Why not a 2 fund portfolio like Bogle suggests

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thesePretzels
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Why not a 2 fund portfolio like Bogle suggests

Post by thesePretzels »

It seems that Mr. Bogle is really in favor of a two fund portfolio, Total US Stocks and Total US Bonds (as seen http://www.cnbc.com/id/102369672).

A few questions:

1 - If the SP 500 has been the standard for market performance for the past 40 years, why do many of the Vanguard funds have a substantial international component (timed retirement accounts, etc)?

2 - Is there a world where a weak US economy exists while the International economy is strong for an extended period of time (decade +)?
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by jackholloway »

thesePretzels wrote:It seems that Mr. Bogle is really in favor of a two fund portfolio, Total US Stocks and Total US Bonds (as seen http://www.cnbc.com/id/102369672).

A few questions:

1 - If the SP 500 has been the standard for market performance for the past 40 years, why do many of the Vanguard funds have a substantial international component (timed retirement accounts, etc)?

2 - Is there a world where a weak US economy exists while the International economy is strong for an extended period of time (decade +)?
When Bogle created the initial S&P fund, international stocks, small and microcap stocks, and international bonds were very expensive to get, while the S&P 500 was not so terrible. Now that they are fairly cheap, diversification would suggest owning some.

That said, there are quite a few investors that do not own any international stocks. I own under 10% of my portfolio, as I am more willing to accept home country bias than foreign government actions. There have been many times where foreign assets have been frozen, and I would rather not be part of that statistic with a substantial chunk of my portfolio.

And yes, there have been many times where one country substantially outperformed another - look at Japan lately; a Japanese investor with a 50% allocation to non-Japanese stocks made out far better than one solely in their home country.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by itstoomuch »

Why not a 2 fund portfoilio?
Ever since I saw JB on WSW, I've asked my self your question. The conclusion-Vanguard has marketing space to fill. Vanguard can get more clients if they more funds. :oops: More clients means more money. :greedy
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Random Walker »

I'm sure you can minimize expense ratios with a two fund portfolio. But the addition of less than perfectly correlated asset classes to the portfolio will smooth the ride of the portfolio. The portfolio's compounded return will come closer to the higher average annual return of the portfolio components. This is a more efficient portfolio with greater return per unit of risk. Of course costs are certain, and all the benefits of multi asset class investing are potential.
The potential benefit of an asset class addition to a portfolio depend on the asset class' expected return, volatility, correlations to other asset class components.

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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Day9 »

Part of me wonders if some people would benefit from a 2 or 3 fund portfolio but they have spent so many hours researching investment strategies that they will feel they wasted their time if they choose something so simple.
I'm just a fan of the person I got my user name from
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by bdpb »

thesePretzels wrote: 1 - If the SP 500 has been the standard for market performance for the past 40 years, why do many of the Vanguard funds have a substantial international component (timed retirement accounts, etc)?
The same question can be asked about ex SP500 US stocks.

Why do US funds invest in Small Caps stocks?

For that matter, why not only invest in the largest 499 SP stocks?
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thesePretzels
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by thesePretzels »

Day9 wrote:Part of me wonders if some people would benefit from a 2 or 3 fund portfolio but they have spent so many hours researching investment strategies that they will feel they wasted their time if they choose something so simple.
+1; but then there would be no need for this great forum and wiki page
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by kolea »

Random Walker wrote:The portfolio's compounded return will come closer to the higher average annual return of the portfolio components. This is a more efficient portfolio with greater return per unit of risk.
That might be true for volatility risk but there are many other risks with x-US equities. Currency exchange, inflation of the denominated currency, political and economic instabilities (particularly within EM, which is the leader of x-US equities at this time), international disputes (think: China and the US constantly on them for human rights issues), etc. There is an impedance mismatch (to borrow an electronics term) when it comes to x-US that simply does not exist with domestic stocks. That is not to say it is a bad investment, it just carries additional factors and risks to consider.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by lack_ey »

TwoByFour wrote:
Random Walker wrote:The portfolio's compounded return will come closer to the higher average annual return of the portfolio components. This is a more efficient portfolio with greater return per unit of risk.
That might be true for volatility risk but there are many other risks with x-US equities. Currency exchange, inflation of the denominated currency, political and economic instabilities (particularly within EM, which is the leader of x-US equities at this time [emphasis added]), international disputes (think: China and the US constantly on them for human rights issues), etc. There is an impedance mismatch (to borrow an electronics term) when it comes to x-US that simply does not exist with domestic stocks. That is not to say it is a bad investment, it just carries additional factors and risks to consider.
I get what you're saying here and see what you mean, especially about additional risks and obviously the big currency issue.

But for the record (just in case anybody coming by here gets the potentially wrong impression), by market cap—and not GDP and overall size of the economies—emerging markets still only make up about 15% of ex-US. By that, I mean a total international fund is 85% developed ex-US. Of course, the exact figure depends on the index used and its definition of emerging. But even within that 15% slice, Vanguard's FTSE-based emerging markets index fund is 14% Taiwan, 11% Brazil, 10% South Africa, 6% Mexico, and so on, for example—so-called "advanced" emerging markets that share some market conditions and are somewhat close in economic state compared with developed markets.

And nobody said you had to invest in emerging markets if you went international. Maybe countries like the U.K., Canada, Switzerland, Germany (if not spooked by recent Eurozone stuff), Japan, South Korea, etc. are to the liking of some. Or just a developed ex-US fund. Of course, these all have their own issues still, as we in the US have our own.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Noobvestor »

Are there periods when international beat domestic? According to charts here, EAFE beat US for 3 out of the last 4 decades (70s, 80s, 00s): http://www.bogleheads.org/wiki/Domestic/International

Bogle also suggests not taking his advice on international: http://www.bogleheads.org/forum/viewtop ... st=1521456
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by JoMoney »

"Why not? .." I Can't really answer that question, I agree with it 100%.
My impression of the people who do invest in international runs the gamut, some believe it's a value play and that it's likely to outperform in the future, some who believe it mitigates risk, some who aren't quite sure - but it seems like sensible advice that a lot of respectable people (some that Mr.Bogle openly admits are smarter than him) suggest so they follow it...
There are some who believe that it creates some sort of synergistic trading scheme which generates more than the sum of the parts because they expect that it will cause their relative account balance to oscillate in such away that "rebalancing" causes them to "buy high sell low".
History has not really made the case for most of the standard arguments for International, especially the past few years... but even in the past, it's almost ironic that when people bring up "look what happened in Japan" they seem to neglect to point out that Japan was, and still is one of the largest pieces in an international portfolio.

To each their own... I think you need to look at it and come to your own determination - and realize that you'll get a lot of guff on this board (and from others) if you don't tow the line that everyone must have at least some international allocation. There's been quite a few fervent media articles complaining about Mr. Bogle's advice.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Random Walker »

TwoByFour,
You are confusing stock markets with economies. All the risks you describe are already priced into the markets. Moreover, it is good to be exposed to different kinds of risk: diversify across risk factors.
Interesting tidbit of info I got from Jeremy Siegel's Future for Investors. Just like value outperforms growth, so do slowly growing GDP countries outperform faster growing GDP countries.

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Re: Why not a 2 fund portfolio like Bogle suggests

Post by retiredjg »

itstoomuch wrote: The conclusion-Vanguard has marketing space to fill. Vanguard can get more clients if they more funds. :oops: More clients means more money. :greedy
This answer suggests that you may not understand how Vanguard is set up. There is no need to make "more money" because there are no owners or stockholders to send any dividends to. The only thing Vanguard does with more money is reduce the costs for all of us who invest there.

It is a mutually owned company - the people who invest there own it, not private individuals or stockholders.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by bamajames »

Retiredjg, so your assumption is that Vanguard executives are not responsible for increased inflows of capital?
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by retiredjg »

bamajames wrote:Retiredjg, so your assumption is that Vanguard executives are not responsible for increased inflows of capital?
I don't understand your question. Try again?
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Crow Hunter »

A 2 fund portfolio makes assumptions that I am not willing to make.

It assumes that:

-Apple will always beat Samsung.

-Ford will always beat Toyota

-GE will always beat Siemens

I don't make that assumption.

The next paradigm shifting product/technology may not come from a US company. It might come from an international company. That is enough, in my opinion, to have some of both available.

It is also a great diversifier in industries. There are just some industries/companies that are no longer represented in the US stock indices. Maybe this is a good thing, maybe it isn't.

Personally, for my own benefit, I hope the US continues to lead the world in innovation and market returns but I am not willing to bet my future on it exclusively.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by retiredjg »

Crow Hunter wrote:A 2 fund portfolio makes assumptions that I am not willing to make.

It assumes that:

-Apple will always beat Samsung.

-Ford will always beat Toyota

-GE will always beat Siemens

I don't make that assumption.

The next paradigm shifting product/technology may not come from a US company. It might come from an international company. That is enough, in my opinion, to have some of both available.

It is also a great diversifier in industries. There are just some industries/companies that are no longer represented in the US stock indices. Maybe this is a good thing, maybe it isn't.

Personally, for my own benefit, I hope the US continues to lead the world in innovation and market returns but I am not willing to bet my future on it exclusively.
Interesting comments. Even though I'm a diversifier with international, I've never thought about it in quite this light. Thanks for sharing it.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by IPer »

thesePretzels wrote:It seems that Mr. Bogle is really in favor of a two fund portfolio, Total US Stocks and Total US Bonds (as seen http://www.cnbc.com/id/102369672).

A few questions:

1 - If the SP 500 has been the standard for market performance for the past 40 years, why do many of the Vanguard funds have a substantial international component (timed retirement accounts, etc)?

2 - Is there a world where a weak US economy exists while the International economy is strong for an extended period of time (decade +)?
Mr Bogle did not say 2 fund portfolio, he said invest in USA because we are an international economy. He also said he prefers less government than
Total Bond has, in another one he says he prefers the Intermediate Bond fund to Total. There are many discussions about this here, you can search for
them and read them.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by abuss368 »

Jack Bogle has long recommended a simple balanced index fund or a two fund portfolio that includes Total Stock and Total Bond index funds.

Keep investing simple.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by IPer »

Jack Bogle invests how he wants to, why shouldn't I? He definitely has more than a 2 fund portfolio.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by knpstr »

Crow Hunter wrote:A 2 fund portfolio makes assumptions that I am not willing to make.

It assumes that:

-Apple will always beat Samsung.

-Ford will always beat Toyota

-GE will always beat Siemens

I don't make that assumption.

The next paradigm shifting product/technology may not come from a US company. It might come from an international company. That is enough, in my opinion, to have some of both available.

It is also a great diversifier in industries. There are just some industries/companies that are no longer represented in the US stock indices. Maybe this is a good thing, maybe it isn't.

Personally, for my own benefit, I hope the US continues to lead the world in innovation and market returns but I am not willing to bet my future on it exclusively.
Isn't it really just betting that the U.S. economy does better than the "International" economy as a whole, over time?

For example:
Facebook will beat ?? over time
The worst-to-best US auto companies will beat the worst-to-best International auto companies over time

"always beat" isn't the case, its more accurately "over time will beat"

However, I do think its reasonable to think the the US as a whole won't forever have the best economy over time as it has had.

Depending on how much one agrees/disagrees with this should be there US/Intl allocation. If you think Intl will outperform the US over time from here on out, you should hold more Intl to US respectively. If you want the total world with out buying the fund, hold the respective % of the US economy to the world economy as your % of US funds to Intl! :happy
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by IPer »

knpstr wrote:
Crow Hunter wrote:A 2 fund portfolio makes assumptions that I am not willing to make.

It assumes that:

-Apple will always beat Samsung.

-Ford will always beat Toyota

-GE will always beat Siemens

I don't make that assumption.

The next paradigm shifting product/technology may not come from a US company. It might come from an international company. That is enough, in my opinion, to have some of both available.

It is also a great diversifier in industries. There are just some industries/companies that are no longer represented in the US stock indices. Maybe this is a good thing, maybe it isn't.

Personally, for my own benefit, I hope the US continues to lead the world in innovation and market returns but I am not willing to bet my future on it exclusively.
Isn't it really just betting that the U.S. economy does better than the "International" economy as a whole, over time?

For example:
Facebook will beat ?? over time
The worst-to-best US auto companies will beat the worst-to-best International auto companies over time

"always beat" isn't the case, its more accurately "over time will beat"

However, I do think its reasonable to think the the US as a whole won't forever have the best economy over time as it has had.

Depending on how much one agrees/disagrees with this should be there US/Intl allocation. If you think Intl will outperform the US over time from here on out, you should hold more Intl to US respectively. If you want the total world with out buying the fund, hold the respective % of the US economy to the world economy as your % of US funds to Intl! :happy
I disagree, USA economy already pulls from International, there is no real necessity to add a strictly International portion, it is doing that that seems like betting to me, the argument goes both ways. I have International because I have Target funds, but I don't get hung up over it.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by mak1277 »

I accept that there's a reasonable chance that international stocks beat US stocks in a normal economic environment. I guess what I wonder (don't have time now to do the research) is what happens in the event of a bad economic environment?

In my head, I'm thinking that if the US economy tanks, you're not going to be protected by investing internationally because the global economy is so tied to the US. But a more global economic tanking will have less of a relative effect if you're only invested in the US. Everyone uses Japan as THE example for not being invested only in one place, but I think that ignores the possibility that a US crash would lead to a crash in international markets as well (where a crash in another company would impact the US, but not to the same degree).

I'm quite sure someone is going to have data to prove that my comments are idiotic...I'm prepared for that. What's written above is not based on research, only what seems logical to me.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by texasdiver »

Jack Bogle does not equal Vanguard

He doesn't even work there anymore.

The very smart people who are putting together Vanguard's target retirement funds made their own call regarding international stocks (and now international bonds). I agree with them on the international stocks. I've yet to be convinced on the bonds but it is a small enough percentage to be pretty meaningless anyway.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by convert949 »

Day9 wrote:Part of me wonders if some people would benefit from a 2 or 3 fund portfolio but they have spent so many hours researching investment strategies that they will feel they wasted their time if they choose something so simple.
My only comment is that the more I read, researched and followed the forum, the simpler I got...
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by PickitPaul »

For those who want some exposure to small companies and international stocks, the Vanguard Total Stock Market Index already has exposure to them, so why get a separate stock index or fund that is just small co. / international ? I don't know.

And same for the Total Bond Market Index - already has exposure to international bonds, as well as everything else.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by thesePretzels »

mak1277 wrote:I accept that there's a reasonable chance that international stocks beat US stocks in a normal economic environment. I guess what I wonder (don't have time now to do the research) is what happens in the event of a bad economic environment?

In my head, I'm thinking that if the US economy tanks, you're not going to be protected by investing internationally because the global economy is so tied to the US. But a more global economic tanking will have less of a relative effect if you're only invested in the US. Everyone uses Japan as THE example for not being invested only in one place, but I think that ignores the possibility that a US crash would lead to a crash in international markets as well (where a crash in another company would impact the US, but not to the same degree).

I'm quite sure someone is going to have data to prove that my comments are idiotic...I'm prepared for that. What's written above is not based on research, only what seems logical to me.
Right. It seems that there are two economies; USA and everyone else. As goes the USA so does the world, but not necessarily the other way around? I'm sure someone much smarter than me will shoot back with a cool chart but it seems being an American invested in the American market is a win-win.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Noobvestor »

JoMoney wrote:History has not really made the case for most of the standard arguments for International, especially the past few years... but even in the past, it's almost ironic that when people bring up "look what happened in Japan" they seem to neglect to point out that Japan was, and still is one of the largest pieces in an international portfolio.
Huh? International beat US 3 out of the last 4 decades - how can you say history has not made a case for it?

And what is 'ironic' about Japan? You're missing the point, but to address yours anyway: it could literally vanish overnight from a global market-weighted portfolio and your equity percentage would only drop 7.6%. Indeed one of the neat things about international investing is that in a global-weighted portfolio any country in the world outside the US could disappear overnight and your portfolio would only drop by 7.6% or less. Russia could crash to zero and you'd lose a fraction of a percent of your portfolio. Just like equities: country risks are highly distributed.

But I digress and that isn't the point at all of bringing up Japan - the point is that a market that was once bigger than the US has shrunk to 7.6% while the US is currently over 50% - in other words, just like stocks in the market, countries rotate rank and betting on just one is risky business. If you're banked entirely on the US the last 25 years you'd have come out OK - if you'd happened to bank entirely on Japan during that time instead you'd be doing horribly.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Twins Fan »

Why not, is right...

I contribute to a pension plan and have no control over how that is set up investment wise. But, in my own investments I am a simple two funder... An S&P 500 fund (mainly because best index available in deferred comp, total stock would work fine) and the intermediate term bond index fund.

I don't do this as a "bet" that either will" beat" anything, and most likely some fund out there will beat either or both any given year. I am comfortable with those funds though and think they will treat me fine over the long run. Will some portfolio set up have a higher return over the long run?... Sure. Do I care?... No. Might holding 20 or 30% international get me an extra "point something" percent over the long run?... Maybe, maybe not. Do I care?... No.

When I look at the Callan chart, it looks to me that the S&P 500 tends to hover right aroundthe middle of it going across (give or take). I'm comfortable with that and like things to be simple.

Personally, I only see a point in holding international at 50/50. And, I would not be comfortable with that. Even if international "beats" the US over the long run, how much is that going to increase overall return of a portfolio where international is only 20 or 30%? Of course, that depends on how much the margin of vitctory was... but likely not a big difference by holding a little international. Or, if the US were to become "the next Japan" how protected is a portfolio where the equity portion is 70 or 80% US? Probably still hurting quite a bit.

Now, I also do not tilt to small or value or.... I also didn't even start saving and investing at all until my late 30's. So, a simple two funder is good enough to give me better returns than my previous technique of nothing. :)

When talk of diversifying starts to turn into what will beat what and higher expected returns... well, diversifying sounds a lot like speculating to me.

In the investing stuff though, I say, to each their own... whatever one is comfortable with.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Noobvestor »

Here's the thing I don't really understand, so maybe some US-only investors can shed some light: what would you do if you lived in another country (by birth, choice, whatever)? There are a few possibilities I can see, but let me know if I missed one:

1) Invest only in that country - at the most, this means investing in less than 10% of the global stock market by capitalization weights.

2) Invest globally - if so, why not do this while living in the United States? Is it US exceptionalism? Something else?

3) Hybrid approach - tilt toward home country but have some international too. But since no market has a huge cap, you'd either have to tilt pretty dramatically or not have much home-country stock.

I could see (3) maybe but would myself do (2) and call it a day, assuming access to low-cost global index funds of course, etc... Bonds might be trickier depending on the currency and its risks/size, but on the equity front, global seems the obvious way to go.

Meanwhile, for US-only American investors: what if the US underperforms for a long time? Is that not a possibility you're considering, or do you just accept the fact that a concentrated bet on one country might have adverse results?
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Crow Hunter »

knpstr wrote:
Crow Hunter wrote:A 2 fund portfolio makes assumptions that I am not willing to make.

It assumes that:

-Apple will always beat Samsung.

-Ford will always beat Toyota

-GE will always beat Siemens

I don't make that assumption.

The next paradigm shifting product/technology may not come from a US company. It might come from an international company. That is enough, in my opinion, to have some of both available.

It is also a great diversifier in industries. There are just some industries/companies that are no longer represented in the US stock indices. Maybe this is a good thing, maybe it isn't.

Personally, for my own benefit, I hope the US continues to lead the world in innovation and market returns but I am not willing to bet my future on it exclusively.
Isn't it really just betting that the U.S. economy does better than the "International" economy as a whole, over time?

For example:
Facebook will beat ?? over time
The worst-to-best US auto companies will beat the worst-to-best International auto companies over time

"always beat" isn't the case, its more accurately "over time will beat"

However, I do think its reasonable to think the the US as a whole won't forever have the best economy over time as it has had.

Depending on how much one agrees/disagrees with this should be there US/Intl allocation. If you think Intl will outperform the US over time from here on out, you should hold more Intl to US respectively. If you want the total world with out buying the fund, hold the respective % of the US economy to the world economy as your % of US funds to Intl! :happy

I don't know if I would say it is a bet on the economies. Just like US companies, ex-US companies have exposure to the US economy. When we prosper, they will prosper.

IMHO the "bet" is that when there is a new "IPhone" or a new "Facebook" or a cure for diabetes or some other unforeseen innovation that it will only occur in the US for a US based company. There is no guarantee that it will be a US company that does it. When the new "IPhone" is released and it "disrupts" the current smart phone paradigm, the billions of $ that Apple currently has will start flowing to this new company the same way that the Nokia/Motorola money started going to Apple.

If you only have investments in Kodak when the next digital camera revolution comes around you may miss out. :D
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Frugal Disciple »

Really I think that saying that "X US company will not always beat Y International company" seems to be flawed logic to me. with the relative small value that each equity has in the overall index, small differences like that will be inconsequential to the overall value of the index. I think that the one thing to pay attention to is where each index is invested. US only VTSAX leans much more toward the Technology and Healthcare industries while VTIAX leans more toward Basic Materials and Financial Services. That will play a much bigger role in how the index performs than Toyota beating GM.

That being said, I tend to follow Bogle's advice and stick with a domestic US index because I feel that it is sufficiently diversified.


Equity sector diversification
_________________________VTIAX________VTSAX
Asof date_______________12/31/2014____12/31/2014
Basic materials_____________8.70%_________3.36%
Communication services_____5.22%_________3.46%
Consumer cyclical__________11.43%_______11.34%
Consumer defensive_________9.56%________8.57%
Energy____________________6.85%________7.65%
Financial services__________22.19%_______14.87%
Health care_______________8.60%________14.34%
Industrials________________11.50%_______11.93%
Real estate________________3.84%________3.78%
Technology________________8.63%_______17.46%
Utilities___________________3.48%________3.25%
**Insert witty and/or insightful quote here**
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msi
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by msi »

You know, it's ok to have a different opinion than Jack Bogle. He'd be the first to admit he doesn't have a crystal ball.

Historically, you got a better risk-adjusted return by adding than 20-40% international. Vanguard and others use 30%.

If you choose not to invest internationally, then make sure the reason isn't just recency bias, like you're looking at the Vanguard Growth of $10k chart and making an investment decision based on very recent performance.
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asset_chaos
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by asset_chaos »

"Why not a 2 fund portfolio?" If someone handed me a sufficiently large sum to invest in taxable accounts, total world and intermediate term municipal bond funds would suite me. Those are two fine funds.
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Twins Fan
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Twins Fan »

Noobvestor wrote:Here's the thing I don't really understand, so maybe some US-only investors can shed some light: what would you do if you lived in another country (by birth, choice, whatever)? There are a few possibilities I can see, but let me know if I missed one:

1) Invest only in that country - at the most, this means investing in less than 10% of the global stock market by capitalization weights.

2) Invest globally - if so, why not do this while living in the United States? Is it US exceptionalism? Something else?

3) Hybrid approach - tilt toward home country but have some international too. But since no market has a huge cap, you'd either have to tilt pretty dramatically or not have much home-country stock.

I could see (3) maybe but would myself do (2) and call it a day, assuming access to low-cost global index funds of course, etc... Bonds might be trickier depending on the currency and its risks/size, but on the equity front, global seems the obvious way to go.
I have thought of this a couple times before and I don't really know. It would depend on what country I lived in, I suppose. I think I would probably do something along the lines of (3) there. Shoot, I may invest in donkeys depending on where I live and what my status was and if I could invest anything at all. :) ... Too many possibilities if one really gets into it.
Noobvestor wrote:Meanwhile, for US-only American investors: what if the US underperforms for a long time? Is that not a possibility you're considering, or do you just accept the fact that a concentrated bet on one country might have adverse results?
Underperforms what.... and who cares. I expect that over a "long time" the US S&P 500 or total stock will go upward and give positive returns. I suspect most others do also, or they wouldn't put 50/70/80% of their equities in US funds. Upward and positive are good enough for me. I honestly don't care about chasing max. returns or trying to eek out a few basis points.

Is my simple two fund approach the key to getting super rich? Nope, probably not. But, I feel like I shouldn't die poor keeping it simple like that.
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stemikger
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by stemikger »

thesePretzels wrote:It seems that Mr. Bogle is really in favor of a two fund portfolio, Total US Stocks and Total US Bonds (as seen http://www.cnbc.com/id/102369672).

A few questions:

1 - If the SP 500 has been the standard for market performance for the past 40 years, why do many of the Vanguard funds have a substantial international component (timed retirement accounts, etc)?

2 - Is there a world where a weak US economy exists while the International economy is strong for an extended period of time (decade +)?
I have owned the two fund portfolio for a large part of the 20 years I have been investing for retirement. Many others endorse it also. Scott Burns calls it the Couch Potato Portfolio with a 50/50 split and for the younger investor with a greater risk tolerance a 75/25 split using the same two funds. I am very happy I stayed with this portfolio and have no regrets whatsoever. My asset allocation is currently 65/35 stocks/bonds.

When I leave my place of employment I will either stay with the two fund portfolio or go all in the Vanguard Balanced Index Fund which mirrors the two fund portfolio. My long term plan is to never be less than 50/50 but I'm guessing 60/40 practially has the same results in the end.

Don't get caught up on whether you need international, you will do perfectly fine with these two funds as long as you keep your cost low. I currently use the Vanguard Institutional Index Fund because my 401K does not have the Total Stock Market Index Fund, but the long term results are practiclaly identical so you can safely go with either one.
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z3r0c00l
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by z3r0c00l »

Why not a two stock domestic portfolio? Just own Apple and GE. They kinda correlate with the entire market sometimes.

How can someone advocate indexing for domestic stocks but not the same thing for the global market?
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by lostdog »

I use a two fund in my wife's 401(k) because the international fund has a high expense ratio. I have the same target date fund in the rest of our retirement accounts. I don't get too caught up with the international allocation.

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beyou
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by beyou »

Not to get political, but I have often said "invest in the US, live in Europe".
Americans have that puritan work ethic, and Europeans have longer vacations and shorter work weeks.
Who do you want working for you ?

Today I would add China to the list along with US, of countries one would want to invest in,
but not live in :happy There are others. Problem is an international fund gets you both China and Greece.

When I say don't live in US or China, I mean only that one must work hard to get by...not criticizing,
just accepting the reality that many get minimal vacation and low pay, right or wrong.
When you buy a stock, you are the owner, and owners are impacted by these societal choices.

That said, I don't follow my own tongue in cheek advice. I live in US and I include an international index fund.
Note the diversification is there but not huge. 80% correlation VTI vs VXUS over many years per this site :
http://www.buyupside.com/calculators/st ... ninput.php
Rysto
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Rysto »

Noobvestor wrote:2) Invest globally - if so, why not do this while living in the United States? Is it US exceptionalism? Something else?
It's American exceptionalism, but most of them will never admit to it.
Clive
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Clive »

Why not just S&P500 and a treasury barbell, 25 year initial, roll when down to 15 years remaining into another 25 year (20 year average), coupled with a 5 year ladder at the short dated end (cash deposits).

Image

Vanguard $400B AUM fund, 0.16% fees = $640,000,000 in fees to fund management/costs.

Same with a 0.05% S&P500 fund expense = $425,000,000 saving (approx.).
Clive
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by Clive »

blevine wrote:but I have often said "invest in the US, live in Europe".
I'm living the dream :)

Clive (from London)
afan
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by afan »

I invest in international for the usual reasons. But the correlation of US and international has become so high that I suspect this accomplishes a lot less than it used to. As noted above, foreign sources account for a large part of the revenue of US firms. So holding only stocks of companies based in the US already exposes you to international economies. By the same token, for many companies based elsewhere the world's biggest economy represents a large share of their revenues. So buying international funds includes a substantial bet on the US economy. To an extent, it is like trying to ensure investments spread across states in the US. Companies operate across these borders and the economies are interrelated.

I still worry that international markets may have risks not fully discounted in the prices. History shows that it is hard to capture risks of extreme events. Wars, revolutions, nationalizations of industries and political manipulation of markets are hard to predict and it seems markets do not adequately reflect those risks.

Investing internationally is also limited in that most of us are restricted to public stocks. The biggest example is China. If I were investing by economy size I should have China as the second largest share of my portfolio. But although the Chinese economy is huge, the Chinese public stock market is not. One could try to compensate by upping the share of portfolio in those Chinese stocks that are available. But then you throw away the wisdom of the market by assuming these stocks are properly priced as a larger share of the world portfolio than they represent.

Many other countries have the same limitation. Large parts of their economies are either not public or not readily available to investors outside that country. This even occurs in well developed countries. Biggest economy in Europe? Germany. Biggest market? UK.

These other economies also include a lot of industries that I may not want. Poorly run, dominated by corrupt political structures or simply going nowhere. How much would I want to invest in subsistence farming?

There is good reason to hold stocks of companies based outside the US but I doubt the results will be dramatically different from holding only US based stocks.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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TheTimeLord
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by TheTimeLord »

thesePretzels wrote:It seems that Mr. Bogle is really in favor of a two fund portfolio, Total US Stocks and Total US Bonds (as seen http://www.cnbc.com/id/102369672).

A few questions:

1 - If the SP 500 has been the standard for market performance for the past 40 years, why do many of the Vanguard funds have a substantial international component (timed retirement accounts, etc)?

2 - Is there a world where a weak US economy exists while the International economy is strong for an extended period of time (decade +)?
In my opinion you are thinking clearly and asking good questions. My guess is people have been seduced by a concept of ever expanding diversification that over the long haul probably doesn't make a real difference in their results. I am of the belief their is a lot of false or meaningless diversification out there. Example is how statistically significant is the diversification difference between holding and S&P 500 index or Total Market? Sure you have a lot more stock, but they the S&P 500 stocks still dominate the Total Market holdings and there is a correlation between the success of the S&P 500 companies and Total Market small caps. You could even argue you might be less diversified since smaller caps tend to be domestically focused while larger tend to be more international. So is the Total Market just a bit more U.S. focused than the S&P 500?
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mongstradamus
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by mongstradamus »

I don't know if this would be considered an 2 fund portfolio, but for me in 401k, there are way too many funds that have ER over 1.25 % so i am just running s&p 500 index fund with an stable value fund. The stable value fund is my "bond allocation".
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beyou
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by beyou »

Clive wrote:
blevine wrote:but I have often said "invest in the US, live in Europe".
I'm living the dream :)

Clive (from London)
Since when is London part of Europe ?
BREXIT anyone ?
SamuraiInvestor
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by SamuraiInvestor »

Your question is very legitimate. And, my analysis would bear out the fact that a 2-fund portfolio beats a 3-fund portfolio in almost every case. Let's take a look at VTSAX, VTIAX, and VBTLX for sake of this argument.

Having just VTSAX and VBTLX would beat having the three this year, over the past three years, over the past five years ... and since inception of the three funds! The only year it paid to have all three funds would have been last year when international stocks boomed.

So, my analysis says 2-fund portfolio (VTSAX and VBTLX) beats a 3-fund portfolio (VTSAX, VTIAX, and VBTLX) every which way but maybe Sunday.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by watchnerd »

msi wrote: Thu Jan 29, 2015 4:01 pm You know, it's ok to have a different opinion than Jack Bogle. He'd be the first to admit he doesn't have a crystal ball.

Historically, you got a better risk-adjusted return by adding than 20-40% international. Vanguard and others use 30%.

If you choose not to invest internationally, then make sure the reason isn't just recency bias, like you're looking at the Vanguard Growth of $10k chart and making an investment decision based on very recent performance.
I prefer to own the market weight international for philosophical reasons and I round the current market weights to 50/50 for simplicity and aesthetic reasons.

I've thought of just going 100% into VT, but the higher ER makes me frowny compared to VTI + VXUS.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
lostdog
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by lostdog »

VT and BNDW is even better. Way more diversification and so so simple.

VT= Vanguard Total World Equity Index
BNDW=Vanguard Total World Bond Index

Someone should write a book about this.
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Re: Why not a 2 fund portfolio like Bogle suggests

Post by watchnerd »

lostdog wrote: Fri Oct 05, 2018 9:36 pm VT and BNDW is even better. Way more diversification and so so simple.

VT= Vanguard Total World Equity Index
BNDW=Vanguard Total World Bond Index

Someone should write a book about this.
No, BNDW is horrible.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
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