The Three-Fund Portfolio

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bertilak
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Re: The Three-Fund Portfolio

Post by bertilak »

manlymatt83 wrote: Tue Oct 13, 2020 10:06 am For those holding VT/BNDW as part of the "three-fund" -- is it OK to hold VT/BNDW in both taxable and tax-advantaged so that rebalancing between VT and BNDW can only be done in tax advantaged and you never have to touch the taxable holdings?
Are you accumulating or decumulating? Depending, you can either use new investments or new (required?) distributions to maintain your AA.

If you are just coasting along and need to sell and buy to maintain your AA then what you are doing is a reasonable approach.
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Re: The Three-Fund Portfolio

Post by manlymatt83 »

bertilak wrote: Tue Oct 13, 2020 10:15 am
manlymatt83 wrote: Tue Oct 13, 2020 10:06 am For those holding VT/BNDW as part of the "three-fund" -- is it OK to hold VT/BNDW in both taxable and tax-advantaged so that rebalancing between VT and BNDW can only be done in tax advantaged and you never have to touch the taxable holdings?
Are you accumulating or decumulating? Depending, you can either use new investments or new distributions to maintain your AA.

If you are just coasting along and need to sell and buy to maintain your AA then what you are doing is a reasonable approach.
I am accumulating. My tax advangted space is limited (~$6000/year) so I will have to continue holding VT and BNDW in taxable for a large portion of my portfolio. Up until now, I have always avoided buying VT and BNDW ALSO in my tax advantaged ... just making sure that's a sane practice if I start doing that alongside my taxable holdings.

Hadn't thought about new contributions. You're right - I should be able to do that for at least a few more years, but at some point, new contributions may not be enough to complete a rebalance (one can hope).
IPS: 90% VTWAX, 10% SCV until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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Re: The Three-Fund Portfolio

Post by lostdog »

manlymatt83 wrote: Tue Oct 13, 2020 10:06 am For those holding VT/BNDW as part of the "three-fund" -- is it OK to hold VT/BNDW in both taxable and tax-advantaged so that rebalancing between VT and BNDW can only be done in tax advantaged and you never have to touch the taxable holdings?

I realize VTI/VXUS has a lower expense ratio and the benefit of the foreign tax credit but for simplicity I would just like to hold VT in all accounts. Just making sure there's nothing I'm missing about holding it in multiple accounts. Thanks!
Hold just VT in taxable and VT+BNDW in tax-advantaged for tax-efficient placement of funds. Make sense?

You'll re-balance in your tax-advantaged accounts.

https://www.bogleheads.org/wiki/Tax-eff ... _placement
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Re: The Three-Fund Portfolio

Post by manlymatt83 »

lostdog wrote: Tue Oct 13, 2020 10:21 am
manlymatt83 wrote: Tue Oct 13, 2020 10:06 am For those holding VT/BNDW as part of the "three-fund" -- is it OK to hold VT/BNDW in both taxable and tax-advantaged so that rebalancing between VT and BNDW can only be done in tax advantaged and you never have to touch the taxable holdings?

I realize VTI/VXUS has a lower expense ratio and the benefit of the foreign tax credit but for simplicity I would just like to hold VT in all accounts. Just making sure there's nothing I'm missing about holding it in multiple accounts. Thanks!
Hold just VT in taxable and VT+BNDW in tax-advantaged for tax-efficient placement of funds. Make sense?

You'll re-balance in your tax-advantaged accounts.

https://www.bogleheads.org/wiki/Tax-eff ... _placement
Ahh! Got it, that makes sense. The hope here would be that I would never need to hold more BNDW than what I can fit in my IRA?
IPS: 90% VTWAX, 10% SCV until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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Re: The Three-Fund Portfolio

Post by lostdog »

manlymatt83 wrote: Tue Oct 13, 2020 10:28 am
lostdog wrote: Tue Oct 13, 2020 10:21 am
manlymatt83 wrote: Tue Oct 13, 2020 10:06 am For those holding VT/BNDW as part of the "three-fund" -- is it OK to hold VT/BNDW in both taxable and tax-advantaged so that rebalancing between VT and BNDW can only be done in tax advantaged and you never have to touch the taxable holdings?

I realize VTI/VXUS has a lower expense ratio and the benefit of the foreign tax credit but for simplicity I would just like to hold VT in all accounts. Just making sure there's nothing I'm missing about holding it in multiple accounts. Thanks!
Hold just VT in taxable and VT+BNDW in tax-advantaged for tax-efficient placement of funds. Make sense?

You'll re-balance in your tax-advantaged accounts.

https://www.bogleheads.org/wiki/Tax-eff ... _placement
Ahh! Got it, that makes sense. The hope here would be that I would never need to hold more BNDW than what I can fit in my IRA?
Correct. :beer

VT+BNDW is such a simple and diversified portfolio. :sharebeer
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Re: The Three-Fund Portfolio

Post by manlymatt83 »

lostdog wrote: Tue Oct 13, 2020 10:31 am
manlymatt83 wrote: Tue Oct 13, 2020 10:28 am
lostdog wrote: Tue Oct 13, 2020 10:21 am
manlymatt83 wrote: Tue Oct 13, 2020 10:06 am For those holding VT/BNDW as part of the "three-fund" -- is it OK to hold VT/BNDW in both taxable and tax-advantaged so that rebalancing between VT and BNDW can only be done in tax advantaged and you never have to touch the taxable holdings?

I realize VTI/VXUS has a lower expense ratio and the benefit of the foreign tax credit but for simplicity I would just like to hold VT in all accounts. Just making sure there's nothing I'm missing about holding it in multiple accounts. Thanks!
Hold just VT in taxable and VT+BNDW in tax-advantaged for tax-efficient placement of funds. Make sense?

You'll re-balance in your tax-advantaged accounts.

https://www.bogleheads.org/wiki/Tax-eff ... _placement
Ahh! Got it, that makes sense. The hope here would be that I would never need to hold more BNDW than what I can fit in my IRA?
Correct. :beer

VT+BNDW is such a simple and diversified portfolio. :sharebeer
Agreed and awesome - thank you!
IPS: 90% VTWAX, 10% SCV until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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"Building A Three Fund Portfolio [The Super Simple Investing Strategy]"

Post by Taylor Larimore »

Bogleheads:

"Invested Wallet" recently published a nice article praising The Three-Fund Portfolio.

Building A Three Fund Portfolio [The Super Simple Investing Strategy]

Enjoy!

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
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Three-Fund Portfolio Articles

Post by Taylor Larimore »

Bogleheads:

It pleases me whenever I read an article recommending The Three-Fund Portfolio. This Reply will bring them all together in a single post:

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

"The Bogleheads' Guide to The Three-Fund Portfolio" by Four Pillar Freedom

"The Bogleheads' Guide to the Three-Fund Portfolio" by Rick Van Ness

"The BigLaw Investor Portfolio" by Joshua Hunt

"Bogleheads Three-Fund Portfolio Review" by Optimized Portfolio

"Building A Three-Fund Portfolio" by Investment Wallet

"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

"How To Create A Three-Fund Portfolio" by Camilo Maldonado, Forbes

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

"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

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

"Next to Nothing" by Jonathan Clements

"Review of Bogleheads Guide to the Three Fund Portfolio" by The White Coat Investor

"The Simple Magic of Investing In A Three-Fund Portfolio by BestWalletHacks

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

"The Three-Fund Portfolio. Living the Simple Life." by Morningstar

"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

"3 Fund Portfolio: The Lazy Way To Invest" by Just Start Investing

"The Three-Fund Portfolio" -- Boglehead wiki

"The Three Fund Portfolio: A Simple Diversified Investing Strategy" by Bible Matters

"The 3 Fund Portfolio: Simple Investing That Works" by Clevergirl Finance

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

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

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by LadyGeek »

Thanks! Your post is in the wiki. See: Three-fund portfolio (External links)
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Re: Three-Fund Portfolio Articles

Post by abuss368 »

Taylor Larimore wrote: Mon Oct 26, 2020 9:39 pm Bogleheads:

It pleases me whenever I read an article recommending The Three-Fund Portfolio. This Reply will bring them all together in a single post:

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

"The Bogleheads' Guide to The Three-Fund Portfolio" by Four Pillar Freedom

"The Bogleheads' Guide to the Three-Fund Portfolio" by Rick Van Ness

"The BigLaw Investor Portfolio" by Joshua Hunt

"Bogleheads Three-Fund Portfolio Review" by Optimized Portfolio

"Building A Three-Fund Portfolio" by Investment Wallet

"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

"How To Create A Three-Fund Portfolio" by Camilo Maldonado, Forbes

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

"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

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

"Next to Nothing" by Jonathan Clements

"Review of Bogleheads Guide to the Three Fund Portfolio" by The White Coat Investor

"The Simple Magic of Investing In A Three-Fund Portfolio by BestWalletHacks

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

"The Three-Fund Portfolio. Living the Simple Life." by Morningstar

"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

"3 Fund Portfolio: The Lazy Way To Invest" by Just Start Investing

"The Three-Fund Portfolio" -- Boglehead wiki

"The Three Fund Portfolio: A Simple Diversified Investing Strategy" by Bible Matters

"The 3 Fund Portfolio: Simple Investing That Works" by Clevergirl Finance

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

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

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
Thanks Taylor! I have read and enjoyed most of these. There are many benefits to the Three Fund Portfolio and investors would be wise to consider this advice.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by abuss368 »

I just noticed that this thread has achieved over 3,000 posts!

Congrats Taylor and job well done!
John C. Bogle: “Simplicity is the master key to financial success."
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Three-Fund & Two Fund Portfolios

Post by Taylor Larimore »

abuss368 wrote: Tue Oct 27, 2020 10:53 pm I just noticed that this thread has achieved over 3,000 posts!

Congrats Taylor and job well done!
abuss368:

I appreciate your support. I might add that your Two-Fund Portfolio recommended by both Jack Bogle and Warren Buffett is looking better and better.

Lesson learned: A simple 2-fund or 3-fund total market index portfolio, properly allocated between stocks and bonds, is a worry-free way to achieve our goals. Both provide the many benefits listed here.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "I favor the all-market index index fund as the best choice for most investors."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by retire2022 »

all Vanguard is the largest fund manager, $5,442 Billion and number 1:

https://www.institutionalinvestor.com/a ... -Gut-Punch

"Active Managers Are Having a Rough 2020. Here’s Another Gut Punch.

October’s heavy outflows bumped Dimensional Fund Advisors from the top 10 U.S. fund families, according to Morningstar.

Christine Idzelis

November 13, 2020

Active managers took another hard hit as investors fled U.S. equity funds last month.

Investors pulled $46 billion from the mutual funds and exchange-traded funds focused on U.S. stocks, the second-highest monthly outflows ever after August, according to a Morningstar report this week. While actively managed and passive strategies each “felt the sting of outflows in October,” the research firm said “outflows are hitting active managers much harder.”

Investor withdrew about three times as much capital from actively managed U.S. equity funds, leaving passive strategies with about $300 billion more in assets for a total of $4.8 trillion in the category at the end of October, the report shows. Passive funds have been winning over investors as active managers charge higher fees despite failing to persistently outperform."
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Re: The Three-Fund Portfolio

Post by ruralavalon »

retire2022 wrote: Sat Nov 14, 2020 2:12 am all Vanguard is the largest fund manager, $5,442 Billion and number 1:

https://www.institutionalinvestor.com/a ... -Gut-Punch

"Active Managers Are Having a Rough 2020. Here’s Another Gut Punch.

October’s heavy outflows bumped Dimensional Fund Advisors from the top 10 U.S. fund families, according to Morningstar.

Christine Idzelis

November 13, 2020

Active managers took another hard hit as investors fled U.S. equity funds last month.

Investors pulled $46 billion from the mutual funds and exchange-traded funds focused on U.S. stocks, the second-highest monthly outflows ever after August, according to a Morningstar report this week. While actively managed and passive strategies each “felt the sting of outflows in October,” the research firm said “outflows are hitting active managers much harder.”

Investor withdrew about three times as much capital from actively managed U.S. equity funds, leaving passive strategies with about $300 billion more in assets for a total of $4.8 trillion in the category at the end of October, the report shows. Passive funds have been winning over investors as active managers charge higher fees despite failing to persistently outperform."
It's unclear whether the rankings are only for funds investing in U.S. stocks.
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Re: The Three-Fund Portfolio

Post by Register44 »

:arrow:
Last edited by Register44 on Mon Jan 11, 2021 8:30 pm, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by tj »

Register44 wrote: Tue Dec 01, 2020 4:52 pm With the formation of VT we can further diversify the 3 fund with: VT,BNDW, GLDM

VT has been around much longer than BNDW
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Re: The Three-Fund Portfolio

Post by Register44 »

:arrow:
Last edited by Register44 on Mon Jan 11, 2021 8:30 pm, edited 1 time in total.
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"Three Proofs That TSM is Efficient"

Post by Taylor Larimore »

Register44 wrote: Tue Dec 01, 2020 5:23 pm
tj wrote: Tue Dec 01, 2020 5:10 pm
Register44 wrote: Tue Dec 01, 2020 4:52 pm With the formation of VT we can further diversify the 3 fund with: VT,BNDW, GLDM
Register44:

The stocks in GLDM (SPDR Gold MiniShares) do not add diversification to The Three-Fund Portfolio, they increase concentration. The market-weight of gold stocks is ALREADY in the Total Stock Market Index Fund.

Three Proofs That TSM is Efficient

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The odds of outpacing an all-market index fund are, well, terrible.
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Re: "Three Proofs That TSM is Efficient"

Post by Register44 »

:arrow:
Last edited by Register44 on Mon Jan 11, 2021 8:30 pm, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Register 44 wrote:But inflation is a terrible period for stocks and bonds.
Register 44:

A combination of stocks and bonds in the late 70s (when U.S. suffered severe inflation) provided positive nominal returns. Those who stayed the course with a three-fund portfolio were well rewarded.

Historical Returns

More money has been lost worrying about inflation than has been lost at the point of a gun.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by abuss368 »

Register44 wrote: Tue Dec 01, 2020 5:23 pm
tj wrote: Tue Dec 01, 2020 5:10 pm
Register44 wrote: Tue Dec 01, 2020 4:52 pm With the formation of VT we can further diversify the 3 fund with: VT,BNDW, GLDM

VT has been around much longer than BNDW
True. But the reason I mention it, is it was formed after OP's post using VTI and VXUS. So for the OP it takes 2 funds down to 1. I decided to go with BNDW instead of BND to stay global. Then added gold for real asset diversification.
Adding Gold to the Three Fund Portfolio is not increasing diversification. The market weight of Gold companies is included in the total market index funds.
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Re: The Three-Fund Portfolio

Post by Register44 »

:arrow:
Last edited by Register44 on Mon Jan 11, 2021 8:30 pm, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by 000 »

Register44 wrote: Tue Dec 01, 2020 4:52 pm With the formation of VT we can further diversify the 3 fund with: VT,BNDW, GLDM
I like the way you think 8-)

For those upthread, there is no overlap between the underlying holdings of GLDM and of total market stock funds.
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Re: The Three-Fund Portfolio

Post by Freckle's friend »

Register44 wrote: Tue Dec 01, 2020 8:03 pm I think I realize my error. I should have better specified "asset class diversification" Gold mining stocks are still equities. Gold bullion is a commodity. Separate classes. Just as XOM is not the same as crude oil. A lot of us think of them as being good proxies, but still they are not the same asset class.

edit: Further I want to clarify I 100% agree TSM US / World is the way to go for the "equity" exposure of a portfolio.
Would owning a home count as your added class diversification? I do like the TIPS idea for providing some additional inflation protection particularly in light of a past with very nominal US inflation and massive government spending everywhere due to COVID... Of course the nice thing about not having confidence in when to time the market is to let thoughts like this go...
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Re: The Three-Fund Portfolio

Post by Register44 »

:arrow:
Last edited by Register44 on Mon Jan 11, 2021 8:28 pm, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by ruralavalon »

Register44 wrote: Tue Dec 08, 2020 11:34 pm
Freckle's friend wrote: Tue Dec 08, 2020 9:19 pm
Register44 wrote: Tue Dec 01, 2020 8:03 pm I think I realize my error. I should have better specified "asset class diversification" Gold mining stocks are still equities. Gold bullion is a commodity. Separate classes. Just as XOM is not the same as crude oil. A lot of us think of them as being good proxies, but still they are not the same asset class.

edit: Further I want to clarify I 100% agree TSM US / World is the way to go for the "equity" exposure of a portfolio.
Would owning a home count as your added class diversification? I do like the TIPS idea for providing some additional inflation protection particularly in light of a past with very nominal US inflation and massive government spending everywhere due to COVID... Of course the nice thing about not having confidence in when to time the market is to let thoughts like this go...
I think that would be much better than owning reits for overall asset class diversification. I still think gold or tips would be good to add as well, but yes I think having some physical real estate definitely adds to diversification.
Yes, owning real estate is additional diversification. In my opinion owning a REIT fund is also additional diversification, correlation of Total Stock Market ETF and REIT ETF has been 46. In my opinion owning a TIPS fund is also additional diversification, correlation of Total Stock Market ETF and Inflation-Protected Securities has been 3.
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Re: The Three-Fund Portfolio

Post by GaryA505 »

ruralavalon wrote: Wed Dec 09, 2020 11:04 am
Register44 wrote: Tue Dec 08, 2020 11:34 pm
Freckle's friend wrote: Tue Dec 08, 2020 9:19 pm
Register44 wrote: Tue Dec 01, 2020 8:03 pm I think I realize my error. I should have better specified "asset class diversification" Gold mining stocks are still equities. Gold bullion is a commodity. Separate classes. Just as XOM is not the same as crude oil. A lot of us think of them as being good proxies, but still they are not the same asset class.

edit: Further I want to clarify I 100% agree TSM US / World is the way to go for the "equity" exposure of a portfolio.
Would owning a home count as your added class diversification? I do like the TIPS idea for providing some additional inflation protection particularly in light of a past with very nominal US inflation and massive government spending everywhere due to COVID... Of course the nice thing about not having confidence in when to time the market is to let thoughts like this go...
I think that would be much better than owning reits for overall asset class diversification. I still think gold or tips would be good to add as well, but yes I think having some physical real estate definitely adds to diversification.
Yes, owning real estate is additional diversification. In my opinion owning a REIT fund is also additional diversification, correlation of Total Stock Market ETF and REIT ETF has been 46. In my opinion owning a TIPS fund is also additional diversification, correlation of Total Stock Market ETF and Inflation-Protected Securities has been 3.
Where did you get those correlations? Portfolio Visualizer shows REIT with a much higher correlation, at least for the last 20 years. Do you have a better source?
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Re: The Three-Fund Portfolio

Post by ruralavalon »

GaryA505 wrote: Tue Dec 22, 2020 2:34 pm
ruralavalon wrote: Wed Dec 09, 2020 11:04 am
Register44 wrote: Tue Dec 08, 2020 11:34 pm
Freckle's friend wrote: Tue Dec 08, 2020 9:19 pm
Register44 wrote: Tue Dec 01, 2020 8:03 pm I think I realize my error. I should have better specified "asset class diversification" Gold mining stocks are still equities. Gold bullion is a commodity. Separate classes. Just as XOM is not the same as crude oil. A lot of us think of them as being good proxies, but still they are not the same asset class.

edit: Further I want to clarify I 100% agree TSM US / World is the way to go for the "equity" exposure of a portfolio.
Would owning a home count as your added class diversification? I do like the TIPS idea for providing some additional inflation protection particularly in light of a past with very nominal US inflation and massive government spending everywhere due to COVID... Of course the nice thing about not having confidence in when to time the market is to let thoughts like this go...
I think that would be much better than owning reits for overall asset class diversification. I still think gold or tips would be good to add as well, but yes I think having some physical real estate definitely adds to diversification.
Yes, owning real estate is additional diversification. In my opinion owning a REIT fund is also additional diversification, correlation of Total Stock Market ETF and REIT ETF has been 46. In my opinion owning a TIPS fund is also additional diversification, correlation of Total Stock Market ETF and Inflation-Protected Securities has been 3.
Where did you get those correlations? Portfolio Visualizer shows REIT with a much higher correlation, at least for the last 20 years. Do you have a better source?
I use this correlation tool, because very easy to use for Vanguard funds.

I have no idea if it's better than Portfolio Visualizer.
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Re: The Three-Fund Portfolio

Post by manlymatt83 »

Curious to know how three-funders feel about leverage. In an ideal world with zero borrowing costs, would three-funders feel comfortable at 120% stocks and 80% bonds (for example), even if the only holdings were a total world market fund and a total world bond fund?
IPS: 90% VTWAX, 10% SCV until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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Re: The Three-Fund Portfolio

Post by Wanderingwheelz »

manlymatt83 wrote: Fri Dec 25, 2020 8:18 pm Curious to know how three-funders feel about leverage. In an ideal world with zero borrowing costs, would three-funders feel comfortable at 120% stocks and 80% bonds (for example), even if the only holdings were a total world market fund and a total world bond fund?
I’m a 3 Fund investor who has no need for leverage. I don’t have a mortgage, either.

I doubt you’d find two 3 Fund investors here who would advocate for using leverage in their portfolio. Risk seekers aren’t drawn to boring styles of investing.
3 Fund Portfolio. 70%/30% AA. No mortgage. Simple.
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Re: The Three-Fund Portfolio

Post by manlymatt83 »

Wanderingwheelz wrote: Fri Dec 25, 2020 8:35 pm
manlymatt83 wrote: Fri Dec 25, 2020 8:18 pm Curious to know how three-funders feel about leverage. In an ideal world with zero borrowing costs, would three-funders feel comfortable at 120% stocks and 80% bonds (for example), even if the only holdings were a total world market fund and a total world bond fund?
I’m a 3 Fund investor who has no need for leverage. I don’t have a mortgage, either.

I doubt you’d find two 3 Fund investors here who would advocate for using leverage in their portfolio. Risk seekers aren’t drawn to boring styles of investing.
I guess that matches my question, though. Since I said zero borrowing costs (and assuming no decay), wouldn't 2x leverage still be "the same old boring strategy", it would just be 2x.

In other words, if someone has $100,000 in a 60/40 stocks/bonds portfolio, and can borrow $100,000 interest free, wouldn't $200,000 in a 60/40 stocks/bonds portfolio be acceptable? If 60/40 stocks & bonds have negative returns over a lifetime, aren't there a lot more problems anyway?
IPS: 90% VTWAX, 10% SCV until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

manlymatt83:

In my opinion, it is usually a serious mistake to engage in "leveraging" stocks because it is costly and risky.

Stick to directly owned stocks and bonds. If you seek more return (knowing you are getting more risk of loss), a much better way is to simply increase your stock allocation.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Don't get anywhere near leverage for the normal person."
Last edited by Taylor Larimore on Wed Dec 30, 2020 11:16 am, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by manlymatt83 »

Taylor Larimore wrote: Fri Dec 25, 2020 8:48 pm manlymatt83:

In my opinion, it is usually a serious mistake to engage in "leveraging" stocks because it is costly and risky.

Stick to directly owned stocks and bonds. If you seek more return (knowing you are getting more risk of loss), simply increase your bond allocation.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Don't get anywhere near leverage for the normal person."
Do you mean increase the stock allocation?
IPS: 90% VTWAX, 10% SCV until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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Re: The Three-Fund Portfolio

Post by tucker99 »

I've used the 3-fund portfolio for my qualified IRA since reading the first few posts. I'm 65 and retiring 3/31/21. My AA is 50%-50%, Vanguard suggests 55-stock & 45-bond. International, VTIAX, is a little heavy, 35% of equities. I re-read Taylor's first post and he suggests 20% international. I should have done that from the beginning; I lost out on a lot of VTSAX spikes. My return as of 11/30 is 7.8%; not all that great...

Think I wait until end of January to make any adjustments. With everything the Dems want to do, I think there may be a market shake-up.

I thank Taylor and the rest of the Bogleheads that come up with this stuff to simplify things. I used Edward Jones for years and with the help of this forum, I could see that I was getting whacked and quickly ended that relationship. While most of the active posters go off the deep end for me, I can understand some of the jargon and acronyms and continue to learn. Thanks again folks, and have a happy New Year!!
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

manlymatt83 wrote: Fri Dec 25, 2020 8:51 pm
Taylor Larimore wrote: Fri Dec 25, 2020 8:48 pm manlymatt83:

In my opinion, it is usually a serious mistake to engage in "leveraging" stocks because it is costly and risky.

Stick to directly owned stocks and bonds. If you seek more return (knowing you are getting more risk of loss), simply increase your bond allocation.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Don't get anywhere near leverage for the normal person."
Do you mean increase the stock allocation?
manlymatt83:

You are correct. I edited my post.

Thank you and best wishes for a Happy Holiday.
Taylor
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Re: The Three-Fund Portfolio

Post by abuss368 »

tucker99 wrote: Wed Dec 30, 2020 9:44 am With everything the Dems want to do, I think there may be a market shake-up.
With the Efficient Market Theory that may already be priced into the markets!

Happy New Year!
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Re: The Three-Fund Portfolio

Post by abuss368 »

manlymatt83 wrote: Fri Dec 25, 2020 8:38 pm
In other words, if someone has $100,000 in a 60/40 stocks/bonds portfolio, and can borrow $100,000 interest free, wouldn't $200,000 in a 60/40 stocks/bonds portfolio be acceptable?
It is very risky and a mistake to invest on leverage. That may payoff and look great in rising markets. However, when the tide pulls back (and it always does), leverage can absolutely crush an investor.

Fortunes have been lost and bankruptcies declared from. Being to leveraged.

Best.
Tony
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Re: The Three-Fund Portfolio

Post by manlymatt83 »

abuss368 wrote: Wed Dec 30, 2020 8:10 pm
manlymatt83 wrote: Fri Dec 25, 2020 8:38 pm
In other words, if someone has $100,000 in a 60/40 stocks/bonds portfolio, and can borrow $100,000 interest free, wouldn't $200,000 in a 60/40 stocks/bonds portfolio be acceptable?
It is very risky and a mistake to invest on leverage. That may payoff and look great in rising markets. However, when the tide pulls back (and it always does), leverage can absolutely crush an investor.

Fortunes have been lost and bankruptcies declared from. Being to leveraged.

Best.
Tony
Hi Tony!

I agree entirely with things like UPRO (with daily reset, and 3x up/down). Fortunes could be lost.

With PSLDX, it looks like they are 100% stocks, and only borrow against LIBOR for the managed bond side. I could be mistaken, but if PSLDX gets wiped out or significantly underperforms, isn't the world in trouble anyway? It would basically mean that 50/50 stocks/bonds no longer makes sense.

I don't want this thread to get off topic so I'll stop the replies on this topic after this. Happy New Year!
IPS: 90% VTWAX, 10% SCV until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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Re: The Three-Fund Portfolio

Post by HuckFinn »

It took a long time to convert to a truly three-fund portfolio which we accomplished in the fall of 2020. We could have done it years ago but we dabbled with different bond funds, dabbled with different sector funds, traded a few stocks. To our credit 90% of our portfolio has been "basic Boglehead" and we never deviated from the basic tenants of low cost and buy and hold within that 90%.

2021 is the first year we go in fully locked into a three-fund portfolio committed to sticking to our Investment Policy Statement.

This last week there was a great amount of temptation to slightly deviate from the plan. Our equity allocation is presently 3% higher than it should be but our Investment Policy Statement forbids us from rebalancing unless we are off by 5%. There was temptation to change our bond fund selection but we walked that temptation back by using the rational that the 3% extra equity is where we would rather assume risk vs in our Total Bond Market ETF selection. There was also a temptation to change our allocation from 60% equity to 55% equity on whim because of the higher current market valuations. We were able to fend off those inklings as well.

Wish us luck! Those voices can be pretty darn loud!

I can't remember if Taylor wrote this or Jack but our Investment Policy Statement is clearly visible on our Portfolio spreadsheet and in very bold letters it reads:
Tune out the noise, avoid temptation. Stay the Course!
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The Three-Fund Portfolio Wins Again In 2020

Post by Taylor Larimore »

Bogleheads:

Another year has gone by and once again Allan Roth's Three-Fund Portfolio is FIRST among eight professionally designed Lazy Portfolios on MarketWatch:

Total Returns for 8 Lazy Portfolios

Portfolio--------------------------------1-yr-----3-yrs---5-yrs---10-yrs
Aronson Family Taxable:------------17.02%--9.21%--10.81%--8.35%
Fundadvice Ultimate Buy & Hold---8.62%--5.66%----7.31%--5.92%
Dr. Bernstein's Smart Money---------8.57%--6.35%----8.00%--6.96%
Coffeehouse---------------------------8.19%--6.69%----8.07%---7.49%
Yale U's Unconventional------------11.96%--8.58%---9-48%----8.52%
Dr. Bernstein's No Brainer----------12.78%--8.57%--10.01%---8.71%
Margaritaville------------------------14.38%--8.37%---9.79%----7.50%
Second Grader's Starter*--------16.63%-10.61%-12.32%--10.08%

* The Three-Fund Portfolio

https://www.marketwatch.com/lazyportfolio

Happy New Year!
Taylor
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Re: The Three-Fund Portfolio Wins Again In 2020

Post by GRP »

Taylor Larimore wrote: Fri Jan 01, 2021 7:58 pm Bogleheads:

Another year has gone by and once again Allan Roth's Three-Fund Portfolio is FIRST among eight professionally designed Lazy Portfolios on MarketWatch:

Total Returns for 8 Lazy Portfolios

Portfolio--------------------------------1-yr-----3-yrs---5-yrs---10-yrs
Aronson Family Taxable:------------17.02%--9.21%--10.81%--8.35%
Fundadvice Ultimate Buy & Hold---8.62%--5.66%----7.31%--5.92%
Dr. Bernstein's Smart Money---------8.57%--6.35%----8.00%--6.96%
Coffeehouse---------------------------8.19%--6.69%----8.07%---7.49%
Yale U's Unconventional------------11.96%--8.58%---9-48%----8.52%
Dr. Bernstein's No Brainer----------12.78%--8.57%--10.01%---8.71%
Margaritaville------------------------14.38%--8.37%---9.79%----7.50%
Second Grader's Starter*--------16.63%-10.61%-12.32%--10.08%

* The Three-Fund Portfolio

https://www.marketwatch.com/lazyportfolio

Happy New Year!
Taylor
Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." -- "The odds of outpacing an all-market index fund are, well, terrible."
Taylor, I'd like to thank you for your amazing forum contributions and your mentorship to us all!

Thanks to you I am a proud investor in the Three-Fund Portfolio. I am enjoying an immensely improved quality of life now that I don't have to look at stock tables all the time.

Press on, regardless!
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Re: The Three-Fund Portfolio Wins Again In 2020

Post by abuss368 »

Taylor Larimore wrote: Fri Jan 01, 2021 7:58 pm Bogleheads:

Another year has gone by and once again Allan Roth's Three-Fund Portfolio is FIRST among eight professionally designed Lazy Portfolios on MarketWatch:

Total Returns for 8 Lazy Portfolios

Portfolio--------------------------------1-yr-----3-yrs---5-yrs---10-yrs
Aronson Family Taxable:------------17.02%--9.21%--10.81%--8.35%
Fundadvice Ultimate Buy & Hold---8.62%--5.66%----7.31%--5.92%
Dr. Bernstein's Smart Money---------8.57%--6.35%----8.00%--6.96%
Coffeehouse---------------------------8.19%--6.69%----8.07%---7.49%
Yale U's Unconventional------------11.96%--8.58%---9-48%----8.52%
Dr. Bernstein's No Brainer----------12.78%--8.57%--10.01%---8.71%
Margaritaville------------------------14.38%--8.37%---9.79%----7.50%
Second Grader's Starter*--------16.63%-10.61%-12.32%--10.08%

* The Three-Fund Portfolio

https://www.marketwatch.com/lazyportfolio

Happy New Year!
Taylor
Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." -- "The odds of outpacing an all-market index fund are, well, terrible."
Hi Taylor -

That must be so rewarding to read how holding a few total market index funds are consistently beating the more complex portfolios!

Imagine if international really starts to move! The Three Fund Portfolio will pull ahead even more.

Yale has been hurt from the TIPS, REITs, and International allocations.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio Wins Again In 2020

Post by GRP »

Simplicity is the master key to financial success. We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity. - John Bogle
I just love it.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Tony:

Your 2-fund portfolio of Total Stock Market and Total Bond Market is looking very good. Investors are learning that it is very difficult to beat simple, low-cost, very diversified, total market index funds.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "I favor the all-market index index fund as the best choice for most investors. Never think you know more than the market. Nobody does."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio Wins Again In 2020

Post by abuss368 »

GRP wrote: Sat Jan 02, 2021 12:30 pm
Simplicity is the master key to financial success. We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity. - John Bogle
I just love it.
You and me both!
Tony
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Re: The Three-Fund Portfolio

Post by abuss368 »

Taylor Larimore wrote: Sat Jan 02, 2021 2:31 pm Tony:

Your 2-fund portfolio of Total Stock Market and Total Bond Market is looking very good. Investors are learning that it is very difficult to beat simple, low-cost, very diversified, total market index funds.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "I favor the all-market index index fund as the best choice for most investors. Never think you know more than the market. Nobody does."
Thanks Taylor! Last year was a good year. Mr. Bogle was right again!

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

Post by Triple digit golfer »

For reasons that are irrelevant to this discussion and related to available funds in my 401k and NOT at all about past or expected future performance, I am considering moving all of my bonds out of Total Bond and into Intermediate Term Bond Index.

This would result in also swapping out an equal amount from the 500 Index to Total Stock Market in my IRA.

I know 500 Index/Total Stock is basically interchangeable. In fact I often sell one and buy the other when doing exchanges with new money.

Is Total Bond/Intermediate Term Bond close enough to consider them interchangeable or very close to it?
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Re: The Three-Fund Portfolio

Post by sycamore »

Triple digit golfer wrote: Mon Jan 04, 2021 9:23 pm For reasons that are irrelevant to this discussion and related to available funds in my 401k and NOT at all about past or expected future performance, I am considering moving all of my bonds out of Total Bond and into Intermediate Term Bond Index.

This would result in also swapping out an equal amount from the 500 Index to Total Stock Market in my IRA.

I know 500 Index/Total Stock is basically interchangeable. In fact I often sell one and buy the other when doing exchanges with new money.

Is Total Bond/Intermediate Term Bond close enough to consider them interchangeable or very close to it?
Triple digit golfer,
I'd say they're pretty close, and close enough to be interchangeable. Intermediate Term Bond Index (ITB) is a bit more risky (due to more corporate bond exposure). TBM holds bonds across the duration spectrum and has an average duration of intermediate, whereas ITB holds only intermediate term bonds.

I asked myself the same question a few times over the years. To help answer the question I looked at some backtests. Here's a backtest at Portfoliovisualizer. There are two sets of lines: blue and red are portfolios of 50/50 stocks/bonds where blue has TBM and red has ITB. And yellow and green are just the bond funds by themselves.

You can see that the ITB portfolios slightly outperformed. That's mostly due to its extra credit exposure which you can see in the higher volatility measurement. So a bit more extra risk and a bit more extra return.

Whether that all holds for the future... who knows? :)

I ended up sticking with TBM. I figured if I wanted the extra risk/return I'd just increase my stock allocation a few percentage points. But if ITB is your only option in an account, it's reasonable to use it for fixed income exposure.
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Intermediate Term Bond Fund?

Post by Taylor Larimore »

sycamore wrote: Is Total Bond/Intermediate Term Bond close enough to consider them interchangeable or very close to it?
sycamore"
sycamore:

In my opinion, either fund will do the job of providing safety in a portfolio. I slightly prefer Total Bond Market Index Fund because of its greater diversification. The link below is Jack Bogle and Morningstar discussing your question:

https://www.morningstar.com/articles/67 ... -be-better

Best wishes.
Taylor
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Re: The Three-Fund Portfolio

Post by ruralavalon »

Triple digit golfer wrote: Mon Jan 04, 2021 9:23 pm For reasons that are irrelevant to this discussion and related to available funds in my 401k and NOT at all about past or expected future performance, I am considering moving all of my bonds out of Total Bond and into Intermediate Term Bond Index.

This would result in also swapping out an equal amount from the 500 Index to Total Stock Market in my IRA.

I know 500 Index/Total Stock is basically interchangeable. In fact I often sell one and buy the other when doing exchanges with new money.

Is Total Bond/Intermediate Term Bond close enough to consider them interchangeable or very close to it?
In my opinion Vanguard Intermediate-term Bond Index Fund (VBILX) ER 0.07% is a good choice. We use the fund for all of our fixed income allocation. It is half government bonds, half corporate bonds, with no Mortgage Backed Securities. The fund has had higher performance, with more volatility. Portfolio Visualizer, 1995-2020. The funds have been very similar.
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