The Three-Fund Portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
saltycaper
Posts: 2561
Joined: Thu Apr 24, 2014 8:47 pm
Location: The Tower

Re: The Three-Fund Portfolio

Post by saltycaper » Fri Feb 09, 2018 2:49 pm

cegibbs wrote:
Fri Feb 09, 2018 11:42 am

Also, when I used the Vanguard asset allocation link you provided it suggested I go with a 70/30 portfolio. I’m currently 65/35. Should I make that change at the same time?
Nobody can decide your asset allocation for you, including Vanguard. If you want to be 65/35, don't change just because you used Vanguard's calculator. A number of posters have found their calculator to be on the "aggressive" side compared to what they themselves decided. There is no reason to believe 70/30 is more "correct" than 65/35. A 5% difference is unlikely to be material to most investors anyway.
Quod vitae sectabor iter?

ankonaman
Posts: 42
Joined: Thu Feb 26, 2015 6:25 pm

Re: The Three-Fund Portfolio

Post by ankonaman » Sat Feb 10, 2018 12:59 pm

How would the new Global Wellington Fund Admiral Shares stack up against the 3 fund portfolio?

tj
Posts: 2048
Joined: Thu Dec 24, 2009 12:10 am

Re: The Three-Fund Portfolio

Post by tj » Sat Feb 10, 2018 1:46 pm

ankonaman wrote:
Sat Feb 10, 2018 12:59 pm
How would the new Global Wellington Fund Admiral Shares stack up against the 3 fund portfolio?
Which allocation of the 3 fund? In any event, way too early to know.

User avatar
CABob
Posts: 4461
Joined: Sun Feb 25, 2007 8:55 pm
Location: Southern California

Re: The Three-Fund Portfolio

Post by CABob » Sat Feb 10, 2018 2:03 pm

tj wrote:
Sat Feb 10, 2018 1:46 pm
ankonaman wrote:
Sat Feb 10, 2018 12:59 pm
How would the new Global Wellington Fund Admiral Shares stack up against the 3 fund portfolio?
Which allocation of the 3 fund? In any event, way too early to know.
And it most likely would depend on the time frame used for comparison.
Bob

User avatar
Taylor Larimore
Advisory Board
Posts: 26617
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Average is Better

Post by Taylor Larimore » Mon Feb 12, 2018 3:01 pm

Bogleheads:

Does it pay to be "average" by using total market index funds? Here is the answer:

In 2010 Bruce Berkowitz, manager of the Fairholme Fund (FAIRX) was named "Morningstar Fund Manager of the Decade." Investors poured into the fund.

On February 9, 2018, Morningstar compared the average annual returns of the Fairholme Fund (FAIRX still managed by Mr. Berkowitz) with Vanguard Total Stock Market Index Fund (VTSAX):

FUND................... 1-year----- 3-years--- 5-years---10-years*

VTSAX.................+14.83%------10.37%----13.52%-----9.51%

FAIRX...................-18.50%------1.35%------3.93% -----4.12%

* $10,000 invested in VTSAX became $24,660. $10,000 invested in FAIRX became $14,870

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

User avatar
MichaelRpdx
Posts: 319
Joined: Sat Feb 27, 2010 7:18 pm
Location: Portland, Oregon
Contact:

Re: Average is Better

Post by MichaelRpdx » Mon Feb 12, 2018 6:23 pm

Taylor Larimore wrote:
Mon Feb 12, 2018 3:01 pm
Bogleheads:

Does it pay to be "average" by using total market index funds? Here is the answer:

In 2010 Bruce Berkowitz, manager of the Fairholme Fund (FAIRX) was named "Morningstar Fund Manager of the Decade." Investors poured into the fund.

On February 9, 2018, Morningstar compared the average annual returns of the Fairholme Fund (FAIRX still managed by Mr. Berkowitz) with Vanguard Total Stock Market Index Fund (VTSAX):

FUND................... 1-year----- 3-years--- 5-years---10-years*

VTSAX.................+14.83%------10.37%----13.52%-----9.51%

FAIRX...................-18.50%------1.35%------3.93% -----4.12%

* $10,000 invested in VTSAX became $24,660. $10,000 invested in FAIRX became $14,870

Best wishes.
Taylor
"But, but," some will object, "VTSAX is 100% equities. What about a balanced portfolio like a Three Fund investor would have?"

OK? What about? I present three examples:

FUND..................................... 1-year----- 3-years--- 5-years---10-years*
LifeStrategy Mod Growth......16.47% ----- 8.12% ----- 8.63% ---- 6.14%
Balanced Index Fund Adm ...15.56% ----- 8.82% --- 10.03% ---- 7.75%
Wellesley Income Fund Inv ...10.51% ----- 6.45% ---- 7.12% ---- 7.26%
Be Appropriate && Follow Your Curiosity

User avatar
Taylor Larimore
Advisory Board
Posts: 26617
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore » Mon Feb 12, 2018 7:53 pm

"VTSAX is 100% equities. What about a balanced portfolio like a Three Fund investor would have?"
Michael:

My comparison, was between the stock "Fund of the Decade" and the stock fund in The Three-Fund Portfolio which should please Three-Fund investors. Nothing more.

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

User avatar
MichaelRpdx
Posts: 319
Joined: Sat Feb 27, 2010 7:18 pm
Location: Portland, Oregon
Contact:

Re: The Three-Fund Portfolio

Post by MichaelRpdx » Mon Feb 12, 2018 8:02 pm

Taylor Larimore wrote:
Mon Feb 12, 2018 7:53 pm
"VTSAX is 100% equities. What about a balanced portfolio like a Three Fund investor would have?"
Michael:

My comparison, was between the stock "Fund of the Decade" and the stock fund in The Three-Fund Portfolio which should please Three-Fund investors. Nothing more.

Best wishes.
Taylor
Sure, I understand, fair enough.
But someone will object. I mean, besides me. And FAIRX, at least as of today is not a "stock" fund.
From Monrningstar: Image
Be Appropriate && Follow Your Curiosity

User avatar
Taylor Larimore
Advisory Board
Posts: 26617
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore » Mon Feb 12, 2018 8:27 pm

And FAIRX, at least as of today is not a "stock" fund.
Michael:

Very interesting. Morningstar still puts FAIRX in its Large Value (stock fund) category:

http://portfolios.morningstar.com/fund/ ... ture=en-US

In any event, investors who invested in "The Fund of the Decade" badly trailed Vanguard Total Stock Market Index Fund in "The Three-Fund Portfolio."

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

jeroly
Posts: 7
Joined: Wed Jan 24, 2018 2:07 pm

Re: The Three-Fund Portfolio

Post by jeroly » Tue Feb 13, 2018 8:06 am

I apologize for not finding if this has already been discussed in the 42-page thread...

Why not have a fourth fund for international bonds in the portfolio?

dbr
Posts: 25389
Joined: Sun Mar 04, 2007 9:50 am

Re: The Three-Fund Portfolio

Post by dbr » Tue Feb 13, 2018 9:46 am

jeroly wrote:
Tue Feb 13, 2018 8:06 am
I apologize for not finding if this has already been discussed in the 42-page thread...

Why not have a fourth fund for international bonds in the portfolio?
1. There probably needs to be more evidence that it would be particularly helpful.
2. It adds some complexity also starting a "slippery slope" process for other changes and additions.
3. Why not, indeed. 3 fund can perfectly well be 4 fund without any big deal about it.

User avatar
Taylor Larimore
Advisory Board
Posts: 26617
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore » Tue Feb 13, 2018 12:04 pm

jeroly wrote:
Tue Feb 13, 2018 8:06 am
I apologize for not finding if this has already been discussed in the 42-page thread...

Why not have a fourth fund for international bonds in the portfolio?
jeroly:

This post on page 11 in the Three-Fund Portfolio thread answers your question:
Adding Total International Bond Index Fund?
Post by Taylor Larimore » Fri Oct 25, 2013 5:02 pm

Norske77 wrote:
What is Taylor's thinking on adding this fund and making four?
You ask a very good question and one that I carefully considered when Vanguard first offered their Total International Bond Fund (VTIBX and Admiral VTABX) on May 31, 2013, and later increased its allocation on May 26, 2015 to 30% of nominal fixed income exposure.

It is always tempting to add additional funds to The Three Fund Portfolio and overlook their additional costs, risk and complexity. International bonds represent a large asset class which Vanguard added to their Target and Life-Strategy funds so their new Total International Bond Fund deserves a look.

It is notable that a Target portfolio with a 20% bond allocation will have only 6% international bonds. This is almost meaningless. Adding a Total International Bond fund inside a single Target or Life-Strategy fund adds no complexity to the investor.

Vanguard's diversified Total Bond Market Index Fund has a proven record of providing safety in a portfolio. For example, during the 2008 bear market when Total Stock Market fell -37%, Total Bond market gained +5%.

Adding Total International Bond fund to The Three Fund Portfolio has several disadvantages: Political risk, higher expense ratios, longer duration, relatively week credit quality and more complexity.

Mr. Bogle said this in a Morningstar interview:
The other thing that's typical of an industry that's going kind of marketing-wild is think about [how much] are people saying you should put in these exotic, if you will, (international) bond funds. And they say, well, maybe 5% of your bond position or 10% of your bond position. Well, that's not going to change your returns. They're expensive. They have hedging costs--I guess about half are hedged and half are not. I don't even an opinion about which is which because I wouldn't buy either.
Boglehead author and adviser, Bill Bernstein wrote this article: Don't Bother With International Bonds

During the 2015 Boglehead Conference, my expert co-author, Rick Ferri, told an interviewer: "Forget foreign bonds."

Morningstar article:Vanguard's Total International Bond exchange-traded fund is a poor investment today (8-01-14)

For the above reasons, I will not add Total International Bond Index to the very successful Three Fund Portfolio.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

User avatar
Taylor Larimore
Advisory Board
Posts: 26617
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio Book Cover

Post by Taylor Larimore » Tue Feb 13, 2018 10:12 pm

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

User avatar
abuss368
Posts: 12151
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: The Three-Fund Portfolio Book Cover

Post by abuss368 » Tue Feb 13, 2018 10:26 pm

Taylor Larimore wrote:
Tue Feb 13, 2018 10:12 pm
Image
Best wishes.
Taylor
That is incredible! I can not wait to read this book!
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

User avatar
Calygos
Posts: 386
Joined: Tue Jan 13, 2015 3:48 pm

Re: The Three-Fund Portfolio Book Cover

Post by Calygos » Fri Feb 16, 2018 9:38 pm

abuss368 wrote:
Tue Feb 13, 2018 10:26 pm
Taylor Larimore wrote:
Tue Feb 13, 2018 10:12 pm
Image
Best wishes.
Taylor
That is incredible! I can not wait to read this book!
Agreed, thank you, Taylor! I gave my copy of the first Bogleheads' Guide to a colleague (who's now at Vanguard!) and I'm stoked about thie one!

User avatar
HuckFinn
Posts: 44
Joined: Sun Oct 18, 2015 8:41 pm

Re: The Three-Fund Portfolio

Post by HuckFinn » Sun Feb 18, 2018 7:50 pm

Excited to read the book too. Thanks Taylor!

kayanco
Posts: 612
Joined: Sat Jun 07, 2014 12:20 am

Re: The Three-Fund Portfolio

Post by kayanco » Mon Feb 19, 2018 5:35 pm

I thought of asking this question from another thread:

Those that hold the 3-fund portfolio, why is there no consideration that in the future, the USD could be weaker than, let's say the pound or euro?

- Is this not much of a risk? Or too small of a risk to worry about?
- Or, does holding the 3-fund portfolio (e.g. with Vanguard, Fidelity, etc), already protect against such a scenario? (maybe due to holding international stocks as well, e.g. Vanguard total international).
- If none of the above, what would a US investor do to protect against a scenario that the US currency would be much weaker than today?
- Does the answer depend on if you want to retire in the US, or abroad? If so, can you please explain how and what could be done in each case?

Thanks.

User avatar
Taylor Larimore
Advisory Board
Posts: 26617
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore » Tue Feb 20, 2018 4:37 pm

kayanco:

This Investopedia article, 3 Strategies to Mitigate Currency Risk should answer your question.

If you want more information about Currency Risk, please start a new topic on the "Investing - Theory, News & General" forum.

Thank you and best wishes.
Taylor
Last edited by Taylor Larimore on Tue Feb 20, 2018 8:33 pm, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle

User avatar
saltycaper
Posts: 2561
Joined: Thu Apr 24, 2014 8:47 pm
Location: The Tower

Re: The Three-Fund Portfolio

Post by saltycaper » Tue Feb 20, 2018 6:14 pm

Taylor Larimore wrote:
Tue Feb 20, 2018 4:37 pm

For your information, Vanguard Total International Index Fund is hedged against currency risk.
Total Int'l Stock Index is not hedged. Maybe you are thinking of Total Int'l Bond Index. (Poster was referring to Total Int'l Stock Index.)
Quod vitae sectabor iter?

User avatar
Taylor Larimore
Advisory Board
Posts: 26617
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore » Tue Feb 20, 2018 8:29 pm

saltycaper wrote:
Tue Feb 20, 2018 6:14 pm
Total Int'l Stock Index is not hedged. Maybe you are thinking of Total Int'l Bond Index. (Poster was referring to Total Int'l Stock Index.)
saltycaper:

Good catch. I will edit my post. Thank you for the correction.

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

User avatar
Barry Barnitz
Wiki Admin
Posts: 2987
Joined: Mon Feb 19, 2007 10:42 pm
Contact:

Re: The Three-Fund Portfolio

Post by Barry Barnitz » Wed Feb 21, 2018 3:44 pm

Hi:

We would like to thank Taylor for granting our affiliate blog an interview about his upcoming book on the three-fund portfolio.

Link: Interview with Taylor Larimore, author of The Bogleheads Guide to the Three-Fund Portfolio.

regards,
Image | blb | December Birthday Celebration: Ludwig van Beethoven

Neus
Posts: 37
Joined: Fri Sep 22, 2017 2:12 am

Re: The Three-Fund Portfolio

Post by Neus » Fri Feb 23, 2018 9:12 am

I'm quite newbie here

Still confused how total return strategy with 3 fund covers spending when stock market crashes say 40% from previous high, do we still withdraw at initially decided rate (say 3% withdrawal rate) or?

longinvest
Posts: 2547
Joined: Sat Aug 11, 2012 8:44 am

Re: The Three-Fund Portfolio

Post by longinvest » Fri Feb 23, 2018 9:17 am

Neus wrote:
Fri Feb 23, 2018 9:12 am
I'm quite newbie here

Still confused how total return strategy with 3 fund when stock market crashes say 40% from previous high, do we still withdraw at initially decided rate (say 3% withdrawal rate), or not drawing until the market bounce back
This is probably beyond the scope of this Three-Fund Portfolio discussion. I would try to learn about flexible withdrawal models such as our Wiki's Variable percentage withdrawal (VPW) which is a great companion to the Three-Fund Portfolio.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

dbr
Posts: 25389
Joined: Sun Mar 04, 2007 9:50 am

Re: The Three-Fund Portfolio

Post by dbr » Fri Feb 23, 2018 9:19 am

Neus wrote:
Fri Feb 23, 2018 9:12 am
I'm quite newbie here

Still confused how total return strategy with 3 fund when stock market crashes say 40% from previous high, do we still withdraw at initially decided rate (say 3%), or not drawing
Total return is not a strategy. Total return is how you do investment accounting correctly. All withdrawal plans have to start with correct accounting or the results are garbage. Dividend investing is an investment selection tactic the benefits or lack of benefits of which are elucidated by calculating return.

As far as withdrawal planning, there are extensive discussions in many threads that address this. Some current ones are:

viewtopic.php?f=10&t=241773

viewtopic.php?f=10&t=120430

viewtopic.php?f=10&t=241608

Neus
Posts: 37
Joined: Fri Sep 22, 2017 2:12 am

Re: The Three-Fund Portfolio

Post by Neus » Fri Feb 23, 2018 9:39 am

dbr wrote:
Fri Feb 23, 2018 9:19 am
Neus wrote:
Fri Feb 23, 2018 9:12 am
I'm quite newbie here

Still confused how total return strategy with 3 fund when stock market crashes say 40% from previous high, do we still withdraw at initially decided rate (say 3%), or not drawing
Total return is not a strategy. Total return is how you do investment accounting correctly. All withdrawal plans have to start with correct accounting or the results are garbage. Dividend investing is an investment selection tactic the benefits or lack of benefits of which are elucidated by calculating return.

As far as withdrawal planning, there are extensive discussions in many threads that address this. Some current ones are:

viewtopic.php?f=10&t=241773

viewtopic.php?f=10&t=120430

viewtopic.php?f=10&t=241608
Thank you, will check it out

User avatar
cfs
Posts: 3620
Joined: Fri Feb 23, 2007 1:22 am
Location: At the corner of Activistan & Passivistan

Re: The Three-Fund Portfolio

Post by cfs » Fri Feb 23, 2018 12:15 pm

I have a pre-order for Mister Taylor's book on the 3-Funder, and my plan is to donate it to my local library when received. Thank you Mister Barry for the link to the interview with Mister Taylor. Gracias por leer ~cfs~
~ Your Money, Your Portfolio, Your Decision ~

Post Reply