The One-Fund Portfolio as a default suggestion

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Spyder59
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Re: The One-Fund Portfolio as a default suggestion

Post by Spyder59 »

Charles Joseph wrote: Mon Mar 25, 2024 9:18 pm
Spyder59 wrote: Mon Mar 25, 2024 9:31 am This thread started by Longinvest has had a very positive effect on my life. After 35 years of active investing, managing my accounts and always seeking the latest angle, today I check my accounts once a week (as a security measure to ensure all is as it should be). I don’t think my investment or tax outcome has materially changed. What has changed? I have gone from spending at least ten hours a week evaluating and trading investments, perusing Website postings daily (including Bogleheads) to about 15 minutes a week and looking at Bogleheads once a month to look at this thread. I don’t try to improve my investment performance beyond “average”, especially given that average seems to outperform just about anything else over a long period of time. Further, I have none of the emotional highs and lows of tracking fickle and sometimes seemingly irrational markets.

There is nothing wrong with slicing and dicing in order to outperform the market, nor is there anything wrong with gambling, if that is what you are into and it does not adversely affect your life. But surely a principal of Bogleheads is that in the world of active investing and/or gambling the average person walks away a loser and the house wins. Longinvest’s suggested investment approach is simple and effective. Based upon my own experience looking over more than three decades of investing, I think I slightly outperformed the “market” with slightly less risk (probably more luck than skill), however the additional taxes I incurred in doing so left me at a draw. Oh yeah, I spent over 10,000 hours to achieve this outcome. I don’t doubt that there are many people who will read this post who have done better than me, and many who have not.

This post, together with Longinvest’s work on VPW (variable percentage withdrawal) has helped me to spend time better enjoying that finite thing called life. When I think about the impermanence of life, a one fund portfolio combined with VPW for managing retirement withdrawals has enabled me to break the investing “habit” and redirect my focus to more important things like family, spirit and the outdooors. The quality of my life has improved as a result, and for that, I am very grateful for all of Longinvest’s work and initiative.
Very nice post. Thanks for sharing. If I may ask, would you care to share what you use for your one-fund portfolio?
Thank you Charles Joseph for your comment.

I chose VTINX, Vanguard Retirement Income. I did consider the adverse tax implications of VTINX and of having its TIPS holdings in a nonqualified account, but decided that the TIPS in VTINX served as an adequate surrogate for the I Bonds holding I had already accumulated and wanted to unwind. Long ago I was very influenced by Zvi Bodie’s analysis of risk and time in the marketplace, and his preference for I Bonds as he set forth in his book: Worry Free Investing. However, after thinking about the reality of my family trying to negotiate an estate/death (and after serving as the Executor for the estates of my parents), I determined that Treasury Direct was simply too challenging a site for them to negotiate. So, I shrank my I Bond holdings and in the name of simple, went with VTINX.

Another consideration in choosing VTINX was my assessment of sequence of returns risk and my desire for a very stable portfolio in retirement. I really don’t want to be hassling with a portfolio in retirement. This together with the fact that my spouse and I have accumulated sufficient assets for us to retire well, as well as leave a reasonable legacy to our children, made me comfortable with a conservative asset allocation that will likely provide a smoother ride, albeit with a smaller legacy for my children.

Consistent with the VPW retirement model developed by Longinvest, I have multiple sources of income (pensions, Social Security, etc.) that should enable me to weather severe market disruptions without selling investment assets. The current excess income the portfolio currently produces beyond our needs enable my wife and I to do gifting to our children while they are younger and in need of greater assistance. I acknowledge that this may not be the most tax efficient, but it works well for my family.

As an aside, I think many people over estimate their ability to assume investment risk (both emotionally and financially) in retirement.

That’s a long winded answer to your question. I spent a lot of time trying to analyze the tax, investment and risk consequences of my choice (way too many variables for me) and decided that VTINX was “good enough” to quote a wise man. Keeping a one fund portfolio has already had a real benefit in my life and freed up a surprising amount of time and mental space. Best, Spyder59

[Quote fixed. Thanks to member who pointed this out. Moderator Pops1860
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Charles Joseph
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Re: The One-Fund Portfolio as a default suggestion

Post by Charles Joseph »

Spyder59 wrote: Tue Mar 26, 2024 11:07 am Thank you Charles Joseph for your comment.

I chose VTINX, Vanguard Retirement Income. I did consider the adverse tax implications of VTINX and of having its TIPS holdings in a nonqualified account, but decided that the TIPS in VTINX served as an adequate surrogate for the I Bonds holding I had already accumulated and wanted to unwind. Long ago I was very influenced by Zvi Bodie’s analysis of risk and time in the marketplace, and his preference for I Bonds as he set forth in his book: Worry Free Investing. However, after thinking about the reality of my family trying to negotiate an estate/death (and after serving as the Executor for the estates of my parents), I determined that Treasury Direct was simply too challenging a site for them to negotiate. So, I shrank my I Bond holdings and in the name of simple, went with VTINX.

Another consideration in choosing VTINX was my assessment of sequence of returns risk and my desire for a very stable portfolio in retirement. I really don’t want to be hassling with a portfolio in retirement. This together with the fact that my spouse and I have accumulated sufficient assets for us to retire well, as well as leave a reasonable legacy to our children, made me comfortable with a conservative asset allocation that will likely provide a smoother ride, albeit with a smaller legacy for my children.

Consistent with the VPW retirement model developed by Longinvest, I have multiple sources of income (pensions, Social Security, etc.) that should enable me to weather severe market disruptions without selling investment assets. The current excess income the portfolio currently produces beyond our needs enable my wife and I to do gifting to our children while they are younger and in need of greater assistance. I acknowledge that this may not be the most tax efficient, but it works well for my family.

As an aside, I think many people over estimate their ability to assume investment risk (both emotionally and financially) in retirement.

That’s a long winded answer to your question. I spent a lot of time trying to analyze the tax, investment and risk consequences of my choice (way too many variables for me) and decided that VTINX was “good enough” to quote a wise man. Keeping a one fund portfolio has already had a real benefit in my life and freed up a surprising amount of time and mental space. Best, Spyder59
Hi Spyder just FYI I did not write the above post.
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bbrock
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Re: The One-Fund Portfolio as a default suggestion

Post by bbrock »

Spyder59 wrote: Tue Mar 26, 2024 11:07 am
Charles Joseph wrote: Mon Mar 25, 2024 9:18 pm
Spyder59 wrote: Mon Mar 25, 2024 9:31 am This thread started by Longinvest has had a very positive effect on my life. After 35 years of active investing, managing my accounts and always seeking the latest angle, today I check my accounts once a week (as a security measure to ensure all is as it should be). I don’t think my investment or tax outcome has materially changed. What has changed? I have gone from spending at least ten hours a week evaluating and trading investments, perusing Website postings daily (including Bogleheads) to about 15 minutes a week and looking at Bogleheads once a month to look at this thread. I don’t try to improve my investment performance beyond “average”, especially given that average seems to outperform just about anything else over a long period of time. Further, I have none of the emotional highs and lows of tracking fickle and sometimes seemingly irrational markets.

There is nothing wrong with slicing and dicing in order to outperform the market, nor is there anything wrong with gambling, if that is what you are into and it does not adversely affect your life. But surely a principal of Bogleheads is that in the world of active investing and/or gambling the average person walks away a loser and the house wins. Longinvest’s suggested investment approach is simple and effective. Based upon my own experience looking over more than three decades of investing, I think I slightly outperformed the “market” with slightly less risk (probably more luck than skill), however the additional taxes I incurred in doing so left me at a draw. Oh yeah, I spent over 10,000 hours to achieve this outcome. I don’t doubt that there are many people who will read this post who have done better than me, and many who have not.

This post, together with Longinvest’s work on VPW (variable percentage withdrawal) has helped me to spend time better enjoying that finite thing called life. When I think about the impermanence of life, a one fund portfolio combined with VPW for managing retirement withdrawals has enabled me to break the investing “habit” and redirect my focus to more important things like family, spirit and the outdooors. The quality of my life has improved as a result, and for that, I am very grateful for all of Longinvest’s work and initiative.
Very nice post. Thanks for sharing. If I may ask, would you care to share what you use for your one-fund portfolio?
Thank you Charles Joseph for your comment.

I chose VTINX, Vanguard Retirement Income. I did consider the adverse tax implications of VTINX and of having its TIPS holdings in a nonqualified account, but decided that the TIPS in VTINX served as an adequate surrogate for the I Bonds holding I had already accumulated and wanted to unwind. Long ago I was very influenced by Zvi Bodie’s analysis of risk and time in the marketplace, and his preference for I Bonds as he set forth in his book: Worry Free Investing. However, after thinking about the reality of my family trying to negotiate an estate/death (and after serving as the Executor for the estates of my parents), I determined that Treasury Direct was simply too challenging a site for them to negotiate. So, I shrank my I Bond holdings and in the name of simple, went with VTINX.

Another consideration in choosing VTINX was my assessment of sequence of returns risk and my desire for a very stable portfolio in retirement. I really don’t want to be hassling with a portfolio in retirement. This together with the fact that my spouse and I have accumulated sufficient assets for us to retire well, as well as leave a reasonable legacy to our children, made me comfortable with a conservative asset allocation that will likely provide a smoother ride, albeit with a smaller legacy for my children.

Consistent with the VPW retirement model developed by Longinvest, I have multiple sources of income (pensions, Social Security, etc.) that should enable me to weather severe market disruptions without selling investment assets. The current excess income the portfolio currently produces beyond our needs enable my wife and I to do gifting to our children while they are younger and in need of greater assistance. I acknowledge that this may not be the most tax efficient, but it works well for my family.

As an aside, I think many people over estimate their ability to assume investment risk (both emotionally and financially) in retirement.

That’s a long winded answer to your question. I spent a lot of time trying to analyze the tax, investment and risk consequences of my choice (way too many variables for me) and decided that VTINX was “good enough” to quote a wise man. Keeping a one fund portfolio has already had a real benefit in my life and freed up a surprising amount of time and mental space. Best, Spyder59


What you write is so inspirational Spyder59 in how a one-fund portfolio has had such a significant impact in your life. Thanks for sharing.

I can relate to what you said with regards to being an executor and that experience revealing that a simplified portfolio would make the transition much easier for the trustee/beneficiaries. I so desperately strive to get to a simplified portfolio preferably a one fund. I am quite grateful as well that I stumbled upon this thread, and VPW.

[Quote fixed. Moderator Pops1860]
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Charles Joseph wrote: Tue Mar 26, 2024 7:22 am
longinvest wrote: Mon Aug 12, 2019 8:10 am I think that the following could be a good default portfolio suggested in answer to many queries about portfolio construction:...
longinvest,

Do you have any suggestions for an investor who might like the idea of a one-fund portfolio but who may not be comfortable with holding 40% of their equity allocation in ex-US stocks?

This is not intended to be a debate about US/ex-US, but simply a question about someone who holds this opinion yet is looking for a one-fund solution. Consider the possibility that this person is not at Vanguard and may want an allocation more conservative or more aggressive than 60/40.

Thanks for any insights you may be able to provide.
Charles Joseph, the globally-diversified stock-and-bond index One-Fund Portfolio discussed in this thread only aims to be good enough. It isn't optimized to the investor's preferences, except for the coarse lifelong stocks/bonds ratio and whether it's fixed or gliding.

In particular, portfolio 1 (VSMGX or AOR) approximates the global stock-and-bond portfolio (GSBP), which currently sits at 62/38 stocks/bonds. Surprisingly, since December 31, 2020, the growth of VSMGX has been practically indistinguishable from the growth of the GSBP (see this post for details). I thought that it would have visibly deviated from it by now, after 3 years, but I was wrong. I still think that it's likely to start deviating in the future, yet, deviations are likely to be very gradual, as VSMGX and AOR contain most of the stocks and bonds traded globally (domestic + international) in free-float market proportions, except for a moderate home bias and the fixed 60/40 stocks/bonds allocation.

Portfolio 2 allows the investor to choose a more specific stocks/bonds ratio, either fixed 80/20, 60/40, 40/60 or 20/80, or gliding (usually from 90/10 to 30/70 based on age or target date). But, all of these portfolios have a similar broad index exposure to global stocks and bonds in free-float market proportions, except for a moderate home bias and the chosen stocks/bonds fixed or gliding ratio.

Part of the process of adopting this thread's One-Fund portfolio is the acceptance of investing into a good enough, instead of a perfect portfolio. This can sometimes be one of the most difficult steps. It took me years to accept the idea of investing into a portfolio which contained assets I didn't like. Some investors don't like international stocks. Others don't like international bonds. Others don't like dividend stocks. Others don't like stocks that pay dividends. Others don't like short-term bonds. Others don't like long-term bonds. Others don't like corporate bonds. Etc.

It's just too easy, when reading financial forums, to be unknowingly affected by current trends. All day long, on this forum, we hear about which portfolios outperformed other portfolios in the past, along with suggestions about what might happen in the future. This conditions readers to focus on asset performance. But, this is the wrong thing to focus on. Markets will deliver whatever they'll deliver. It's best to accept the uncertainty.

Big fund managers, like Vanguard and BlackRock's iShares, are far more focused on avoiding frictions when trading stocks and bonds to track their indices. They know that what matters is to avoid being eaten alive by the trader on the other side of their trades. The safest way to do this is to minimize the size of trades, relative to float. That's why all-in-one index funds with a gigantic amount of assets under management, such as target date funds, usually adopt the broadest possible allocations (which means domestic + international) to stocks and to bonds

The danger of focusing on performance, when choosing assets, is to forget that each market has a finite size. If all investors, in the U.S. and abroad, decided to only buy funds tracking the S&P 500 and nothing else, the prices of these 500 stocks would soar and other stocks (U.S. and international) and bonds would have their prices go down for a while, until some investors start to realize that the profits generated by these 500 companies will be less than the interest rate of a simple bank savings account, because their prices are so high. This would eventually lead to a readjustment of prices. Chasing performance can sometimes lead to really bad outcomes. But, as John Maynard Keynes said, "the market can stay irrational longer than you can stay solvent". It's really difficult to time markets to only ride them during their up swings and avoid their down swings.

My personal One-ETF Portfolio does contain some assets that I don't much like (I wouldn't have invested into them, if it wasn't for the all-in-one ETF), but I accept that broad global markets just don't care about my likes and dislikes. Whatever patterns my brain creates for assets, leading to my personal likes and dislikes, are most probably noise. It's just so difficult to make my brain accept that there are no patterns in the noise. My brain is genetically programmed to attempt to see patterns. That's why I believe that accepting to hold a good enough portfolio might be one of the most difficult steps to adopting the One-Fund Portfolio discussed in this thread.

I have no alternative to suggest. This thread's One-Fund Portfolio is about letting go of trying to optimize the portfolio to one's specific preferences and accept the good enough average returns of global markets (possibly with a moderate home bias).
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Charles Joseph
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Re: The One-Fund Portfolio as a default suggestion

Post by Charles Joseph »

longinvest wrote: Tue Mar 26, 2024 8:14 pm
Charles Joseph wrote: Tue Mar 26, 2024 7:22 am
longinvest wrote: Mon Aug 12, 2019 8:10 am I think that the following could be a good default portfolio suggested in answer to many queries about portfolio construction:...
longinvest,

Do you have any suggestions for an investor who might like the idea of a one-fund portfolio but who may not be comfortable with holding 40% of their equity allocation in ex-US stocks?

This is not intended to be a debate about US/ex-US, but simply a question about someone who holds this opinion yet is looking for a one-fund solution. Consider the possibility that this person is not at Vanguard and may want an allocation more conservative or more aggressive than 60/40.

Thanks for any insights you may be able to provide.
Charles Joseph, the globally-diversified stock-and-bond index One-Fund Portfolio discussed in this thread only aims to be good enough. It isn't optimized to the investor's preferences, except for the coarse lifelong stocks/bonds ratio and whether it's fixed or gliding.

In particular, portfolio 1 (VSMGX or AOR) approximates the global stock-and-bond portfolio (GSBP), which currently sits at 62/38 stocks/bonds. Surprisingly, since December 31, 2020, the growth of VSMGX has been practically indistinguishable from the growth of the GSBP (see this post for details). I thought that it would have visibly deviated from it by now, after 3 years, but I was wrong. I still think that it's likely to start deviating in the future, yet, deviations are likely to be very gradual, as VSMGX and AOR contain most of the stocks and bonds traded globally (domestic + international) in free-float market proportions, except for a moderate home bias and the fixed 60/40 stocks/bonds allocation.

Portfolio 2 allows the investor to choose a more specific stocks/bonds ratio, either fixed 80/20, 60/40, 40/60 or 20/80, or gliding (usually from 90/10 to 30/70 based on age or target date). But, all of these portfolios have a similar broad index exposure to global stocks and bonds in free-float market proportions, except for a moderate home bias and the chosen stocks/bonds fixed or gliding ratio.

Part of the process of adopting this thread's One-Fund portfolio is the acceptance of investing into a good enough, instead of a perfect portfolio. This can sometimes be one of the most difficult steps. It took me years to accept the idea of investing into a portfolio which contained assets I didn't like. Some investors don't like international stocks. Others don't like international bonds. Others don't like dividend stocks. Others don't like stocks that pay dividends. Others don't like short-term bonds. Others don't like long-term bonds. Others don't like corporate bonds. Etc.

It's just too easy, when reading financial forums, to be unknowingly affected by current trends. All day long, on this forum, we hear about which portfolios outperformed other portfolios in the past, along with suggestions about what might happen in the future. This conditions readers to focus on asset performance. But, this is the wrong thing to focus on. Markets will deliver whatever they'll deliver. It's best to accept the uncertainty.

Big fund managers, like Vanguard and BlackRock's iShares, are far more focused on avoiding frictions when trading stocks and bonds to track their indices. They know that what matters is to avoid being eaten alive by the trader on the other side of their trades. The safest way to do this is to minimize the size of trades, relative to float. That's why all-in-one index funds with a gigantic amount of assets under management, such as target date funds, usually adopt the broadest possible allocations (which means domestic + international) to stocks and to bonds

The danger of focusing on performance, when choosing assets, is to forget that each market has a finite size. If all investors, in the U.S. and abroad, decided to only buy funds tracking the S&P 500 and nothing else, the prices of these 500 stocks would soar and other stocks (U.S. and international) and bonds would have their prices go down for a while, until some investors start to realize that the profits generated by these 500 companies will be less than the interest rate of a simple bank savings account, because their prices are so high. This would eventually lead to a readjustment of prices. Chasing performance can sometimes lead to really bad outcomes. But, as John Maynard Keynes said, "the market can stay irrational longer than you can stay solvent". It's really difficult to time markets to only ride them during their up swings and avoid their down swings.

My personal One-ETF Portfolio does contain some assets that I don't much like (I wouldn't have invested into them, if it wasn't for the all-in-one ETF), but I accept that broad global markets just don't care about my likes and dislikes. Whatever patterns my brain creates for assets, leading to my personal likes and dislikes, are most probably noise. It's just so difficult to make my brain accept that there are no patterns in the noise. My brain is genetically programmed to attempt to see patterns. That's why I believe that accepting to hold a good enough portfolio might be one of the most difficult steps to adopting the One-Fund Portfolio discussed in this thread.

I have no alternative to suggest. This thread's One-Fund Portfolio is about letting go of trying to optimize the portfolio to one's specific preferences and accept the good enough average returns of global markets (possibly with a moderate home bias).
longinvest,

Many, many thanks for this thoughtful and useful response. Much appreciated.

Charles Joseph
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Re: The One-Fund Portfolio as a default suggestion

Post by cosmos »

Longinvest,

This is probably dumb question and I get the single fund simplicity but curious as time marches on in a taxable account and you start hopefully gaining a sizeable portfolio would you not start running into sizeable taxes during accumulation phase that may be somewhat of a hardship? For example right now nearly all of my investing is in tax advantated IRA and 401k where this is a no brainer to do. I do have just shy of 50K sitting in a taxable account in the schwab total stock market fund which does generate dividends yearly that get reinvested and I just pay whatever tax plus other interest without much issue.

However at some point in taxable if that grows to say 500K I fear the amounts it may be throwing off at me and unable to cover or do you not reinvest single fund when in taxable? IE, let it generate the yearly and use that to pay the taxes and reinvest the remainder? I have never held enough in taxable to have to worry about it but I also followed the advice and use only stock index funds when in taxable for tax implications.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

cosmos wrote: Tue Apr 02, 2024 12:58 am Longinvest,

This is probably dumb question and I get the single fund simplicity but curious as time marches on in a taxable account and you start hopefully gaining a sizeable portfolio would you not start running into sizeable taxes during accumulation phase that may be somewhat of a hardship? For example right now nearly all of my investing is in tax advantated IRA and 401k where this is a no brainer to do. I do have just shy of 50K sitting in a taxable account in the schwab total stock market fund which does generate dividends yearly that get reinvested and I just pay whatever tax plus other interest without much issue.

However at some point in taxable if that grows to say 500K I fear the amounts it may be throwing off at me and unable to cover or do you not reinvest single fund when in taxable? IE, let it generate the yearly and use that to pay the taxes and reinvest the remainder? I have never held enough in taxable to have to worry about it but I also followed the advice and use only stock index funds when in taxable for tax implications.
Cosmos, I have difficulty to reconcile a "sizeable portfolio" with "somewhat of a hardship". Could you provide a detailed numerical illustration of what you mean by hardship when comparing the outcome of using your preferred asset location strategy with the outcome of using an all-in-one 60/40 stocks/bonds ETF, such as the iShares Core Growth Allocation ETF (AOR), in all accounts, where the asset allocation of the portfolio using your preferred strategy is adjusted to match AOR's 60/40 stocks/bonds allocation on an after-tax risk basis?
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Re: The One-Fund Portfolio as a default suggestion

Post by cosmos »

longinvest wrote: Tue Apr 02, 2024 7:37 pm Cosmos, I have difficulty to reconcile a "sizeable portfolio" with "somewhat of a hardship". Could you provide a detailed numerical illustration of what you mean by hardship when comparing your preferred asset location strategy with using an all-in-one 60/40 stocks/bonds ETF, such as the iShares Core Growth Allocation ETF (AOR), in all accounts, where the asset allocation of the portfolio using your preferred strategy is adjusted to match AOR's 60/40 stocks/bonds allocation on an after-tax risk basis?
quite simple using all in one funds that have bonds and other things in them will generate dividends etc even if you dont sell them. the more you have the more they generate so while i dont care in a tax advantaged account like 401k or IRA if i had a million dollars in taxable too at some point that would be generating a decent amount of taxes would it not? and if i reinvested them I would have to cover those taxes via paycheck or other means every year.

I hear of bogleheads here with 2-5million in taxable alot so i can imagine that would be sizeable using this strategy. Its why my small taxable account still only uses a stock index fund per the recommendation on taxes.

Just trying to square how using the same mixed stock/bond funds in all accounts including taxable is managed when yearly taxes come due.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

cosmos wrote: Tue Apr 02, 2024 7:47 pm
longinvest wrote: Tue Apr 02, 2024 7:37 pm Cosmos, I have difficulty to reconcile a "sizeable portfolio" with "somewhat of a hardship". Could you provide a detailed numerical illustration of what you mean by hardship when comparing your preferred asset location strategy with using an all-in-one 60/40 stocks/bonds ETF, such as the iShares Core Growth Allocation ETF (AOR), in all accounts, where the asset allocation of the portfolio using your preferred strategy is adjusted to match AOR's 60/40 stocks/bonds allocation on an after-tax risk basis?
quite simple using all in one funds that have bonds and other things in them will generate dividends etc even if you dont sell them. the more you have the more they generate so while i dont care in a tax advantaged account like 401k or IRA if i had a million dollars in taxable too at some point that would be generating a decent amount of taxes would it not? and if i reinvested them I would have to cover those taxes via paycheck or other means every year.

I hear of bogleheads here with 2-5million in taxable alot so i can imagine that would be sizeable using this strategy. Its why my small taxable account still only uses a stock index fund per the recommendation on taxes.

Just trying to square how using the same mixed stock/bond funds in all accounts including taxable is managed when yearly taxes come due.
Cosmos, I suggest to (1) take the time to read the following posts and to (2) construct your own spreadsheets to replicate the detailed analyses I've provided in post 1 (data 1), post 2 (data 2), and post 3 (data 3).

Here are the two lessons and the summary of post 1:
longinvest wrote: Sat Jan 29, 2022 8:05 pm First lesson: It's best focus on the big numbers that matter, like total net income available to spend after taxes, instead of focusing on ratios between small numbers with little impact on the retiree's wellness, like ratios of between tax amounts.
...
Second lesson: It's a mistake to only consider good scenarios and ignore risk, when evaluating the after-tax impact of asset location strategies. A complex strategy delivering better outcomes when things go well and worse outcomes when they don't, when compared to a simpler strategy, unnecessarily complicates the life of its investor. A slightly-higher stock allocation with the simpler strategy is likely to deliver similar outcomes.
...
Summary: An identical asset allocation in all portfolio accounts (a mirrored asset allocation) doesn't affect the effective riskiness of the portfolio, even after taxes. In contrast, so called "tax-efficient" asset location strategies often promise better "expected" outcomes without disclosing that they do so by increasing the effective after-tax risk of the portfolio. In other words, a mirrored asset allocation is not only good enough, it also delivers more consistent outcomes.
Post 2 confirms the findings of post 1.

Post 3 addresses taxable accounts using worse-than-real-life bonds, better-than-real-life stocks, high inflation (bad for bonds in a taxable account), and perfectly equal taxable and IRA account sizes all retirement long for the mirrored allocation, heavily stacking the deck against the mirrored allocation. Yet, it only finds a negligible difference of a few basis points in money-weighted returns after tax, so tiny that it would be lost in the noise of markets in real life (the choice of a rebalancing strategy, for example, could easily have a bigger impact on portfolio performance).

It would be fun to model what would happen if the retiree eventually decided, in old age, to make qualified charitable distributions (QCD) from the IRA, completely throwing off the assumptions about effective IRA withdrawal tax rates made decades earlier. The thing is this: a mirrored allocation preserves the investor's desired allocation, before and after taxes, regardless of future asset returns, future tax law changes, and future investor circumstance changes.
Last edited by longinvest on Tue Apr 02, 2024 8:37 pm, edited 2 times in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

cosmos wrote: Tue Apr 02, 2024 7:47 pm ...
Just trying to square how using the same mixed stock/bond funds in all accounts including taxable is managed when yearly taxes come due.
The usual options. Use a combination of one or more.

1) don't reinvest distributions. Or, don't reinvest all of them. Save some for paying taxes.

2) sell some shares as needed. With reinvested shares perhaps some are in the red and you could tax loss harvest? Or, even if you tax gain harvest, pick the shares with the highest cost basis to minimize gains. (If you do TLH, you will need to be mindful of wash sales, especially if the same security is in an IRA.)

3) come up with the money elsewhere. As you said, it could come from a paycheck. Maybe from a bank account balance that you can refill with the next distribution.

4) reduce overall tax liability by reducing taxable income through use of charitable donations. With millions in assets, there's probably room for donations every now and then?
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Re: The One-Fund Portfolio as a default suggestion

Post by cosmos »

sycamore wrote: Tue Apr 02, 2024 8:29 pm
cosmos wrote: Tue Apr 02, 2024 7:47 pm ...
Just trying to square how using the same mixed stock/bond funds in all accounts including taxable is managed when yearly taxes come due.
The usual options. Use a combination of one or more.

1) don't reinvest distributions. Or, don't reinvest all of them. Save some for paying taxes.

2) sell some shares as needed. With reinvested shares perhaps some are in the red and you could tax loss harvest? Or, even if you tax gain harvest, pick the shares with the highest cost basis to minimize gains. (If you do TLH, you will need to be mindful of wash sales, especially if the same security is in an IRA.)

3) come up with the money elsewhere. As you said, it could come from a paycheck. Maybe from a bank account balance that you can refill with the next distribution.

4) reduce overall tax liability by reducing taxable income through use of charitable donations. With millions in assets, there's probably room for donations every now and then?
Yeah likely #1 is the answer here to keep the simplicity of one fund even in taxable. Check it once a year around tax time and take what you need to pay the taxes and reinvest the rest back in.

I do not have a massive amount of cash in taxable so it's prob not an issue now but was just trying to wrap my head around the implications especially reading others here with 5M+ in taxable accounts.

All good here.
It's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark... and we're wearing sunglasses. Hit it.
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Re: The One-Fund Portfolio as a default suggestion

Post by zie »

cosmos wrote: Tue Apr 02, 2024 8:47 pm
sycamore wrote: Tue Apr 02, 2024 8:29 pm
cosmos wrote: Tue Apr 02, 2024 7:47 pm ...
Just trying to square how using the same mixed stock/bond funds in all accounts including taxable is managed when yearly taxes come due.
The usual options. Use a combination of one or more.

1) don't reinvest distributions. Or, don't reinvest all of them. Save some for paying taxes.

2) sell some shares as needed. With reinvested shares perhaps some are in the red and you could tax loss harvest? Or, even if you tax gain harvest, pick the shares with the highest cost basis to minimize gains. (If you do TLH, you will need to be mindful of wash sales, especially if the same security is in an IRA.)

3) come up with the money elsewhere. As you said, it could come from a paycheck. Maybe from a bank account balance that you can refill with the next distribution.

4) reduce overall tax liability by reducing taxable income through use of charitable donations. With millions in assets, there's probably room for donations every now and then?
Yeah likely #1 is the answer here to keep the simplicity of one fund even in taxable. Check it once a year around tax time and take what you need to pay the taxes and reinvest the rest back in.

I do not have a massive amount of cash in taxable so it's prob not an issue now but was just trying to wrap my head around the implications especially reading others here with 5M+ in taxable accounts.

All good here.
I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
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Re: The One-Fund Portfolio as a default suggestion

Post by cosmos »

zie wrote: Tue Apr 02, 2024 9:11 pm
I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Thanks for the insight do you have a ballpark of how much tax that generates yearly in your case? It does not sound like much given your post which is surprising. Also looking into that fund as it matches my 80/20 AA I currently have.
It's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark... and we're wearing sunglasses. Hit it.
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Re: The One-Fund Portfolio as a default suggestion

Post by zie »

cosmos wrote: Tue Apr 02, 2024 9:14 pm
zie wrote: Tue Apr 02, 2024 9:11 pm
I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Thanks for the insight do you have a ballpark of how much tax that generates yearly in your case? It does not sound like much given your post which is surprising. Also looking into that fund as it matches my 80/20 AA I currently have.
See upthread: viewtopic.php?p=7727583#p7727583. It's not my exact tax situation, I assume the absolute worst case scenario and it's simplified compared to an actual tax return.
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
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Re: The One-Fund Portfolio as a default suggestion

Post by bbrock »

cosmos wrote: Tue Apr 02, 2024 8:47 pm
sycamore wrote: Tue Apr 02, 2024 8:29 pm
cosmos wrote: Tue Apr 02, 2024 7:47 pm ...
Just trying to square how using the same mixed stock/bond funds in all accounts including taxable is managed when yearly taxes come due.
The usual options. Use a combination of one or more.

1) don't reinvest distributions. Or, don't reinvest all of them. Save some for paying taxes.

2) sell some shares as needed. With reinvested shares perhaps some are in the red and you could tax loss harvest? Or, even if you tax gain harvest, pick the shares with the highest cost basis to minimize gains. (If you do TLH, you will need to be mindful of wash sales, especially if the same security is in an IRA.)

3) come up with the money elsewhere. As you said, it could come from a paycheck. Maybe from a bank account balance that you can refill with the next distribution.

4) reduce overall tax liability by reducing taxable income through use of charitable donations. With millions in assets, there's probably room for donations every now and then?
Yeah likely #1 is the answer here to keep the simplicity of one fund even in taxable. Check it once a year around tax time and take what you need to pay the taxes and reinvest the rest back in.

I do not have a massive amount of cash in taxable so it's prob not an issue now but was just trying to wrap my head around the implications especially reading others here with 5M+ in taxable accounts.

All good here.
@cosmos, if you are reading about Boglers here with 5+ mil. accounts using the One-Fund approach, I'd say they are not sweating it like you are imagining. As Longinvest was saying, with a 5+ mil. account, this is not a "hardship."
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Re: The One-Fund Portfolio as a default suggestion

Post by bbrock »

zie wrote: Tue Apr 02, 2024 9:11 pm
cosmos wrote: Tue Apr 02, 2024 8:47 pm
sycamore wrote: Tue Apr 02, 2024 8:29 pm
cosmos wrote: Tue Apr 02, 2024 7:47 pm ...
Just trying to square how using the same mixed stock/bond funds in all accounts including taxable is managed when yearly taxes come due.
The usual options. Use a combination of one or more.

1) don't reinvest distributions. Or, don't reinvest all of them. Save some for paying taxes.

2) sell some shares as needed. With reinvested shares perhaps some are in the red and you could tax loss harvest? Or, even if you tax gain harvest, pick the shares with the highest cost basis to minimize gains. (If you do TLH, you will need to be mindful of wash sales, especially if the same security is in an IRA.)

3) come up with the money elsewhere. As you said, it could come from a paycheck. Maybe from a bank account balance that you can refill with the next distribution.

4) reduce overall tax liability by reducing taxable income through use of charitable donations. With millions in assets, there's probably room for donations every now and then?
Yeah likely #1 is the answer here to keep the simplicity of one fund even in taxable. Check it once a year around tax time and take what you need to pay the taxes and reinvest the rest back in.

I do not have a massive amount of cash in taxable so it's prob not an issue now but was just trying to wrap my head around the implications especially reading others here with 5M+ in taxable accounts.

All good here.
I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
+[fill in whatever # you want here] to what you are saying Zie! :sharebeer

I used to think money mgmt was the hobby... optimize optimize optimze. It was/is my inclination to not be able to leave good enough alone. However, thank goodness I stumbled upon longinvest's One-fund approach (and his VPW thread among other things... thanks for both btw Longinvest!).

Anyhow, I am on the dawn of FIRE'ing (1 mo. away), and I know that I am sick of sweating it about $ here, $ there, optimize this... blah blah blah. I so wish I was "enlightened" when I had first invested and opened my taxable account 25+ years ago as now there are just ridiculous CG in VTI and VXUS.

Zie, you sum it up so well in that I know for a fact my heirs are not going to even take that much interest in $ mgt as I have. They're going to be living life... and I hope putting their time/effort/interest in other hobbies.

Tx for sharing Zie, as it was nice to read your post this AM.
Last edited by bbrock on Wed Apr 03, 2024 10:31 am, edited 3 times in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by bbrock »

cosmos wrote: Tue Apr 02, 2024 9:14 pm
zie wrote: Tue Apr 02, 2024 9:11 pm
I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Thanks for the insight do you have a ballpark of how much tax that generates yearly in your case? It does not sound like much given your post which is surprising. Also looking into that fund as it matches my 80/20 AA I currently have.
@cosmos, plug in your own hypothetical numbers and tax rates you want. For instance, if you want to see what the distributions would have looked like back in 2023, then use whatever large millions you want, calculate how many shares you would have had at the end or beginning or whenever in 2023, use the 2023 distributions for AOA, use the QDI percentage for AOA (62.78% if I recall correctly), the combined tax rate, and plug away. I've been doing that and running some different comparisons b/w AOA and VTI at my combined tax rate, and then forecasted tax rate upon when I FIRE. There is some difference, but not even enough to keep me from recommending my heirs to dump everything in AOA when I am gone.
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Re: The One-Fund Portfolio as a default suggestion

Post by bbrock »

zie wrote: Wed Apr 03, 2024 3:58 am
cosmos wrote: Tue Apr 02, 2024 9:14 pm
zie wrote: Tue Apr 02, 2024 9:11 pm
I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Thanks for the insight do you have a ballpark of how much tax that generates yearly in your case? It does not sound like much given your post which is surprising. Also looking into that fund as it matches my 80/20 AA I currently have.
See upthread: viewtopic.php?p=7727583#p7727583. It's not my exact tax situation, I assume the absolute worst case scenario and it's simplified compared to an actual tax return.
btw, how are you able to cut/paste a specific URL to land exactly at the thread you want? I've always been curious how the savvy do that.
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Re: The One-Fund Portfolio as a default suggestion

Post by cosmos »

bbrock wrote: Wed Apr 03, 2024 10:35 am
zie wrote: Wed Apr 03, 2024 3:58 am
cosmos wrote: Tue Apr 02, 2024 9:14 pm
zie wrote: Tue Apr 02, 2024 9:11 pm
I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Thanks for the insight do you have a ballpark of how much tax that generates yearly in your case? It does not sound like much given your post which is surprising. Also looking into that fund as it matches my 80/20 AA I currently have.
See upthread: viewtopic.php?p=7727583#p7727583. It's not my exact tax situation, I assume the absolute worst case scenario and it's simplified compared to an actual tax return.
btw, how are you able to cut/paste a specific URL to land exactly at the thread you want? I've always been curious how the savvy do that.
links like this? viewtopic.php?p=7802523#p7802523

on each post at the top title right to the left of the author a little icon is there that looks like a page. Right click and copy it to paste here.
It's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark... and we're wearing sunglasses. Hit it.
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Re: The One-Fund Portfolio as a default suggestion

Post by bbrock »

cosmos wrote: Wed Apr 03, 2024 10:49 am
bbrock wrote: Wed Apr 03, 2024 10:35 am
zie wrote: Wed Apr 03, 2024 3:58 am
cosmos wrote: Tue Apr 02, 2024 9:14 pm
zie wrote: Tue Apr 02, 2024 9:11 pm
I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Thanks for the insight do you have a ballpark of how much tax that generates yearly in your case? It does not sound like much given your post which is surprising. Also looking into that fund as it matches my 80/20 AA I currently have.
See upthread: viewtopic.php?p=7727583#p7727583. It's not my exact tax situation, I assume the absolute worst case scenario and it's simplified compared to an actual tax return.
btw, how are you able to cut/paste a specific URL to land exactly at the thread you want? I've always been curious how the savvy do that.
links like this? viewtopic.php?p=7802523#p7802523

on each post at the top title right to the left of the author a little icon is there that looks like a page. Right click and copy it to paste here.
Let's try this: viewtopic.php?p=7802487#p7802487

Amend: It worked! Right on cosmos. You rock. Thanks for teaching me something new. Never even knew what that page icon was :shock:
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

zie wrote: Wed Apr 03, 2024 3:58 am
cosmos wrote: Tue Apr 02, 2024 9:14 pm
zie wrote: Tue Apr 02, 2024 9:11 pm I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Thanks for the insight do you have a ballpark of how much tax that generates yearly in your case? It does not sound like much given your post which is surprising. Also looking into that fund as it matches my 80/20 AA I currently have.
See upthread: viewtopic.php?p=7727583#p7727583. It's not my exact tax situation, I assume the absolute worst case scenario and it's simplified compared to an actual tax return.
Cosmos and Zie, I think that it's important to remind readers that the linked 1-year analysis doesn't take risk (and long-term after-tax risk across all accounts) into account and, as a consequence, is flawed. VTI and AOR don't have the same risk and diversification. VTI is a single country stock investment. AOR is a globally-diversified stock and bond investment. VT and AOR don't have the same risk. VT is a single asset class (global stocks) investment. AOR includes two asset classes, global stocks and bonds with an 80/20 ratio. Zie, I suggest to add a note about it in the linked post, if you intend to continue linking to it in the future.

I've repeatedly explained, in this thread, that it's a mistake to make investing decisions based on looking at comparisons of 1-year tax amounts in the taxable account while ignoring differences in effective after-tax risk across all accounts. I've provided analyses that show that, when comparing portfolios with similar after-tax risk, money available to spend after taxes is similar.

Said differently, it's a mistake to compare a 80/20 stocks/bonds portfolio spread across accounts with a 80/20 stocks/bonds portfolio mirrored in every account, because the effective allocation of the spread portfolio, after taxes, is more agressive than 80/20, resulting in higher after-tax returns than the mirrored portfolio when things go well, but lower after-tax returns when they don't. A fair comparison must involve portfolios with similar effective risk, after taxes. That can be difficult to do because there's uncertainty about the spread portfolio's effective after-tax risk due to uncertainty about future parameters that affect it, such as future tax rates and future investor circumstances. In contrast, the outcomes of using a mirrored portfolio are consistent with its asset allocation, both before and after taxes.

Yet, even if the comparison is flawed, I understand showing the difference in taxable distributions could help dispelling fears.


Note: I've edited the post (in blue) to correct an error and to clarify that I understand why the flawed comparison was made.
Last edited by longinvest on Fri Apr 05, 2024 10:42 am, edited 1 time in total.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

bbrock wrote: Wed Apr 03, 2024 10:21 am I used to think money mgmt was the hobby... optimize optimize optimze. It was/is my inclination to not be able to leave good enough alone. However, thank goodness I stumbled upon longinvest's One-fund approach (and his VPW thread among other things... thanks for both btw Longinvest!).
Bbrock, thanks for the nice comment.
bbrock wrote: Wed Apr 03, 2024 10:21 am Anyhow, I am on the dawn of FIRE'ing (1 mo. away), and I know that I am sick of sweating it about $ here, $ there, optimize this... blah blah blah. I so wish I was "enlightened" when I had first invested and opened my taxable account 25+ years ago as now there are just ridiculous CG in VTI and VXUS.
Congratulations! You'll beat me by 1 month! (See here). You could submit your name to the Retirement Class of 2024.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: The One-Fund Portfolio as a default suggestion

Post by zie »

longinvest wrote: Fri Apr 05, 2024 7:33 am
zie wrote: Wed Apr 03, 2024 3:58 am
cosmos wrote: Tue Apr 02, 2024 9:14 pm
zie wrote: Tue Apr 02, 2024 9:11 pm I'm well into 6 figures in taxable with AOA(80% equities, 20% bonds) and am still very happy. Obviously that's nowhere near 5M, but with any luck, I should hit 5M taxable in real 2024 dollars before I'm dead. I don't let good decisions get derailed because of taxes. That said, i'm guaranteed to not be the worst option in terms of taxes with a one-fund portfolio. For some extra amount of work, I can attempt "optimization" I may get lucky or I might optimize poorly and have a worse tax outcome than if I had stuck with AOA. Regardless it's more work for me and my heir(s). Neither of us need a new hobby babysitting money, so I pay the .15% convenience fee for AOA and let Blackrock do it for me.

If you need and/or want a money management hobby a one-fund portfolio is probably not right for you. If you have enough hobbies, a one-fund portfolio is a fantastic option.
Thanks for the insight do you have a ballpark of how much tax that generates yearly in your case? It does not sound like much given your post which is surprising. Also looking into that fund as it matches my 80/20 AA I currently have.
See upthread: viewtopic.php?p=7727583#p7727583. It's not my exact tax situation, I assume the absolute worst case scenario and it's simplified compared to an actual tax return.
Cosmos and Zie, I think that it's important to remind readers that the linked 1-year analysis doesn't take risk (and long-term after-tax risk across all accounts) into account and, as a consequence, is flawed. VTI and AOR don't have the same risk and diversification. VTI is a single country stock investment. AOR is a globally-diversified stock and bond investment. Zie, I suggest to add a note about it in the linked post, if you intend to continue linking to it in the future.
I only linked to it because I was asked specifically and am not willing to give my personal numbers publicly. Obviously it's flawed and I thought I was clear about that up-thread, but for full disclosure I did edit that post as you suggested and also linked it to your much more thorough analysis. In 2025 when I plan on doing this sort of thing again, I'll be sure to include a link to your analysis as well and a note much like I just added to the 2023 one. We've talked about this up-thread, so I won't say more here, but of course it's flawed, that's sort of the point :)

Also, as a nitpick, my comparison is with VT, 100% global equities, not VTI, which as you mention is US only.

Thanks again for thinking so deeply about the one-fund portfolio, I certainly wouldn't be invested in it without this thread and you making your work public.
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

zie wrote: Fri Apr 05, 2024 9:36 am Also, as a nitpick, my comparison is with VT, 100% global equities, not VTI, which as you mention is US only.
Zie, thanks for pointing this out. I've corrected my post.
zie wrote: Fri Apr 05, 2024 9:36 am Thanks again for thinking so deeply about the one-fund portfolio, I certainly wouldn't be invested in it without this thread and you making your work public.
I think that it was a decade ago that a forum member suggested that I put my portfolio into an all-in-one investment, as I was trying to simplify rebalancing for my wife (I lost the link to that post). As the time, I didn't have access to a low-cost one (the cheapest had an expense ratio above 1%). In January 2018, Vanguard started a series of low-cost Asset Allocation ETFs (in Canada). In early 2019, this time on this site's Canadian sister forum (FWF), some members strongly suggested that I adopt such an investment to deal with my portfolio tinkering problems and to simplify rebalancing for my wife. We all learn a lot from others.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: The One-Fund Portfolio as a default suggestion

Post by bbrock »

longinvest wrote: Fri Apr 05, 2024 8:16 am
bbrock wrote: Wed Apr 03, 2024 10:21 am I used to think money mgmt was the hobby... optimize optimize optimze. It was/is my inclination to not be able to leave good enough alone. However, thank goodness I stumbled upon longinvest's One-fund approach (and his VPW thread among other things... thanks for both btw Longinvest!).
Bbrock, thanks for the nice comment.
bbrock wrote: Wed Apr 03, 2024 10:21 am Anyhow, I am on the dawn of FIRE'ing (1 mo. away), and I know that I am sick of sweating it about $ here, $ there, optimize this... blah blah blah. I so wish I was "enlightened" when I had first invested and opened my taxable account 25+ years ago as now there are just ridiculous CG in VTI and VXUS.
Congratulations! You'll beat me by 1 month! (See here). You could submit your name to the Retirement Class of 2024.
Knowing I get to be in your retirement class rocks Longinvest. :D

Thx for sharing that link. My boys keep bugging me every few days to "retire this week... retire this week," and I am sitting thinking "Why not? What's a few weeks gonna matter?"
bbrock
hermanvictor7310
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Re: The One-Fund Portfolio as a default suggestion

Post by hermanvictor7310 »

Relatively new to investing here, and appreciating this thread immensely. I am fully onboard for the one fund approach, and want to keep things as simple as possible. I recently inherited $100k, which I dont need to touch at all until my retirement. At the moment I am split between putting it all in AOR or in one of the iShares Target Date ETFs. Does the fact that I am investing one bulk sum make any difference in terms of this decision? Im 33y old currently.
zie
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Re: The One-Fund Portfolio as a default suggestion

Post by zie »

hermanvictor7310 wrote: Sun Apr 07, 2024 10:19 am Relatively new to investing here, and appreciating this thread immensely. I am fully onboard for the one fund approach, and want to keep things as simple as possible. I recently inherited $100k, which I dont need to touch at all until my retirement. At the moment I am split between putting it all in AOR or in one of the iShares Target Date ETFs. Does the fact that I am investing one bulk sum make any difference in terms of this decision? Im 33y old currently.
I'd say no it doesn't.

If you pull your current assets out into when you want to retire, are you going to have barely enough, enough, more than enough? Where on the scale are you? This matters, because your risk profile might need to change. I assume this will be in a taxable account, and changing an asset allocation in a taxable account can be expensive, due to having to pay taxes when you re-balance into a different allocation.

The target date ETF's are very new still, so we don't really know how well they will work in practice, but iShares historically has done a good job with their ETF's and have made the tax consequences as good as they can(and likely as well if not better than one could do it themselves). That said you still will likely have tax consequences with them as they shift to more and more bonds over time. You should check out the target date ETF fund threads for more information about them.

If you can hold AOR for the rest of your life and be happy, then I'm a huge fan of recommending that option, but being able to commit for the next 70-ish years to one fund can be a hard ask. I am committed to AOA for life(80% equites and 20% bonds), though I am in the more than enough category, so it doesn't really matter what I do, I'll be fine.
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
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cosmos
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Re: The One-Fund Portfolio as a default suggestion

Post by cosmos »

longinvest wrote: Fri Apr 05, 2024 7:33 am
Cosmos and Zie, I think that it's important to remind readers that the linked 1-year analysis doesn't take risk (and long-term after-tax risk across all accounts) into account and, as a consequence, is flawed. VTI and AOR don't have the same risk and diversification. VTI is a single country stock investment. AOR is a globally-diversified stock and bond investment. VT and AOR don't have the same risk. VT is a single asset class (global stocks) investment. AOR includes two asset classes, global stocks and bonds with an 80/20 ratio. Zie, I suggest to add a note about it in the linked post, if you intend to continue linking to it in the future.

I've repeatedly explained, in this thread, that it's a mistake to make investing decisions based on looking at comparisons of 1-year tax amounts in the taxable account while ignoring differences in effective after-tax risk across all accounts. I've provided analyses that show that, when comparing portfolios with similar after-tax risk, money available to spend after taxes is similar.

Said differently, it's a mistake to compare a 80/20 stocks/bonds portfolio spread across accounts with a 80/20 stocks/bonds portfolio mirrored in every account, because the effective allocation of the spread portfolio, after taxes, is more agressive than 80/20, resulting in higher after-tax returns than the mirrored portfolio when things go well, but lower after-tax returns when they don't. A fair comparison must involve portfolios with similar effective risk, after taxes. That can be difficult to do because there's uncertainty about the spread portfolio's effective after-tax risk due to uncertainty about future parameters that affect it, such as future tax rates and future investor circumstances. In contrast, the outcomes of using a mirrored portfolio are consistent with its asset allocation, both before and after taxes.

Yet, even if the comparison is flawed, I understand showing the difference in taxable distributions could help dispelling fears.


Note: I've edited the post (in blue) to correct an error and to clarify that I understand why the flawed comparison was made.
I agree with this approach alot and while it barely changed my overall AA i added a line in the IPS to not slice and dice. It does mean my exposure to international will be going up but I agree with the "good enough not to mess with it" approach completely. Moved IRA to lifestrategy 80/20 fund and work 401k to a vanguard 2045 TDF since thats all they have there that fits this approach but I will have to watch the glidepaths so they dont move too far below the AA over time.

In taxable I only really have my Emergency fund and a small 20K or so in schwab total stock market which I will start moving new into AOA and sell out via the LTCG at 15% not all of my shares are fully LT yet.

End result is an 80/20 portfolio across the board. Onward and upward.
Last edited by cosmos on Sun Apr 07, 2024 5:28 pm, edited 1 time in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by zie »

cosmos wrote: Sun Apr 07, 2024 3:46 pm
In taxable I only really have my Emergency fund and a small 20K or so in schwab total stock market which I will start moving new into AOR and sell out via the LTCG at 15% not all of my shares are fully LT yet.

End result is an 80/20 portfolio across the board. Onward and upward.
Just to be clear, AOA is the 80/20 AA ETF, not AOR. See AOA's page here: https://www.ishares.com/us/products/239 ... cation-etf
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
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Re: The One-Fund Portfolio as a default suggestion

Post by cosmos »

zie wrote: Sun Apr 07, 2024 5:25 pm
cosmos wrote: Sun Apr 07, 2024 3:46 pm
In taxable I only really have my Emergency fund and a small 20K or so in schwab total stock market which I will start moving new into AOR and sell out via the LTCG at 15% not all of my shares are fully LT yet.

End result is an 80/20 portfolio across the board. Onward and upward.
Just to be clear, AOA is the 80/20 AA ETF, not AOR. See AOA's page here: https://www.ishares.com/us/products/239 ... cation-etf
yeah just a typo, fixed it. need larger font i guess.
It's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark... and we're wearing sunglasses. Hit it.
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Re: The One-Fund Portfolio as a default suggestion

Post by zie »

cosmos wrote: Sun Apr 07, 2024 5:29 pm
zie wrote: Sun Apr 07, 2024 5:25 pm
cosmos wrote: Sun Apr 07, 2024 3:46 pm
In taxable I only really have my Emergency fund and a small 20K or so in schwab total stock market which I will start moving new into AOR and sell out via the LTCG at 15% not all of my shares are fully LT yet.

End result is an 80/20 portfolio across the board. Onward and upward.
Just to be clear, AOA is the 80/20 AA ETF, not AOR. See AOA's page here: https://www.ishares.com/us/products/239 ... cation-etf
yeah just a typo, fixed it. need larger font i guess.
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Re: The One-Fund Portfolio as a default suggestion

Post by hermanvictor7310 »

Im planning to adopt portfolio 1 across all my accounts. Is VSMGX ”good enough” for a normal taxable brokerage account, or is it better to go with AOR? I understand ETFs are better for taxable than mutual, but some of my tax advantaged accounts (HSA and 401k) only offer the VSMGX, and no AOR or similar 60/40 fixed allocation ETF. Is it better to do everything VSMGX for consistency sake, or do AOR in taxable and VSMGX in tax advantaged?
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

hermanvictor7310 wrote: Thu May 09, 2024 5:52 pm Im planning to adopt portfolio 1 across all my accounts. Is VSMGX ”good enough” for a normal taxable brokerage account, or is it better to go with AOR? I understand ETFs are better for taxable than mutual, but some of my tax advantaged accounts (HSA and 401k) only offer the VSMGX, and no AOR or similar 60/40 fixed allocation ETF. Is it better to do everything VSMGX for consistency sake, or do AOR in taxable and VSMGX in tax advantaged?
Hermanvictor7310, AOR in taxable and VSMGX in tax advantaged seems fine to me. They're almost identical. Both are globally-diversified 60/40 stocks/bonds index investments. I wouldn't worry about their small differences.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: The One-Fund Portfolio as a default suggestion

Post by vtjon »

I've been in FFNOX in my non-taxable accounts for about the last 15 years. I am going to start building a taxable position in AOA. Does anyone have a good TLH partner?
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Re: The One-Fund Portfolio as a default suggestion

Post by zie »

vtjon wrote: Fri May 10, 2024 8:47 am I've been in FFNOX in my non-taxable accounts for about the last 15 years. I am going to start building a taxable position in AOA. Does anyone have a good TLH partner?
Sadly AOA is the only 80/20 ETF that I'm aware of. Luckily TLH usually only works for a year or two, and all it really does is just delay paying the taxes, so it's not a free lunch.

You could do a mix of AOR and VT for instance, to hit the same allocation with 2 funds. But if you do that, VT and BND or BNDW would probably be easier.

When I TLH'd the last time, I moved from the equivalent of VT & BND, into AOA.
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
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Re: The One-Fund Portfolio as a default suggestion

Post by hermanvictor7310 »

longinvest wrote: Thu May 09, 2024 10:05 pm
hermanvictor7310 wrote: Thu May 09, 2024 5:52 pm Im planning to adopt portfolio 1 across all my accounts. Is VSMGX ”good enough” for a normal taxable brokerage account, or is it better to go with AOR? I understand ETFs are better for taxable than mutual, but some of my tax advantaged accounts (HSA and 401k) only offer the VSMGX, and no AOR or similar 60/40 fixed allocation ETF. Is it better to do everything VSMGX for consistency sake, or do AOR in taxable and VSMGX in tax advantaged?
Hermanvictor7310, AOR in taxable and VSMGX in tax advantaged seems fine to me. They're almost identical. Both are globally-diversified 60/40 stocks/bonds index investments. I wouldn't worry about their small differences.
Thank you for the reply!
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Re: The One-Fund Portfolio as a default suggestion

Post by Doc7 »

I am in Target Retirement Index 2040 in all my accounts.

This includes Blackrock version in wife’s 457…. Fidelity versions in wife’s 401a, 403b, HSA, wife’s Roth IRA, my Roth IRA…. Vanguard in my old 401k and my current 401k.

Do you think, as I do, that this is sufficiently described as “One Fund Portfolio”?
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

Doc7 wrote: Wed May 15, 2024 11:51 am I am in Target Retirement Index 2040 in all my accounts.

This includes Blackrock version in wife’s 457…. Fidelity versions in wife’s 401a, 403b, HSA, wife’s Roth IRA, my Roth IRA…. Vanguard in my old 401k and my current 401k.

Do you think, as I do, that this is sufficiently described as “One Fund Portfolio”?
Yes. More than sufficient!

I mean, would you quit your job because its 401k or 403 or 457 fund provider was Fidelity but all your individual accounts are in Vanguard, and then go find a new job whose retirement plan uses Vanguard?

All that just so you can literally say you have a true one fund portfolio?

:)
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Re: The One-Fund Portfolio as a default suggestion

Post by cosmos »

Doc7 wrote: Wed May 15, 2024 11:51 am I am in Target Retirement Index 2040 in all my accounts.

This includes Blackrock version in wife’s 457…. Fidelity versions in wife’s 401a, 403b, HSA, wife’s Roth IRA, my Roth IRA…. Vanguard in my old 401k and my current 401k.

Do you think, as I do, that this is sufficiently described as “One Fund Portfolio”?
The "one fund" simply describes that you are using a single fund in each account and those single funds have the same profile. For example I have an AA of 80/20 and 3 accounts. I use a vanguard lifestrategy in my vanguard ira, a vanguard TDF with the same AA in my 401k, and a blackrock ishares etf in another taxable account with the same AA.

I also gave up on trying to guestimate us vs international. While I do not really believe international is going to hit any homeruns I also have no clue about the US side as well. Both have had stellar runs and bad runs in the past so I will let the market cap dictate my percentage and hedge all potential possibilities.

3 funds, 3 accounts but one unified asset allocation across all of them. A "One-Fund Portfolio". Set and forget!
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Re: The One-Fund Portfolio as a default suggestion

Post by Fireishere »

Longinvest, would all in lifestrategy 60/40 still be good enough for someone who is retiring very early at 40 yo? Adding that their only income would come from the portfolio except a very small pension when they’re 70yo. What I’m thinking is that during downturns, would it be better to have stocks and bonds separate funds so that you can only sell bonds while stocks are recovering? Or, should they use a few years (2-5?) of expenses in cash and the rest in lifestrategy? They’re are very flexible with their expenses. If they pull 4% there’s about half of discretionary expenses.
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