Vanguard Returns Extremely Disappointed

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OldSport
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Vanguard Returns Extremely Disappointed

Post by OldSport » Wed Jan 02, 2019 4:23 pm

I've looked at my Vanguard Returns, and my 3,5,10 years are extremely disappointing.

10 year: 4.5%
Both 3 and 5 years: 3.6%
1 year is negative.

It is so depressing to have such lousy returns during what was called a historic bull market. With this pathetic rate of return, I can never retire!!!

Some facts that contributed to lousy performance:
- I wasn't able to start saving real money until recently, so 80% of VG contribtions were made the last 4.5 years.
- I went through a Paul Merriman fad so had 50% International between 2014 and 2017. After more review, 30% is per my IPS, 50% is too much - getting there with contributions.
- Had actively managed Selected Value which underperformed its index terribly. I swtiched to mid cap index.

When I started with VG when I was young, I had 100% invested in Wellington. It sucks that Wellington by far outperformed what I did. Wellington's performance has equalled Total stock with much less volatility. I'm surprised that Wellington has done so well so consistently.

Texanbybirth
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Re: Vanguard Returns Extremely Disappointed

Post by Texanbybirth » Wed Jan 02, 2019 4:25 pm

Sounds like you might be comfortable with just Wellington. Lesson learned, but today is a great day to start over. :beer
"Knowledge and innocence are both excellent things, and they are both very funny. But it is right that knowledge should be the servant and innocence the master." - GK Chesterton

Gill
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Re: Vanguard Returns Extremely Disappointed

Post by Gill » Wed Jan 02, 2019 4:26 pm

OldSport wrote:
Wed Jan 02, 2019 4:23 pm
... 80% of VG contribtions were made the last 4.5 years.
So what is the relevance of your benchmark performance figures?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

WhiteMaxima
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Re: Vanguard Returns Extremely Disappointed

Post by WhiteMaxima » Wed Jan 02, 2019 4:29 pm

compare to CD rate and bond, I will take 4.5% return.

TIAX
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Re: Vanguard Returns Extremely Disappointed

Post by TIAX » Wed Jan 02, 2019 4:34 pm

OldSport wrote:
Wed Jan 02, 2019 4:23 pm
- Had actively managed Selected Value which underperformed its index terribly. I swtiched to mid cap index.
So you sell low and you wonder why you have mediocre returns? You can't change your AA every time a part of it isn't performing well.

sambb
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Re: Vanguard Returns Extremely Disappointed

Post by sambb » Wed Jan 02, 2019 4:36 pm

International and emerging markets might do well going forward.

neilpilot
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Re: Vanguard Returns Extremely Disappointed

Post by neilpilot » Wed Jan 02, 2019 4:38 pm

sambb wrote:
Wed Jan 02, 2019 4:36 pm
International and emerging markets might do well going forward.
....or might not. Could say that about any segment of the equity market.

bloom2708
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Re: Vanguard Returns Extremely Disappointed

Post by bloom2708 » Wed Jan 02, 2019 4:40 pm

Are you 30% stocks, 50% stocks? What are you comparing to?

It does no good to compare your portfolio to the DOW, S&P or NASDAQ returns. Or Wellington for that matter.

Vanguard holds your items. The market provides the return (or lack of) based on what you hold and how much it costs.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

delamer
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Re: Vanguard Returns Extremely Disappointed

Post by delamer » Wed Jan 02, 2019 4:40 pm

We all make investment decisions and then live with the results. Unless a Vanguard advisor suggested the funds you invested in, then Vanguard just offered you choices not recommendations.

Best to learn from your mistakes and move on.

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GoldStar
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Re: Vanguard Returns Extremely Disappointed

Post by GoldStar » Wed Jan 02, 2019 4:40 pm

OldSport wrote:
Wed Jan 02, 2019 4:23 pm
- I went through a Paul Merriman fad so had 50% International between 2014 and 2017. After more review, 30% is per my IPS, 50% is too much - getting there with contributions.
- Had actively managed Selected Value which underperformed its index terribly. I swtiched to mid cap index.
You mean "the Funds I selected with Vanguard were Extremely Disappointing" - many of us aren't disappointed with the funds we selected.
Pick a strategy and stick with it. If you switched from Selected Value because it underperformed to something else that "was" performing better you are chasing performance - and you will always lose.
Before making more changes read a few books and select a long-term strategy. If you dump the active funds and go all-in on index funds the one thing you won't end up doing is underperforming an index.

indexonlyplease
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Re: Vanguard Returns Extremely Disappointed

Post by indexonlyplease » Wed Jan 02, 2019 4:48 pm

We have all made investing mistakes. This is why I believe most would be better off with one fund balance target and just fund it. To many mistake here with people chasing for better returns. You were right with Wellington but you had to keep playing. We all have done this.

yohac
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Re: Vanguard Returns Extremely Disappointed

Post by yohac » Wed Jan 02, 2019 5:01 pm

OldSport wrote:
Wed Jan 02, 2019 4:23 pm
When I started with VG when I was young, I had 100% invested in Wellington. It sucks that Wellington by far outperformed what I did. Wellington's performance has equalled Total stock with much less volatility. I'm surprised that Wellington has done so well so consistently.
Presumably you left Wellington because you were unhappy with it at the time. Your story reminds me of the new respect I have for the LifeStrategy and Target Retirement funds. They will never beat the "good" managed funds (as determined after the fact) or be loaded up in the "right" asset class as the right time. They will just follow their indexes, automatically rebalancing along the way. Less potential for regret - or at least, regret for making the wrong bet.

bluquark
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Re: Vanguard Returns Extremely Disappointed

Post by bluquark » Wed Jan 02, 2019 5:08 pm

OldSport wrote:
Wed Jan 02, 2019 4:23 pm
- I went through a Paul Merriman fad so had 50% International between 2014 and 2017. After more review, 30% is per my IPS, 50% is too much - getting there with contributions.
50% of my equity is international and my 10-year return is similar to yours. The world has not been on a historic bull market, only the US has. You performed close to exactly as the average world investor in this period, getting fair total world market returns as you planned. Unlike other posters, I don't think you made any serious mistake. Just ignore the market benchmarks in US news moving forward as you're following a different benchmark with your 30% international.

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bottlecap
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Re: Vanguard Returns Extremely Disappointed

Post by bottlecap » Wed Jan 02, 2019 5:24 pm

If you invested in an index, you got exactly what you bargained for.

If you invested with an active fund, you got exactly what you bargained for.

If you think Vanguard had anything to do with your results, you are mistaken, and perhaps it’s time to go back to your investment learning.

JT

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mhc
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Re: Vanguard Returns Extremely Disappointed

Post by mhc » Wed Jan 02, 2019 5:38 pm

Don't be so disappointed. Sounds like you bought yourself an education just like the rest of us.

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tennisplyr
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Re: Vanguard Returns Extremely Disappointed

Post by tennisplyr » Wed Jan 02, 2019 5:42 pm

Don't blame Vanguard, your AA is likely very conservative.
Those who move forward with a happy spirit will find that things always work out.

Call_Me_Op
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Re: Vanguard Returns Extremely Disappointed

Post by Call_Me_Op » Wed Jan 02, 2019 5:43 pm

Sounds like you didn't understand why you were investing in the things you were investing in. That is a sure path for not being able to stick with a portfolio through the inevitable times when tracking error is negative.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

Rus In Urbe
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Re: Vanguard Returns Extremely Disappointed

Post by Rus In Urbe » Wed Jan 02, 2019 5:45 pm

You can become a mature and wise investor, and realize that what you save is even more important than how you invest. :oops:

Or you can chase better returns elsewhere: buy a "winning" stock and some lottery tickets, or visit Las Vegas.

Your choice. Your future.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

Topic Author
OldSport
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Re: Vanguard Returns Extremely Disappointed

Post by OldSport » Wed Jan 02, 2019 6:58 pm

I never sold Wellington. I still have that original investment. It's done well. The different AA is from new investments.

All new funds go to 100% stock unless its a short term goal or replenishing emergency fund.

I sold Selected Value as it was terribly tax inefficient as well as a poor performer. I only bought it since it fared much better than its index in the 2008-2009 bear. At the time, I thought it would have similar performance as the index with less volatility. I was wrong. I sold it to buy Mid Cap Index and Tax Managed Small Cap (S&P small cap 600 Index). Those funds should match their indicies, so they are what they are. I am OK with that.

What I am torn on is how to handle International. Forgetting the recent US outperformance, International still seems to lag domestic performance over the long term by ~2% CAGR. That is huge!

Vanguard's Actively Managed International Funds (Growth, Value, Explorer) when cap and value weighted to match Total International have significantly outperformed the index. I understand it is hard to beat indexes in US, but given the global index construction, is it easier for skilled active managers to outperform?

GrowthSeeker
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Re: Vanguard Returns Extremely Disappointed

Post by GrowthSeeker » Wed Jan 02, 2019 7:10 pm

OldSport wrote:
Wed Jan 02, 2019 4:23 pm
I've looked at my Vanguard Returns, and my 3,5,10 years are extremely disappointing.

...

When I started with VG when I was young, I had 100% invested in Wellington. It sucks that Wellington by far outperformed what I did. Wellington's performance has equalled Total stock with much less volatility. I'm surprised that Wellington has done so well so consistently.
Well the rear view mirror always sees 20:20, or bats 1000, pick your metaphor of choice.

I recall I had $25,000 to invest back in 1995. I had just enough to buy one share of Berkshire Hathaway. My analysis told me this would be a good choice. But if I did that, I wouldn't have the money to buy other things. So I passed. I lost money in something else. This was before BRK-B existed so it was just BRK (now BRK-A). I recall the share price was between $24,500 and $25,000.
Had I bought one share of BRK then, at (say) $25,000 and held it all this time (whose to say I would have, but if I had), BRK-A is now about $304,000 which is an annualized growth rate of about 11.5%.

But I'm not kicking myself; I made a decision; I learned a little from it. I'm not sure what I learned, except you can't predict the future.
Just because you're paranoid doesn't mean they're NOT out to get you.

radiowave
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Re: Vanguard Returns Extremely Disappointed

Post by radiowave » Wed Jan 02, 2019 7:12 pm

yohac wrote:
Wed Jan 02, 2019 5:01 pm
OldSport wrote:
Wed Jan 02, 2019 4:23 pm
When I started with VG when I was young, I had 100% invested in Wellington. It sucks that Wellington by far outperformed what I did. Wellington's performance has equalled Total stock with much less volatility. I'm surprised that Wellington has done so well so consistently.
Presumably you left Wellington because you were unhappy with it at the time. Your story reminds me of the new respect I have for the LifeStrategy and Target Retirement funds. They will never beat the "good" managed funds (as determined after the fact) or be loaded up in the "right" asset class as the right time. They will just follow their indexes, automatically rebalancing along the way. Less potential for regret - or at least, regret for making the wrong bet.
+1, op just pick the TD or balanced fund that suits your risk tolerance then don't look at it for a few years. I actually did that for about 10 years, and when I finally looked at it was surprised how well it did. Now I look at the market quite often and sometimes drive myself crazy :beer
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

BogleMelon
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Re: Vanguard Returns Extremely Disappointed

Post by BogleMelon » Wed Jan 02, 2019 7:17 pm

I think the fundamental problem here is a behavoioral. I could be wrong, but you seem like you are trying to chase the winners. By chasing the winners you guarantee yourself lousy returns forever as you sell low and buy high every time you make a new decisions. Better approach is to buy a life strategy fund or a target date fund with bonds allocation ratio that allows you to sleep at night, then never tocuh it again unless you are contributing or withdrawing during retirement years
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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vitaflo
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Re: Vanguard Returns Extremely Disappointed

Post by vitaflo » Wed Jan 02, 2019 7:18 pm

Just to be clear, you do realize that’s 4.5% per year for 10 years not 4.5% total right? I remember a post a long time ago where someone had this confused, so wanted to clarify.

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ruralavalon
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Re: Vanguard Returns Extremely Disappointed

Post by ruralavalon » Wed Jan 02, 2019 7:23 pm

OldSport wrote:
Wed Jan 02, 2019 4:23 pm
I've looked at my Vanguard Returns, and my 3,5,10 years are extremely disappointing.

10 year: 4.5%
Both 3 and 5 years: 3.6%
1 year is negative.

It is so depressing to have such lousy returns during what was called a historic bull market. With this pathetic rate of return, I can never retire!!!

Some facts that contributed to lousy performance:
- I wasn't able to start saving real money until recently, so 80% of VG contribtions were made the last 4.5 years.
- I went through a Paul Merriman fad so had 50% International between 2014 and 2017. After more review, 30% is per my IPS, 50% is too much - getting there with contributions.
- Had actively managed Selected Value which underperformed its index terribly. I swtiched to mid cap index.

When I started with VG when I was young, I had 100% invested in Wellington. It sucks that Wellington by far outperformed what I did. Wellington's performance has equalled Total stock with much less volatility. I'm surprised that Wellington has done so well so consistently.
OldSport wrote:
Wed Jan 02, 2019 6:58 pm

I never sold Wellington. I still have that original investment. It's done well. The different AA is from new investments.

All new funds go to 100% stock unless its a short term goal or replenishing emergency fund.

I sold Selected Value as it was terribly tax inefficient as well as a poor performer. I only bought it since it fared much better than its index in the 2008-2009 bear. At the time, I thought it would have similar performance as the index with less volatility. I was wrong. I sold it to buy Mid Cap Index and Tax Managed Small Cap (S&P small cap 600 Index). Those funds should match their indicies, so they are what they are. I am OK with that.

What I am torn on is how to handle International. Forgetting the recent US outperformance, International still seems to lag domestic performance over the long term by ~2% CAGR. That is huge!

Vanguard's Actively Managed International Funds (Growth, Value, Explorer) when cap and value weighted to match Total International have significantly outperformed the index. I understand it is hard to beat indexes in US, but given the global index construction, is it easier for skilled active managers to outperform?
Stop chasing performance. Short-term past performance is not a good predictor of future performance. Wiki article, "Callan periodic table of investment returns".
Bogleheads' wiki wrote:The chart is intended to show the importance of diversification . . . .
Refer to the table [in the link]. The rankings change every year, thereby demonstrating two key principles of investing:
Diversification: by owning the entire market (all of the asset classes), susceptibility to changes in market returns is minimized.
Past performance does not predict future performance.
That table shows annual returns for nine fund types ranked best to worst over the years 1999-2018 (20 years). There is no pattern, it is random.

I suggest that you do nothing right now. First educate yourself.

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom".Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Morgan Dollar 1921
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Re: Vanguard Returns Extremely Disappointed

Post by Morgan Dollar 1921 » Wed Jan 02, 2019 8:07 pm

The Chevy dealer I worked for closed December 2014, got bulldozed, it's a parking lot now. The stores closing was known in advance, many of the long term employees were not excited about finding new employment. The transmission tech retired in early 2014, he was 59, his wife and him had one child, they lived off of his income and saved her's. The drivability tech retired about a 10 months later. I was 60 and needed two more years and social security, to stop pounding the concrete handling auto parts.I asked the DT how Dave and he had invested to leave at such an early age.

His reply was priceless, "the trouble with most people is they worry about the percentage return on their savings not the percentage of income they save." I asked, 10%? I had done 5% for years, then they told us the bad news in 2009, and I jumped it to 10%. He said he had saved 15% for most of his working years and took advantage of the catch-up later. I offer those words of wisdom for all. I heard them too late to help myself.

I was sold the concept of 10% for many decades and counted the match as part of that strategy. His last statement to me really hit home. "Gene, it is so much easier to replace your pre-retirement income when over 40% of it goes to taxes, social security deductions and 20 percent savings." Yes by frugal lifestyle for decades he was in control of his destiny now. Thinking back I had known him since 1993, he worked there since 1989 and only owned four vehicles the entire time. The last two of them were Tacoma's and his newest one had very low miles and will serve him for a decade into retirement.

Olemiss540
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Re: Vanguard Returns Extremely Disappointed

Post by Olemiss540 » Wed Jan 02, 2019 8:23 pm

yohac wrote:
Wed Jan 02, 2019 5:01 pm
OldSport wrote:
Wed Jan 02, 2019 4:23 pm
When I started with VG when I was young, I had 100% invested in Wellington. It sucks that Wellington by far outperformed what I did. Wellington's performance has equalled Total stock with much less volatility. I'm surprised that Wellington has done so well so consistently.
Presumably you left Wellington because you were unhappy with it at the time. Your story reminds me of the new respect I have for the LifeStrategy and Target Retirement funds. They will never beat the "good" managed funds (as determined after the fact) or be loaded up in the "right" asset class as the right time. They will just follow their indexes, automatically rebalancing along the way. Less potential for regret - or at least, regret for making the wrong bet.
This is my strategy. Hindsight drives disappointment irregardless of how well the decision paid off. Disappointment drives emotional investing which all but certainly leads to performance chasing (OP is one example).

Forget hindsight and ACCEPT MARKET RETURNS. Tilts, sectors, etc, has anyone learned anything from our wonderful mentor Taylor? Simple and GUARANTEED to meet market returns (thus outperforming 80% of managed portfolios in the process). Target date funds will do all the work and minimize tinkering which most likely will lead to precluding bahavioral mistakes and improving long term returns.

Thank you Taylor!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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tooluser
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Re: Vanguard Returns Extremely Disappointed

Post by tooluser » Wed Jan 02, 2019 8:35 pm

Olemiss540 wrote:
Wed Jan 02, 2019 8:23 pm
yohac wrote:
Wed Jan 02, 2019 5:01 pm
OldSport wrote:
Wed Jan 02, 2019 4:23 pm
When I started with VG when I was young, I had 100% invested in Wellington. It sucks that Wellington by far outperformed what I did. Wellington's performance has equalled Total stock with much less volatility. I'm surprised that Wellington has done so well so consistently.
Presumably you left Wellington because you were unhappy with it at the time. Your story reminds me of the new respect I have for the LifeStrategy and Target Retirement funds. They will never beat the "good" managed funds (as determined after the fact) or be loaded up in the "right" asset class as the right time. They will just follow their indexes, automatically rebalancing along the way. Less potential for regret - or at least, regret for making the wrong bet.
This is my strategy. Hindsight drives disappointment irregardless of how well the decision paid off. Disappointment drives emotional investing which all but certainly leads to performance chasing (OP is one example).

Forget hindsight and ACCEPT MARKET RETURNS. Tilts, sectors, etc, has anyone learned anything from our wonderful mentor Taylor? Simple and GUARANTEED to meet market returns (thus outperforming 80% of managed portfolios in the process). Target date funds will do all the work and minimize tinkering which most likely will lead to precluding bahavioral mistakes and improving long term returns.

Thank you Taylor!
Ditto.

Also, market pullbacks are a great time to restructure your portfolio, after a careful and considered re-assessment of goals and risks. You can offset gains vs losses (if in a taxable account), and move toward an asset allocation that suits you better going forward. You may not be able to accomplish it all at once, but each little step towards that new plan helps going forward. I started reading the Bogleheads site ~2007 and did a restructure to a 10-speed portfolio in 2011. Later, after more research, I moved half into LifeStrategy funds. I plan to simplify more going forward.

AlphaLess
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Re: Vanguard Returns Extremely Disappointed

Post by AlphaLess » Wed Jan 02, 2019 8:44 pm

4 concepts are thoroughly confused in this post:
- investment system (or strategy): this is OPs,
- asset class allocation,
- asset class implementation (via ETFs and Mutual Funds),
- securities custodianship (via brokerage and fund-only accounts, plus recordkeeping, etc).

Vanguard provides last 2.
OP provides the first 2.

Vanguard provides cheap and transparent implementation of broad asset classes.
OP's decides the strategy. Typically, a strategy is a percentage allocation into asset classes.
But in OPs case, this involves some timing and rebalancing.
"You can get more with a kind word and a gun than with just a kind word." George Washington

averagedude
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Re: Vanguard Returns Extremely Disappointed

Post by averagedude » Wed Jan 02, 2019 8:45 pm

Classic investment mistake. Performance chasing. If you go back to Wellington, don't be surprised if it starts underperforming.

Mako52
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Re: Vanguard Returns Extremely Disappointed

Post by Mako52 » Wed Jan 02, 2019 9:00 pm

neilpilot wrote:
Wed Jan 02, 2019 4:38 pm
sambb wrote:
Wed Jan 02, 2019 4:36 pm
International and emerging markets might do well going forward.
....or might not. Could say that about any segment of the equity market.
I don't know why Vanguard is so big on International in their portfolio recommendations. Compare VOO (S&P ETF) with VNQI (ex-US real estate), VWO (emerging markets), SWISX (Schwab Intl), SCHF (Schwab Intl ETF). Maybe stick with an Australian or Danish market ETF instead if you really want international exposure?.....

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OldSport
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Re: Vanguard Returns Extremely Disappointed

Post by OldSport » Wed Jan 02, 2019 9:05 pm

Lots of interesting replies. I have no plans to really change anything except figure out the International allocation. I sold an underperforming actively managed midcap fund for similar asset class indexes. I am unsure how to treat International in the IPS. If it is expected to return lower than domestic over very long term (not just short term underpeformance) then I only want to hold enough for the unlikely black swan domestic event (30% or less Intl).

I am just disappointed at 4.5% CAGR when both Wellington and Total Stock (what most Bogleheads use) averaged over 8% CAGR. My disappointment is explained below.

To support up to a 3.5% SWR in retirement, I will need 6.5% CAGR long term average (at least 3.5% real return). Yes 1% of that would be fun/discretionary but would still need 5.5% CAGR to meet needs at 2.5% real. 4.5% means I can never retire. I am saving alot. The averaged returns have not been good, but most contributions were Internatiomal and at the end of the bull. My CAGR had been decent until I started saving a lot more and investing in recent years.

Maybe this explains it a lot more. I need 5.5% CAGR to make ends met in retirememt and 6.5% CAGR to have an enjoyable retirement. 4.5% will not cut it.
Last edited by OldSport on Wed Jan 02, 2019 9:45 pm, edited 1 time in total.

bloom2708
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Re: Vanguard Returns Extremely Disappointed

Post by bloom2708 » Wed Jan 02, 2019 9:13 pm

OP, you never did mention your general mix of stocks and bonds.

If your portfolio doesn't/won't support your retirement, you either need to save more, spend less or perhaps both.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

2015
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Re: Vanguard Returns Extremely Disappointed

Post by 2015 » Wed Jan 02, 2019 9:30 pm

bloom2708 wrote:
Wed Jan 02, 2019 9:13 pm
OP, you never did mention your general mix of stocks and bonds.

If your portfolio doesn't/won't support your retirement, you either need to save more, spend less or perhaps both.
This.
I would be more disappointed that I had not thoroughly thought through all aspects of my investment policy statement in advance of needing to do so. I agree with an above post that more education is in order. I also believe that having a 3 fund portfolio means never having to be disappointed as you are accepting what the markets will give, no more no less (unless of course if you are one of those "students of investing" that likes to constantly fiddle with your portfolio then you are most definitely accepting less than what the markets will give).

andrew99999
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Re: Vanguard Returns Extremely Disappointed

Post by andrew99999 » Wed Jan 02, 2019 9:52 pm

OldSport wrote:
Wed Jan 02, 2019 6:58 pm
I never sold Wellington. I still have that original investment. It's done well. The different AA is from new investments.

All new funds go to 100% stock unless its a short term goal or replenishing emergency fund.

I sold Selected Value as it was terribly tax inefficient as well as a poor performer. I only bought it since it fared much better than its index in the 2008-2009 bear. At the time, I thought it would have similar performance as the index with less volatility. I was wrong. I sold it to buy Mid Cap Index and Tax Managed Small Cap (S&P small cap 600 Index). Those funds should match their indicies, so they are what they are. I am OK with that.

What I am torn on is how to handle International. Forgetting the recent US outperformance, International still seems to lag domestic performance over the long term by ~2% CAGR. That is huge!

Vanguard's Actively Managed International Funds (Growth, Value, Explorer) when cap and value weighted to match Total International have significantly outperformed the index. I understand it is hard to beat indexes in US, but given the global index construction, is it easier for skilled active managers to outperform?
1. You swich your allocation based on previous performance before markets revert to their mean, then switch around after they revert. Plenty of research showing that people who do this end up with around 5% return instead of the 10% market return. This is not Vanguards fault. In fact it is not even the "fault" of the market. This fault sits plainly on your shoulders, and this is exactly why you need to pick proportions of equities and stick with it for decades no matter what. Lets see in the future when you post some years down the track if you actually learn from this or not.

2. You made most of your contributions in just the last few years, where compounding would not have been able to make much of a difference anyway. Put your numbers into excel and play with the return rate and you will see that when this is the case, the market return has extremely little to do with the returns. This is why when I read people saving aggressively to retire early (the "FIRE" movement), I point out that if you are saving 70% of your salary and planning to retire in 10 years, the upside of 100/0 vs 70/30 is tiny yet the risk of disproportionately large which means it is a rather stupid bet.

Neither of those things are due to Vanguard.

The best thing you can do, is hopefully learn from this before it becomes a much more costly mistake in the future now that you have already saved up a lot more money. Pick your allocations that you can stick to no matter what.

OldSport wrote:
Wed Jan 02, 2019 9:05 pm
Lots of interesting replies. I have no plans to really change anything except figure out the International allocation. I sold an underperforming actively managed midcap fund for similar asset class indexes. I am unsure how to treat International in the IPA. If it is expected to return lower than domestic over very long term then I only want to hold enough for the unlikely black swan domestic event (30% or less Intl).
And here we go again. You need to keep figuring out (ie endlessly changing) your allocation.
Nobody knows what will happen and historically international has been very close to the US return. The only thing you can really do to screw it up, is not by deciding on an allocation that is imperfect, it is by changing it all the time.

Topic Author
OldSport
Posts: 384
Joined: Tue Jul 25, 2017 7:01 pm

Re: Vanguard Returns Extremely Disappointed

Post by OldSport » Wed Jan 02, 2019 10:01 pm

bloom2708 wrote:
Wed Jan 02, 2019 9:13 pm
OP, you never did mention your general mix of stocks and bonds.

If your portfolio doesn't/won't support your retirement, you either need to save more, spend less or perhaps both.
90% stocks/10% bonds.

Of the stocks:
30% International, 40% US large cap, 15% US mid cap, 15% US small cap

This was after thinking a lot more about it. Most of the tweaking is done with new investments not selling.

Willing to lose 50% drawdown, but want at least 3.5% real long term (6.5% nominal CAGR). The -10% performance this year does not upset me. The 4.5% 10 year does. Bear markets don't upset me. Long term poor performance does.

delamer
Posts: 8094
Joined: Tue Feb 08, 2011 6:13 pm

Re: Vanguard Returns Extremely Disappointed

Post by delamer » Wed Jan 02, 2019 10:03 pm

OldSport wrote:
Wed Jan 02, 2019 9:05 pm
Lots of interesting replies. I have no plans to really change anything except figure out the International allocation. I sold an underperforming actively managed midcap fund for similar asset class indexes. I am unsure how to treat International in the IPS. If it is expected to return lower than domestic over very long term (not just short term underpeformance) then I only want to hold enough for the unlikely black swan domestic event (30% or less Intl).

I am just disappointed at 4.5% CAGR when both Wellington and Total Stock (what most Bogleheads use) averaged over 8% CAGR. My disappointment is explained below.

To support up to a 3.5% SWR in retirement, I will need 6.5% CAGR long term average (at least 3.5% real return). Yes 1% of that would be fun/discretionary but would still need 5.5% CAGR to meet needs at 2.5% real. 4.5% means I can never retire. I am saving alot. The averaged returns have not been good, but most contributions were Internatiomal and at the end of the bull. My CAGR had been decent until I started saving a lot more and investing in recent years.

Maybe this explains it a lot more. I need 5.5% CAGR to make ends met in retirememt and 6.5% CAGR to have an enjoyable retirement. 4.5% will not cut it.
I am not sure what you are looking for from the forum. As you know, no one can provide you with a portfolio that will guarantee you a 3.5% real return (or any other amount).

Maybe you should review this: https://personal.vanguard.com/us/insigh ... llocations

And this:

Average annual inflation was 3.2% from 1913 through 2015: https://www.inflationdata.com/inflation ... lation.asp

Based on historical patterns (again, no guarantee) a simple combination of about 25% US stocks/75% bonds would get you where you want be.

Topic Author
OldSport
Posts: 384
Joined: Tue Jul 25, 2017 7:01 pm

Re: Vanguard Returns Extremely Disappointed

Post by OldSport » Wed Jan 02, 2019 10:13 pm

delamer wrote:
Wed Jan 02, 2019 10:03 pm
OldSport wrote:
Wed Jan 02, 2019 9:05 pm
Lots of interesting replies. I have no plans to really change anything except figure out the International allocation. I sold an underperforming actively managed midcap fund for similar asset class indexes. I am unsure how to treat International in the IPS. If it is expected to return lower than domestic over very long term (not just short term underpeformance) then I only want to hold enough for the unlikely black swan domestic event (30% or less Intl).

I am just disappointed at 4.5% CAGR when both Wellington and Total Stock (what most Bogleheads use) averaged over 8% CAGR. My disappointment is explained below.

To support up to a 3.5% SWR in retirement, I will need 6.5% CAGR long term average (at least 3.5% real return). Yes 1% of that would be fun/discretionary but would still need 5.5% CAGR to meet needs at 2.5% real. 4.5% means I can never retire. I am saving alot. The averaged returns have not been good, but most contributions were Internatiomal and at the end of the bull. My CAGR had been decent until I started saving a lot more and investing in recent years.

Maybe this explains it a lot more. I need 5.5% CAGR to make ends met in retirememt and 6.5% CAGR to have an enjoyable retirement. 4.5% will not cut it.
I am not sure what you are looking for from the forum. As you know, no one can provide you with a portfolio that will guarantee you a 3.5% real return (or any other amount).

Maybe you should review this: https://personal.vanguard.com/us/insigh ... llocations

And this:

Average annual inflation was 3.2% from 1913 through 2015: https://www.inflationdata.com/inflation ... lation.asp

Based on historical patterns (again, no guarantee) a simple combination of about 25% US stocks/75% bonds would get you where you want be.
Agree there are no guarantees. I don't mind short term volatility, but want long returns. I'm just surprised and disappointed with such a low long term CAGR over a 'historic bull market'. The only thing I think I really 'did wrong' was choose an actively managed mid cap fund and allocate too much to International (I had incorrectly assumed that both domestic and Intl had similar expected long term returns, with US recently outperforming so picked a global 50/50 weighting).

I am saving a lot, maxing out all retirement accounts (401k, Roth IRA, HSA) plus additional in taxable. However, assuming 3% inflation, would need to average 6% CAGR up to retirement and 6.5% CAGR after.

bltn
Posts: 446
Joined: Mon Feb 20, 2017 9:32 pm

Re: Vanguard Returns Extremely Disappointed

Post by bltn » Wed Jan 02, 2019 10:23 pm

I chased winners until I was about 40 yo in the form of the Forbes Honor Role stock mutual funds. I had to learn the hard way about reversion to the mean. And my funds were historical all stars.
Then I began to put all new investment money into index funds. If I d invested in index funds starting in my mid twenties, even with relatively small amounts invested, I estimate my nest egg would be 20-25% higher than it is today.
If I were you , I d put all my new money into the index funds and consider the past 10 years a learning experience. I did that and things still turned out ok.

delamer
Posts: 8094
Joined: Tue Feb 08, 2011 6:13 pm

Re: Vanguard Returns Extremely Disappointed

Post by delamer » Wed Jan 02, 2019 10:31 pm

OldSport wrote:
Wed Jan 02, 2019 10:13 pm
delamer wrote:
Wed Jan 02, 2019 10:03 pm
OldSport wrote:
Wed Jan 02, 2019 9:05 pm
Lots of interesting replies. I have no plans to really change anything except figure out the International allocation. I sold an underperforming actively managed midcap fund for similar asset class indexes. I am unsure how to treat International in the IPS. If it is expected to return lower than domestic over very long term (not just short term underpeformance) then I only want to hold enough for the unlikely black swan domestic event (30% or less Intl).

I am just disappointed at 4.5% CAGR when both Wellington and Total Stock (what most Bogleheads use) averaged over 8% CAGR. My disappointment is explained below.

To support up to a 3.5% SWR in retirement, I will need 6.5% CAGR long term average (at least 3.5% real return). Yes 1% of that would be fun/discretionary but would still need 5.5% CAGR to meet needs at 2.5% real. 4.5% means I can never retire. I am saving alot. The averaged returns have not been good, but most contributions were Internatiomal and at the end of the bull. My CAGR had been decent until I started saving a lot more and investing in recent years.

Maybe this explains it a lot more. I need 5.5% CAGR to make ends met in retirememt and 6.5% CAGR to have an enjoyable retirement. 4.5% will not cut it.
I am not sure what you are looking for from the forum. As you know, no one can provide you with a portfolio that will guarantee you a 3.5% real return (or any other amount).

Maybe you should review this: https://personal.vanguard.com/us/insigh ... llocations

And this:

Average annual inflation was 3.2% from 1913 through 2015: https://www.inflationdata.com/inflation ... lation.asp

Based on historical patterns (again, no guarantee) a simple combination of about 25% US stocks/75% bonds would get you where you want be.
Agree there are no guarantees. I don't mind short term volatility, but want long returns. I'm just surprised and disappointed with such a low long term CAGR over a 'historic bull market'. The only thing I think I really 'did wrong' was choose an actively managed mid cap fund and allocate too much to International (I had incorrectly assumed that both domestic and Intl had similar expected long term returns, with US recently outperforming so picked a global 50/50 weighting).

I am saving a lot, maxing out all retirement accounts (401k, Roth IRA, HSA) plus additional in taxable. However, assuming 3% inflation, would need to average 6% CAGR up to retirement and 6.5% CAGR after.
Needing a certain return in retirement can set you up for big trouble. What happens if you are 75 years old and your return is below what you need?

Are you familiar with the concept of a safe withdrawal rate: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

The short version is you need 25 times of the amount you have to withdraw from your portfolio each year in order to retire. If you retire in your 60’s, invest in at least 30% stocks (using index funds), and withdraw 4% per year (inflation adjusted) from your portfolio, there is a 95% chance that you’ll die with money in the bank.

Topic Author
OldSport
Posts: 384
Joined: Tue Jul 25, 2017 7:01 pm

Re: Vanguard Returns Extremely Disappointed

Post by OldSport » Wed Jan 02, 2019 10:34 pm

bltn wrote:
Wed Jan 02, 2019 10:23 pm
I chased winners until I was about 40 yo in the form of the Forbes Honor Role stock mutual funds. I had to learn the hard way about reversion to the mean. And my funds were historical all stars.
Then I began to put all new investment money into index funds. If I d invested in index funds starting in my mid twenties, even with relatively small amounts invested, I estimate my nest egg would be 20-25% higher than it is today.
If I were you , I d put all my new money into the index funds and consider the past 10 years a learning experience. I did that and things still turned out ok.
With the exception of Wellington and PrimeCap in a 401k, both of which I plan to keep, everything is now in index funds.

I am comfortable with Domestic large cap and a slight tilt to mid and small. I still am confused about how to handle International in my IPS. I had 50/50 in 2014 from Paul Merriman recommending this, global market weight, and thinking that very long term Intl would perform on par with domestic. That is where I am confused is if fundamentally something is different anout Intl, such as index construction, investable securities, etc. such that reversion to mean would still have Intl underperform domestic. I am now 70/30 domestic/intl. Got there through new contributions and Intl underperformance. I did not sell any Intl.
Last edited by OldSport on Wed Jan 02, 2019 10:45 pm, edited 1 time in total.

Topic Author
OldSport
Posts: 384
Joined: Tue Jul 25, 2017 7:01 pm

Re: Vanguard Returns Extremely Disappointed

Post by OldSport » Wed Jan 02, 2019 10:37 pm

delamer wrote:
Wed Jan 02, 2019 10:31 pm
OldSport wrote:
Wed Jan 02, 2019 10:13 pm
delamer wrote:
Wed Jan 02, 2019 10:03 pm
OldSport wrote:
Wed Jan 02, 2019 9:05 pm
Lots of interesting replies. I have no plans to really change anything except figure out the International allocation. I sold an underperforming actively managed midcap fund for similar asset class indexes. I am unsure how to treat International in the IPS. If it is expected to return lower than domestic over very long term (not just short term underpeformance) then I only want to hold enough for the unlikely black swan domestic event (30% or less Intl).

I am just disappointed at 4.5% CAGR when both Wellington and Total Stock (what most Bogleheads use) averaged over 8% CAGR. My disappointment is explained below.

To support up to a 3.5% SWR in retirement, I will need 6.5% CAGR long term average (at least 3.5% real return). Yes 1% of that would be fun/discretionary but would still need 5.5% CAGR to meet needs at 2.5% real. 4.5% means I can never retire. I am saving alot. The averaged returns have not been good, but most contributions were Internatiomal and at the end of the bull. My CAGR had been decent until I started saving a lot more and investing in recent years.

Maybe this explains it a lot more. I need 5.5% CAGR to make ends met in retirememt and 6.5% CAGR to have an enjoyable retirement. 4.5% will not cut it.
I am not sure what you are looking for from the forum. As you know, no one can provide you with a portfolio that will guarantee you a 3.5% real return (or any other amount).

Maybe you should review this: https://personal.vanguard.com/us/insigh ... llocations

And this:

Average annual inflation was 3.2% from 1913 through 2015: https://www.inflationdata.com/inflation ... lation.asp

Based on historical patterns (again, no guarantee) a simple combination of about 25% US stocks/75% bonds would get you where you want be.
Agree there are no guarantees. I don't mind short term volatility, but want long returns. I'm just surprised and disappointed with such a low long term CAGR over a 'historic bull market'. The only thing I think I really 'did wrong' was choose an actively managed mid cap fund and allocate too much to International (I had incorrectly assumed that both domestic and Intl had similar expected long term returns, with US recently outperforming so picked a global 50/50 weighting).

I am saving a lot, maxing out all retirement accounts (401k, Roth IRA, HSA) plus additional in taxable. However, assuming 3% inflation, would need to average 6% CAGR up to retirement and 6.5% CAGR after.
Needing a certain return in retirement can set you up for big trouble. What happens if you are 75 years old and your return is below what you need?

Are you familiar with the concept of a safe withdrawal rate: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

The short version is you need 25 times of the amount you have to withdraw from your portfolio each year in order to retire. If you retire in your 60’s, invest in at least 30% stocks (using index funds), and withdraw 4% per year (inflation adjusted) from your portfolio, there is a 95% chance that you’ll die with money in the bank.
Yes, I am familiar with SWR. I hear 25x and 4% SWR. I am planning to have no more than a 3.5% SWR with 1% being discretionary (travel/fun, etc.) and 2.5% being need. Assuming 3% inflation and 3.5% SWR need 6.5 return. The SWR is how I came up with the 6.5% nominal average.

delamer
Posts: 8094
Joined: Tue Feb 08, 2011 6:13 pm

Re: Vanguard Returns Extremely Disappointed

Post by delamer » Wed Jan 02, 2019 10:46 pm

OldSport wrote:
Wed Jan 02, 2019 10:37 pm
delamer wrote:
Wed Jan 02, 2019 10:31 pm
OldSport wrote:
Wed Jan 02, 2019 10:13 pm
delamer wrote:
Wed Jan 02, 2019 10:03 pm
OldSport wrote:
Wed Jan 02, 2019 9:05 pm
Lots of interesting replies. I have no plans to really change anything except figure out the International allocation. I sold an underperforming actively managed midcap fund for similar asset class indexes. I am unsure how to treat International in the IPS. If it is expected to return lower than domestic over very long term (not just short term underpeformance) then I only want to hold enough for the unlikely black swan domestic event (30% or less Intl).

I am just disappointed at 4.5% CAGR when both Wellington and Total Stock (what most Bogleheads use) averaged over 8% CAGR. My disappointment is explained below.

To support up to a 3.5% SWR in retirement, I will need 6.5% CAGR long term average (at least 3.5% real return). Yes 1% of that would be fun/discretionary but would still need 5.5% CAGR to meet needs at 2.5% real. 4.5% means I can never retire. I am saving alot. The averaged returns have not been good, but most contributions were Internatiomal and at the end of the bull. My CAGR had been decent until I started saving a lot more and investing in recent years.

Maybe this explains it a lot more. I need 5.5% CAGR to make ends met in retirememt and 6.5% CAGR to have an enjoyable retirement. 4.5% will not cut it.
I am not sure what you are looking for from the forum. As you know, no one can provide you with a portfolio that will guarantee you a 3.5% real return (or any other amount).

Maybe you should review this: https://personal.vanguard.com/us/insigh ... llocations

And this:

Average annual inflation was 3.2% from 1913 through 2015: https://www.inflationdata.com/inflation ... lation.asp

Based on historical patterns (again, no guarantee) a simple combination of about 25% US stocks/75% bonds would get you where you want be.
Agree there are no guarantees. I don't mind short term volatility, but want long returns. I'm just surprised and disappointed with such a low long term CAGR over a 'historic bull market'. The only thing I think I really 'did wrong' was choose an actively managed mid cap fund and allocate too much to International (I had incorrectly assumed that both domestic and Intl had similar expected long term returns, with US recently outperforming so picked a global 50/50 weighting).

I am saving a lot, maxing out all retirement accounts (401k, Roth IRA, HSA) plus additional in taxable. However, assuming 3% inflation, would need to average 6% CAGR up to retirement and 6.5% CAGR after.
Needing a certain return in retirement can set you up for big trouble. What happens if you are 75 years old and your return is below what you need?

Are you familiar with the concept of a safe withdrawal rate: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

The short version is you need 25 times of the amount you have to withdraw from your portfolio each year in order to retire. If you retire in your 60’s, invest in at least 30% stocks (using index funds), and withdraw 4% per year (inflation adjusted) from your portfolio, there is a 95% chance that you’ll die with money in the bank.
Yes, I am familiar with SWR. I hear 25x and 4% SWR. I am planning to have no more than a 3.5% SWR with 1% being discretionary (travel/fun, etc.) and 2.5% being need. Assuming 3% inflation and 3.5% SWR need 6.5 return. The SWR is how I came up with the 6.5% nominal average.
You are misinterpreting the SWR concept.

The idea isn’t to maintain your portfolio value, which is what you seem to be aiming for with your need for a 6.5% return.

The idea is to establish a very low probability that you’ll run out of money.

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HomerJ
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Re: Vanguard Returns Extremely Disappointed

Post by HomerJ » Wed Jan 02, 2019 10:48 pm

OldSport wrote:
Wed Jan 02, 2019 9:05 pm
To support up to a 3.5% SWR in retirement, I will need 6.5% CAGR long term average (at least 3.5% real return).
This is incorrect.

SWR (safe withdrawal rates) include spending the principal. One can pull 4% for 30 years with just a real return of 1.3%.

I mean, think about it... 4% is 1/25. Just pulling 1/25 a year at 0% real return gets you 25 years of withdrawals. It doesn't take much to get an extra 5 years to make it last 30 years.

Now, of course, stock returns aren't steady and equal year after year.

But my point is you don't NEED 3.5% real returns to withdraw 3.5% a year for 30 years.

Sure, if your goal is to never spend a cent of the money you saved and live just off the interest, then you'll need 3.5% a year, but that's different from a safe withdrawal rate.

FYI, even though I talk about spending principal, in many 30-year periods, a 50/50 Total Stock Market Index Fund/Total Bond Market Index Fund portfolios, pulling 4%, you actually still GROW the portfolio.
The J stands for Jay

Topic Author
OldSport
Posts: 384
Joined: Tue Jul 25, 2017 7:01 pm

Re: Vanguard Returns Extremely Disappointed

Post by OldSport » Wed Jan 02, 2019 10:55 pm

When I go to Portfolio Visualizer and put in my current index fund AA, I get a 10-year 10% CAGR, which is much higher than my actual 4.5% CAGR.

I guess this illustrates that sequence of returns and contributions have a large impact. Most of my contributions were in 2015-2017, seeing the bull market top and recent bear.

user5027
Posts: 826
Joined: Sat Jun 16, 2012 8:54 pm

Re: Vanguard Returns Extremely Disappointed

Post by user5027 » Thu Jan 03, 2019 9:53 am

This thread reminds me of a book of Aesop's Fables that I had as a child. The Dog With the Bone meant alot to me and I found it on youtube...
https://www.youtube.com/watch?v=QpWKBBDyiqo

Now I need to find the book for my granddaughter.

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