[Are] Bogleheads Tilters and Timers[?]

[betablocker]

I don't think the global market portfolio is a no-brainer, because there is no such thing as "the global market." There isn't even such a thing as "the global stock market."

The theory behind mimicking a total market and duplicating market capitalization is that the total market is optimally mean-variance efficient, i.e. has the highest Sharpe ratio... given a bunch of assumptions that are neither perfectly realistic nor totally crazy. But the theory behind it assumes that we do have a unified, single market, within which participants trade frictionlessly.

That's not a bad approximation to "the" US stock market (which is really maybe a half dozen or a dozen stock markets, but with electronic trading and algorithms arbitrating everything is pretty close to a single unified stock market). It's not such a good approximation for "the" global stock market, which includes twenty-one different national stock markets in the "$1 trillion club," and across which trading has numerous sources of friction, particularly the need to do currency conversions.

There's no "New York Bond Exchange" and it's not clear just what sort of beast "the" bond market is. It's even less clear that the stock and bond markets act like a single unified exchange with stocks and bonds trading in equilibrium with each other. William F. Sharpe thinks it's good enough to warrant holding four positions--in US stocks, ex-US stocks, US bonds, and ex-US bonds--in their global proportions. Vanguard's all-in-one LifeStrategy and Target Retirement funds hold those four asset classes (plus TIPS in a few cases). They don't exactly duplicate the global proportions, but they aren't light years away from.

Once you start throwing other assets into the mix, it gets more and more dubious. Especially when the assets aren't very liquid, don't have reliable market values, aren't publicly traded, have to be approximated by derivatives and what not, have only recently been "securitized," etc. etc. I don't, for example, buy the idea that we should overweight small caps to make up for our inability to invest in Jeanne's Nail Salon, Zenith Laundromat, and Ribeiro's Brazilian Groceries.

"All the stuff in the world" does not necessarily constitute a market.

Just because you have a lot of master-highlighted Thomas Kinkade prints on your walls, which you bought as investments, does not mean that I need to have some, too.

I’m not telling anyone to own anything. I’m pointing out that the 3 or 4 fund portfolio shouldn’t be viewed as gospel because it reflects the market/buy the hay stack, etc. You’re pick and choosing too. That certainly has many virtues. It has a good track record. It is simple and cheap to own, etc. No dispute.

But it’s based on assumptions like the US will continue to outperform and that inflation will remain low and stable. That’s been a good trade for 40 years but there are plenty of periods/regimes where it hasn’t been. I don’t know what will happens so I try to find more sources of risk that are cheap and easy to own and to diversify across them.

I also don’t really buy the liquidity and derivative arguments. Small Cap Value stocks are plenty liquid. I can trade a DFA ETF at any time the market is open with a cent or two bid ask spread. You can also buy ETFs with plenty of liquidity made up of commodity derivatives.

I’m not really sure why a derivative is necessarily worse. That seems like a feeling more than a fact.

[typical.investor]

Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds

I hold international equities at market weight but don't see a point for global bonds. The currency risk on unhedged bonds is just too much for me, and after dealing with it as an expat for decades simply like having fixed income in USD as it uncomplicates spending.

As for hedged bonds, yes they change credit risk, but I think it just makes you more likely so have a loss in some smaller country like Italy while providing some protection against a larger loss of US default. So perhaps there is some diversification benefit but I am already really diversified with equites.

Also, hedge bonds depend on the hedge yield which is determined by the short term rates between countries. It really ignores the yield curve and relies on things just sort of averaging out across countries over time. And hedging has a cost.

So I have decided against international bonds. They've been discussed here many times and like equity allocation, different people have different opinion about what suits them best.

[5outof10]

No doubt there are reasons to do it but it is tilting away from a global market portfolio. My post is an effort to get Bogleheads to recognize their own biases.

I don't recall Bogle arguing for a total global market weight. So I am not sure where the bias lies.

[5outof10]

I don't think the global market portfolio is a no-brainer, because there is no such thing as "the global market." There isn't even such a thing as "the global stock market."

The theory behind mimicking a total market and duplicating market capitalization is that the total market is optimally mean-variance efficient, i.e. has the highest Sharpe ratio... given a bunch of assumptions that are neither perfectly realistic nor totally crazy. But the theory behind it assumes that we do have a unified, single market, within which participants trade frictionlessly.

That's not a bad approximation to "the" US stock market (which is really maybe a half dozen or a dozen stock markets, but with electronic trading and algorithms arbitrating everything is pretty close to a single unified stock market). It's not such a good approximation for "the" global stock market, which includes twenty-one different national stock markets in the "$1 trillion club," and across which trading has numerous sources of friction, particularly the need to do currency conversions.

There's no "New York Bond Exchange" and it's not clear just what sort of beast "the" bond market is. It's even less clear that the stock and bond markets act like a single unified exchange with stocks and bonds trading in equilibrium with each other. William F. Sharpe thinks it's good enough to warrant holding four positions--in US stocks, ex-US stocks, US bonds, and ex-US bonds--in their global proportions. Vanguard's all-in-one LifeStrategy and Target Retirement funds hold those four asset classes (plus TIPS in a few cases). They don't exactly duplicate the global proportions, but they aren't light years away from.

Once you start throwing other assets into the mix, it gets more and more dubious. Especially when the assets aren't very liquid, don't have reliable market values, aren't publicly traded, have to be approximated by derivatives and what not, have only recently been "securitized," etc. etc. I don't, for example, buy the idea that we should overweight small caps to make up for our inability to invest in Jeanne's Nail Salon, Zenith Laundromat, and Ribeiro's Brazilian Groceries.

"All the stuff in the world" does not necessarily constitute a market.

Just because you have a lot of master-highlighted Thomas Kinkade prints on your walls, which you bought as investments, does not mean that I need to have some, too.

I’m not telling anyone to own anything. I’m pointing out that the 3 or 4 fund portfolio shouldn’t be viewed as gospel because it reflects the market/buy the hay stack, etc. You’re pick and choosing too. That certainly has many virtues. It has a good track record. It is simple and cheap to own, etc. No dispute.

But it’s based on assumptions like the US will continue to outperform and that inflation will remain low and stable. That’s been a good trade for 40 years but there are plenty of periods/regimes where it hasn’t been. I don’t know what will happens so I try to find more sources of risk that are cheap and easy to own and to diversify across them.

I also don’t really buy the liquidity and derivative arguments. Small Cap Value stocks are plenty liquid. I can trade a DFA ETF at any time the market is open with a cent or two bid ask spread. You can also buy ETFs with plenty of liquidity made up of commodity derivatives.

I’m not really sure why a derivative is necessarily worse. That seems like a feeling more than a fact.

When I read Bogle I interpreted that he was talking about the haystack that is the US economy. Not the Canadian haystack. Or the Japanese haystack. Or all the hay in the world. I don't think his scope was that wide when recommending passive indexes.

I think one of his threshold assumptions was that the US haystack was the strongest in the world. Like the rest of the world is take it or leave it really.

[BirdFood]

and have timed the market by not holding much in the way of real assets and in particular commodities.

How is this timing? If you NEVER buy those things, as opposed to buying when you think they’ll do well and dumping them when you no longer think so, where’s the timing?

[Gaston]

I don't think the global market portfolio is a no-brainer, because there is no such thing as "the global market." There isn't even such a thing as "the global stock market."

Some further thoughts on this.

Theoretical Defintion
Let’s start with the broad definition that the market portfolio is the collection of investments that includes every type of asset available, with each asset weighted in proportion to its value relative to all the other assets in the portfolio. This includes anything that has value and is tradable (think baseball cards).

Practical Defintion
Richard Roll, in his 1977 paper on A Critique of the Asset Pricing Theory’s Tests, said that it is impossible to identify and measure all assets in the market portfolio. Thus, the true market portfolio is unknown.

Anti Ilmanen, in his 2011 book Expected Returns, reiterated this point, saying that substantial portions of global wealth are not available to financial investors (think Irani oil wells). Therefore, holding the market portfolio is impossible. The best one can do is use proxies for the portion of the market portfolio that is available to investors. An example is the S&P 500 index as a proxy for the US public equity market.

Returns of the Market Portfolio
Ronald Doeswijk, in his 2019 paper on Historical Returns of the Market Portfolio, used various proxies to calculate the return of the investable market portfolio using ten asset classes, each weighted by their market capitalizations. The ten classes included public and private equities, various types of government and non-government bonds, real estate and commodities.

Doeswijk found that from 1960 to 2017, the portfolio realized a compounded real return in U.S. dollars of 4.45%, with a standard deviation of annual returns of 11.2%. At year-end 2017, the cap-weighted mix of the portfolio consisted of 51% equities, 44% bonds, 3% real estate and 2% commodities (primarily physical gold).

Investors
Bogleheads who employ the 3-fund portfolio are a long way off from the market portfolio. So too, I suspect, are most other investors. Even if an investor can figure out what constitutes the market portfolio, it can be difficult and expensive to maintain a personal portfolio aligned to the market portfolio. Perhaps one day Blackrock, Vanguard or one of the other big players will remedy this by offering a "reasonable" market portfolio ETF at low cost. It won’t be perfect, but then again, it never can be.

[livesoft]

There have been discussions in the past about Optimizers and Satisficers.

The idea that one should have a "market portfolio" is bunk. One should probably have a portfolio though that meets one's goals and that portfolio does not have to be a market portfolio.

[HootingSloth]

Ronald Doeswijk, in his 2019 paper on Historical Returns of the Market Portfolio, used various proxies to calculate the return of the investable market portfolio using ten asset classes, each weighted by their market capitalizations. The ten classes included public and private equities, various types of government and non-government bonds, real estate and commodities.

Doeswijk found that from 1960 to 2017, the portfolio realized a compounded real return in U.S. dollars of 4.45%, with a standard deviation of annual returns of 11.2%.

Investors
Bogleheads who employ the 3-fund portfolio are a long way off from the market portfolio. So too, I suspect, are most other investors. Even if an investor can figure out what constitutes the market portfolio, it can be difficult and expensive to maintain a personal portfolio aligned to the market portfolio. Perhaps one day Blackrock, Vanguard or one of the other big players will remedy this by offering a "reasonable" market portfolio ETF at low cost. It won’t be perfect, but then again, it never can be.

Thanks for sharing the Doeswijk article, which I had not seen before.

Unless I am missing something, it seems that the differences between the Doeswijk market portfolio reflected in the paper and, say, someone who owned a home and put the rest in the Bill Sharpe-style market portolio would be that: (i) homeownership likely would cause this person to have a much higher exposure to real estate than than Doeswijk portfolio (because real estate never exceeds 5.9% in any year); (ii) the equity portion of the Bill Sharpe portfolio would not have the small slice of private equities from the Doeswijk portfolio (vanishingly small in early years, but now approaching ~10% of the overall equity position); (iii) the Bill Sharpe portfolio would not have the rounding-error-sized allocations to inflation-linked bonds, sub-investment grade bonds, or commodities that are included in the Doeswijk portfolio (although, of course, Bill Sharpe's overall advice generally would include a large allocation to inflation-linked bonds not included in his market portfolio); and (iv) there also would have been a brief period of a few years around 1980 when the commodities piece would have been more than a rounding error.

[Lawrence of Suburbia]

[...] Just because you have a lot of master-highlighted Thomas Kinkade prints on your walls, which you bought as investments, does not mean that I need to have some, too.

A cruel thrust ...

[Northern Flicker]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities.

Not holding commodities is not market timing if you intentionally leave the asset class out of your asset allocation model.

It is not necessary to hold every asset class. Holding the market portfolio can mean implementing an asset class with the market portfolio for the asset class. It does not have to mean holding every asset class, and constraining your asset allocation to global market weights across the asset classes. That would hold the largest allocations in global bonds and global real estate.

I have no interest in having the ratio of bonds issued worldwide to stocks offered worldwide be the determiner of the ratio of stocks and bonds that I hold. Companies make business decisions on whether to raise capital by borrowing or offering equity. I don't see why the way that decision is made by some company half way around the world should be an input to my decision on the ratio of stocks to bonds I should hold.

[retireIn2020]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities.

That bet has worked out for 40 years no doubt but it is tilting and timing. If you hold a 60/40 of US stocks and treasuries, you’re under diversified or over exposed to US market risk and inflation. Again, that’s been a good bet but it’s a bet not “holding the market portfolio.” Cullen Roche has done some good writing on this.

[Title edited by admin Alex]

1st you said, "we take great pride in not timing the market and accepting what it gives by not tilting".
So, I assume you consider yourself as a boglehead that doesn't market time or tilt, Ok.

Then you said "most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities."

It seems here ^^ you separate yourself from "most" bogleheads.

Basically, you said that you feel you are one of the lone bogleheads since you invest in foreign bonds and commodities, like gold, silver, paintings, jewelry, the peso, lego's etc.

You posted your observation, so my response is the same, just an observation.

[Gaston]

Thanks for sharing the Doeswijk article, which I had not seen before.

FYI that Dr. Doeswijk published an updated paper last month. I have not read it yet but you can find it here: https://papers.ssrn.com/sol3/papers.cfm ... id=4937996

[alluringreality]

Cullen Roche has done some good writing on this.

Is there something in particular that you're referring to here? I've read some of his commentary, including a few Bogleheads-related items, and I'm not connecting the dots to your take. I guess he brought up the global market portfolio with Countercyclical Indexing discussion, but my take was that he thought it was better to take the other side than to actually use such a position. In the following he fairly recently discussed opinions around the dollar and inflation. At the end he linked to Defined Duration Investing, which generally intends to help savers "...better understand your expenses and liabilities and the way specific assets align with those expenses and liabilities." I suppose I'd agree that his stability and insurance buckets don't seem overly popular here, and otherwise I'm not exactly tying together the tilting and timing subject line to his most prominent positions.
https://disciplinefunds.com/2024/07/23/ ... rspective/

[Fallible]

[...] Just because you have a lot of master-highlighted Thomas Kinkade prints on your walls, which you bought as investments, does not mean that I need to have some, too.

A cruel thrust ...

Not cruel, but definitely pointed.

[nedsaid]

I don't think the global market portfolio is a no-brainer, because there is no such thing as "the global market." There isn't even such a thing as "the global stock market."

Nedsaid: You wrote a well reasoned post and I thought that I should comment on it. Some nuance here, but reality is full of nuance and nothing is as simple as we think it is. There is no Global Stock Market as you said but we act as though there is. It really is a whole bunch of markets sort of tied together with a lot of electronic communication but in a way it sort of does act like a Global Stock Market. In similar manner, there is no such thing as a Global Supply Chain, there are probably millions of supply chains across the world but some how world trade happens anyways with not so much coordination. Sort of like Adam Smith's invisible hand that moves Global Markets and Global Supply Chains. I buy fruit and vegetables not knowing exactly where it all comes from, much of it is local but fruit comes from places like Chile and Mexico but I don't think about it much.

The theory behind mimicking a total market and duplicating market capitalization is that the total market is optimally mean-variance efficient, i.e. has the highest Sharpe ratio... given a bunch of assumptions that are neither perfectly realistic nor totally crazy. But the theory behind it assumes that we do have a unified, single market, within which participants trade frictionlessly.

Nedsaid: There are a bunch of assumptions behind everything. We do act like there is a unified securities market and a unified supply chains even though these things are not literally true but effectively, they are true. I don't worry much that there are frictions in the fruit and vegetable markets and that when Kroger buys grapes from Chile and blueberries from Mexico or wherever that currencies get exchanged. Don't think a bit about whether the US Dollar is strong or weak versus the Mexican Peso or the Chilean Peso. As the great Julius Caesar might have said, "I came, I saw, and I purchased." I just pick up whatever it is that I want and drop it in the shopping cart. When I want to buy a security, I just type some numbers in a box and hit the buy button without thinking about any of those things.

That's not a bad approximation to "the" US stock market (which is really maybe a half dozen or a dozen stock markets, but with electronic trading and algorithms arbitrating everything is pretty close to a single unified stock market). It's not such a good approximation for "the" global stock market, which includes twenty-one different national stock markets in the "$1 trillion club," and across which trading has numerous sources of friction, particularly the need to do currency conversions.

Nedsaid: Nevertheless, I buy my investments globally just as I buy my food. I pick out what I want and can afford, drop it in the cart, and take it to the cashier. Not only that but there are frictions when I use my debit or credit card to buy something. It costs money to process transactions, even if you use physical cash cashiers need to be hired as well as people to count up the cash and deposit it at the bank. My gosh, there isn't even a unified payments system as retailers use a variety of financial institutions to handle their financial transactions. It was estimated at one point that about 1% of the US economy was dedicated to processing transactions, don't know what it is today. That is a lot of friction, just buying my food every week but somehow life goes on.

There's no "New York Bond Exchange" and it's not clear just what sort of beast "the" bond market is. It's even less clear that the stock and bond markets act like a single unified exchange with stocks and bonds trading in equilibrium with each other. William F. Sharpe thinks it's good enough to warrant holding four positions--in US stocks, ex-US stocks, US bonds, and ex-US bonds--in their global proportions. Vanguard's all-in-one LifeStrategy and Target Retirement funds hold those four asset classes (plus TIPS in a few cases). They don't exactly duplicate the global proportions, but they aren't light years away from.

Nedsaid: Yep, the markets are more decentralized than we think but somehow it all works. When my individual TIPS matured in July, I just logged into my Fidelity account and bought another batch of them. I didn't think about who I was buying them from, the trading frictions, or even if there is a "New York Bond Exchange", I just entered in some numbers, clicked on the mouse, and the transaction happened. I came, I saw, and I purchased. Veni, Vidi, et Emi.

Once you start throwing other assets into the mix, it gets more and more dubious. Especially when the assets aren't very liquid, don't have reliable market values, aren't publicly traded, have to be approximated by derivatives and what not, have only recently been "securitized," etc. etc. I don't, for example, buy the idea that we should overweight small caps to make up for our inability to invest in Jeanne's Nail Salon, Zenith Laundromat, and Ribeiro's Brazilian Groceries.

"All the stuff in the world" does not necessarily constitute a market.

Nedsaid: I can't buy all the stuff in the world but I can still diversify my investments. I hold International Stocks, they are about 25% of my Stock allocation and many of the US Stocks I own are multi-national companies. Not perfectly a global portfolio but not bad. It is going to have to be good enough.

Just because you have a lot of master-highlighted Thomas Kinkade prints on your walls, which you bought as investments, does not mean that I need to have some, too.

[yankees60]

I don't think the global market portfolio is a no-brainer, because there is no such thing as "the global market." There isn't even such a thing as "the global stock market."

Nedsaid: You wrote a well reasoned post and I thought that I should comment on it. Some nuance here, but reality is full of nuance and nothing is as simple as we think it is. There is no Global Stock Market as you said but we act as though there is. It really is a whole bunch of markets sort of tied together with a lot of electronic communication but in a way it sort of does act like a Global Stock Market. In similar manner, there is no such thing as a Global Supply Chain, there are probably millions of supply chains across the world but some how world trade happens anyways with not so much coordination. Sort of like Adam Smith's invisible hand that moves Global Markets and Global Supply Chains. I buy fruit and vegetables not knowing exactly where it all comes from, much of it is local but fruit comes from places like Chile and Mexico but I don't think about it much.

The theory behind mimicking a total market and duplicating market capitalization is that the total market is optimally mean-variance efficient, i.e. has the highest Sharpe ratio... given a bunch of assumptions that are neither perfectly realistic nor totally crazy. But the theory behind it assumes that we do have a unified, single market, within which participants trade frictionlessly.

Nedsaid: There are a bunch of assumptions behind everything. We do act like there is a unified securities market and a unified supply chains even though these things are not literally true but effectively, they are true. I don't worry much that there are frictions in the fruit and vegetable markets and that when Kroger buys grapes from Chile and blueberries from Mexico or wherever that currencies get exchanged. Don't think a bit about whether the US Dollar is strong or weak versus the Mexican Peso or the Chilean Peso. As the great Julius Caesar might have said, "I came, I saw, and I purchased." I just pick up whatever it is that I want and drop it in the shopping cart. When I want to buy a security, I just type some numbers in a box and hit the buy button without thinking about any of those things.

That's not a bad approximation to "the" US stock market (which is really maybe a half dozen or a dozen stock markets, but with electronic trading and algorithms arbitrating everything is pretty close to a single unified stock market). It's not such a good approximation for "the" global stock market, which includes twenty-one different national stock markets in the "$1 trillion club," and across which trading has numerous sources of friction, particularly the need to do currency conversions.

Nedsaid: Nevertheless, I buy my investments globally just as I buy my food. I pick out what I want and can afford, drop it in the cart, and take it to the cashier. Not only that but there are frictions when I use my debit or credit card to buy something. It costs money to process transactions, even if you use physical cash cashiers need to be hired as well as people to count up the cash and deposit it at the bank. My gosh, there isn't even a unified payments system as retailers use a variety of financial institutions to handle their financial transactions. It was estimated at one point that about 1% of the US economy was dedicated to processing transactions, don't know what it is today. That is a lot of friction, just buying my food every week but somehow life goes on.

There's no "New York Bond Exchange" and it's not clear just what sort of beast "the" bond market is. It's even less clear that the stock and bond markets act like a single unified exchange with stocks and bonds trading in equilibrium with each other. William F. Sharpe thinks it's good enough to warrant holding four positions--in US stocks, ex-US stocks, US bonds, and ex-US bonds--in their global proportions. Vanguard's all-in-one LifeStrategy and Target Retirement funds hold those four asset classes (plus TIPS in a few cases). They don't exactly duplicate the global proportions, but they aren't light years away from.

Nedsaid: Yep, the markets are more decentralized than we think but somehow it all works. When my individual TIPS matured in July, I just logged into my Fidelity account and bought another batch of them. I didn't think about who I was buying them from, the trading frictions, or even if there is a "New York Bond Exchange", I just entered in some numbers, clicked on the mouse, and the transaction happened. I came, I saw, and I purchased. Veni, Vidi, et Emi.

Once you start throwing other assets into the mix, it gets more and more dubious. Especially when the assets aren't very liquid, don't have reliable market values, aren't publicly traded, have to be approximated by derivatives and what not, have only recently been "securitized," etc. etc. I don't, for example, buy the idea that we should overweight small caps to make up for our inability to invest in Jeanne's Nail Salon, Zenith Laundromat, and Ribeiro's Brazilian Groceries.

"All the stuff in the world" does not necessarily constitute a market.

Nedsaid: I can't buy all the stuff in the world but I can still diversify my investments. I hold International Stocks, they are about 25% of my Stock allocation and many of the US Stocks I own are multi-national companies. Not perfectly a global portfolio but not bad. It is going to have to be good enough.

Just because you have a lot of master-highlighted Thomas Kinkade prints on your walls, which you bought as investments, does not mean that I need to have some, too.

GREAT responses, Nedsaid!

[Fallible]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities.
...
[Title edited by admin Alex]

In this thread, you've made strong and sweeping claims about supposed Bogleheads' biases and referred to a derivative that "seems like a feeling more than a fact." Yet your original post above likely reflects both bias and feeling since you have not cited, even when asked, any sources, i.e., factual sources.

[windaar]

Mainstream "investing" as done by most of my co-workers and relatives who blab about it involves getting in when the market is high, getting out when low. Picking individual stocks based on tips and hunches. Constanly re-jiggering plans and strategies in reaction to global or financial events. Getting involved with schemes such as cr*pto, fractional ownership, get-rich quick scams, and all manners of speculation.

BH involves a boring, easy-to-follow alternative to that, leading to financial success. That drives some people crazy for some reason.

[nisiprius]

[...] Just because you have a lot of master-highlighted Thomas Kinkade prints on your walls, which you bought as investments, does not mean that I need to have some, too.

A cruel thrust ...

Not cruel, but definitely pointed.

I was using the hypothetical "you," I need to be more careful about that. I will edit the posting accordingly.

[Gaston]

Unless I am missing something, it seems that the differences between the Doeswijk market portfolio reflected in the paper and, say, someone who owned a home and put the rest in the Bill Sharpe-style market portolio would be that: (i) homeownership likely would cause this person to have a much higher exposure to real estate than than Doeswijk portfolio (because real estate never exceeds 5.9% in any year);

Agree.

(ii) the equity portion of the Bill Sharpe portfolio would not have the small slice of private equities from the Doeswijk portfolio (vanishingly small in early years, but now approaching ~10% of the overall equity position);

Agree, but as you say, the private equity piece seems to be growing.

(iii) the Bill Sharpe portfolio would not have the rounding-error-sized allocations to inflation-linked bonds, sub-investment grade bonds, or commodities that are included in the Doeswijk portfolio (although, of course, Bill Sharpe's overall advice generally would include a large allocation to inflation-linked bonds not included in his market portfolio);

Agree.

(iv) there also would have been a brief period of a few years around 1980 when the commodities piece would have been more than a rounding error.

I found it interesting that someone who wishes to replicate the global portfolio should indeed own physical gold. Although, as Dr. Doeswijk pointed out, the proportion is minimal (2% of the global portfolio).

[nisiprius]

I don't care to research the details of how well the Cambria Global Allocation fund, GAA tracks various estimates of "the" global portfolio or when it changed. GAA's started objective is used to be

The Cambria Global Asset Allocation ETF (NYSE: GAA) utilizes a quantitative approach to manage a diversified portfolio of global asset classes. The Cambria Global Asset Allocation ETF uses a buy and hold strategy that aims to reflect the market portfolio of investable assets.

But that statement has changed, I'm not sure when.

If anybody knows of any other ETF or mutual fund that aims to hold "the" global market portfolio, I'd like to know what it is, and see how it did, too.

Here's the track record of GAA compared to plain vanilla, four-fund, no alternatives, no tilts, no gold Vanguard LifeStrategy Conservative, VSMGX.

VSMGX is somewhat like the Bill Sharpe portfolio in having only US stocks, international stocks, US bonds, and international bonds.

Source



I'd say VSMGX has done better with its four holdings than GAA has done with its thirty. More money, lower volatility, less severe maximum drawdown.

GAA holdings:

4.15% BAR Graniteshares Gold Trust
7.34% BLDG Cambria Global Real Estate ETF
3.86% BND Vanguard Total Bond Market ETF
4.74% BNDX Vanguard Total International Bond ETF
0.95% BOXX Alpha Architect 1-3 Month Box ETF
-1.32% Cash&Other Cash & Other
2.93% EMLC VanEck J. P. Morgan EM Local Currency Bond ETF
10.02% EYLD Cambria Emerging Shareholder Yield ETF
1.40% FXFXX First American Treasury Obligations Fund 01/01/2040
4.81% FYLD Cambria Foreign Shareholder Yield ETF
1.19% GDX VanEck Gold Miners ETF/USA
5.92% GVAL Cambria Global Value ETF
0.28% HODL VanEck Bitcoin ETF/US
3.95% HYEM VanEck Emerging Markets High Yield Bond ETF
1.99% IHY VanEck International High Yield Bond ETF
2.02% IMOM Alpha Architect International Quantitative Momentum ETF
2.99% JPMB JPMorgan USD Emerging Markets Sovereign Bond ETF
2.08% LYLD Cambria LargeCap Shareholder Yield ETF
2.12% MYLD Cambria Micro and SmallCap Shareholder Yield ETF
5.67% PDBC Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF
5.10% QMOM Alpha Architect US Quantitative Momentum ETF
2.64% SCHP Schwab US TIPS ETF
4.07% SYLD Cambria Shareholder Yield ETF
5.63% TYLD Cambria Tactical Yield ETF
4.31% VAMO Cambria Value and Momentum ETF
2.97% VCIT Vanguard Intermediate-Term Corporate Bond ETF
1.98% VCSH Vanguard Short-Term Corporate Bond ETF
1.92% VGIT Vanguard Intermediate-Term Treasury ETF
1.92% VGLT Vanguard Long-Term Treasury ETF
2.38% WIP SPDR FTSE International Government Inflation-Protected Bond ETF

[HootingSloth]

Unless I am missing something, it seems that the differences between the Doeswijk market portfolio reflected in the paper and, say, someone who owned a home and put the rest in the Bill Sharpe-style market portolio would be that: (i) homeownership likely would cause this person to have a much higher exposure to real estate than than Doeswijk portfolio (because real estate never exceeds 5.9% in any year);

Agree.

(ii) the equity portion of the Bill Sharpe portfolio would not have the small slice of private equities from the Doeswijk portfolio (vanishingly small in early years, but now approaching ~10% of the overall equity position);

Agree, but as you say, the private equity piece seems to be growing.

(iii) the Bill Sharpe portfolio would not have the rounding-error-sized allocations to inflation-linked bonds, sub-investment grade bonds, or commodities that are included in the Doeswijk portfolio (although, of course, Bill Sharpe's overall advice generally would include a large allocation to inflation-linked bonds not included in his market portfolio);

Agree.

(iv) there also would have been a brief period of a few years around 1980 when the commodities piece would have been more than a rounding error.

I found it interesting that someone who wishes to replicate the global portfolio should indeed own physical gold. Although, as Dr. Doeswijk pointed out, the proportion is minimal (2% of the global portfolio).

If and when my portfolio grows large enough to be a "qualified purchaser" (i.e., $5M invested), I plan to consider adding private equity through an investment in Harbourvest at Vanguard. I think it is very unlikely that it will make much practical difference, but at that portfolio size I also think it is very unlikely that purchasing extra publicly traded stocks and bonds will make much practical difference either, and there is some small prospect that the diversification could be meaningful.

I am not sure that the 14-year holding period, minimum investment, etc. will make it more trouble than it is worth, but I don't think it is a crazy idea. It's reasonably likely I will be there in my late 40s or early 50s, in which case the holding period doesn't seem like a big deal to me. In my 60s, I think I would feel differently about needing to wait 14 years. I also don't see this as any kind of "must have." If there are a bunch of other strings attached (e.g., at some point I heard you needed to have the $5M invested through PAS), then I would scrap the idea, and who knows what changes there may be before I get there (or if early retirement or some other factor will prevent me from getting there in the first place).

I would also consider buying a smallish amount of physical gold somewhere around that level or perhaps a bit lower. I currently have some precious metals in the form of coins/jewelry, but it's much closer to 0.1% than to 1%. Again, the scenarios where I think it might make a difference are very low probability, but I could see it seeming like a reasonable use of additional dollars at the margins given what I would anticipate to be a rapidly declining marginal utility of additional stocks and bonds at those levels.

For now, I am happy with leaving these things out. As I said earlier in the thread, I think the global market portfolio is useful as a baseline allocation, with the idea that I can and should tilt away from it when I have a firm conviction that my personal circumstances, risk profile or needs differ from those of the average market participant. Simplicity is also a valuable thing, of course.

I am, admittedly, more interested in finding solid support for the ways that my investments should differ from the global market portfolio, and more skeptical of backtesting, than many Bogleheads seem to be. But backtesting seems to me like it provides even less useful information in evaluating these kinds of additions to a portfolio than usual. The data available is so limited, and the potential value of these investments seems to sit out in the tails. The point of them, in my mind, isn't to juice your "expected returns," provide "alpha," or whatever, and I don't believe in any of that stuff anyway. So I don't see exactly what information a backtest is supposed to give you. Some people use the same kind of backtesting to suggest that you should add much, much larger amounts of gold to your portfolio because it would have happened to help you out in one particular historical incident. That just doesn't seem terribly relevant to me either.

[LilyFleur]

Seems like we take great pride in not timing the market ....

What you mean "We", Kemo Sabe?

Yep, that's why they call it "personal" finance.

The heated discussion on this thread is confirmation that this forum is not monolithic.

[betablocker]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities.
...
[Title edited by admin Alex]

In this thread, you've made strong and sweeping claims about supposed Bogleheads' biases and referred to a derivative that "seems like a feeling more than a fact." Yet your original post above likely reflects both bias and feeling since you have not cited, even when asked, any sources, i.e., factual sources.

Happy to give citations for anything I’ve written. What exactly are you objecting to? Do you think there haven’t been times when a traditional 60/40 portfolio hasn’t under performed?

[TipsQuestions]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities.

Holding a market weighted portfolio is objectively optimal for domestic stocks only. Foreign stocks introduce additional risks, fees and taxes, and should optimally be underweighted. Risk free fixed income does not require diversification. Hold a single CD if you want. Commodities are speculations, not investments. Real estate is not a passive investment. Additionally, as others have noted, personal finance is extremely personal. I'd switch out the royal "we" in your post for "I", since you can only speak for yourself.

[betablocker]

and have timed the market by not holding much in the way of real assets and in particular commodities.

How is this timing? If you NEVER buy those things, as opposed to buying when you think they’ll do well and dumping them when you no longer think so, where’s the timing?

Agreed that Bogleheads aren’t strictly timers so agreed. That critique is unfair, but I do think the whole case rests on the last 40 years of performance with multiple periods that came before where the bet wouldn’t have worked out.

[White Coat Investor]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities.

That bet has worked out for 40 years no doubt but it is tilting and timing. If you hold a 60/40 of US stocks and treasuries, you’re under diversified or over exposed to US market risk and inflation. Again, that’s been a good bet but it’s a bet not “holding the market portfolio.” Cullen Roche has done some good writing on this.

[Title edited by admin Alex]

Why are tilters getting throw in with timers in this thread? I think those are very different things. I tilt slightly to US (2/3 US to 1/3 international) because I plan to spend mostly dollars the rest of my life. I think that's a good enough reason and not sure why you seem to equate that decision with market timing 3X leveraged forex puts.

[Fallible]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities.
...
[Title edited by admin Alex]

In this thread, you've made strong and sweeping claims about supposed Bogleheads' biases and referred to a derivative that "seems like a feeling more than a fact." Yet your original post above likely reflects both bias and feeling since you have not cited, even when asked, any sources, i.e., factual sources.

Happy to give citations for anything I’ve written. What exactly are you objecting to? Do you think there haven’t been times when a traditional 60/40 portfolio hasn’t under performed?

You say "most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities."

This is stated in a factual manner, but what sources (facts) can you cite for these claims?

[invest4]

Some of the advice shared on our forum has more stickiness and other advice less so.

Positively, people will share their portfolios and people will share their thoughts to help them get where they want to go.

No one needs to apologize for their choices, nor be overly concerned about someone’s interpretation of market timing, tilting, etc. They will receive advice and choose what fits for them…sometimes with broad agreement, other times more mixed.

What I know for certain is people who make use of our forum will be better financially for it.


Onward…

[FoundingFather]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads

This question seems more like clickbait than any honest attempt at real discussion.

This forum and the principles it espouses have been a tremendous help to me and my financial life. There is a lot of variety here in the forum, but I can't think of a group of investors I'd rather be identified with.

Founding Father

[betablocker]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads hold a disproportionate % or 100% US equities, don’t hold global bonds, and have timed the market by not holding much in the way of real assets and in particular commodities.

That bet has worked out for 40 years no doubt but it is tilting and timing. If you hold a 60/40 of US stocks and treasuries, you’re under diversified or over exposed to US market risk and inflation. Again, that’s been a good bet but it’s a bet not “holding the market portfolio.” Cullen Roche has done some good writing on this.

[Title edited by admin Alex]

Why are tilters getting throw in with timers in this thread? I think those are very different things. I tilt slightly to US (2/3 US to 1/3 international) because I plan to spend mostly dollars the rest of my life. I think that's a good enough reason and not sure why you seem to equate that decision with market timing 3X leveraged forex puts.

Using the term timing was a bit of a stretch admittedly. I was trying to draw attention to the fact that we are all pretty focused on a 40 year period of falling inflation and interest rates. So relying on Treasuries as the only real diversifier worked well but it was really a timing thing. Again, unfair but there is a point there.

[betablocker]

Seems like we take great pride in not timing the market and accepting what it gives by not tilting in favor of certain asset classes but most Bogleheads

This question seems more like clickbait than any honest attempt at real discussion.

This forum and the principles it espouses have been a tremendous help to me and my financial life. There is a lot of variety here in the forum, but I can't think of a group of investors I'd rather be identified with.

Founding Father

I think you need to get ad revenue or something to get click bait to pay off. I genuinely believe that boglehead philosophy is great but also has a blind spot around inflationary periods and variable interest rates.

[prioritarian]

I'd say VSMGX has done better with its four holdings than GAA has done with its thirty. More money, lower volatility, less severe maximum drawdown.

Comparing a fund that contains a whole bunch of expensive active ETFs with a fund comprised only of low-cost indices is hardly a fair comparison.

[prioritarian]

The heated discussion on this thread is confirmation that this forum is not monolithic.

I think the fact that this thread is provoking "pointed comments" from long-time commentators is a good example of resistance to new ideas. There are many rational critiques of betablocker's diversification strategy (cost of underlying investments, active management, non-transparent investing methodology, backtests may be statistical noise etc.) but some of the responses here were logical fallacies: appeals to Boglehead-ish purity (no new Scotsman), false equivalence, burden of proof, and soft ad hominems.

[LilyFleur]

The heated discussion on this thread is confirmation that this forum is not monolithic.

I think the fact that this thread is provoking "pointed comments" from long-time commentators is a good example of resistance to new ideas. There are many rational critiques of betablocker's diversification strategy (cost of underlying investments, active management, non-transparent investing methodology, backtests may be statistical noise etc.) but some of the responses here were logical fallacies: appeals to Boglehead-ish purity (no new Scotsman), false equivalence, burden of proof, and soft ad hominems.

The name of this forum is Bogleheads. It is a particular investing philosophy which you can read about in the Wiki. This is not the forum of new ideas on investing, just like it's not the forum of investing in individual stocks or FIRE in your 40s.

There were several fallacies of sweeping generalizations in the original post.
A Sweeping/Hasty generalization is a fallacy in inductive logic (statistical fallacy): A conclusion is drawn about an entire class (all members) from what is statistically an inadequate sample (not representative, small)

Source: https://thephilosophyforum.com/discussi ... alizations

This entire thread started off in a click-bait type of fashion, including the title asking if the Bogleheads are Tilters and Timers. It's provocative, at the very least, accusing an entire forum of indulging in behavior that is frowned upon in the Wiki.

There's a fine line between no new Scotsman and responses from individuals in a group with a well-stated and defined philosophy. (again, see the Wiki.)

Just like the original post contained fallacies, some of the responding posts could have as well. It's a public forum. We have to sift through it for ourselves.

[typical.investor]

The heated discussion on this thread is confirmation that this forum is not monolithic.

I think the fact that this thread is provoking "pointed comments" from long-time commentators is a good example of resistance to new ideas. There are many rational critiques of betablocker's diversification strategy (cost of underlying investments, active management, non-transparent investing methodology, backtests may be statistical noise etc.) but some of the responses here were logical fallacies: appeals to Boglehead-ish purity (no new Scotsman), false equivalence, burden of proof, and soft ad hominems.

I find the premise that all Bogleheads are one way or another to be stereotyping.

As for resistance to new ideas being a bad thing, that is exactly what Larry Swedroe says when pushing high cost alternatives that have a short track record and are pretty opaque.

In any case, the inflation concern seems to be primarily a concern of recency bias.

I don't really see the OP addressing currency risk, or foreign tax costs which often can not be reclaimed, or hedging cost on foreign bonds. And who ever said you couldn't use TIPs for your fixed income allocation.

[rkhusky]

Frankly, I am not going to be swayed into buying junk by being called names for sticking with low cost, low maintenance, broadly diversified stock and bond funds. Others can choose to invest in commodities, precious metals, bitcoin, collectibles, physical real estate, reinsurance, micro-loans, small businesses, etc, but not my game.