The Three-Fund Portfolio

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rgs92
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Re: The Three-Fund Portfolio

Post by rgs92 »

It's probably a great time for a Three-Fund portfolio because all three funds are down at the same time. This probably doesn't happen too often.
And the bond section is finally yielding a respectable return.
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Taylor Larimore
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Re: The Three-Fund Portfolio

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JnyVuko wrote: Taylor, do you think/know if tax-free bond funds are one of the professional bond trader's choices? I currently have a large portion of my taxable bond investments in tax-free funds. Thank you.
KmuVuko:

In my opinion, tax-free bond funds are best used by high income investors (tax-rate over 25% ) who have no room in tax-advantaged accounts (IRAs, 401ks, etc.).

I would not want all my tax-free bond funds in a single state. Mr. Bogle discusses your question in pages 394-399 in "Common Sense on Mutual Funds--Updated."

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Only the foolish investor fails to utilize tax-deferred accounts to the maximum possible advantage; to calculate the yield at which municipal bonds break even with ther taxable counterparts; and to evaluate the advantaage of paying no state taxes on interest earned on U.S. Treasury obligations."
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secondopinion
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Re: The Three-Fund Portfolio

Post by secondopinion »

JnyVuko wrote: Fri May 06, 2022 11:30 am Taylor, do you think/know if tax-free bond funds are one of the professional bond trader's choices? I currently have a large portion of my taxable bond investments in tax-free funds. Thank you.
Sorry to intercept. Professional bond traders do not care; they are aiming for pricing movements.

Now, if you are talking bond investors, then the high income investors have no problem placing money into tax-free bonds. If you are in the higher tax brackets, then it can be a great replacement for corporate bonds. Treasuries, I think, are still meaningful regardless of the tax bracket because of the lack of credit risk.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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abuss368
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Re: The Three-Fund Portfolio

Post by abuss368 »

rgs92 wrote: Fri May 06, 2022 11:35 am It's probably a great time for a Three-Fund portfolio because all three funds are down at the same time. This probably doesn't happen too often.
And the bond section is finally yielding a respectable return.
Tune this noise out and stay the course with the Three Fund Portfolio. Many years from now you will be thankful.

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

Post by cyclemore »

I would be interested in thoughts here....

If I was lucky enough to have future pension income cover ALL of my retirement living costs ( and more) could I theoretically substitute my guaranteed pension income for the bond section of the 3 fund portfolio? So, in essence I would have a 2 fund US equities, and International equities utilizing all of my invest-able funds. I would see not reason for bond "income" or stability because that is what the pension would produce.

By nature I would be more able to take some risk because in a mark down turn I would just live off of pension income.

Thoughts are appreciated.
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Re: The Three-Fund Portfolio

Post by abuss368 »

cyclemore wrote: Wed May 11, 2022 6:59 pm I would be interested in thoughts here....

If I was lucky enough to have future pension income cover ALL of my retirement living costs ( and more) could I theoretically substitute my guaranteed pension income for the bond section of the 3 fund portfolio? So, in essence I would have a 2 fund US equities, and International equities utilizing all of my invest-able funds. I would see not reason for bond "income" or stability because that is what the pension would produce.

By nature I would be more able to take some risk because in a mark down turn I would just live off of pension income.

Thoughts are appreciated.
Hi cyclemore -

Welcome to the forum!

This thread is so geared towards the Three Fund Portfolio, that I am afraid you will not receive worthwhile responses.

I would consider starting a new thread with the question. You may receive very good feedback and strategies to consider.

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

Post by Taylor Larimore »

cyclemore wrote: Wed May 11, 2022 6:59 pm I would be interested in thoughts here....

If I was lucky enough to have future pension income cover ALL of my retirement living costs ( and more) could I theoretically substitute my guaranteed pension income for the bond section of the 3 fund portfolio? So, in essence I would have a 2 fund US equities, and International equities utilizing all of my invest-able funds. I would see not reason for bond "income" or stability because that is what the pension would produce.

By nature I would be more able to take some risk because in a mark down turn I would just live off of pension income.

Thoughts are appreciated.
cyclemore:

Welcome to the Bogleheads Forum!

I am retired in the situation you describe--my income "covers ALL of my retirement living costs." Although I hold a small percentage of bonds, I think a 100% stock portfolio (plus cash for everyday expenses) is acceptable.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Successful investing involves doing just a few things right and avoiding serious mistakes."
"Simplicity is the master key to financial success." -- Jack Bogle
dbr
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Re: The Three-Fund Portfolio

Post by dbr »

cyclemore wrote: Wed May 11, 2022 6:59 pm I would be interested in thoughts here....

If I was lucky enough to have future pension income cover ALL of my retirement living costs ( and more) could I theoretically substitute my guaranteed pension income for the bond section of the 3 fund portfolio? So, in essence I would have a 2 fund US equities, and International equities utilizing all of my invest-able funds. I would see not reason for bond "income" or stability because that is what the pension would produce.

By nature I would be more able to take some risk because in a mark down turn I would just live off of pension income.

Thoughts are appreciated.
Yes, it could be reasonable to invest 100% equities. The reason is not because a pension is a bond. The reason is because your need, ability, and willingness to take risk in your circumstances ends up at 100% equities. The concept is presented by Larry Swedroe in a couple of his books and is a way to think through what you should choose for your allocation between stocks and bonds.* I don't think the discussion of the 3 fund portfolio involves a coherent process to determine the asset allocation. It may sound facetious, but it is in fact absolutely logical to propose a 3 fund portfolio in which the allocation to one or two of the assets is zero. A side benefit is that you would not bother with rebalancing.

*It is also possible that after doing a thoughtful analysis of what you want you would not invest 100% in equities even if you have all the income you need. The process starts with being clear about what you want to do with your money and fitting the consequences of your choice of assets to what it is you want.
cyclemore
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Re: The Three-Fund Portfolio

Post by cyclemore »

Thanks for the reply and thoughts. I will definitely consider some of the points you raised. I just wanted to put it out there to make sure it was not totally neglectful. Thanks for taking the time to reply!
Blues Baker
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Re: The Three-Fund Portfolio

Post by Blues Baker »

If it's helpful to anyone, I made a spreadsheet with different asset allocations - several of my own, and the 5 taken directly from the AA of the Boglehead WIki page. I used all of the information directly from Taylor's "Past rate of inflation (CPU) and fund returns in The Three-Fund Portfolio" chart.

Past rate of inflation (CPU) and fund returns in The Three-Fund Portfolio:

YEAR--INFLATION--BOND INDEX--S&P 500 INDEX------MSCI EAFE INDEX
1976-------4.9%--------15.6%------------23.8%--------------------3.6%
1977-------6.7-----------3.0-------------(-7.2)-------------------17.5
1978-------9.0-----------1.4---------------6.6--------------------33.1
1979------13.3-----------1.9--------------18.4-------------------10.9 (Highest Annual Inflation Rate)
1980------12.5-----------2.7--------------32.4-------------------25.4
1981-------8.9-----------6.3-------------(-4.9)------------------(-2.5)
1982-------3.8----------32.6--------------21.6------------------(-0.3) (Highest Bond Index Return)
...
...
...

*I can post a link to the Google spreadsheet as soon as I know this information: Are the returns inflation adjusted? I used the figures present, and then adjusted those for inflation. But if the figures are already inflation adjusted, then I'll have to make a quick adjustment to the formulas.

This is my first attempt at making ANY kind of spreadsheet. I apologize, but I'm 22 years late to the 21st century.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Blues Baker wrote: Fri May 13, 2022 11:01 am If it's helpful to anyone, I made a spreadsheet with different asset allocations - several of my own, and the 5 taken directly from the AA of the Boglehead WIki page. I used all of the information directly from Taylor's "Past rate of inflation (CPU) and fund returns in The Three-Fund Portfolio" chart.

Past rate of inflation (CPU) and fund returns in The Three-Fund Portfolio:

YEAR--INFLATION--BOND INDEX--S&P 500 INDEX------MSCI EAFE INDEX
1976-------4.9%--------15.6%------------23.8%--------------------3.6%
1977-------6.7-----------3.0-------------(-7.2)-------------------17.5
1978-------9.0-----------1.4---------------6.6--------------------33.1
1979------13.3-----------1.9--------------18.4-------------------10.9 (Highest Annual Inflation Rate)
1980------12.5-----------2.7--------------32.4-------------------25.4
1981-------8.9-----------6.3-------------(-4.9)------------------(-2.5)
1982-------3.8----------32.6--------------21.6------------------(-0.3) (Highest Bond Index Return)
...
...
...

*I can post a link to the Google spreadsheet as soon as I know this information: Are the returns inflation adjusted? I used the figures present, and then adjusted those for inflation. But if the figures are already inflation adjusted, then I'll have to make a quick adjustment to the formulas.

This is my first attempt at making ANY kind of spreadsheet. I apologize, but I'm 22 years late to the 21st century.
Blues Baker:

The returns are not inflation adjusted. However, it is easy to see the inflation adjusted return by simply adding the inflation rate to the nominal rate.

I don't think you are "22 years late to the 21st century." One of the advantages of the simple Three-Fund Portfolio is that you don't need to bother with spreadsheets. I threw mine away.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "I would say, go into the casino, which is what Wall Street is today. Bet on the entire stock market and then get out of the casino and never show yourself there again.”

"Simplicity is the master key to financial success." -- Jack Bogle
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abuss368
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Re: The Three-Fund Portfolio

Post by abuss368 »

Taylor Larimore wrote: Fri May 13, 2022 2:39 pm
One of the advantages of the simple Three-Fund Portfolio is that you don't need to bother with spreadsheets. I threw mine away.
Hi Taylor -

I used Quicken and spreadsheets for a decade. At that time I could not imagine not using or spending money and time on them.

Then we learned (and continue to learn) the value of simplicity. We focused on this during our journey and soon realized there was no need to waste time and money on Quicken and spreadsheets. We also learned there was no longer any value to them.

Over 15 years later and we could not be happier.

Keep investing and life simple!

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
annied12
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Re: The Three-Fund Portfolio

Post by annied12 »

Hi Taylor -

Please advise as to your feelings about stable value funds and TIPs

Thank you
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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

annied12 wrote: Sun May 15, 2022 5:31 am Hi Taylor -

Please advise as to your feelings about stable value funds and TIPs

Thank you
annied12:

I feel they are unnecessary. Go back and look at The Three-Fund historical returns in my opening post.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio Still Leads

Post by Taylor Larimore »

Bogleheads:

Every once in a while I check to see how our Three-Fund Portfolio is doing compared with seven other "Lazy Portfolios" designed by professional investors. The Three-Fund Portfolio still leads the pack in long-term returns. (Allan Roth's "Second Grader Starter" is The Three-Fund Portfolio):

Total Returns for 8 Lazy Portfolios

Past performance does not guarantee future performance.

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
HENRYGRUGER
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Re: The Three-Fund Portfolio

Post by HENRYGRUGER »

Taylor,

I didn't see the JL Collins book."The Simple Path to Wealth" listed in your exhaustive list...but that might be because he isn't really a Three Fund Portfolio guy. He is a Vanguard purist however. Good Book, and website.

Hope to meet you in Chicago!

Kevin
IDpilot
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Re: The Three-Fund Portfolio

Post by IDpilot »

cyclemore wrote: Wed May 11, 2022 6:59 pm I would be interested in thoughts here....

If I was lucky enough to have future pension income cover ALL of my retirement living costs ( and more) could I theoretically substitute my guaranteed pension income for the bond section of the 3 fund portfolio? So, in essence I would have a 2 fund US equities, and International equities utilizing all of my invest-able funds. I would see not reason for bond "income" or stability because that is what the pension would produce.

By nature I would be more able to take some risk because in a mark down turn I would just live off of pension income.

Thoughts are appreciated.
Two things to be given some careful thought to with regard to your pension income. First, is your pension fixed or will it be indexed to inflation? Second, just how credit worthy is the provider of your pension?
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