The Most Boglehead-ish Portfolio

[TrustTheMarket]

Hello. I have recently soured on the Vanguard Target Date funds and LifeStrategy funds. The stock portions are fine, but after reading this forum regarding international bonds, it appears they are not necessary. (Furthermore, I am not the biggest fan of corporate bonds or mortgage backed securities within the Total Bond Market fund.)

Would it be fair to say that the most neutral, passive, “making no bets” portfolio might be:

For Stocks
VT - Vanguard Total World Stock Index Fund ETF
(Owns the world.)

For Bonds
GOVT - iShares US Treasury Bond ETF
(“Total” Bond Market fund for treasuries)

Would you support or reject this portfolio? I value your feedback. There may be portfolios that serve other purposes, but if one is looking to reduce complication, invest market cap weighted, allow the funds to rebalance on their own, and “know” exactly what they are owning, could this portfolio suffice?

[delamer]

If you switch out the bond holdings, then it’s the first lazy portfolio recommended in the wiki: https://www.bogleheads.org/wiki/Lazy_portfolios

You’ll always find someone here ready to argue about the type of bonds to hold or whether international stocks are necessary.

Which brings to mind the old adage about the perfect being the enemy of the good.

[Random Musings]

If you are not the biggest fan of Total Bond, why not just use an Intermediate Treasury Fund like VGIT? Duration is 5 years vs 6 vs TBM, so a bit different as well. You always can shift duration lower or higher by adding short or long term treasuries, but that makes things less simple.

In order to complete the total "market" of marketable Treasury issues, it appears that TIPs issued account for a touch less than 10% of marketable treasury debt (ignoring EE and I bonds). I have read that post pandemic the TIPs percentage has drifted lower to about 8% but the government wants to get this number back to pre-pandemic levels. However, about 20% of marketable treasury debt is t-bills that is considered "cash" on this board, so if one chooses to ignore that we then end up with about 87.5% notes/bonds and 12.5% TIPs assuming the target the government wants to achieve.

As 88/12 doesn't move the needle too much, the question is whether to ignore TIPs or overweight relative to current U.S. outstanding debt. I would not bother unless going 75/25 as a starting point.

RM

[TipsQuestions]

Stocks are riskier than corporate bonds or mortgage backed securities or foreign bonds, so I wouldn't call that a "taking no bets" portfolio. You're simplifying by eliminating some low-medium risk investments that are only a small part of the total. Won't make much difference.

[cosmos]

Curious what your age/investment horizon is?

[BitTooAggressive]

Hello. I have recently soured on the Vanguard Target Date funds and LifeStrategy funds. The stock portions are fine, but after reading this forum regarding international bonds, it appears they are not necessary. (Furthermore, I am not the biggest fan of corporate bonds or mortgage backed securities within the Total Bond Market fund.)

Would it be fair to say that the most neutral, passive, “making no bets” portfolio might be:

For Stocks
VT - Vanguard Total World Stock Index Fund ETF
(Owns the world.)

For Bonds
GOVT - iShares US Treasury Bond ETF
(“Total” Bond Market fund for treasuries)

Would you support or reject this portfolio? I value your feedback. There may be portfolios that serve other purposes, but if one is looking to reduce complication, invest market cap weighted, allow the funds to rebalance on their own, and “know” exactly what they are owning, could this portfolio suffice?

How can a “making no bets” portfolio exclude all international bonds? The mental gyrations on this board by some to justify what they want to do are amazing. It’s your money why care if it’s a Bogle way or not. .

Edit: The best no bet portfolios are life strategy and TDF but you have soured on them and come to the conclusion that international bonds are bad because some posters here are very dogmatic and convincing.

Obviously Vanguard, Fidelity, black rock, Schwab and T Rowe Price are all wrong for holding international bonds.

[LiveSimple]

Read here, read books analyze yourself and make your own portfolio design

Stay the course you will be fine…

There will be dozen ideas popping up by you and others all the time, you can implement only one ide so let it be your idea or thoughts that you implemented…

Keep it simple

To add my flavor for your consideration
80% Total Stock Index
20% Total Bond Index

[watchnerd]

Hello. I have recently soured on the Vanguard Target Date funds and LifeStrategy funds. The stock portions are fine, but after reading this forum regarding international bonds, it appears they are not necessary. (Furthermore, I am not the biggest fan of corporate bonds or mortgage backed securities within the Total Bond Market fund.)

Would it be fair to say that the most neutral, passive, “making no bets” portfolio might be:

For Stocks
VT - Vanguard Total World Stock Index Fund ETF
(Owns the world.)

For Bonds
GOVT - iShares US Treasury Bond ETF
(“Total” Bond Market fund for treasuries)

Would you support or reject this portfolio? I value your feedback. There may be portfolios that serve other purposes, but if one is looking to reduce complication, invest market cap weighted, allow the funds to rebalance on their own, and “know” exactly what they are owning, could this portfolio suffice?

The premise of the question is misunderstanding of what being a Boglehead implies.

It has to do with low cost investing.

It's not a specific AA.

[Gaston]

The premise of the question is misunderstanding of what being a Boglehead implies.

It has to do with low cost investing.

To build on the above, I like how Rick Ferri frames it. For we Bogleheads, the philosophy is encapsulated is the 11 points cited here: https://www.bogleheads.org/wiki/Getting_started

The strategy is how one implements the philosophy. The strategy is more personal, taking into account one's goals, risk tolerance, tax situation, etc. There is no mandate that everyone must use the 3-fold portfolio, hold a LifeStyle fund or invest x% in international stocks (although any of these is a reasonable choice).

[firebirdparts]

I don't know that there's a better answer than what the OP gave, but I think the most boglehead-ish portfolio would use 10 year treasuries instead of any diversified bond fund. The purpose of mixed up bond funds isn't exactly clear and of course the composition should be changing for whatever reasons.

A more general comment: I think I understand the compelling reasons to hold cap weighted stock funds, and I don't feel the same applies to debt at all. With bonds, you're saying if there's a lot of THIS DEBT then I want to lend a lot to THIS CREDITOR and to me that is not a pretty picture. FWIW.

[nisiprius]

Hello. I have recently soured on the Vanguard Target Date funds and LifeStrategy funds. The stock portions are fine, but after reading this forum regarding international bonds, it appears they are not necessary. (Furthermore, I am not the biggest fan of corporate bonds or mortgage backed securities within the Total Bond Market fund.)

Would it be fair to say that the most neutral, passive, “making no bets” portfolio might be:

For Stocks
VT - Vanguard Total World Stock Index Fund ETF
(Owns the world.)

For Bonds
GOVT - iShares US Treasury Bond ETF
(“Total” Bond Market fund for treasuries)

Would you support or reject this portfolio? I value your feedback. There may be portfolios that serve other purposes, but if one is looking to reduce complication, invest market cap weighted, allow the funds to rebalance on their own, and “know” exactly what they are owning, could this portfolio suffice?

I think part of being a Boglehead is to satisfice, not optimize, and not spend a lot of effort trying to find the "most" or "best" of anything. You find a reasonable portfolio that's good enough, and the most important thing about it is not whether it's optimum or maximum or most faithful to some principles, but whether have the conviction to stick to it. Part of being a Boglehead is embracing the idea that you might not have the "best" portfolio (or the most "Bogleheadish") but shrugging your shoulders and sticking to it anyway... and not going in for "continuous improvement."

A long-term strategy that is revised annually is not a long-term strategy.

I would note John C. Bogle's wise but somewhat evasive phraseology here; from The Twelve Pillars of Wisdom

Pillar 2. When All Else Fails, Fall Back on Simplicity.

There are an infinite number of strategies worse than this one: Commit, over a period of a few years, half of your assets to a stock index fund and half to a bond index fund. Ignore interim fluctuations in their net asset values. Hold your positions for as long as you live, subject only to infrequent and marginal adjustments as your circumstances change. When there are multiple solutions to a problem, choose the simplest one.

Note, "an infinite number of worse strategies" is not the same as "the best."

I think Bogle's specific portfolio--basically 50% VTI, 50% BND is Boglehead-ish. Taylor Larimore's three fund portfolio is Bogleheadish. William Sharpe's four-fund portfolio (US stocks, international stocks, US bonds, international bonds) is Bogleheadish. All the Vanguard LifeStrategy and Target Retirement funds are Bogleheadish. The portfolio you proposed, VT + GOVT, is Bogleheadish. In my opinion, all are "good enough."

[CyberBob]

After reading your post, the first thing I thought of was Lars Kroijer. He's a reformed hedge-fund manager who recommends to the average person that if they don't have some sort of 'edge' in picking stocks that they should just hold a cheap global stock index fund. And bonds should be government bonds in your local currency.

He wrote a book about it titled Investing Demystified, but he's got a short video series that goes over all the basics. Check them out at https://kroijer.com

[GAAP]

The portfolio that makes no bets would be the global portfolio -- but that would include things you don't like, specifically in the fixed income realm. VT certainly would cover the equity well. As a general concept, invested money flows into and out of the various types of investments and economic locations as the environment changes. The more you remove asset classes from the global portfolio, the more you are actually making bets about where that money will go.

Start with the global bond portfolio, then narrow it down by removing portions if (and only if) you can articulate a rational reason to remove them. It appears that you only like US Treasury issues, so perhaps some of the reasons in Unconventional Success would be a good starting point. However, your phrasing that international bonds "appear" to be unnecessary makes we wonder if you've really determined that. Your comments about some of the Total Bond components make me even less certain that you can actually articulate rational reasons not to include them.

Beyond that, duration is an important consideration here and the choice of GOVT indicates that you want to match the duration of the total US Treasury market. Have you actually determined that, or are you just taking it by default?

The final consideration would be to allocate in the same proportion as the global portfolio. This thread on Bill Sharpe's preferred portfolio discusses that in detail, including a one-fund proposal to achieve it: viewtopic.php?t=207804.

Assuming the fixed-income part of your proposal really meets your needs, and that you use a reasonable AA, it seems reasonable to me.

[Lawyered_]

The global stock market is worth $112 Trillion and the global bond market is worth $135 Trillion. So you should probably hold close to equal weights of both, if not more bonds to hold a global market cap portfolio.

The ETF RSSB is about as close to the ultimate Boglehead portfolio as you can get in a single fund. It holds 100% VT and 100% intermediate treasuries, rebalanced automatically within the ETF if that allocation drifts more than 5%.

[insaner]

but after reading this forum regarding international bonds, it appears they are not necessary.

Wait what? Is this true?

[RJC]

but after reading this forum regarding international bonds, it appears they are not necessary.

Wait what? Is this true?

They seem to be less reliable? I believe US bonds have always been the recommendation here.

[UpperNwGuy]

but after reading this forum regarding international bonds, it appears they are not necessary.

Wait what? Is this true?

They seem to be less reliable? I believe US bonds have always been the recommendation here.

Some have recommended that, but many others are true Vanguardheads and use Vanguard's Target Date and Life Strategy funds, all of which include international bonds.

[arcticpineapplecorp.]

Hello. I have recently soured on the Vanguard Target Date funds and LifeStrategy funds. The stock portions are fine, but after reading this forum regarding international bonds, it appears they are not necessary. (Furthermore, I am not the biggest fan of corporate bonds or mortgage backed securities within the Total Bond Market fund.)

I'm curious, what made you "recently" sour on these all in one funds?

It's important to understand because I've had numerous conversations with people over the years who don't like something in their portfolio (they're focusing on the parts rather than the whole) and yet their overall return with these funds was respectable. Not to mention being properly diversified means "always having to say you're sorry". If you don't have some part you're unhappy about, that's probably a sign you're NOT properly diversified. You you think you want everything going up at the same time, but doesn't that mean everything would go down at the same time too?

It's true that many experts have said that international bonds for a US investor are not really necessary, especially if they're hedged, which they are. The returns therefore of international bonds won't be all that different than US bonds. That being said, having held international bonds would have done better than only holding US bonds since inception:



Source

Didn't expect that, did you? No one does. You just never know what's going to outperform, which is why diversification is your best "bet".

this is not inflation adjusted above, so if you click on that box and rerun the results, you'll get returns that lost slightly to inflation (but again, international did better in inflation adjusted terms than US).

the beauty of the all in one funds (for retirement accounts, not taxable accounts) is they're well diversified and a good all in one solution that automatically rebalances (and in the case of target date, also reduces risk automatically too). There are many portfolios you can find that could be better (though you won't know that in advance, only after the fact) but you could do worse with a simplied lifestrategy or target date retirement fund. Keep it simple.

[TrustTheMarket]

Hello. I have recently soured on the Vanguard Target Date funds and LifeStrategy funds. The stock portions are fine, but after reading this forum regarding international bonds, it appears they are not necessary. (Furthermore, I am not the biggest fan of corporate bonds or mortgage backed securities within the Total Bond Market fund.)

I'm curious, what made you "recently" sour on these all in one funds?

It's important to understand because I've had numerous conversations with people over the years who don't like something in their portfolio (they're focusing on the parts rather than the whole) and yet their overall return with these funds was respectable. Not to mention being properly diversified means "always having to say you're sorry". If you don't have some part you're unhappy about, that's probably a sign you're NOT properly diversified. You you think you want everything going up at the same time, but doesn't that mean everything would go down at the same time too?

It's true that many experts have said that international bonds for a US investor are not really necessary, especially if they're hedged, which they are. The returns therefore of international bonds won't be all that different than US bonds. That being said, having held international bonds would have done better than only holding US bonds since inception:



Source

Didn't expect that, did you? No one does. You just never know what's going to outperform, which is why diversification is your best "bet".

this is not inflation adjusted above, so if you click on that box and rerun the results, you'll get returns that lost slightly to inflation (but again, international did better in inflation adjusted terms than US).

the beauty of the all in one funds (for retirement accounts, not taxable accounts) is they're well diversified and a good all in one solution that automatically rebalances (and in the case of target date, also reduces risk automatically too). There are many portfolios you can find that could be better (though you won't know that in advance, only after the fact) but you could do worse with a simplied lifestrategy or target date retirement fund. Keep it simple.

Thanks for this post! I believe one concern with international bonds is their commitment to repay. With US Treasuries, it’s virtually guaranteed. I believe some Bogleheads have mentioned that you can’t do better than treasuries as far as default risk.

[Orthodoc1.]

From what I remember, John Bogle had a mix of Vanguard Total Stock Market Index and Vanguard Intermediate Bond Index . I also remember a video where he said he invested money for his heirs in Vanguard Balanced Index. He liked simplicity. When he was older, it was a 50% stock/50% bond allocation.