The Three-Fund Portfolio

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SWBoarder
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Re: The Three-Fund Portfolio

Post by SWBoarder » Fri Jul 06, 2018 12:46 pm

Thank you.

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CyclingDuo
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Re: The Three-Fund Portfolio

Post by CyclingDuo » Thu Jul 12, 2018 3:09 pm

Taylor Larimore wrote:
Thu Jul 05, 2018 12:55 pm
I was disappointed it did not have a comprehensive historic return grid for a Vanguard 3 fund portfolio at 10%, 20%, & 30% stock/bond split for Vanguard shares.
SWBoarder:

I do not like using past returns because past performance does not forecast future performance. Nevertheless, you can see past returns of The Three-Fund Portfolio, using different stock/bond splits, HERE.

The Three Fund Portfolio on page 61 was 40% Total Stock Market; 20% Total International and 40% Total Bond Market.
Jack Bogle: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."
Best wishes.
Taylor
Looks like quite a few more pension funds could have done better with a simple 60/40 mix of the Three Fund Portfolio the past decade:

https://finance.yahoo.com/news/wall-str ... 58282.html
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Taylor Larimore
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"Taylor's New Book: The Bogleheads' Guide to The Three-Fund Portfolio"

Post by Taylor Larimore » Sat Jul 14, 2018 11:20 pm

Bogleheads:

Mel Lindauer started a topic conversation about my new book, The Bogleheads' Guide to The Three-Fund Portfolio. I wrote the book, in part, because of the popularity of this Conversation. The book contains many of your endorsements for which I am very grateful.

Please make your posts about the book here:

Taylor's New Book: The Bogleheads' Guide to The Three-Fund Portfolio

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Carol88888
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Re: The Three-Fund Portfolio

Post by Carol88888 » Tue Jul 17, 2018 4:14 pm

in the 2015 update it shows that the 60/40 stock to bond allocation had a higher CAGR than the 80/20 allocation. This was quite a surprise to me.

TM90
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Re: The Three-Fund Portfolio

Post by TM90 » Sat Jul 21, 2018 2:12 am

Question, what would happen to a three fund portfolio if inflation picked up? It has no tips, Commodities nor does it have a lot of real estate.

Anyone?

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Re: The Three-Fund Portfolio

Post by abuss368 » Sun Jul 22, 2018 1:12 pm

TM90 wrote:
Sat Jul 21, 2018 2:12 am
Question, what would happen to a three fund portfolio if inflation picked up? It has no tips, Commodities nor does it have a lot of real estate.

Anyone?
In my opinion the Three Fund Portfolio would be fine over time. In terms of Total Bond, older bonds would mature and exit with new bonds at higher rates entering the fund. Stocks generally should stay ahead of the inflation curve. Total Stock and Total International would include all REITs.
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

Banjoman
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Re: The Three-Fund Portfolio

Post by Banjoman » Sun Jul 22, 2018 8:39 pm

I became acquainted with Vanguard Funds a few years ago after getting my earlier financial education reading the Fools in the 90s. I read several of Mr. Bogle's books and some of Paul Merriman's books as well and managed to construct a portfolio close to what the Vanguard Portfolio Watch recommended. After lurking around here for about a year I finally signed up. Since then I have soaked up all the information in this thread and decided my carefully constructed was not simple enough and have now a Three Fund Portfolio in both my Taxable and non-taxable portions of my IRA and my 401K at my present employer. I bought Mr. Larrimore's book and quoted several portions to my wife and to my surprise today she asked me to set her up a Vanguard account and help her transfer her TSA/ 403B plan to a Three Fund Portfolio. Thank you Taylor and Mel... and Mr. Bogle. Fair Winds and Following Seas.

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Re: The Three-Fund Portfolio

Post by gasdoc » Tue Jul 24, 2018 10:12 am

Sorry if I have missed this info earlier in the thread, and I am not certain this is the place to post this question. I have been invested in essentially a three fund portfolio for many years, but I still have some straggling emerging markets and developed markets from the "old days" in my taxable account. Any advice on switching these over in a "less taxing" way. I am 57, and hope to retire in 4.5 years. I am in the top tax bracket now, and probably will not be in retirement. Should I just wait? Are the savings in the 3 fund portfolio worth just taking the tax pain now?

gasdoc

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Taylor Larimore
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"Three-Fund Portfolios Using Fidelity Index Funds"

Post by Taylor Larimore » Tue Jul 24, 2018 11:55 am

Bogleheads:

The many benefits of total market index funds have forced Fidelity (and Schwab) to offer similar funds. The Wall Street Physician has written this article for Fidelity customers:

Three-Fund Portfolios Using Fidelity Index Funds

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

Leesbro63
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Re: The Three-Fund Portfolio

Post by Leesbro63 » Tue Jul 24, 2018 12:05 pm

gasdoc wrote:
Tue Jul 24, 2018 10:12 am
Sorry if I have missed this info earlier in the thread, and I am not certain this is the place to post this question. I have been invested in essentially a three fund portfolio for many years, but I still have some straggling emerging markets and developed markets from the "old days" in my taxable account. Any advice on switching these over in a "less taxing" way. I am 57, and hope to retire in 4.5 years. I am in the top tax bracket now, and probably will not be in retirement. Should I just wait? Are the savings in the 3 fund portfolio worth just taking the tax pain now?

gasdoc
I wouldn't sell. I have a similar situation..."legacy" investments from before I learned how to really do it. If you had single stocks, I might be inclined to suggest you sell. But since you are diversified in index funds, emerging and developed markets will PROBABLY mimic your equities in the 3-Fund portfolio, over time. And perhaps even provide some extra diversification. I think the bottom line is that the guaranteed loss from taking the tax hit is probably greater than any temporary future loss from not having everything neatly in your 3 core funds.

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gasdoc
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Re: The Three-Fund Portfolio

Post by gasdoc » Tue Jul 24, 2018 1:09 pm

Leesbro63 wrote:
Tue Jul 24, 2018 12:05 pm
gasdoc wrote:
Tue Jul 24, 2018 10:12 am
Sorry if I have missed this info earlier in the thread, and I am not certain this is the place to post this question. I have been invested in essentially a three fund portfolio for many years, but I still have some straggling emerging markets and developed markets from the "old days" in my taxable account. Any advice on switching these over in a "less taxing" way. I am 57, and hope to retire in 4.5 years. I am in the top tax bracket now, and probably will not be in retirement. Should I just wait? Are the savings in the 3 fund portfolio worth just taking the tax pain now?

gasdoc
I wouldn't sell. I have a similar situation..."legacy" investments from before I learned how to really do it. If you had single stocks, I might be inclined to suggest you sell. But since you are diversified in index funds, emerging and developed markets will PROBABLY mimic your equities in the 3-Fund portfolio, over time. And perhaps even provide some extra diversification. I think the bottom line is that the guaranteed loss from taking the tax hit is probably greater than any temporary future loss from not having everything neatly in your 3 core funds.
Thanks, Leesbro66. I suspect you are right. (That is why I still have them.)

gasdoc

Java11
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Re: The Three-Fund Portfolio

Post by Java11 » Wed Jul 25, 2018 9:09 am

I'm confused regarding the difference in tax implications for ETF's vs. mutual funds in a taxable account. In the above linked article that Taylor referenced by The Wall Street Physician he states, "Remember that you should use ETFs instead of index funds in a Fidelity taxable account because of the more favorable tax treatment of ETFs. In tax-deferred accounts, you can use either index funds or ETFs, and my preference is to use index funds."

In Taylor Latimores Three Fund Potfolio book he states, "Vanguard ETF's are simply another share class of their mutual funds. They hold the same securities as their corresponding mutual funds and are equally tax efficient. "

I know that one is referencing Fidelity and the other Vanguard, but is there a difference in tax implications?

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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore » Wed Jul 25, 2018 10:55 am

Java11 wrote:
Wed Jul 25, 2018 9:09 am
I'm confused regarding the difference in tax implications for ETF's vs. mutual funds in a taxable account. In the above linked article that Taylor referenced by The Wall Street Physician he states, "Remember that you should use ETFs instead of index funds in a Fidelity taxable account because of the more favorable tax treatment of ETFs. In tax-deferred accounts, you can use either index funds or ETFs, and my preference is to use index funds."

In Taylor Larimores Three Fund Portfolio book he states, "Vanguard ETF's are simply another share class of their mutual funds. They hold the same securities as their corresponding mutual funds and are equally tax efficient. "

I know that one is referencing Fidelity and the other Vanguard, but is there a difference in tax implications?
Java11:

Yes, there is a difference. In most companies ETFs are slightly more tax-efficient than mutual funds. However, Vanguard has a patent which makes their ETFs and mutual funds equally tax-efficient.

Side note: Vanguard investors can exchange their mutual funds for ETFs without fees or tax. However, they cannot exchange from Vanguard ETFs to mutual funds.

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

Java11
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Re: The Three-Fund Portfolio

Post by Java11 » Wed Jul 25, 2018 9:52 pm

Thank you Taylor for your quick an informative response.

jhernan271
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Re: The Three-Fund Portfolio

Post by jhernan271 » Wed Aug 01, 2018 4:24 pm

I have done some searching on the Wikis but to no success. What would the split between US Stock to Int'l stock look like on a 70/30 portfolio?

Could it be:

50% US Stock/20% Int'l ?

thx

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Re: The Three-Fund Portfolio

Post by LadyGeek » Wed Aug 01, 2018 5:31 pm

That's a good question. It's in the wiki, but you need to search for something different: Approximating Vanguard target date funds - the experts have already done the hard work and figured out the ratios to use.

My post here provides some background: Re: I’m still not a fan of international bond funds

Find the Vanguard target date fund that matches a 70/30 asset allocation. Then, match your US / Int'l ratio to match the ratio in that fund.

If you have any questions, just ask.
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.

jhernan271
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Re: The Three-Fund Portfolio

Post by jhernan271 » Wed Aug 01, 2018 8:36 pm

Ok that seems easy enough to match for a 70/30. Thanks for the tips.

Still unclear though is how would you count a single balanced fund's AA%(70/30AA or 80/20AA) against a portfolio's total AA? Ex:If you were to choose either a target date fund or Life Strategy fund for individual accounts, would it's %'s count against the total US Stock % or slightly for a weighted average?

For example here are the actual #'s that I have worked out(%'s are messy due to a rollover that can not be mixed with individual accounts):

Account 1: 457b(76.7% total portfolio)
Total Market US-18.4%
Total Int'l-27.6%
Total Bond Mkt-30.7%

Account 2:Roth IRA(17.8%)

Account 3: Solo 401k(5.5%)
Vanguard Life Strategy Growth Fund (80/20AA) or Target 2030 Fund(70/30AA).
(This is what is still unclear to me as everything else besides the solo 401k is 70/30AA so how would a 80/20AA in the Life Strategy determine overall AA? ) The only reason why I am considering the growth fund over 2030 fund is the allocations don't change over time.

-thx !

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LadyGeek
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Re: The Three-Fund Portfolio

Post by LadyGeek » Wed Aug 01, 2018 8:44 pm

You would have to weight the percentage of each account against the total portfolio. It can be done, but it gets messy.

Rule of thumb: To the nearest 5% is fine. Anything more precise will take too much work for little added benefit.

If you have further questions, bump your thread: Solo 401k w/457 and Roth IRA-How to balance and allocate and we can help you directly.
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.

balbrec2
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Re: The Three-Fund Portfolio

Post by balbrec2 » Thu Aug 09, 2018 1:54 pm

CyclingDuo wrote:
Thu Jul 12, 2018 3:09 pm
Taylor Larimore wrote:
Thu Jul 05, 2018 12:55 pm
I was disappointed it did not have a comprehensive historic return grid for a Vanguard 3 fund portfolio at 10%, 20%, & 30% stock/bond split for Vanguard shares.
SWBoarder:

I do not like using past returns because past performance does not forecast future performance. Nevertheless, you can see past returns of The Three-Fund Portfolio, using different stock/bond splits, HERE.

The Three Fund Portfolio on page 61 was 40% Total Stock Market; 20% Total International and 40% Total Bond Market.
Jack Bogle: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."
Best wishes.
Taylor
Looks like quite a few more pension funds could have done better with a simple 60/40 mix of the Three Fund Portfolio the past decade:

https://finance.yahoo.com/news/wall-str ... 58282.html
I know that the Johnson and Johnson Pension fund allocates as follows,
55% domestic equity
20% international equity
25% US bonds
They do not however use index funds but rather have a diverse group
of fund managers

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CyclingDuo
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Re: The Three-Fund Portfolio

Post by CyclingDuo » Thu Aug 09, 2018 8:53 pm

balbrec2 wrote:
Thu Aug 09, 2018 1:54 pm
CyclingDuo wrote:
Thu Jul 12, 2018 3:09 pm
Taylor Larimore wrote:
Thu Jul 05, 2018 12:55 pm
I was disappointed it did not have a comprehensive historic return grid for a Vanguard 3 fund portfolio at 10%, 20%, & 30% stock/bond split for Vanguard shares.
SWBoarder:

I do not like using past returns because past performance does not forecast future performance. Nevertheless, you can see past returns of The Three-Fund Portfolio, using different stock/bond splits, HERE.

The Three Fund Portfolio on page 61 was 40% Total Stock Market; 20% Total International and 40% Total Bond Market.
Jack Bogle: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."
Best wishes.
Taylor
Looks like quite a few more pension funds could have done better with a simple 60/40 mix of the Three Fund Portfolio the past decade:

https://finance.yahoo.com/news/wall-str ... 58282.html
I know that the Johnson and Johnson Pension fund allocates as follows,
55% domestic equity
20% international equity
25% US bonds
They do not however use index funds but rather have a diverse group
of fund managers
Tough business job to run a pension fund, for sure!

http://www.philly.com/philly/blogs/inq- ... 80307.html

Ben Carlson did an article last year on various college endowment fund returns vs. The Three Fund Portfolio.

http://awealthofcommonsense.com/2017/02 ... ale-model/
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Psychopasta
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Re: The Three-Fund Portfolio/Reinvesting Dividends

Post by Psychopasta » Sun Aug 12, 2018 1:20 pm

Hi Taylor,

Thank you for your excellent book! I have question on Chapter 5, where you say:

If your current securities are in a taxable account, and if they’re profitable...Here are five steps to minimize taxes... Stop reinvesting distributions. Larimore, Taylor. The Bogleheads' Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk (Kindle Locations 1428-1432). Wiley. Kindle Edition.

Can I ask you for a bit more detail on this advice? I've been brought up to think that reinvesting distributions was the tax-efficient as well as auto-pilot thing to do (subject to periodic rebalancing). Just curious on this one piece of advice,

- Pasta

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Taylor Larimore
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Re: The Three-Fund Portfolio/Reinvesting Dividends

Post by Taylor Larimore » Sun Aug 12, 2018 2:16 pm

Psychopasta wrote:
Sun Aug 12, 2018 1:20 pm
Hi Taylor,

Thank you for your excellent book! I have question on Chapter 5, where you say:

If your current securities are in a taxable account, and if they’re profitable...Here are five steps to minimize taxes... Stop reinvesting distributions. Larimore, Taylor. The Bogleheads' Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk (Kindle Locations 1428-1432). Wiley. Kindle Edition.

Can I ask you for a bit more detail on this advice? I've been brought up to think that reinvesting distributions was the tax-efficient as well as auto-pilot thing to do (subject to periodic rebalancing). Just curious on this one piece of advice,
Pasta:

Dividends are taxed whether reinvested or not. Our Boglehead wiki has a good article about reinvesting dividends in a taxable account:

https://www.bogleheads.org/wiki/Reinves ... le_account

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

Psychopasta
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Re: The Three-Fund Portfolio

Post by Psychopasta » Fri Aug 17, 2018 1:19 pm

Thank you!
- Pasta

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LadyGeek
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Re: The Three-Fund Portfolio

Post by LadyGeek » Sun Aug 19, 2018 11:16 am

tomd37 has a question which I've moved into a stand-alone thread: [Thinking about a two-fund portfolio]
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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