The Three-Fund Portfolio

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thatbrian
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Re: The Three-Fund Portfolio

Post by thatbrian »

Taylor Larimore wrote: Mon Apr 01, 2019 6:26 pm
thatbrian wrote: Mon Apr 01, 2019 6:01 pm I'm fully onboard with the Three-Fund-Portfolio (thank you, Taylor). The only decision making left is: Allocation, Allocation, Allocation. I HATE making these types of decisions.
thatbrian:

Don't worry about getting the exact best allocation. No one knows except with hindsight. Close is good enough.

Use this Vanguard Asset-Allocation Questionnaire for help:

https://personal.vanguard.com/us/FundsI ... unds/tools

Best wishes.
Taylor
How could you tell I was worrying? :wink:
Better late than later.
simpleisbest
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Re: The Three-Fund Portfolio

Post by simpleisbest »

Another advantage of the three-fund portfolio: for employment reasons I have to disclose all my assets and all my trades. This adds annoying overhead to each individual transaction. So when I buy or sell there is additional overhead per ticker I want to trade. Doing this for ten tickers just became a nuisance, and even caused me to procrastinate necessary transactions. Finally I consolidated to a three fund portfolio, and have never felt so light before.
robandjeanne
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Re: The Three-Fund Portfolio

Post by robandjeanne »

I know asset allocation is supposed to be wonderful. However I have yet to see the value of bonds which by my calculations have never equaled the total market (like VTI). If you are in it for the long haul, bonds seem to be a drag on performance. Someone made the comment that hte S&P did only fair in the last decade, but if fair is over 15 % annualized over 10 years I'll take it. Also I don't see international stocks doing that much with the 10 year VXUS at 7.6%. With the exception of some index funds that purport yo beat the S&P (seems like a pipe dream) I think VTI alone seems simply fine. One interesting tid bit that may shine a lot of light on regular investing is what a xuccessor trustee wants to do with your money after you're gone. I haven't found any who will agree to invest only in VTI, and by the same token none have agreed to equal the performance of VTI (the S&P). They'll say you need bonds and international exposure and flat out refuse to manage a simple VTI portfolio. To me this says volumes. To paraphrase Mel Brooks "they need to manage something to justify their cockamamy jobs". To me, the fact that STs refuse to invest in VTI, tells me I should. Of course I'm open to some VG growth or agressive growth index that has beaten the S&P. over 5 or 10 years.
Triple digit golfer
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Re: The Three-Fund Portfolio

Post by Triple digit golfer »

robandjeanne wrote: Sun Apr 07, 2019 4:50 pm I know asset allocation is supposed to be wonderful. However I have yet to see the value of bonds which by my calculations have never equaled the total market (like VTI). If you are in it for the long haul, bonds seem to be a drag on performance. Someone made the comment that hte S&P did only fair in the last decade, but if fair is over 15 % annualized over 10 years I'll take it. Also I don't see international stocks doing that much with the 10 year VXUS at 7.6%. With the exception of some index funds that purport yo beat the S&P (seems like a pipe dream) I think VTI alone seems simply fine. One interesting tid bit that may shine a lot of light on regular investing is what a xuccessor trustee wants to do with your money after you're gone. I haven't found any who will agree to invest only in VTI, and by the same token none have agreed to equal the performance of VTI (the S&P). They'll say you need bonds and international exposure and flat out refuse to manage a simple VTI portfolio. To me this says volumes. To paraphrase Mel Brooks "they need to manage something to justify their cockamamy jobs". To me, the fact that STs refuse to invest in VTI, tells me I should. Of course I'm open to some VG growth or agressive growth index that has beaten the S&P. over 5 or 10 years.
Bonds have a lower risk and therefore lower expected returns than equities. They are there for diversification and stability.

Look at the performance of international equities from 2003 to 2007 compared to U.S. equities.

I wouldn't recommend leaving out international equities, which are approximately 45% of the world stock market and includes companies like Samsung, Toyota, Nestle, and Shell.

I don't think anybody is refusing to invest in VTI, but perhaps they refuse to invest only in VTI.

Past performance is no guarantee of future results. With higher returns comes higher risk. If it were all about taking the most risk for the most return, then people would be recommending portfolios of 100% small cap value emerging markets equities. In fact, why not buy on margin?

The prudent choice is to diversify away from systemic risk by owning stocks that cover all sectors of the world economy and bonds in order to diversify your stock portfolio.
Last edited by Triple digit golfer on Mon Apr 08, 2019 5:33 am, edited 1 time in total.
Metx
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Re: The Three-Fund Portfolio

Post by Metx »

robandjeanne wrote: Sun Apr 07, 2019 4:50 pm I know asset allocation is supposed to be wonderful. However I have yet to see the value of bonds which by my calculations have never equaled the total market (like VTI). If you are in it for the long haul, bonds seem to be a drag on performance.
What is the intended purpose of this investment? If there comes a time when withdrawing a significant percentage is required to meet your obligations, you may decide the expected drag of bonds an acceptable cost for the increased likelihood that sufficient funds will still be available.
robandjeanne wrote:... One interesting tid bit that may shine a lot of light on regular investing is what a xuccessor trustee wants to do with your money after you're gone. I haven't found any who will agree to invest only in VTI, and by the same token none have agreed to equal the performance of VTI (the S&P). They'll say you need bonds and international exposure and flat out refuse to manage a simple VTI portfolio. To me this says volumes. To paraphrase Mel Brooks "they need to manage something to justify their cockamamy jobs".
This seems unfair. Why would these advisors not see their advice as prudent and in the best interest of their clients.
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ruralavalon
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Re: The Three-Fund Portfolio

Post by ruralavalon »

robandjeanne wrote: Sun Apr 07, 2019 4:50 pm I know asset allocation is supposed to be wonderful. However I have yet to see the value of bonds which by my calculations have never equaled the total market (like VTI). If you are in it for the long haul, bonds seem to be a drag on performance. Someone made the comment that hte S&P did only fair in the last decade, but if fair is over 15 % annualized over 10 years I'll take it. Also I don't see international stocks doing that much with the 10 year VXUS at 7.6%. With the exception of some index funds that purport yo beat the S&P (seems like a pipe dream) I think VTI alone seems simply fine. One interesting tid bit that may shine a lot of light on regular investing is what a xuccessor trustee wants to do with your money after you're gone. I haven't found any who will agree to invest only in VTI, and by the same token none have agreed to equal the performance of VTI (the S&P). They'll say you need bonds and international 5 to 20 years is short-term thinking and flat out refuse to manage a simple VTI portfolio. To me this says volumes. To paraphrase Mel Brooks "they need to manage something to justify their cockamamy jobs". To me, the fact that STs refuse to invest in VTI, tells me I should. Of course I'm open to some VG growth or agressive growth index that has beaten the S&P. over 5 or 10 years.
There is a benefit to diversification. 5 to 10 years is short-term thinking. There have been periods when bonds outperformed U.S. stocks, and periods when international stocks outperformed U.S. stocks.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
bizkitgto
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Re: The Three-Fund Portfolio

Post by bizkitgto »

thatbrian wrote: Mon Apr 01, 2019 6:01 pm I'm fully onboard with the Three-Fund-Portfolio (thank you, Taylor). The only decision making left is: Allocation, Allocation, Allocation. I HATE making these types of decisions.
Have you considered $VT, just keep it simple and let the market decide your allocation for you?
Keep it simple: 20% BND, 50% VTI and 30% VXUS
bizkitgto
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Re: The Three-Fund Portfolio

Post by bizkitgto »

Triple digit golfer wrote: Sun Apr 07, 2019 5:03 pm
Bonds have a lower risk and therefore lower expected returns than equities. They are there for diversification and stability.

The prudent choice is to diversify away from systemic risk by owning stocks that cover all sectors of the world economy and bonds in order to diversify your stock portfolio.
Are you in $BND or a world bond fund?
Keep it simple: 20% BND, 50% VTI and 30% VXUS
Triple digit golfer
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Re: The Three-Fund Portfolio

Post by Triple digit golfer »

bizkitgto wrote: Wed Apr 10, 2019 9:10 pm
Triple digit golfer wrote: Sun Apr 07, 2019 5:03 pm
Bonds have a lower risk and therefore lower expected returns than equities. They are there for diversification and stability.

The prudent choice is to diversify away from systemic risk by owning stocks that cover all sectors of the world economy and bonds in order to diversify your stock portfolio.
Are you in $BND or a world bond fund?
Total Bond Market Index. I don't see a reason to further diversify into international bonds. Total Bond Market serves the purpose of adding safety and stability to my portfolio.
KJVanguard
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Re: The Three-Fund Portfolio

Post by KJVanguard »

cryptormorf wrote: Mon Jan 21, 2019 8:44 pm In a few Jack Bogle interviews that I heard from 2018, he said that he had a problem with the Total Bond Index fund because its treasury allocation was too high. He said the he prefers (and uses) the slightly riskier and higher yielding Vanguard Intermediate-Term Bond Index Fund because it holds more corporate bonds. Any thoughts on this approach? I know that in the long term it probably doesn't matter, but it's interesting nonetheless.
Thanks for that information. I wasn't aware of Bogle's comments on Total Bond Index. I use Short-Term Investment-Grade Admiral for all my money that isn't in stock index funds. I feel that I take plenty of risk on the equity side such that I don't want to take much risk on the bond side. I used to own intermediate-term bonds funds, but over more recent years have moved entirely to ST. I simply don't want to make a bet on interest rates. As for credit quality, this fund has notably higher credit quality than ST Corporate Index yet is only something like 10 bps lower in yield. I know it will get hit if there is a flight to quality where even quality corporate bonds trade as if they were junk (think 2008), but I'm willing to take my chances for the higher yield than a treasury fund (including ST TIPS).
KJVanguard
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Re: The Three-Fund Portfolio

Post by KJVanguard »

4nwestsaylng wrote: Fri Mar 29, 2019 2:50 pm Taylor, just wondering why the SP500 performance is very close to the total stock market,does it mean that over time, performance of small caps in the TSM is more volatile, and so TSM performance ends up being about the same as SP500?
The 500 stocks of the S&P 500 make up the vast bulk of TSM so both are destined to be quite similar over time. I have always though TSM was the better choice as it's even more diversified, though I fully recognize that both will perform pretty much the same. Keep in mind that Index 500 only exists because back in 1975 Vanguard needed and index that a mutual fund could actually follow. It took two years before Index 500 had enough money to even invest in all 500 stocks, and small caps were simply not liquid enough to be included. Index 500 was designed to be "the market" (as limited by liquidity & assets in the 1970s). Now that you can easily own what truly is "the market" it seems to me that you might as well do so.

I started as a Vanguard investor 24 years ago by investing in TSM and it is now my largest holding. Though it's not my only holding. I have since added a lot of international (55% of equity assets) and Small-Cap Value, which may or may not outperform going forward. SC Value I would argue is possible more diversified than TSM if you look at percentage in the top 10 as a measure of diversification.
4nwestsaylng
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Re: The Three-Fund Portfolio

Post by 4nwestsaylng »

Thanks for your thoughts. I have no argument for the majority of BHs who hold the Vanguard TSM, I hold it as VTI, but I would prefer to hold a lower percent of tech and finance than the TSM, more like 12% technology, 5% financial,13% health care,with the rest among the other SP500 sectors, without having to buy the sector ETFs themselves. Vanguard TSM is more like 22.3% tech, 15.6% financial.

If you or other BHs know of a Vanguard,Schwab or Fidelity fund that holds the SP500 or TSM that is less cap weighted and would give me an approximation of my desired allocations, that would be helpful. I see that VIVAX is closed to new investors.

As a retiree, I am willing to trade off some upside performance for some downside stability if that is possible, and this is exclusive of my stability from my 50/50 current allocation, ie just on the equity side.
Benosis
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Re: The Three-Fund Portfolio

Post by Benosis »

So I know you are suppose to look at all of your accounts as one, right?

Say you have a 401k and a Roth IRA. Is there a benefit of organizing the allocations?

For example, my Roth IRA is 70/20/10 in VTSAX/VTIAX/VBTLX. Similarly, my 401k is 70/20/10 in Large Cap & Small Cap/International/Bonds.

Is there any benefit in say putting all bonds in 401k and leaving Roth IRA just 100% stocks? Or having all the international in 401k? Or anything other combination?

Or is it best to just have an even split like I currently do? Or does it not matter at all?
bizkitgto
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Re: The Three-Fund Portfolio

Post by bizkitgto »

4nwestsaylng wrote: Thu Apr 11, 2019 9:30 pm
If you or other BHs know of a Vanguard,Schwab or Fidelity fund that holds the SP500 or TSM that is less cap weighted and would give me an approximation of my desired allocations, that would be helpful. I see that VIVAX is closed to new investors.
Look into $RSP, equal weighted S&P500 ETF, it's pretty close to your desired allocation (14% tech, 12% health care).
Keep it simple: 20% BND, 50% VTI and 30% VXUS
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Dialectical Investor
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Re: The Three-Fund Portfolio

Post by Dialectical Investor »

Benosis wrote: Thu Apr 11, 2019 11:02 pm So I know you are suppose to look at all of your accounts as one, right?

Say you have a 401k and a Roth IRA. Is there a benefit of organizing the allocations?

For example, my Roth IRA is 70/20/10 in VTSAX/VTIAX/VBTLX. Similarly, my 401k is 70/20/10 in Large Cap & Small Cap/International/Bonds.

Is there any benefit in say putting all bonds in 401k and leaving Roth IRA just 100% stocks? Or having all the international in 401k? Or anything other combination?

Or is it best to just have an even split like I currently do? Or does it not matter at all?
If you don't tax-adjust your asset allocation (a dollar in the Roth is worth more than a dollar in the 401k, after taxes), you probably have an after-tax asset allocation closer to your desired allocation by having it evenly split. I assume people don't tax-adjust. Certain recommendations (put stocks in Roth because withdrawals are tax-free and stocks have higher expected return) revolve around improper accounting for taxes. Really they are taking more risk. That could be okay if their intention is to trick themselves into taking more risk.

One of the most obvious reasons it would matter is if you had certain good and certain bad options in your 401k, and you needed to use the Roth to hold things you don't want to hold in your 401k (if a fund was too expensive), or if there just wasn't a suitable option in the 401k. This is probably the primary reason people don't mirror the accounts.

Depending on the relative size of your accounts and your asset allocation, it may be easier to rebalance when evenly split, otherwise you might have to include bonds/stocks in one account or another, from time to time, that doesn't normally include them. On the other hand, ideally you would rebalance in just one account, if you had enough room to work with. This part is all just convenience and preference.
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Re: The Three-Fund Portfolio

Post by Dialectical Investor »

I forgot at least one more: RMDs from the 401k. Some people wish to limit them, so they will put stocks in Roth. (Again, higher expected return.)
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ruralavalon
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Re: The Three-Fund Portfolio

Post by ruralavalon »

Benosis wrote: Thu Apr 11, 2019 11:02 pm So I know you are suppose to look at all of your accounts as one, right?

Say you have a 401k and a Roth IRA. Is there a benefit of organizing the allocations?

For example, my Roth IRA is 70/20/10 in VTSAX/VTIAX/VBTLX. Similarly, my 401k is 70/20/10 in Large Cap & Small Cap/International/Bonds.

Is there any benefit in say putting all bonds in 401k and leaving Roth IRA just 100% stocks? Or having all the international in 401k? Or anything other combination?

Or is it best to just have an even split like I currently do? Or does it not matter at all?
Yes, in general it is likely better to have prefer stock funds fill the Roth IRA, and to place the bond fund in a traditional tax-deferred account like a401k.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Taylor Larimore
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Adding funds to The Three-Fund Portfolio?

Post by Taylor Larimore »

As a retiree, I am willing to trade off some upside performance for some downside stability if that is possible, and this is exclusive of my stability from my 50/50 current allocation, ie just on the equity side.
4nwestsaylng:

The best way to increase "downside stability" is to increase your percentage of bonds--not adding other funds on the "equity side." A good example was the fad a few years ago (promoted by the investment industry) to add small-cap value on the equity side. Morningstar now ranks small-cap value as their worst performing category during the past 5-years.

Lesson learned: Adding more funds to total market index funds can reduce returns. More funds also adds cost and complexity.

Keep investing simple. Read my "Simplicity" link below.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Benosis
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Re: The Three-Fund Portfolio

Post by Benosis »

ruralavalon wrote: Fri Apr 12, 2019 6:23 pm
Benosis wrote: Thu Apr 11, 2019 11:02 pm So I know you are suppose to look at all of your accounts as one, right?

Say you have a 401k and a Roth IRA. Is there a benefit of organizing the allocations?

For example, my Roth IRA is 70/20/10 in VTSAX/VTIAX/VBTLX. Similarly, my 401k is 70/20/10 in Large Cap & Small Cap/International/Bonds.

Is there any benefit in say putting all bonds in 401k and leaving Roth IRA just 100% stocks? Or having all the international in 401k? Or anything other combination?

Or is it best to just have an even split like I currently do? Or does it not matter at all?
Yes, in general it is likely better to have prefer stock funds fill the Roth IRA, and to place the bond fund in a traditional tax-deferred account like a401k.
So instead of having it currently as

Roth IRA: 70/20/10 in VTSAX/VTIAX/VTBLX
401k: 70/20/10 in Large Cap & Small Cap/International/Bonds

I should have it as something like:

Roth IRA: 75/25 in VTSAX/VTIAX
401k: 60/20/20 in Large Cap & Small Cap/International/Bonds

Is this correct?
Triple digit golfer
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Re: The Three-Fund Portfolio

Post by Triple digit golfer »

Benosis wrote: Fri Apr 12, 2019 6:41 pm
ruralavalon wrote: Fri Apr 12, 2019 6:23 pm
Benosis wrote: Thu Apr 11, 2019 11:02 pm So I know you are suppose to look at all of your accounts as one, right?

Say you have a 401k and a Roth IRA. Is there a benefit of organizing the allocations?

For example, my Roth IRA is 70/20/10 in VTSAX/VTIAX/VBTLX. Similarly, my 401k is 70/20/10 in Large Cap & Small Cap/International/Bonds.

Is there any benefit in say putting all bonds in 401k and leaving Roth IRA just 100% stocks? Or having all the international in 401k? Or anything other combination?

Or is it best to just have an even split like I currently do? Or does it not matter at all?
Yes, in general it is likely better to have prefer stock funds fill the Roth IRA, and to place the bond fund in a traditional tax-deferred account like a401k.
So instead of having it currently as

Roth IRA: 70/20/10 in VTSAX/VTIAX/VTBLX
401k: 70/20/10 in Large Cap & Small Cap/International/Bonds

I should have it as something like:

Roth IRA: 75/25 in VTSAX/VTIAX
401k: 60/20/20 in Large Cap & Small Cap/International/Bonds

Is this correct?
Generally, yes.

With only a 401k and Roth IRA and no taxable account, just put your bonds in the 401k if a good fund is available, and put the U.S. and international equities in the remaining 401k space and Roth IRA.

Say you want to be 60/20/20 U.S., international and bonds and have $50k each in 401k and Roth IRA.

401k:
$20k bonds
$30k U.S. equities

Roth IRA:
$30k U.S. equities
$20k international equities

The equities can be flipped. Say you have a good international equity fund in 401k and a crappy U.S. fund. Go ahead and then do this:

401k:
$20k bonds
$10k U.S. equities
$20k international equities

Roth IRA:
$50k U.S. equities
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ruralavalon
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Re: The Three-Fund Portfolio

Post by ruralavalon »

Benosis wrote: Fri Apr 12, 2019 6:41 pm
ruralavalon wrote: Fri Apr 12, 2019 6:23 pm
Benosis wrote: Thu Apr 11, 2019 11:02 pm So I know you are suppose to look at all of your accounts as one, right?

Say you have a 401k and a Roth IRA. Is there a benefit of organizing the allocations?

For example, my Roth IRA is 70/20/10 in VTSAX/VTIAX/VBTLX. Similarly, my 401k is 70/20/10 in Large Cap & Small Cap/International/Bonds.

Is there any benefit in say putting all bonds in 401k and leaving Roth IRA just 100% stocks? Or having all the international in 401k? Or anything other combination?

Or is it best to just have an even split like I currently do? Or does it not matter at all?
Yes, in general it is likely better to have prefer stock funds fill the Roth IRA, and to place the bond fund in a traditional tax-deferred account like a401k.
So instead of having it currently as

Roth IRA: 70/20/10 in VTSAX/VTIAX/VTBLX
401k: 70/20/10 in Large Cap & Small Cap/International/Bonds

I should have it as something like:

Roth IRA: 75/25 in VTSAX/VTIAX
401k: 60/20/20 in Large Cap & Small Cap/International/Bonds

Is this correct?
It depends on the exact funds offered in your 401k, but in general place the bond allocation in the 401k if a decent bond fund (diversified with low or moderate expense ratio) is offered in your 401k.

Also arrange the domestic and international stock funds to maximize use of the better stock funds (diversified with low to moderate low expense ratios) in the 401k.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: The Three-Fund Portfolio

Post by ruralavalon »

4nwestsaylng wrote: Fri Mar 29, 2019 2:50 pm Taylor, just wondering why the SP500 performance is very close to the total stock market,does it mean that over time, performance of small caps in the TSM is more volatile, and so TSM performance ends up being about the same as SP500?
The S&P 500 index covers about 81% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S.companies. A S&P 500 index fund and a total stock market index fund have very similar performance because they mostly invest in the same stocks.
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Re: The Three-Fund Portfolio

Post by RadAudit »

Taylor Larimore wrote: Mon Apr 01, 2019 6:26 pm Don't worry about getting the exact best allocation. No one knows except with hindsight. Close is good enough.
Thank you.

I'll try to remember every time I get wrapped around the axle worrying about a 5% difference in my current AA as I chase the discussions about a proposed Total World vs. legacy Total Stock and Total International taxable / tax deferred allocation. :oops:
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.
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Re: The Three-Fund Portfolio

Post by LadyGeek »

New member Benosis has a question which was moved into a new thread. See: [401k Allocation]

FYI - The move was done by one of our new moderators, oldcomputerguy.
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Articles recommending The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

I have updated articles recommending The Three-Fund Portfolio:

"A Boglehead Explains the Simplest Way to Manage Your Money--MarketWatch

"Three-Fund Portfolio" -- Boglehead wiki

"The Arithmetic of Active Management" by William Sharpe, Nobel Laureate

"The BigLaw Investor Portfolio" by Joshua Hunt

"Efficient Investing with the Three Fund Portfolio" by Mr. Crazy Kicks

"From 28 Funds to 3: Simplifying to a Three-Fund Portfolio" by Physician On Fire

"How the Bogle (3-fund) Model Beats the Yale Model" by Ben Carlson

"He Has Read 250 Investing Books and Recommends the Three Fund Portfolio" by Physician on Fire

"How To Diversify With Just Three Mutual Funds" by Ambassador Laura Dogu, Forbes

"Most Investors Probably Won’t Outperform This Simple (three-fund) Portfolio" Morningstar

"The Only Three Vanguard Funds You Need to Build a Portfolio" by Kent Thune

"Investing Should Be Simple. A Three-Fund Portfolio Is All You Need." by Allan Roth, AARP

"Investing With A Three Fund Portfolio" by Financial Ramblings

"If You Can. How Millennials Can Get Rich Slowly" -- Free book by Wm. Bernstein

"Next to Nothing" by Jonathan Clements

"The Three Fund Portfolio: The Lazy Investing Strategy that Crushes the Pros" by The Money Wizard

"The Three-Fund Investment Portfolio: The Beauty of Simplicity" by Mama Fish Saves

"Three Fund Portfolio: Did Awesomeness Find Trinity?" by Portfolio Einstein

"Three Fund Portfolio – Investing Made Easy" by The Finance Twins

"3 Fund Portfolio Investment Strategy: The Only Time Lazy is Cool" by Dr Breathe Easy Investing

"Three Mutual Funds That End The Guesswork" by Jonathan Burton MarketWatch

"How To Simplify Your Investing Using Only Three Funds" by Debt Free Doctor

"Simplify Your Investments With The 3-Fund Portfolio" by Alicia Adamczyk

"Why (3) Index Portfolios Win" by M.P. Dunleavey

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Articles recommending The Three-Fund Portfolio

Post by abuss368 »

Taylor Larimore wrote: Fri Apr 19, 2019 8:44 pm Bogleheads:

I have updated articles recommending The Three-Fund Portfolio:

"A Boglehead Explains the Simplest Way to Manage Your Money--MarketWatch

"Three-Fund Portfolio" -- Boglehead wiki

"The Arithmetic of Active Management" by William Sharpe, Nobel Laureate

"The BigLaw Investor Portfolio" by Joshua Hunt

"Efficient Investing with the Three Fund Portfolio" by Mr. Crazy Kicks

"From 28 Funds to 3: Simplifying to a Three-Fund Portfolio" by Physician On Fire

"How the Bogle (3-fund) Model Beats the Yale Model" by Ben Carlson

"He Has Read 250 Investing Books and Recommends the Three Fund Portfolio" by Physician on Fire

"How To Diversify With Just Three Mutual Funds" by Ambassador Laura Dogu, Forbes

"Most Investors Probably Won’t Outperform This Simple (three-fund) Portfolio" Morningstar

"The Only Three Vanguard Funds You Need to Build a Portfolio" by Kent Thune

"Investing Should Be Simple. A Three-Fund Portfolio Is All You Need." by Allan Roth, AARP

"Investing With A Three Fund Portfolio" by Financial Ramblings

"If You Can. How Millennials Can Get Rich Slowly" -- Free book by Wm. Bernstein

"Next to Nothing" by Jonathan Clements

"The Three Fund Portfolio: The Lazy Investing Strategy that Crushes the Pros" by The Money Wizard

"The Three-Fund Investment Portfolio: The Beauty of Simplicity" by Mama Fish Saves

"Three Fund Portfolio: Did Awesomeness Find Trinity?" by Portfolio Einstein

"Three Fund Portfolio – Investing Made Easy" by The Finance Twins

"3 Fund Portfolio Investment Strategy: The Only Time Lazy is Cool" by Dr Breathe Easy Investing

"Three Mutual Funds That End The Guesswork" by Jonathan Burton MarketWatch

"How To Simplify Your Investing Using Only Three Funds" by Debt Free Doctor

"Simplify Your Investments With The 3-Fund Portfolio" by Alicia Adamczyk

"Why (3) Index Portfolios Win" by M.P. Dunleavey

Best wishes.
Taylor
Thanks Taylor!
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by duricka »

I have read the whole thread. LadyGeek is doing a great job removing spam, but still probably 30% of comments don't add any value. I could imagine what it would look like without moderation.

My question is for the motivation to include non-us index fund in my portfolio?
I am going to read Swedroe as it's most commonly cited, but wanted to notice that
most resources rely on data 30+ years old. Since then I think investors (even non-us investors)
would not benefit much from international exposure.

Based on the fact that US is successfully bullying anyone who tries a trade war, I think
there is a disbalance in risks of non-us exposure.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

My question is for the motivation to include non-us index fund in my portfolio?
Duricka:

My opening post (OP) recommends a 20% international allocation. This link explains:

viewtopic.php?t=196956

Anyone who disagrees, and wants to argue international exposure, should start a new topic on the Bogleheads Forum -- not here.

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by abuss368 »

duricka wrote: Thu Apr 25, 2019 11:44 am I have read the whole thread.
Congrats! In my opinion this thread, "Three Fund Portfolio" is one of the best, if not the best, on our forum.

Jack Bogle often said "simplicity is the master key to financial success".

Thank you Mr. Bogle.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by southerndoc »

After many years of slicing and dicing my retirement accounts with various index funds, I'm wanting to settle on 3 or 4 index funds.

Currently I'm with Fidelity with a Self-Employed 401(k). My Roth IRA is with Vanguard and is invested in the Target 2035 fund (0.14% ER).

With Fidelity, I'm considering:

FZROX (Fidelity Zero Total Market Fund)
FZIPX (Fidelity Zero Extended Market Fund)
FZILX (Fidelity Total International Market Fund)
FXNAX (Fidelity US-Bond Index Fund)

ER's are 0% for the Zero funds and 0.025% for FXNAX. I can mirror the Freedom Index 2035 fund with this for cheaper than purchasing the fund itself.

My question is: will there be added benefits to adding the FZIPX for small- and mid-cap stocks, or should I just do the total market, international, and bond index funds? I'm wondering if adding a 4th fund will be of any additional benefit.

Thanks!
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Adding a fourth fund?

Post by Taylor Larimore »

My question is: will there be added benefits to adding the FZIPX for small- and mid-cap stocks, or should I just do the total market, international, and bond index funds? I'm wondering if adding a 4th fund will be of any additional benefit.
southerndoc:

The three-fund portfolio contains over 15,000 individual securities. It is extremely diversified. We are continually tempted by the investment industry to add more funds. This, of course, adds cost, complexity, and can reduce returns.

For many years adding small-value funds to Total Stock Market was touted to increase returns. What happened? Small-value funds now have the WORST 5-year return of all fourteen Morningstar style categories.

Strive for simplicity -- not complexity.

What Experts Say

Please read my "Simplicity" link below.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by southerndoc »

Taylor, thank you for your reply.

I think I knew the answer before I even asked the question, but was wanting validation before wittling down my current portfolio to just three funds.

:)
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Re: The Three-Fund Portfolio

Post by Dialectical Investor »

southerndoc wrote: Sun Apr 28, 2019 9:53 pm After many years of slicing and dicing my retirement accounts with various index funds, I'm wanting to settle on 3 or 4 index funds.

Currently I'm with Fidelity with a Self-Employed 401(k). My Roth IRA is with Vanguard and is invested in the Target 2035 fund (0.14% ER).

With Fidelity, I'm considering:

FZROX (Fidelity Zero Total Market Fund)
FZIPX (Fidelity Zero Extended Market Fund)
FZILX (Fidelity Total International Market Fund)
FXNAX (Fidelity US-Bond Index Fund)

ER's are 0% for the Zero funds and 0.025% for FXNAX. I can mirror the Freedom Index 2035 fund with this for cheaper than purchasing the fund itself.

My question is: will there be added benefits to adding the FZIPX for small- and mid-cap stocks, or should I just do the total market, international, and bond index funds? I'm wondering if adding a 4th fund will be of any additional benefit.

Thanks!
To compare, using actual funds, Vanguard's extended market index fund (VEXMX) goes back to the late 1980s. If you look at returns of this fund compared to Vanguard's S&P 500 index fund, the extended market fund outperformed by about by 0.30% annually, and it had additional volatility. Extended market funds are meant to complement an S&P 500 fund to mimic a total market fund. Comparing a total market fund to the extended market fund should result in an even smaller difference in performance.

This performance indeed has been the past performance of smaller capitalization stocks over long time periods. There is extensive research on the topic of why this might have been and why it may or may not continue, which you could fill the better part of a year (or more) reading. Note the 0.30% difference was 100% of one fund versus 100% of the other. Mixing the funds resulted in a performance difference that is even less. There have been time periods were the performance difference was much greater, both in the positive and negative direction. Usually something extreme was occurring, such as the tech bubble (extended market underperformed) or the period right after the bubble burst (extended market outperformed).

Given the recent underperformance of the extended market fund, one might inflate the 0.30% return slightly in an attempt to smooth the endpoint sensitivity. Even so, assume you select 10% or 20% of the stock allocation for the extended market fund. Would that make much of a difference to your overall returns? It is unlikely in my opinion, absent an extreme scenario that works in your favor. That is what one should expect in general: To get a markedly different return, you either need a markedly different portfolio or a markedly different investing environment.
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Re: The Three-Fund Portfolio

Post by Ferdinand2014 »

southerndoc wrote: Sun Apr 28, 2019 9:53 pm After many years of slicing and dicing my retirement accounts with various index funds, I'm wanting to settle on 3 or 4 index funds.

Currently I'm with Fidelity with a Self-Employed 401(k). My Roth IRA is with Vanguard and is invested in the Target 2035 fund (0.14% ER).

With Fidelity, I'm considering:

FZROX (Fidelity Zero Total Market Fund)
FZIPX (Fidelity Zero Extended Market Fund)
FZILX (Fidelity Total International Market Fund)
FXNAX (Fidelity US-Bond Index Fund)

ER's are 0% for the Zero funds and 0.025% for FXNAX. I can mirror the Freedom Index 2035 fund with this for cheaper than purchasing the fund itself.

My question is: will there be added benefits to adding the FZIPX for small- and mid-cap stocks, or should I just do the total market, international, and bond index funds? I'm wondering if adding a 4th fund will be of any additional benefit.

Thanks!
FZIPX would only overlap FZROX.

FNILX (Zero large cap - essentially an S&P 500 fund without paying for the license fee) + FZIPX = exactly all of FZROX 2,500 stocks.

You would generally combine FZIPX with some x ratio of FNILX if you wanted to tilt to small/mid caps or large caps depending on which x ratio you choose.
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Re: The Three-Fund Portfolio

Post by copacetic »

I have a question on the three fund strategy for my 401k. My 401k is with Fidelity. In my 401k investment options I do not have access to the Fidelity Total Market Index Funds. However, I have the option to open a Fidelity "Brokerage Link" account that is tied to my 401k which then allows me to invest in most any stocks,bonds etc....including both Vanguards and Fidelity's Total Market index funds. Should I choose Vanguard or Fidelity's funds? Not sure if there would be any fee difference etc.
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Re: The Three-Fund Portfolio

Post by CABob »

copacetic wrote: Tue Apr 30, 2019 12:50 pm I have a question on the three fund strategy for my 401k. My 401k is with Fidelity. In my 401k investment options I do not have access to the Fidelity Total Market Index Funds. However, I have the option to open a Fidelity "Brokerage Link" account that is tied to my 401k which then allows me to invest in most any stocks,bonds etc....including both Vanguards and Fidelity's Total Market index funds. Should I choose Vanguard or Fidelity's funds? Not sure if there would be any fee difference etc.
What is the cost to use the brokerage link? In many plans that cost takes away most or all of the advantage of the lower cost funds. If your plan has an S&P 500 index fund that may be close enough to the TSM.
Bob
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Re: The Three-Fund Portfolio

Post by copacetic »

Thanks Bob,

I'll have to call tomorrow and get that cost. As it turns out, my work lists the fund that all my 401k proceeds get invested into as "Target Retirement Fund 2035". I just discovered when I pull the covers back the fund is allocated as follows:

Vanguard Total Stock market Indx - 46%
Vanguard Total Intl Stock Indx - 30%
Vanguard Total Bond Market - 16%
Vanguard Total International Bond - 7%

So although it is not the exact percentages I want, it may be close enough to just stick with it instead of paying the fee's to move it over to the Brokerage Link account and purchase the exact Vanguard percentages.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

copacetic wrote: Tue Apr 30, 2019 12:50 pm I have a question on the three fund strategy for my 401k. My 401k is with Fidelity. In my 401k investment options I do not have access to the Fidelity Total Market Index Funds. However, I have the option to open a Fidelity "Brokerage Link" account that is tied to my 401k which then allows me to invest in most any stocks,bonds etc....including both Vanguards and Fidelity's Total Market index funds. Should I choose Vanguard or Fidelity's funds? Not sure if there would be any fee difference etc.
copacetic:

I think it is important to keep all investments with one good company (like Fidelity). The benefits:

1. One familiar statement.
2. Less paperwork.
3. Easier tax preparation.
4. Avoidance of low-balance and other small fees.
5. It's much easier to learn only one company's policies, fees, regulations, etc.
6. With larger holdings it may be possible to qualify for lower costs and premium services (Voyager, Admiral, Flagship).
7. Rebalancing and exchanges are easier.
8. Eliminates 3rd party brokerage.
9. A loyal customer is appreciated and usually treated better.
10. Less chance of errors.
11. Knowledge that Fidelity's fine reputation and low-costs are always working for you.
12. More free time for ourselves.
13. In event of death or disability, it will be much easier for others.

"Stick" with Fidelity because you are already there. The have the same three total market index funds that Vanguard has.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: "Total Return Versus Income Approach"

Post by patrick013 »

Vanguard will never have a study where the dividend fund would be dominant.

Going back to 1952 and even current 10 year periods it's not surprising that the dividend index used in the other dividend study would outperform the market portfolio by over 1.5%, more than enough to cover taxes. Of course a similar study index like the NASDAP Dividend Acheivers 50 doesn't have market history back to 1952 and can only be referred to in the older study and by current historical returns and difference, which are very close to the expected difference calc'd starting in 1952. What I am saying is VG doesn't use an index in any of it's studies that is capable of beating the market portfolio.

So, until proven otherwise I'll take the extra 1.5% return as is currently observed in current 10 year return observations as relevant statistical information regarding a dividend tilt.
age in bonds, buy-and-hold, 10 year business cycle
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Re: Articles recommending The Three-Fund Portfolio

Post by Taylor Larimore »

Taylor Larimore wrote: Fri Apr 19, 2019 8:44 pm Bogleheads:

I have updated articles recommending The Three-Fund Portfolio:

"A Boglehead Explains the Simplest Way to Manage Your Money--MarketWatch

"The Three-Fund Portfolio -- Morningstar

"Three-Fund Portfolio" -- Boglehead wiki

"The Arithmetic of Active Management" by William Sharpe, Nobel Laureate

"The BigLaw Investor Portfolio" by Joshua Hunt

"Efficient Investing with the Three Fund Portfolio" by Mr. Crazy Kicks

"From 28 Funds to 3: Simplifying to a Three-Fund Portfolio" by Physician On Fire

"How the Bogle (3-fund) Model Beats the Yale Model" by Ben Carlson

"He Has Read 250 Investing Books and Recommends the Three Fund Portfolio" by Physician on Fire

"How To Diversify With Just Three Mutual Funds" by Ambassador Laura Dogu, Forbes

"Most Investors Probably Won’t Outperform This Simple (three-fund) Portfolio" Morningstar

"The Only Three Vanguard Funds You Need to Build a Portfolio" by Kent Thune

"Investing Should Be Simple. A Three-Fund Portfolio Is All You Need." by Allan Roth, AARP

"Investing With A Three Fund Portfolio" by Financial Ramblings

"If You Can. How Millennials Can Get Rich Slowly" -- Free book by Wm. Bernstein

"Next to Nothing" by Jonathan Clements

"The Three Fund Portfolio: The Lazy Investing Strategy that Crushes the Pros" by The Money Wizard

"The Three-Fund Investment Portfolio: The Beauty of Simplicity" by Mama Fish Saves

"Three Fund Portfolio: Did Awesomeness Find Trinity?" by Portfolio Einstein

"Three Fund Portfolio – Investing Made Easy" by The Finance Twins

"3 Fund Portfolio Investment Strategy: The Only Time Lazy is Cool" by Dr Breathe Easy Investing

"Three Mutual Funds That End The Guesswork" by Jonathan Burton MarketWatch

"How To Simplify Your Investing Using Only Three Funds" by Debt Free Doctor

"Simplify Your Investments With The 3-Fund Portfolio" by Alicia Adamczyk

"Why (3) Index Portfolios Win" by M.P. Dunleavey

Best wishes.
Taylor
Last edited by Taylor Larimore on Wed May 08, 2019 10:20 pm, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by Gary Guss »

Thanks Taylor!
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Re: The Three-Fund Portfolio

Post by abuss368 »

Thanks Taylor!
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by bizkitgto »

Taylor - what is your current portfolio asset allocation?
Keep it simple: 20% BND, 50% VTI and 30% VXUS
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

bizkitgto wrote: Mon May 13, 2019 11:40 pm Taylor - what is your current portfolio asset allocation?
bizkitgto:

Last I looked it was about 25% Vanguard Total Bond Market Index Fund and 75% Total Stock Market Index Fund (my income supports my modest lifestyle).

Thank you, Jack!

Best wishes
Taylor
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Re: The Three-Fund Portfolio

Post by abuss368 »

Taylor Larimore wrote: Tue May 14, 2019 9:30 am
bizkitgto wrote: Mon May 13, 2019 11:40 pm Taylor - what is your current portfolio asset allocation?
bizkitgto:

Last I looked it was about 25% Vanguard Total Bond Market Index Fund and 75% Total Stock Market Index Fund (my income supports my modest lifestyle).

Thank you, Jack!

Best wishes
Taylor
Hi Taylor -

Are those percentages reversed with 25% invested in Total Stock? Was not sure if you followed Jack's "age in bonds" guidance?
John C. Bogle: “Simplicity is the master key to financial success."
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Short Term Asset Allocation

Post by Taylor Larimore »

abuss368:

My 25% bond and 75% stock allocation is carefully considered. At age 95, with a life expectancy of 3 years, planning is simplified. :wink:

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Short Term Asset Allocation

Post by abuss368 »

Taylor Larimore wrote: Wed May 15, 2019 9:34 am abuss368:

My 25% bond and 75% stock allocation is carefully considered. At age 95, with a life expectancy of 3 years, planning is simplified. :wink:

Best wishes.
Taylor
Thanks Taylor!

Hope you are well.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by LadyGeek »

New member goixiz has a question which I've moved into here: NOOB trying to learn (yes im a tad late age 52)
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Re: The Three-Fund Portfolio

Post by retire2022 »

Morningstar's Jason Kephart writes positively on Vanguard funds

Vanguard's Two-Fund Portfolio Just Had Its Best Decade
Jason Kephart, CFA
30 May 2019
In Focus

VBIAX
VBTLX
VGTSX
VSMGX
VTIBX

If it feels like diversifying beyond a simple moderate portfolio that owns one U.S. stock index fund and one U.S. bond index fund has been a fool's errand over the past decade, there's good reason for that. Vanguard Balanced Index (VBIAX) had its best decade of risk-adjusted returns since it launched in 1992, and it invests in just two broad U.S. index funds. To be fair, seven of the 153 funds in the allocation--50% to 70% equity Morningstar Category had as good or slightly better risk-adjusted returns over the decade, so there was some room for improvement, but it has still been a fantastic time for simplicity....


https://www.morningstar.com/articles/93 ... -deca.html
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Re: The Three-Fund Portfolio

Post by LadyGeek »

LXEX55 has asked several questions in this thread. I moved the questions and replies into a new thread. See: [Help me select a Three-Fund Portfolio for my retirement]
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