio

Post by NearlyRetired » Sat Oct 26, 2019 3:40 am

Thanks All

I hadn't seen those pages will read with interest
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Re: The Three-Fund Portfolio

Post by mcheeks1029 » Wed Oct 30, 2019 8:45 pm

Hi all 2 questions

1) whats everyones take on using Wellington + Total stock market as an adjustment to the 3 fund portfolio- given that Wellington has a 65/35 stock/bond split and has about 10% international in there. i am considering this combo in my i401k only because wellington has historically done well (i know history doesn't guarantee the future- but it maintained a good return in the 2008 bear market)...

2) Given the drop in bond returns- are you still using Total bond- or have you shifted to another source for fixed income/bonds in the interim

thanks!

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Re: The Three-Fund Portfolio

Post by bertilak » Thu Oct 31, 2019 6:22 am

mcheeks1029 wrote:
Wed Oct 30, 2019 8:45 pm
Hi all 2 questions

1) whats everyones take on using Wellington + Total stock market as an adjustment to the 3 fund portfolio- given that Wellington has a 65/35 stock/bond split and has about 10% international in there. i am considering this combo in my i401k only because wellington has historically done well (i know history doesn't guarantee the future- but it maintained a good return in the 2008 bear market)...

2) Given the drop in bond returns- are you still using Total bond- or have you shifted to another source for fixed income/bonds in the interim

thanks!
1) I used to use both Wellington and Wellesley but switched to the three-fund arrangement when I wanted to split stocks and bonds across tax deferred and taxable accounts.

2)TBM is just fine. I had TBM (VBTLX) but switched to intermediate bond (VBILX) as tax loss harvesting process. I'm happy with that as well.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Thu Oct 31, 2019 8:18 am

mcheeks1029 wrote:
Wed Oct 30, 2019 8:45 pm
Hi all 2 questions

1) whats everyones take on using Wellington + Total stock market as an adjustment to the 3 fund portfolio- given that Wellington has a 65/35 stock/bond split and has about 10% international in there. i am considering this combo in my i401k only because wellington has historically done well (i know history doesn't guarantee the future- but it maintained a good return in the 2008 bear market)...



2) Given the drop in bond returns- are you still using Total bond- or have you shifted to another source for fixed income/bonds in the interim

thanks!
mcheeks1029:

I will answer your two questions in blue:
1) whats everyones take on using Wellington + Total stock market as an adjustment to the 3 fund portfolio- given that Wellington has a 65/35 stock/bond split and has about 10% international in there. i am considering this combo in my i401k only because wellington has historically done well (i know history doesn't guarantee the future- but it maintained a good return in the 2008 bear market)...
Answer:

Wellington has been a fine fund but adding it to The Three-Fund Portfolio is nearly 100 overlap of your existing stocks and bonds. Why own 4 funds when three will do. Rebalancing will be a constant problem.

Wellington lost -23.3% in the 2008 bear market. Total Bond Market gained +5%.

2) Given the drop in bond returns- are you still using Total bond- or have you shifted to another source for fixed income/bonds in the interim?
Answer:

Highly diversified and low-cost Vanguard Total Bond Market Index remains my only bond fund. It does the job of providing much less volatility in my overall portfolio.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "Deep down, I remain absolutely confident that the vast majority of American families will be well served by owning their equity holding in an all-U.S. stock-market index portfolio and holding their bonds in an all-U.S. market bond-market index portfolio."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: The Three-Fund Portfolio

Post by abuss368 » Fri Nov 01, 2019 8:16 am

mcheeks1029 wrote:
Wed Oct 30, 2019 8:45 pm
Hi all 2 questions

1) whats everyones take on using Wellington + Total stock market as an adjustment to the 3 fund portfolio- given that Wellington has a 65/35 stock/bond split and has about 10% international in there. i am considering this combo in my i401k only because wellington has historically done well (i know history doesn't guarantee the future- but it maintained a good return in the 2008 bear market)...

2) Given the drop in bond returns- are you still using Total bond- or have you shifted to another source for fixed income/bonds in the interim

thanks!
Welcome to the forum!

Many years ago we too had Wellington mixed with our total market index funds. On top of that it was in our taxable account.

We soon realized, that while the oldest fund in the country, and a respectable fund at that, it really did not have a place in our portfolio and increased complexity.

We removed it and simplified.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: The Three-Fund Portfolio

Post by mcheeks1029 » Sat Nov 02, 2019 2:45 pm

Hi Taylor
your personal portfolio is the 3 fund portfolio with your specific AA- that truly is an easy set it and forget it portfolio vs the endless options out there
I am sold and will set that up!
Thanks for responding!
James

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Sat Nov 02, 2019 4:04 pm

mcheeks1029 wrote:
Sat Nov 02, 2019 2:45 pm
Hi Taylor
your personal portfolio is the 3 fund portfolio with your specific AA- that truly is an easy set it and forget it portfolio vs the endless options out there
I am sold and will set that up!
Thanks for responding!
James
James:

I am confident that you have made a good decision.

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

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Re: The Three-Fund Portfolio

Post by LadyGeek » Tue Nov 05, 2019 3:09 pm

Basel Hodge has a question, which I've to a new thread (along with the replies). See: [Help with my three-fund portfolio]
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Re: The Three-Fund Portfolio

Post by wiredaces80 » Tue Nov 12, 2019 2:26 pm

* Lousy returns. Small Cap Value Funds now have the worst performance of all Morningstar styles:

http://news.morningstar.com/index/indexReturn.html
Isn't this short term thinking though? Isn't it better to look at the long term and also consider reversion to the mean? If so, it would seem to me a great time to buy SCV (long term history indicates it severely outperforms the overall market)....also, based on this logic it would be better to hold an S&P index instead of a TSM index, wouldn't it?

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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Tue Nov 12, 2019 3:05 pm

wiredaces80 wrote:
Tue Nov 12, 2019 2:26 pm
* Lousy returns. Small Cap Value Funds now have the worst performance of all Morningstar styles:

http://news.morningstar.com/index/indexReturn.html
Isn't this short term thinking though? Isn't it better to look at the long term and also consider reversion to the mean? If so, it would seem to me a great time to buy SCV (long term history indicates it severely outperforms the overall market)....also, based on this logic it would be better to hold an S&P index instead of a TSM index, wouldn't it?
wiredaces80:

Bogleheads do not attempt market-timing. Read what experts say here.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "My preferred index fund happens to be the total stock market which includes large, medium, and small stocks. -- 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

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Re: The Three-Fund Portfolio

Post by wiredaces80 » Tue Nov 12, 2019 4:15 pm

Taylor Larimore wrote:
Tue Nov 12, 2019 3:05 pm
wiredaces80 wrote:
Tue Nov 12, 2019 2:26 pm
* Lousy returns. Small Cap Value Funds now have the worst performance of all Morningstar styles:

http://news.morningstar.com/index/indexReturn.html
Isn't this short term thinking though? Isn't it better to look at the long term and also consider reversion to the mean? If so, it would seem to me a great time to buy SCV (long term history indicates it severely outperforms the overall market)....also, based on this logic it would be better to hold an S&P index instead of a TSM index, wouldn't it?
wiredaces80:

Bogleheads do not attempt market-timing. Read what experts say here.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "My preferred index fund happens to be the total stock market which includes large, medium, and small stocks. -- 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.”
Thank you Taylor, I understand that and respect your work immensely. However, I was mainly just questioning the idea of staying away from SCV because of recent performance, which does seem to me to also be a "market timing" decision in its own way. I guess my thought is that recent performance shouldn`t influence one`s decision; only long term performance should. By the same logic, I am sure you wouldnt advise a 22 year old to put most assets into bonds when coming out of a recession, just because the previous 5 years were "lousy returns" for stocks.

Thank you for all you do, and God bless.
Last edited by wiredaces80 on Tue Nov 12, 2019 6:35 pm, edited 2 times in total.

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Re: The Three-Fund Portfolio

Post by Triple digit golfer » Tue Nov 12, 2019 4:24 pm

I (we) have been using a three-fund portfolio (actually, more like 7, among different account types between my wife and me) for about 12 years now. We've been responsible, saved 20%+ of income and had salary increases along the way, and thankfully no periods of unemployment.

We are 34 years old and currently have a portfolio of 5.2x gross income. Taking out mortgage debt, it is 3.1x. In other words, we could own our house and still have 3.1x gross income saved at age 34. I believe the "experts" say 1x income at age 30 or 35, so I feel good.

I'd like to be able to retire at 50 or 55. Who knows if it'll happen? I'm not putting together projections and backing into what we need to save now; we're simply saving 20-25% of our gross income, living a modest, but good life, and enjoying our 2 year-old daughter. If I can retire at 50, great. If not, I'm sure with our savings rates and habits, that we'll end up in a good situation regardless, barring an unforeseen catastrophe.

I used to sweat the small stuff. You can probably even see some of my older posts where I got into a debate with livesoft about the cost of toiletries.

Now, a roof or HVAC replacement (both of which we've done in the last 18 months) don't make us lose any sleep. We budget for those things and have sufficient funds to pay for them.

That long-winded post is essentially me reflecting back and being so thankful for Taylor and all of the other Bogleheads who instill confidence in simplicity. Without this website, I am confident that I would have tinkered too much the last decade and not had the net worth that I do today.

There is nothing special about the three-fund portfolio or any Bogleheads principles, and that, ironically, is what makes it so special.

bclasen
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Re: The Three-Fund Portfolio - is it for me?

Post by bclasen » Thu Nov 14, 2019 12:14 pm

New member here -someone suggested this forum so I started reading from the beginning. Been overwhelmed a bit so I thought I'd throw out a question before getting in too deep (or buying the book). I'm a couple of years from retiring, managing IRAs (with Vanguard) and sitting on about $500k of cash due to a recent event. Question - is the Three Fund Portfolio applicable to someone about to retire? So far the posts I've read seemed like younger folks (I wish I found this earlier!) were the most active. If it is applicable, I'm sure there will be more details on asset allocation but for now I'd just like to know if this approach is for me.

Thanks! :D

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bertilak
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Re: The Three-Fund Portfolio - is it for me?

Post by bertilak » Thu Nov 14, 2019 1:07 pm

bclasen wrote:
Thu Nov 14, 2019 12:14 pm
New member here -someone suggested this forum so I started reading from the beginning. Been overwhelmed a bit so I thought I'd throw out a question before getting in too deep (or buying the book). I'm a couple of years from retiring, managing IRAs (with Vanguard) and sitting on about $500k of cash due to a recent event. Question - is the Three Fund Portfolio applicable to someone about to retire? So far the posts I've read seemed like younger folks (I wish I found this earlier!) were the most active. If it is applicable, I'm sure there will be more details on asset allocation but for now I'd just like to know if this approach is for me.

Thanks! :D
The three-fund portfolio is absolutely applicable to retirees and about-to-be retirees. There is a lot of action here by both the young and the old(er). It is just a matter of chance whose posts are most prominent at the time you happen to look.

To balance the age scale ...

I have been retired 9 years and have essentially the three fund portfolio. I did add international bonds but continue to wonder if that did me any good. My rational at the time was based on a booklet by William Bernstein Deep Risk which recommended international diversification of both stocks and bonds. I currently wonder about international bonds but it would now cost me some capital gains to eliminate them (going to all domestic bonds) and I don't think they can hurt me so there is no downside to continue holding them (other than the added complexity of the portfolio) and, if Bernstein is right, there may be a upside. If I was starting over I might skip the international bonds.

I think it requires some well thought out and well understood justification to do anything other than the three (or four?) fund portfolio. You had better really believe in what you are doing.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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ruralavalon
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Re: The Three-Fund Portfolio - is it for me?

Post by ruralavalon » Thu Nov 14, 2019 1:41 pm

Welcome to the forum :) .

bclasen wrote:
Thu Nov 14, 2019 12:14 pm
New member here -someone suggested this forum so I started reading from the beginning. Been overwhelmed a bit so I thought I'd throw out a question before getting in too deep (or buying the book). I'm a couple of years from retiring, managing IRAs (with Vanguard) and sitting on about $500k of cash due to a recent event. Question - is the Three Fund Portfolio applicable to someone about to retire? So far the posts I've read seemed like younger folks (I wish I found this earlier!) were the most active. If it is applicable, I'm sure there will be more details on asset allocation but for now I'd just like to know if this approach is for me.

Thanks! :D
Yes, the simple three fund type portfolio is suitable for a retiree.

We are 74, retired 9 years, use a portfolio of just 4 funds, and plan to drop the fourth fund in order to simplify.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Taylor Larimore
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Re: The Three-Fund Portfolio - is it for me?

Post by Taylor Larimore » Thu Nov 14, 2019 2:27 pm

bclasen wrote:
Thu Nov 14, 2019 12:14 pm
New member here -someone suggested this forum so I started reading from the beginning. Been overwhelmed a bit so I thought I'd throw out a question before getting in too deep (or buying the book). I'm a couple of years from retiring, managing IRAs (with Vanguard) and sitting on about $500k of cash due to a recent event. Question - is the Three Fund Portfolio applicable to someone about to retire? So far the posts I've read seemed like younger folks (I wish I found this earlier!) were the most active. If it is applicable, I'm sure there will be more details on asset allocation but for now I'd just like to know if this approach is for me.

Thanks! :D
bclasen:

Welcome to the Bogleheads Forum!

The Three-Fund portfolio is ideal for retirees. In addition to its many benefits is its "simplicity" which make it easier to manage for the investor, caregivers, and heirs.

Buy the book. If not pleased, I will refund your price.

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

bclasen
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Re: The Three-Fund Portfolio

Post by bclasen » Thu Nov 14, 2019 5:27 pm

Thanks Taylor - book on order! :D

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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Thu Nov 14, 2019 6:08 pm

bclasen wrote:
Thu Nov 14, 2019 5:27 pm
Thanks Taylor - book on order! :D
bclasen:

It's a deal!

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

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abuss368
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Re: The Three-Fund Portfolio

Post by abuss368 » Thu Nov 14, 2019 7:12 pm

Triple digit golfer wrote:
Tue Nov 12, 2019 4:24 pm
I (we) have been using a three-fund portfolio (actually, more like 7, among different account types between my wife and me) for about 12 years now. We've been responsible, saved 20%+ of income and had salary increases along the way, and thankfully no periods of unemployment.

We are 34 years old and currently have a portfolio of 5.2x gross income. Taking out mortgage debt, it is 3.1x. In other words, we could own our house and still have 3.1x gross income saved at age 34. I believe the "experts" say 1x income at age 30 or 35, so I feel good.

I'd like to be able to retire at 50 or 55. Who knows if it'll happen? I'm not putting together projections and backing into what we need to save now; we're simply saving 20-25% of our gross income, living a modest, but good life, and enjoying our 2 year-old daughter. If I can retire at 50, great. If not, I'm sure with our savings rates and habits, that we'll end up in a good situation regardless, barring an unforeseen catastrophe.

I used to sweat the small stuff. You can probably even see some of my older posts where I got into a debate with livesoft about the cost of toiletries.

Now, a roof or HVAC replacement (both of which we've done in the last 18 months) don't make us lose any sleep. We budget for those things and have sufficient funds to pay for them.

That long-winded post is essentially me reflecting back and being so thankful for Taylor and all of the other Bogleheads who instill confidence in simplicity. Without this website, I am confident that I would have tinkered too much the last decade and not had the net worth that I do today.

There is nothing special about the three-fund portfolio or any Bogleheads principles, and that, ironically, is what makes it so special.
In my opinion, this post speaks volumes.

Keep investing simple.
John C. Bogle: "Simplicity is the master key to financial success."

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