Like Lifestrategy Funds but???

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Cody
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Like Lifestrategy Funds but???

Post by Cody » Thu Jul 12, 2018 10:22 am

I am "almost certainly" moving toward the purchase of LS in all retirement account (all in tax deferred and Roths - no taxable).

As I weed through the decision so many forum folks have help me, one be one, clarify and thoughts I have on them.

So one of my last questions has to do with Vanguard Total International Bond Index Fund Investor Shares as a component of LS. I currently have a 3 fund portfolio and would not chose to invest in the Vanguard Total International Bond Index Fund.

After reading some good discussions on the forum about international bond funds - I have become neutral on the matter.

So is a neutral view on international bonds enough to prevent one from buying LS?

PS - LS seems to fit all other criteria I can think of for us.

Thanks,
Cody

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David Jay
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Re: Like Lifestrategy Funds but???

Post by David Jay » Thu Jul 12, 2018 10:25 am

If you are looking at LS Growth or LS Moderate then international bonds is a pretty small percentage of the total fund holdings. I would not worry about it.

Now if you are looking at LS Income, then one should actively evaluate whether or not they choose to hold international bonds.
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Cody
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Re: Like Lifestrategy Funds but???

Post by Cody » Thu Jul 12, 2018 12:05 pm

I'm look at LS Moderate (40 equity/ 60 bonds).

I beleive LS40 has 18% international bonds. That would mean 42% Total Bond fund.

Isn't 18% quite a bit. That said I realize International bond and domestic bond have lots of crossover.

Cody

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nedsaid
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Re: Like Lifestrategy Funds but???

Post by nedsaid » Thu Jul 12, 2018 12:39 pm

I would not worry about International Bonds. The instruments that Vanguard holds in this International Bond Index Fund are currency hedged so you don't need to worry about currency fluctuation. These bonds are investment grade. My take is that International Bonds are entirely optional for an individual investor, probably won't help or hurt much. Vanguard experts believe that there are diversification benefits to owning International Bonds, if you buy the fund you are accepting their judgements. Their opinion is better informed than mine.
A fool and his money are good for business.

Texanbybirth
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Re: Like Lifestrategy Funds but???

Post by Texanbybirth » Thu Jul 12, 2018 1:25 pm

Here is Vanguard's take on it, if you care to understand their position in more detail.
  • An allocation to global bond markets gives investors exposure to a greater number of
    securities, markets, and economic and inflation environments than they would have with
    a portfolio composed purely of local market fixed income. In theory, this diversification
    can help reduce a portfolio’s volatility without necessarily decreasing its total return.

    We tested the empirical reality across five markets: the United States, Canada, the
    United Kingdom, the euro area, and Australia. In each market, reality confirms theory—
    but with a critical qualifier: The key to realizing the diversification potential of global
    bonds is to hedge the currency exposure back to the investor’s local currency.

    Although the benefits of global bond diversification are clear, the optimal strategic
    allocation depends on investor-specific factors such as the desire to mitigate risk, the
    cost of implementation, and liability management objectives. We explore how these
    factors influence the size of an investment in hedged global bonds

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Duckie
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Re: Like Lifestrategy Funds but???

Post by Duckie » Thu Jul 12, 2018 4:43 pm

Cody wrote:So is a neutral view on international bonds enough to prevent one from buying LS?
No.

I am not a fan of international bonds and would not buy the individual fund, but my dislike of them would not stop me from using LifeStrategy or Target Retirement funds if I wanted a simple balanced fund. So even though I am not neutral I would not be averse to holding some international bonds. Since you are neutral I see no reason for you to hesitate.

tomd37
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Re: Like Lifestrategy Funds but???

Post by tomd37 » Thu Jul 12, 2018 6:26 pm

Cody - LifeStrategy Moderate is 60/40, not 40/60 stocks/bonds. Don't know if that changes your thinking.
Tom D.

kmurp
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Re: Like Lifestrategy Funds but???

Post by kmurp » Thu Jul 12, 2018 7:02 pm

Are there any issues in holding one lifestyle fund in retirement vs a three fund with regards to withdrawals and rebalancing?

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ruralavalon
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Re: Like Lifestrategy Funds but???

Post by ruralavalon » Thu Jul 12, 2018 7:58 pm

Cody wrote:
Thu Jul 12, 2018 10:22 am
I am "almost certainly" moving toward the purchase of LS in all retirement account (all in tax deferred and Roths - no taxable).

As I weed through the decision so many forum folks have help me, one be one, clarify and thoughts I have on them.

So one of my last questions has to do with Vanguard Total International Bond Index Fund Investor Shares as a component of LS. I currently have a 3 fund portfolio and would not chose to invest in the Vanguard Total International Bond Index Fund.

After reading some good discussions on the forum about international bond funds - I have become neutral on the matter.

So is a neutral view on international bonds enough to prevent one from buying LS?

PS - LS seems to fit all other criteria I can think of for us.

Thanks,
Cody
The relatively small allocation in international bonds cannot help much, and cannot hurt much. I would not let the presence of international bonds in the LifeStrategy funds deter me from using those funds.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

michaeljc70
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Re: Like Lifestrategy Funds but???

Post by michaeljc70 » Thu Jul 12, 2018 8:44 pm

It wouldn't deter me. But I do hold an international bond fund. I think that many that are against the international bond fund are because it is an additional hassle to add another fund if you are doing a 3 fund portfolio and it isn't worth it or they don't entirely understand it. I saw a thread the other day where someone said they didn't want currency risk so they wouldn't buy it. However, BNDX is currency hedged. Another person said they only invest in things they "understand" and they don't understand currency hedging (have to wonder if they understand the 1000s of companies in a total stock fund or the intricacies of total bond). I agree that it isn't necessary, but it has outperformed BND recently. Since we can't predict the future, I hold it as I see little downside to doing so.

123
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Re: Like Lifestrategy Funds but???

Post by 123 » Thu Jul 12, 2018 8:57 pm

I had exactly the same feelings about the international bonds component of the Vanguard LifeStrategy funds as the OP. I didn't hate them but I wasn't a fan. I came to the conclusion that Vanguard may know more than I do. The LifeStrategy funds may not be a "perfect" option for a single fund option for retirement accounts but it was "good enough". I've moved our traditional IRA accounts to 100% LifeStrategy Moderate, moving from 3 and 4 fund mixes, and I've been satisfied so far. I couldn't find an alternative fund that would give me the mix of stocks/bonds/international I wanted at a reasonable cost. The expense ration is higher than if you did it yourself with admiral class funds but I regard the extra cost as the cost of "insurance" that my spouse will be able to handle the portfolio when I am no longer around without resorting to a financial adviser.
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Doctor Rhythm
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Re: Like Lifestrategy Funds but???

Post by Doctor Rhythm » Thu Jul 12, 2018 9:37 pm

Not the answer you're looking for, but I was wondering why you would want to consolidate a 3-fund portfolio into a single fund (which includes securities that you aren't thrilled about)? Your expenses will be lower with the individual funds, and it requires just a few minutes each year to rebalance.

Dude2
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Re: Like Lifestrategy Funds but???

Post by Dude2 » Thu Jul 12, 2018 10:14 pm

I love LS funds (or TR) because they help me not to tinker. Set it and forget it.

I am also neutral on IB, and neutral means I will not let it influence me negatively toward LS.

In terms of stock, US and international are highly correlated, so what really makes the difference in return are currency fluctuations. In certain years it may appear that international does really well vs. the US (or visa-versa), but what really is going on is that the dollar is weakening (or strengthening). We hold international, in general, to reduce risk (and by risk I do not mean volatility). Since the IB is hedged, we can ignore currency risk.

If you're willing to accept 40% international stock allocation in LS (probably because you accept the idea of reducing risk by spreading stocks over the world market), then it does not seem logical to be biased against currency hedged international bonds for exactly the same reasons. At least that is one perspective.

Dandy
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Re: Like Lifestrategy Funds but???

Post by Dandy » Fri Jul 13, 2018 6:53 am

Similar concerns about International bonds and also that I'm becoming a bit less put off by them. I'm 70 and down the road want to make my TIRA account simpler. I was looking at LS conservative fund but the higher the bond allocation the higher allocation to international bonds. Retirement Income fund splits that allocation to International bonds (16%)and short term inflation protection fund (16.9%). I find that a bit more acceptable.

Eventually, I might have just Balanced Index, A short term bond fund and Retirement Income. Or just Retirement Income?? Hopefully, VG will stop making major changes to these LS and TD funds so we have a more stable product.

John Z
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Re: Like Lifestrategy Funds but???

Post by John Z » Fri Jul 13, 2018 7:28 am

kmurp wrote:
Thu Jul 12, 2018 7:02 pm
Are there any issues in holding one lifestyle fund in retirement vs a three fund with regards to withdrawals and rebalancing?
Yes, there are some issues but they could be small. Download for free and read the first three chapters of
http://livingoffyourmoney.com/
where the author provides about a dozen known and a couple new retirement withdrawal strategies and you'll see that having a separate bond component is an integral part of most strategies.

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1210sda
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Re: Like Lifestrategy Funds but???

Post by 1210sda » Fri Jul 13, 2018 7:48 am

Doctor Rhythm wrote:
Thu Jul 12, 2018 9:37 pm
"and it requires just a few minutes each year to rebalance."
Reminds me of this old Archie Bunker episode: Archie has a TV repairman come by to fix his TV. When he's done, he presents Archie with a $50.00 repair bill (obviously a long time ago). Archie objected saying "$50 ?, all you did was connect that little wire". The TV guy reconsiders and presents Archie with a new bill....."Connecting a little wire, $0.50. Knowing which wire to connect, $49.50."

So yes, rebalancing will probably only take a few minutes a year. Knowing how to do it is the key.

I'm not saying rebalancing is very difficult.......just that for some it might be.

1210

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ofcmetz
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Re: Like Lifestrategy Funds but???

Post by ofcmetz » Fri Jul 13, 2018 10:57 am

I really like the Lifestrategy Funds. If I was looking for an all in one fund I'd choose one over even a Target Retirement Fund, because I prefer a fixed allocation and am not convinced that the glide paths are necessary. I use a 3 fund (plus TIAA Real Estate) portfolio, but am not apposed to international bonds. I wouldn't let them keep me from a Lifestrategy Fund if I was to go this route.
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arf30
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Re: Like Lifestrategy Funds but???

Post by arf30 » Fri Jul 13, 2018 11:40 am

I wish there were tax managed versions of the Lifestragey or Target funds so I could replace my 2 or 3 funds with a single one. Closest thing is the Vanguard tax managed balanced fund with a 50/50 asset allocation.

Austintatious
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Re: Like Lifestrategy Funds but???

Post by Austintatious » Fri Jul 13, 2018 11:48 am

OP, this new thread re Vanguard International Bond fund may be of interest to you.

viewtopic.php?f=10&t=253868&newpost=401 ... ead#unread

Broken Man 1999
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Re: Like Lifestrategy Funds but???

Post by Broken Man 1999 » Fri Jul 13, 2018 11:53 am

Maybe a better fit would be Vanguard Balanced Index Fund Admiral Shares (VBIAX).

60.08% Stocks
39.77% Bonds
0.15% Short-term reserves

There is no international in the equity or bond holdings, I don't think. All US.

I kinda like this mutual fund for a portfolio simplification effort I am contemplating.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

123
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Re: Like Lifestrategy Funds but???

Post by 123 » Fri Jul 13, 2018 2:33 pm

Broken Man 1999 wrote:
Fri Jul 13, 2018 11:53 am
Maybe a better fit would be Vanguard Balanced Index Fund Admiral Shares (VBIAX).

60.08% Stocks
39.77% Bonds
0.15% Short-term reserves

There is no international in the equity or bond holdings, I don't think. All US.

I kinda like this mutual fund for a portfolio simplification effort I am contemplating.

Broken Man 1999
When I did my choosing it came down to either Vanguard LifeStrategy Moderate Growth or Vanguard Balanced Index Fund (VBIAX). LifeStrategy had international, VBIAX did not. I went with LifeStategy thinking the international componenet gave additional divserification but some days I feel like VBIAX would be just as suitable. The other issue I had with VBIAX was that it wasn't strictly composed of index funds but had it's own collection of investments that generaly followed the indexes, kind of a minor quible considering the size of VBIAX.
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Doctor Rhythm
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Re: Like Lifestrategy Funds but???

Post by Doctor Rhythm » Fri Jul 13, 2018 6:09 pm

I'm not saying rebalancing is very difficult.......just that for some it might be.
Granted, but the OP is a long-term Boglehead and was already knowledgeable enough to set up and maintain a 3-fund portfolio.

Cody
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Re: Like Lifestrategy Funds but???

Post by Cody » Sat Jul 14, 2018 10:13 am

I have indeed done rebalancing over the years. My wife, however, probably would be tempted to get an advisor to help. She is aware of that expense but might feel like she does not want to go it alone if I should pass on.

With only retirement money in tax deferred and Roths (again no real taxable moneys) LS would seem easy for her, and us, to set it and forget it.

It seems that the more I learn about portfolio management the less I think that very specific numbers in a allocation, although necessary, but may not be worth putting to much time into. And example for me would be: I currently have in equity 14% international. So now I think about LS40 and I get 23% in international equity. In my book that is no biggy.

I use all my Bogleheads wisdom to remember some basic "rules". One of which is the single biggest decision one makes with investments is selecting the AA that meets your risk tolerance. What funds go specifically into equity and bonds is secondary. And don't let the quest for a perfect portfolio get in the way of a good one. LS, once chosen, sets the most important issue up from: which AA do you want? Then Vanguard does the rest.

And yet I find myself thinking about our over all AA, portfolio efficient placement, generally putting equity in Roths and bonds in tax deferred, how RMD should be taken in a very good or very poor market (sell bonds if bonds are up) etc. etc.

With LS, after selecting the "best" AA for us, all of those "secondary things" drift away.

Thoughts,
Cody

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GoldStar
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Re: Like Lifestrategy Funds but???

Post by GoldStar » Sun Jul 15, 2018 6:40 am

1210sda wrote:
Fri Jul 13, 2018 7:48 am
Doctor Rhythm wrote:
Thu Jul 12, 2018 9:37 pm
"and it requires just a few minutes each year to rebalance."
Reminds me of this old Archie Bunker episode: Archie has a TV repairman come by to fix his TV. When he's done, he presents Archie with a $50.00 repair bill (obviously a long time ago). Archie objected saying "$50 ?, all you did was connect that little wire". The TV guy reconsiders and presents Archie with a new bill....."Connecting a little wire, $0.50. Knowing which wire to connect, $49.50."

So yes, rebalancing will probably only take a few minutes a year. Knowing how to do it is the key.

I'm not saying rebalancing is very difficult.......just that for some it might be.

1210
Also - the cost difference is very low. Depending upon what your 3fund AA is and what LS account you choose the ERs will vary but the difference will certainly never be greater than 0.1% (highest LS ER is 0.14% and lowest ER in 3Fund is 0.04%). For many this is a small price to pay to simplify decisions and account management over their lifetime.

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JMacDonald
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Re: Like Lifestrategy Funds but???

Post by JMacDonald » Sun Jul 15, 2018 8:07 am

I remember when Vanguard added the International Bond Fund. There was much discussion here. After 5 years, the International Bond Fund has returned 3.87% while the Total Bond Fund has returned 2.20%. At least for the past 5 years nobody has been hurt who had the International Bond Fund.
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harvestbook
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Re: Like Lifestrategy Funds but???

Post by harvestbook » Sun Jul 15, 2018 9:47 am

It's the second-largest asset class in the world behind international real estate. So any deviation from that is an active decision. My 401k is LS Growth and I'm fine with a slice of it, even though I am wildly underweight global cap.

I doubt if anyone in the world holds a true market-weight portfolio:
https://pensionpartners.com/searching-f ... portfolio/
I'm not smart enough to know, and I can't afford to guess.

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ruralavalon
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Re: Like Lifestrategy Funds but???

Post by ruralavalon » Sun Jul 15, 2018 10:01 am

harvestbook wrote:
Sun Jul 15, 2018 9:47 am
It's the second-largest asset class in the world behind international real estate. So any deviation from that is an active decision. My 401k is LS Growth and I'm fine with a slice of it, even though I am wildly underweight global cap.

I doubt if anyone in the world holds a true market-weight portfolio:
https://pensionpartners.com/searching-f ... portfolio/
That is an interesting article about what the idea of "market weight" could mean for an investor.

Thank you for the link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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nedsaid
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Re: Like Lifestrategy Funds but???

Post by nedsaid » Sun Jul 15, 2018 12:18 pm

Dude2 wrote:
Thu Jul 12, 2018 10:14 pm
I love LS funds (or TR) because they help me not to tinker. Set it and forget it.
Let Vanguard do the tinkering for you. :wink:
A fool and his money are good for business.

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nedsaid
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Re: Like Lifestrategy Funds but???

Post by nedsaid » Sun Jul 15, 2018 12:21 pm

JMacDonald wrote:
Sun Jul 15, 2018 8:07 am
I remember when Vanguard added the International Bond Fund. There was much discussion here. After 5 years, the International Bond Fund has returned 3.87% while the Total Bond Fund has returned 2.20%. At least for the past 5 years nobody has been hurt who had the International Bond Fund.
Hmmm. This is interesting, I did not know that. This is what I mean when I say that when you buy a Target Date or a Target Risk (LifeStrategy) fund, that you are buying into the best of the fund company's thinking. They might be right or they might be wrong. In this case, the experts at Vanguard were right.
A fool and his money are good for business.

sambb
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Re: Like Lifestrategy Funds but???

Post by sambb » Sun Jul 15, 2018 1:14 pm

nedsaid wrote:
Sun Jul 15, 2018 12:21 pm
JMacDonald wrote:
Sun Jul 15, 2018 8:07 am
I remember when Vanguard added the International Bond Fund. There was much discussion here. After 5 years, the International Bond Fund has returned 3.87% while the Total Bond Fund has returned 2.20%. At least for the past 5 years nobody has been hurt who had the International Bond Fund.
Hmmm. This is interesting, I did not know that. This is what I mean when I say that when you buy a Target Date or a Target Risk (LifeStrategy) fund, that you are buying into the best of the fund company's thinking. They might be right or they might be wrong. In this case, the experts at Vanguard were right.
I remember the discussions too, and many were negative on intl bonds (and many still are). Thanks for this data point. makes me so happy im not in a three fund portfolio!!!

Cody
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Re: Like Lifestrategy Funds but???

Post by Cody » Sun Jul 15, 2018 4:13 pm

Speaking of the 3 fund portfolio (to compare returns).

It would seem, and my research might be a bit faulty but, the 10 year returns for LS 40 are 5.97% and a 40-60 3FP (3 fund portfolio) has a return of 6.39.

Does that surprise anyone? Does anyone have better data for comparison?

Disclaimer: past performance etc etc.

Cody

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1210sda
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Re: Like Lifestrategy Funds but???

Post by 1210sda » Sun Jul 15, 2018 5:47 pm

Cody wrote:
Sun Jul 15, 2018 4:13 pm
Speaking of the 3 fund portfolio (to compare returns).

It would seem, and my research might be a bit faulty but, the 10 year returns for LS 40 are 5.97% and a 40-60 3FP (3 fund portfolio) has a return of 6.39.

Does that surprise anyone? Does anyone have better data for comparison?

Disclaimer: past performance etc etc.

Cody
Part of the answer might be that the Lifestrategy funds weren't passive for the full 10 yrs. They became "all index" on 9/30/2011.

So they were comparable for just 6 of the last 10 years.

1210

Doctor Rhythm
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Re: Like Lifestrategy Funds but???

Post by Doctor Rhythm » Sun Jul 15, 2018 7:31 pm

Depending upon what your 3fund AA is and what LS account you choose the ERs will vary but the difference will certainly never be greater than 0.1% (highest LS ER is 0.14% and lowest ER in 3Fund is 0.04%). For many this is a small price to pay to simplify decisions and account management over their lifetime.
There's a active discussion on the non-investment personal finance forum about the difference between being frugal and a cheapskate that seems appropriate for this. If one's portfolio approaches a 2-comma figure, you're talking about $1000 for 30 minutes of work per year. That's more than I ever got paid for doing anything that I'm comfortable describing in a family-oriented forum.

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