Boglenaut wrote: ↑
Mon Jan 02, 2012 12:54 am
ofcmetz wrote:I really like the three fund portfolio, but I can't resist the urge to season mine with a few extra REIT's and TIP's. So I guess the cajun in me likes something slightly more spicy.
I am not Cajun, but agree. How could anyone argue with the three fund portfolio? But of course in my eternal quest to improve on perfection, I have some TIPS, REITs, and some small/mid cap around the edges. I even put in a tiny pinch of HY Bond for seasoning. But those three funds (or their equivelents) do all the heavy lifting.
But if I only had the three funds, I'd be fine with that. This year (oops, I mean last year) I reduced my taxable funds from 6 to 2.
I came up with an interesting portfolio concept when toying with a portfolio that included real estate for a friend who did not want to invest directly in physical real estate, and did not want international stocks. They wanted it to be liquid and potentially easy to construct in a 401k.
Lets look at the three fund portfolio's skeleton:
* 60% A US Stock Market Index
* 20% A diversifier that attempts to avoid overlap with the first, which in most cases would be international stocks
* A bond fund or cash allocation to cushion the more volatile parts of the portfolio, and provide room for rebalancing
if we want to include REITs, which seem pretty solid and resistant to inflation we can use
* 60% US Stock Market Index Fund
* 20% REIT Index Fund
* 20% Bond Fund or Cash(CD Ladders?) Allocation
This would give a person some real estate exposure, resistance to inflation, reduce potential international risks, increase gains because of REIT growth potential, and be relatively easy to maintain. Diversified, and easy to use.
Sample funds I would use if I had 10k to make one of these:
VTI stock market
Personally I split my investable money, almost everything I make that doesn't get eaten by essential bills, between direct real estate and my boglehead three fund 401k and other accounts (each with a three fund portfolio). The real estate is not rebalanced with the three fund portfolios because it isn't very liquid......but my three fund cannot really have REITs because I already have a real estate heavy portfolio....... so international makes more sense for me, which is why recently I began increasing it from 5% to closer towards 20%.