"Dirt Simple Wins Again. Couch Potato Portfolio"

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Taylor Larimore
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"Dirt Simple Wins Again. Couch Potato Portfolio"

Post by Taylor Larimore » Mon Jan 14, 2019 2:53 pm

Bogleheads:

Scott Burns has been a financial columnist advocating "Simplicity" for more than 40 years. Mr. Burns was a significant influence in my development of The Three-Fund Portfolio.

This is Scott's latest article about the continuing success of his famous Couch Potato Portfolio.

Dirt Simple Wins Again. Couch Potato Portfolio

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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JoMoney
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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by JoMoney » Mon Jan 14, 2019 3:05 pm

...
Let’s hear it for low costs and simplicity
If this were a once only, one-year thing, few would scratch their heads. Diversification across different kinds of assets is one of the central ideas of modern investing. It has been a non-functional idea so far this century. That’s a long time. ...
:sharebeer
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Alexa9
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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by Alexa9 » Mon Jan 14, 2019 3:33 pm

50% Total Stock Market
50% TIPS
His hands off philosophy is good but his allocation could be a little better. One year returns in a bear market are not a good indicator of a solid portfolio.

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steve roy
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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by steve roy » Mon Jan 14, 2019 3:44 pm

I keep coming back to Target Date/LifeStrategy Funds. One stop, broad diversification, and (as Mr. Burns says) dirt simple.

All Seasons
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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by All Seasons » Mon Jan 14, 2019 3:55 pm

100% agreed in principle.

My expression of simple is the Permanent Portfolio though. Different strokes for different folks!
The market portfolio is always a legitimate portfolio.

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by longinvest » Mon Jan 14, 2019 6:21 pm

I'm a fan of both Taylor's Three-Fund Portfolio and Scott Burns' Couch Potato portfolio.

My personal portfolio is a mix of both portfolios. It retains the ideas of 50/50 stocks/bonds (Couch Potato), equal allocation to assets (Couch Potato), and the choice of four assets:
  • Domestic stocks (Three-Fund Portfolio & Couch Potato)
  • International stocks (Three-Fund Portfolio)
  • Nominal bonds (Three-Fund Portfolio)
  • Inflation-indexed bonds (Couch Potato)
The result is a very simple portfolio which I like to describe like this:
  • 25% each of (domestic / international) stocks / (nominal / inflation-indexed) bonds
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic / international) stocks / (nominal / inflation-indexed) bonds | VCN/VXC/VLB/ZRR

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by 2015 » Mon Jan 14, 2019 7:19 pm

The issue with dirt simple is it satisfies neither the ego or the gambling instinct in investing.

I have Taylor and longinvest to thank for a major contribution to the quality of my life. Taylor's simple 3 fund portfolio coupled with longinvest's excellent idea to develop lifelong income streams outside the risk portfolio keep me from having to pay attention to waste my life gambling in the pursuit of chasing returns. I spent the morning reading in a Starbucks watching the rain dance all over my corner of the world. I spent the afternoon melting into the steam rising out of the spa while I looked up into the rain.

I am positive I will never find the "juice" in the moment being obsessed with investing, personal finance, or microeconomics. Finding the juice in as many moments as possible is the reason I made money in the first place.

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by fortyofforty » Mon Jan 14, 2019 7:29 pm

2015 wrote:
Mon Jan 14, 2019 7:19 pm
The issue with dirt simple is it satisfies neither the ego or the gambling instinct in investing.

I have Taylor and longinvest to thank for a major contribution to the quality of my life. Taylor's simple 3 fund portfolio coupled with longinvest's excellent idea to develop lifelong income streams outside the risk portfolio keep me from having to pay attention to waste my life gambling in the pursuit of chasing returns. I spent the morning reading in a Starbucks watching the rain dance all over my corner of the world. I spent the afternoon melting into the steam rising out of the spa while I looked up into the rain.

I am positive I will never find the "juice" in the moment being obsessed with investing, personal finance, or microeconomics. Finding the juice in as many moments as possible is the reason I made money in the first place.
That's probably why it's best to invest the vast majority of your assets in this manner (Couch Potato or Three Fund), while having a bit of fun experimenting with other strategies with a small portion of your money. Not risking your long-term future while making things a bit interesting isn't the worst thing in the world.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

2015
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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by 2015 » Mon Jan 14, 2019 7:49 pm

fortyofforty wrote:
Mon Jan 14, 2019 7:29 pm
2015 wrote:
Mon Jan 14, 2019 7:19 pm
The issue with dirt simple is it satisfies neither the ego or the gambling instinct in investing.

I have Taylor and longinvest to thank for a major contribution to the quality of my life. Taylor's simple 3 fund portfolio coupled with longinvest's excellent idea to develop lifelong income streams outside the risk portfolio keep me from having to pay attention to waste my life gambling in the pursuit of chasing returns. I spent the morning reading in a Starbucks watching the rain dance all over my corner of the world. I spent the afternoon melting into the steam rising out of the spa while I looked up into the rain.

I am positive I will never find the "juice" in the moment being obsessed with investing, personal finance, or microeconomics. Finding the juice in as many moments as possible is the reason I made money in the first place.
That's probably why it's best to invest the vast majority of your assets in this manner (Couch Potato or Three Fund), while having a bit of fun experimenting with other strategies with a small portion of your money. Not risking your long-term future while making things a bit interesting isn't the worst thing in the world.
I can't agree as any narrow focus on the single field of investing comes with an extremely high opportunity cost. That cost in my view is failing to study outside the very narrow fields of investing, personal finance, and microeconomics in order to become more rational; that is, in order to align one's actions more closely with reality.

Having "fun" experimenting as a "student of investing" appeals to the ego and gamblers instinct. The difficult, disciplined, determined thing that will be of far more value would be to spend that money on non-fiction business books learning how the mind and the world works. I recommend starting with the study of mental models and go from there. You will never look at yourself or your decision making abilities the same again.

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by longinvest » Mon Jan 14, 2019 9:10 pm

fortyofforty wrote:
Mon Jan 14, 2019 7:29 pm
That's probably why it's best to invest the vast majority of your assets in this manner (Couch Potato or Three Fund), while having a bit of fun experimenting with other strategies with a small portion of your money. Not risking your long-term future while making things a bit interesting isn't the worst thing in the world.
There lies the danger, though. If I started such an experiment and got lucky, I could start believing that I've discovered a better approach to investing which would probably lead me to change my bigger portfolio at the worst of times (thanks to Murphy's Law).

What I like about the ideas of the Three-Fund Portfolio and the Couch Potato portfolio used to design my portfolio, is that they free me from agonizing about which assets to invest into, and how much to put into each.

It's simple: stocks and bonds. Don't choose: put an equal amount into both. Within stocks, don't choose: put an equal amount into domestic and international. Within bonds, don't choose: put an equal amount into nominal and inflation indexed.

It's a boring portfolio. Every year, the portfolio will underperform the best returning of the fours assets. Fortunately, it will also outperform the worst returning of the fours assets. I'll just get average returns, year after year. But, I've accepted this in advance. The decision was made the day I've adopted the portfolio.

It's also a Lifelong portfolio. I won't change the allocation over time. I find all of the four assets risky; they just have different sets of risks (such as market, currency, inflation, and single issuer). I'm sure that I'm unaware of some risks. The nice thing about keeping an equal weighting is that I'll never have too much of my portfolio exposed to an unanticipated risk that hits one of the assets.

I find my enjoyment elsewhere.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic / international) stocks / (nominal / inflation-indexed) bonds | VCN/VXC/VLB/ZRR

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by fortyofforty » Mon Jan 14, 2019 9:35 pm

longinvest wrote:
Mon Jan 14, 2019 9:10 pm
fortyofforty wrote:
Mon Jan 14, 2019 7:29 pm
That's probably why it's best to invest the vast majority of your assets in this manner (Couch Potato or Three Fund), while having a bit of fun experimenting with other strategies with a small portion of your money. Not risking your long-term future while making things a bit interesting isn't the worst thing in the world.
There lies the danger, though. If I started such an experiment and got lucky, I could start believing that I've discovered a better approach to investing which would probably lead me to change my bigger portfolio at the worst of times (thanks to Murphy's Law).

What I like about the ideas I've retained from the Three-Fund Portfolio and the Couch Potato portfolio to design my portfolio, is that they free me agonizing about which assets to invest into, and how much to put into each.

It's simple: stocks and bonds. Don't choose: put an equal amount into both. Within stocks, don't choose: put an equal amount into domestic and international. Within bonds, don't choose: put an equal amount into nominal and inflation indexed.

It's a boring portfolio. Every year, the portfolio will underperform the best returning of the fours assets. Fortunately, it will also outperform the worst returning of the fours assets. I'll just get average returns, year after year. But, I've accepted this in advance. The decision was made the day I've adopted the portfolio.

It's also a Lifelong portfolio. I won't change the allocation over time. I find all of the four assets risky; they just have different sets of risks (such as market, currency, inflation, and single issuer). I'm sure that I'm unaware of some risks. The nice thing about keeping an equal weighting is that I'll never have too much of my portfolio exposed to the unanticipated risk that hits one of the assets.

I find my enjoyment elsewhere.
I find my enjoyment there, at least in part. I actually enjoy it. And I am in no danger of believing I'm smarter than the average bear. It's always just a small part, with the vast bulk invested smartly, that is to say dumbly which is actually smartly.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by willthrill81 » Mon Jan 14, 2019 10:13 pm

Taylor Larimore wrote:
Mon Jan 14, 2019 2:53 pm
Bogleheads:

Scott Burns has been a financial columnist advocating "Simplicity" for more than 40 years. Mr. Burns was a significant influence in my development of The Three-Fund Portfolio.

This is Scott's latest article about the continuing success of his famous Couch Potato Portfolio.

Dirt Simple Wins Again. Couch Potato Portfolio

Best wishes.
Taylor
In his latest blog post today, Jim at the White Coat Investor stated that you should probably read at least one investment book in order to be a competent DIY investor. However, this is completely unnecessary today. Just buy and hold a three-fund, very low cost portfolio all your life, and you'll probably do better than most of the 'experts'. Investment books may help, but they are far from necessary these days. The need for investment prowess is largely gone today. Most of what we do in this sub-section is argue about how many angels can dance on the head of a pin and the finer points of squeezing out every basis point we can, none of which is necessary to achieve very good and, more importantly, satisfactory investment results.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by fire4fun » Mon Jan 14, 2019 10:23 pm

longinvest wrote:
Mon Jan 14, 2019 6:21 pm
I'm a fan of both Taylor's Three-Fund Portfolio and Scott Burns' Couch Potato portfolio.

My personal portfolio is a mix of both portfolios. It retains the ideas of 50/50 stocks/bonds (Couch Potato), equal allocation to assets (Couch Potato), and the choice of four assets:
  • Domestic stocks (Three-Fund Portfolio & Couch Potato)
  • International stocks (Three-Fund Portfolio)
  • Nominal bonds (Three-Fund Portfolio)
  • Inflation-indexed bonds (Couch Potato)
The result is a very simple portfolio which I like to describe like this:
  • 25% each of (domestic / international) stocks / (nominal / inflation-indexed) bonds
How did that portfolio do for you in 2018? I held 45% of my equity in international and that didn't turn out too well..

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by longinvest » Mon Jan 14, 2019 10:42 pm

fire4fun wrote:
Mon Jan 14, 2019 10:23 pm
longinvest wrote:
Mon Jan 14, 2019 6:21 pm
I'm a fan of both Taylor's Three-Fund Portfolio and Scott Burns' Couch Potato portfolio.

My personal portfolio is a mix of both portfolios. It retains the ideas of 50/50 stocks/bonds (Couch Potato), equal allocation to assets (Couch Potato), and the choice of four assets:
  • Domestic stocks (Three-Fund Portfolio & Couch Potato)
  • International stocks (Three-Fund Portfolio)
  • Nominal bonds (Three-Fund Portfolio)
  • Inflation-indexed bonds (Couch Potato)
The result is a very simple portfolio which I like to describe like this:
  • 25% each of (domestic / international) stocks / (nominal / inflation-indexed) bonds
How did that portfolio do for you in 2018? I held 45% of my equity in international and that didn't turn out too well..
Here's what this portfolio would have returned for a US investor, in 2018. The returns of the individual assets were: domestic stocks (VTI -5.20%), international stocks (VXUS -14.49%), nominal bonds (BND -0.08%), and inflation-indexed bonds (TIP -1.40%). The portfolio would have returned -5.3%, the average of the four assets. The return of the portfolio was lower than the return of nominal bonds (best), and higher than the return of international stocks (worst). This was exactly as I wrote earlier:
longinvest wrote:
Mon Jan 14, 2019 9:10 pm
It's a boring portfolio. Every year, the portfolio will underperform the best returning of the fours assets. Fortunately, it will also outperform the worst returning of the fours assets. I'll just get average returns, year after year. But, I've accepted this in advance. The decision was made the day I've adopted the portfolio.
Disclosure: I live in Canada; the returns of my portfolio and its assets were different. My portfolio underperformed nominal bonds (best) and outperformed domestic stocks (worst) in 2018.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic / international) stocks / (nominal / inflation-indexed) bonds | VCN/VXC/VLB/ZRR

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by nedsaid » Tue Jan 15, 2019 10:20 am

Hard to argue with a three fund portfolio as its returns have been very hard to beat. We have been in a decade where the Value premium seems to have gone away as we have been in a Large Growth stock market. When Large Growth predominates, a three fund portfolio with the "Total" indexes will do better than the Small/Value tilted portfolios. Another possibility is that so much money has gone into the various factor tilts that the premiums have gone away. The evidence suggests that the markets continue to become more and more efficient.
A fool and his money are good for business.

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by pascalwager » Tue Jan 15, 2019 10:58 am

The Scott Burns article isn't about the three-fund portfolio, but is about the two-fund portfolio: total US stocks and a bond fund. The three-fund would be too-complex, too-diversified, and too-under-performing for his taste--or so it appears.

This is a little confusing. Burns used to sell very complex DFA portfolios and also posted nine, free, increasingly complex Lazy Portfolios which included the Couch Potato Portfolio. Now he only writes about the Couch Potato, the simplest of his Lazy Portfolios, although he does say that it's more suitable for older investors rather than younger. Maybe he now values simplicity over diversification? But his Lazy Portfolios are still prominently posted on his former company website, Asset Builder.

After more than two decades, I've finally achieved simplification myself. My stock funds are only total US, total international and a five-fund DFA stock portfolio. The DFA portfolio probably doesn't seem simple, but it's in taxable, doesn't allow internal exchanges/purchases anyway (self-managed), so I just let it ride; and my Google spreadsheet always shows my overall portfolio US/int'l ratio for easy rebalancing between the two total stock funds. I'll probably re-balance annually, or maybe even every three or four years. Anyway, the portfolio operations are simple, and largely due to the power of the spreadsheet.

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by LarryG » Tue Jan 15, 2019 11:41 am

Our local Boglehead group met last Saturday and we discussed our 2018 performance and asset allocation. Most of us experienced a loss of 2-3%.
I lost 2% with a 2 Fund portfolio 65% in bonds.
KISS
LarryG

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by garlandwhizzer » Tue Jan 15, 2019 2:33 pm

willthrill81 wrote:

Just buy and hold a three-fund, very low cost portfolio all your life, and you'll probably do better than most of the 'experts'. Investment books may help, but they are far from necessary these days. The need for investment prowess is largely gone today. Most of what we do in this sub-section is argue about how many angels can dance on the head of a pin and the finer points of squeezing out every basis point we can, none of which is necessary to achieve very good and, more importantly, satisfactory investment results.
1+

Very well put. Increased complexity in a portfolio is usually counterproductive. Today's markets are highly efficient and most "experts" who attempt to beat the market fail. Market portfolios don't sound sexy but their very wide diversification and extremely low cost make them incredibly effective over long periods of time as more and more of the alpha seekers fall by the wayside.

Garland Whizzer

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by 2015 » Tue Jan 15, 2019 2:53 pm

willthrill81 wrote:
Mon Jan 14, 2019 10:13 pm
Taylor Larimore wrote:
Mon Jan 14, 2019 2:53 pm
Bogleheads:

Scott Burns has been a financial columnist advocating "Simplicity" for more than 40 years. Mr. Burns was a significant influence in my development of The Three-Fund Portfolio.

This is Scott's latest article about the continuing success of his famous Couch Potato Portfolio.

Dirt Simple Wins Again. Couch Potato Portfolio

Best wishes.
Taylor
In his latest blog post today, Jim at the White Coat Investor stated that you should probably read at least one investment book in order to be a competent DIY investor. However, this is completely unnecessary today. Just buy and hold a three-fund, very low cost portfolio all your life, and you'll probably do better than most of the 'experts'. Investment books may help, but they are far from necessary these days. The need for investment prowess is largely gone today. Most of what we do in this sub-section is argue about how many angels can dance on the head of a pin and the finer points of squeezing out every basis point we can, none of which is necessary to achieve very good and, more importantly, satisfactory investment results.
Agreed. And I would argue the almost pathological search for basis points based on fear of missing out coupled with modern human maladapted greed behavior inhibits an ability to be happy. I would agree with Daniel Crosby in this interview:

https://abnormalreturns.com/2019/01/14/ ... -investor/
It’s important to understand that we are not wired to ever think we have enough. As I discuss in the book, our perpetual discontent, as painful as it may be for our psyches, is a big part of what has pushed us forward in the face of uncertainty. Since the ability to store wealth with relatively little space and danger is fairly recent, we as a species are not set up for contentment. It’s been evolutionarily adaptive and for that reason, it’s hard to extinguish, even when an individual has amassed great wealth. Understanding that we are prone to moving the goalposts, it becomes important to write down what “enough” looks like, to eschew lifestyle creep at every turn and to focus on what matters most to you outside of wealth creation. Money does an excellent job of buying the absence of misery but does very little to buy happiness.

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by summit » Tue Jan 15, 2019 4:42 pm

I recently read Victor Niederhoffer’s autobiography, The Education of a Speculator. One of the things he said that stuck with me was that despite his wealth and decades in the market, he’s never had a good trading day — even on the days he makes money, he regrets not having made more.

I’d also say that personally when in the past I’ve had play money and picked stocks it is very exciting, but I’ve found I spend all day checking on the market and plotting my next trade. The Boglehead-method is boring, but frees my mental space up for more important things.

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Re: "Dirt Simple Wins Again. Couch Potato Portfolio"

Post by pascalwager » Tue Jan 15, 2019 5:32 pm

willthrill81 wrote:
Mon Jan 14, 2019 10:13 pm
Taylor Larimore wrote:
Mon Jan 14, 2019 2:53 pm
Bogleheads:

Scott Burns has been a financial columnist advocating "Simplicity" for more than 40 years. Mr. Burns was a significant influence in my development of The Three-Fund Portfolio.

This is Scott's latest article about the continuing success of his famous Couch Potato Portfolio.

Dirt Simple Wins Again. Couch Potato Portfolio

Best wishes.
Taylor
In his latest blog post today, Jim at the White Coat Investor stated that you should probably read at least one investment book in order to be a competent DIY investor. However, this is completely unnecessary today. Just buy and hold a three-fund, very low cost portfolio all your life, and you'll probably do better than most of the 'experts'. Investment books may help, but they are far from necessary these days. The need for investment prowess is largely gone today. Most of what we do in this sub-section is argue about how many angels can dance on the head of a pin and the finer points of squeezing out every basis point we can, none of which is necessary to achieve very good and, more importantly, satisfactory investment results.
Very interesting if not compelling--and maybe even revolutionary!

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