The Three-Fund Portfolio

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ScooterBob
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Re: The Three-Fund Portfolio or a Target Fund?

Post by ScooterBob » Wed May 09, 2018 7:42 pm

Taylor Larimore wrote:
Wed May 09, 2018 8:19 am
This is probably a very rookie question (and if it's misplaced, apologies in advance) - but what is the advantage of going with a three-fund portfolio (US equity/non-US equity/fixed income) vs. a single target fund?
shorekat14:

It is not a "rookie" question because the Three-Fund and a low-cost Target Fund are both excellent portfolios.

The primary advantage of The Three-Fund Portfolio is that it is a more tax-efficient portfolio if the investor has both tax-advantaged accounts (IRA, 401k, etc.) and taxable accounts. The Three-Fund Portfolio allows the investor to place the two tax-efficient funds (Total Stock Market and Total International) in the taxable account (or tax-advantaged account) and place the tax inefficient fund (Total Bond Market) in a tax-advantaged account.

The primary advantage of the Target Fund is its one-fund simplicity and its increased diversification. If all accounts are tax-advantaged, I recommend a simple low-cost target fund designed by company experts.

There is more than one road to Dublin.


Best wishes
Taylor
Taylor- would you also consider VBIAX to fit into the "target fund" scenario? I know it only has U.S. stocks and bonds vs. most target date funds which add international stocks and bonds.

Thanks!

Bob

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Taylor Larimore
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Re: The Three-Fund Portfolio or a Target Fund?

Post by Taylor Larimore » Wed May 09, 2018 7:51 pm

ScooterBob wrote:
Wed May 09, 2018 7:42 pm
Taylor Larimore wrote:
Wed May 09, 2018 8:19 am
This is probably a very rookie question (and if it's misplaced, apologies in advance) - but what is the advantage of going with a three-fund portfolio (US equity/non-US equity/fixed income) vs. a single target fund?
shorekat14:

It is not a "rookie" question because the Three-Fund and a low-cost Target Fund are both excellent portfolios.

The primary advantage of The Three-Fund Portfolio is that it is a more tax-efficient portfolio if the investor has both tax-advantaged accounts (IRA, 401k, etc.) and taxable accounts. The Three-Fund Portfolio allows the investor to place the two tax-efficient funds (Total Stock Market and Total International) in the taxable account (or tax-advantaged account) and place the tax inefficient fund (Total Bond Market) in a tax-advantaged account.

The primary advantage of the Target Fund is its one-fund simplicity and its increased diversification. If all accounts are tax-advantaged, I recommend a simple low-cost target fund designed by company experts.

There is more than one road to Dublin.


Best wishes
Taylor
Taylor- would you also consider VBIAX to fit into the "target fund" scenario? I know it only has U.S. stocks and bonds vs. most target date funds which add international stocks and bonds.

Thanks!

Bob
Bob:

VBIAX (Vanguard Balanced Index Adm) is a balanced (stock & bond) fund not suitable for a taxable account because it contains tax-inefficient taxable bonds.

Target funds are designed as simple stand-alone funds. Don't complicate your portfolio with additional overlapping funds. Read my "Simplicity" link below.

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

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ScooterBob
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Re: The Three-Fund Portfolio or a Target Fund?

Post by ScooterBob » Wed May 09, 2018 8:26 pm

Taylor Larimore wrote:
Wed May 09, 2018 7:51 pm
ScooterBob wrote:
Wed May 09, 2018 7:42 pm
Taylor Larimore wrote:
Wed May 09, 2018 8:19 am
This is probably a very rookie question (and if it's misplaced, apologies in advance) - but what is the advantage of going with a three-fund portfolio (US equity/non-US equity/fixed income) vs. a single target fund?
shorekat14:

It is not a "rookie" question because the Three-Fund and a low-cost Target Fund are both excellent portfolios.

The primary advantage of The Three-Fund Portfolio is that it is a more tax-efficient portfolio if the investor has both tax-advantaged accounts (IRA, 401k, etc.) and taxable accounts. The Three-Fund Portfolio allows the investor to place the two tax-efficient funds (Total Stock Market and Total International) in the taxable account (or tax-advantaged account) and place the tax inefficient fund (Total Bond Market) in a tax-advantaged account.

The primary advantage of the Target Fund is its one-fund simplicity and its increased diversification. If all accounts are tax-advantaged, I recommend a simple low-cost target fund designed by company experts.

There is more than one road to Dublin.


Best wishes
Taylor
Taylor- would you also consider VBIAX to fit into the "target fund" scenario? I know it only has U.S. stocks and bonds vs. most target date funds which add international stocks and bonds.

Thanks!

Bob
Bob:

VBIAX (Vanguard Balanced Index Adm) is a balanced (stock & bond) fund not suitable for a taxable account because it contains tax-inefficient taxable bonds.

Target funds are designed as simple stand-alone funds. Don't complicate your portfolio with additional overlapping funds. Read my "Simplicity" link below.

Best wishes.
Taylor

Taylor- Simplicity is exactly what I am after!! I should have been more clear with my question/thought. VBIAX is what I am using for my entire tax advantaged account. The 60/40 mix of it, along with my very efficient taxable account, are taking me exactly where I want to be allocation-wise overall. My thought of using the balanced fund is precisely for it's simplicity. The ER, as you know, is .07 and it keeps ME from getting in there and screwing things up in the future. I guess I was asking if you think VBIAX is sort of a "2 fund portfolio" that is acceptable. I don't see too many others using or touting this simple fund. Is it because it is "managed" in the sense that it balanced daily?? I like the fact that I get 60% of the entire U.S. stock market and 40% or the entire U.S. bond market... I fall in the category (right or wrong) of not using international at this time in my life. Will that change at some point? Maybe.

Bob

Kennyt7
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Re: The Three-Fund Portfolio

Post by Kennyt7 » Thu May 10, 2018 7:36 pm

you should include small caps and or small cap and large cap value along with reits
small caps historically have done 2% better yearly

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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Thu May 10, 2018 9:05 pm

Kennyt7 wrote:
Thu May 10, 2018 7:36 pm
you should include small caps and or small cap and large cap value along with reits
small caps historically have done 2% better yearly
Kennyt7:

The Three-Fund Portfolio already contains the market weight in small-caps, large-cap value and REITs.

Past performance does not forecast future performance.

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

Cruncher
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Re: The Three-Fund Portfolio

Post by Cruncher » Thu May 10, 2018 11:29 pm

Taylor,

Great thread!

Thanks,

Cruncher

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LadyGeek
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Re: The Three-Fund Portfolio

Post by LadyGeek » Sat May 12, 2018 8:07 am

New member Houston and 6th has a question which I've moved into a new thread: [Three-fund portfolio in taxable account (New York City)]
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abuss368
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Re: The Three-Fund Portfolio

Post by abuss368 » Sun May 13, 2018 8:35 am

Kennyt7 wrote:
Thu May 10, 2018 7:36 pm
you should include small caps and or small cap and large cap value along with reits
small caps historically have done 2% better yearly
Hi Kennyt7 -

One of the many advantages of the Three Fund Portfolio is that it includes the market capitalization weight of all asset classes including small caps, large cap value, and REITs.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

dbr
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Re: The Three-Fund Portfolio

Post by dbr » Sun May 13, 2018 9:26 am

abuss368 wrote:
Sun May 13, 2018 8:35 am
Kennyt7 wrote:
Thu May 10, 2018 7:36 pm
you should include small caps and or small cap and large cap value along with reits
small caps historically have done 2% better yearly
Hi Kennyt7 -

One of the many advantages of the Three Fund Portfolio is that it includes the market capitalization weight of all asset classes including small caps, large cap value, and REITs.

Best.
I would reinforce that because it a confusion that seems to persist. It is often missed that adding small cap, value, or REITS is for the purpose of tilting the asset allocation to concentrate in those assets. There is a reasoning behind that, but one should not be confused as to what is being discussed.

2015
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Re: The Three-Fund Portfolio

Post by 2015 » Sun May 13, 2018 1:37 pm

dbr wrote:
Sun May 13, 2018 9:26 am
abuss368 wrote:
Sun May 13, 2018 8:35 am
Kennyt7 wrote:
Thu May 10, 2018 7:36 pm
you should include small caps and or small cap and large cap value along with reits
small caps historically have done 2% better yearly
Hi Kennyt7 -

One of the many advantages of the Three Fund Portfolio is that it includes the market capitalization weight of all asset classes including small caps, large cap value, and REITs.

Best.
I would reinforce that because it a confusion that seems to persist. It is often missed that adding small cap, value, or REITS is for the purpose of tilting the asset allocation to concentrate in those assets. There is a reasoning behind that, but one should not be confused as to what is being discussed.
I agree. I've probably expressed my gratitude before but I am so thankful to Taylor for emphasizing the 3 fund PF. The simplicity in this approach has extended much further than PF management, to include estate planning, tax planning, ACA planning, and much more. Personally, I couldn't be paid to engage in tilting. For the past six months, I've known someone dying slowly from cancer and they haven't said a single thing about wishing they'd been more clever with their finances or PF.

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Taylor Larimore
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"Simplicity Vs. Schwab’s Robo Portfolio"

Post by Taylor Larimore » Wed Jun 06, 2018 2:34 pm

Bogleheads:

Nearly three years ago, Schwab launched its free robo 16 fund "Intelligent Portfolio". Boglehead advisor Allan Roth compared the performance of the "Intelligent Portfolio" with the equivalent Vanguard Three-Fund Portfolio. The result:
"Since March 27, 2015, the date I bought it, my Schwab statement indicates a very handsome 7.7% annualized return. However, the equivalent three-fund broad index portfolio returned an even more handsome 9.4%
Past performance does not forecast future performance.

Simplicity Vs. Schwab’s Robo Portfolio

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

tmcc
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Re: The Three-Fund Portfolio

Post by tmcc » Sun Jun 17, 2018 6:46 pm

I'm a 4 fund portfolio right now. Total US and developed international are fine. Emerging is a total dog. I suppose a portfolio cant always be up on everything. Still.

75 - Total stock
10 - Int Total stock
5 - Emerging stock
10 - Bond

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Taylor Larimore
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Adding Emerging Markets ?

Post by Taylor Larimore » Sun Jun 17, 2018 8:12 pm

tmcc:

Are you aware that Vanguard Total International Index Fund contains 21% Emerging Market stocks.

Consider merging Emerging Markets Index Fund into Total International Index Fund for two primary reasons: 1) Simplification and 2) Eliminates overlap.

Please read my "Simplicity" link below.

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

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LadyGeek
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Re: The Three-Fund Portfolio

Post by LadyGeek » Thu Jun 21, 2018 3:41 pm

bg5 has a question which I've moved into a new thread. See: [100% stock, uncomfortable with international]
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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MichaelRpdx
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Re: The Three-Fund Portfolio

Post by MichaelRpdx » Thu Jun 21, 2018 8:20 pm

Amazon alerted me to expect my copy of the book on June 29. Yay!

Any of you get alerts?
Be Appropriate && Follow Your Curiosity

TheQuietMan
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Re: The Three-Fund Portfolio

Post by TheQuietMan » Thu Jun 21, 2018 10:12 pm

Yes, Amazon mentioned it would be arriving around June 26th. Looking forward to it...

longinvest
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Re: The Three-Fund Portfolio

Post by longinvest » Fri Jun 22, 2018 6:29 am

I bought the electronic version of Taylor Larimore's new book The Bogleheads' Guide to the Three-Fund Portfolio yesterday.

Thank you, Taylor!

I highly recommend this book to readers of this thread!
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

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Taylor Larimore
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Your Three-Fund Portfolio Comments

Post by Taylor Larimore » Fri Jun 22, 2018 8:30 pm

Bogleheads:

When editing The Bogleheads Guide to the Three-Fund Portfolio the editors decided to use many of your testimonials in this lengthy thread. What you wrote is highlighted in boxes under the title, "Bogleheads Speak Out." Your comments are very convincing and identified with username initials.

I want to thank each of you who took the time to write your favorable comment.

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

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