Beginner's Guide to Investing Book

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Seahawks754
Posts: 3
Joined: Thu Apr 15, 2021 3:49 pm

Beginner's Guide to Investing Book

Post by Seahawks754 »

I recently purchased and read a book to hep familiarize myself with how to best diversify my portfolio as I start adulthood and begin earning real income. The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

ASSET CLASS SUGGESTED WEIGHT TICKER
us stocks 25% VTI
intl stocks 14% VEA
emerging mkts stocks 14% VWO
us real estate 9% VNQ
foreign real estate 7% VNQI
TIPS 15% TIP
us treasuries 7% TLT or BND
commodities 9% DBC

He also notes that gold can be used in place of some or all commodities, exposure, or pulled from TIPs.

Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Beginner's Guide to Investing Book

Post by retired@50 »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm I recently purchased and read a book to hep familiarize myself with how to best diversify my portfolio as I start adulthood and begin earning real income. The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

ASSET CLASS SUGGESTED WEIGHT TICKER
us stocks 25% VTI
intl stocks 14% VEA
emerging mkts stocks 14% VWO
us real estate 9% VNQ
foreign real estate 7% VNQI
TIPS 15% TIP
us treasuries 7% TLT or BND
commodities 9% DBC

He also notes that gold can be used in place of some or all commodities, exposure, or pulled from TIPs.

Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
Welcome to the forum. :happy

The portfolio above seems a little complicated for a beginner to me.

1. Mr. Frey is over-weighting emerging markets because he's giving as much money to emerging markets as he is to developed international markets. This might work out well, or not, but in reality, emerging markets should be about 1/4th of all international stock investments. These two holdings (VEA and VWO) can be simplified to VXUS.

2. The separate real estate index funds aren't needed either, since the stocks that these funds hold are already contained in VTI and VXUS, so, again, Mr. Frey is over-weighting real estate in the proposed portfolio. This may or may not work out, but at least you'll know what you're getting into if you choose to pursue these ETFs.

3. I don't necessarily think that TIPS are needed for a young investor, which I gather you are based on your post. I'd skip them for now.

4. I'd also skip the commodities fund too. High expense ratio, questionable value for a long term investor. Based on the reading I've done, commodities are the type of investment that you need to buy and sell at the right time. Not great for a long term buy and hold strategy.

5. My recommendation would be to use VTI for US Stock, VXUS for international stock, and BND for bonds.
See link: https://www.bogleheads.org/wiki/Three-fund_portfolio

Regards,
Last edited by retired@50 on Tue May 11, 2021 9:08 pm, edited 1 time in total.
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Beginner's Guide to Investing Book

Post by Johm221122 »

Try the wiki
https://www.bogleheads.org/wiki/Getting_started
Bogleheads® emphasize regular saving, broad diversification, and sticking to one's investment plan regardless of market conditions. We follow a small number of simple investment principles that have been shown over time to produce risk-adjusted returns far greater than those achieved by the average investor
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Beginner's Guide to Investing Book

Post by abuss368 »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm I recently purchased and read a book to hep familiarize myself with how to best diversify my portfolio as I start adulthood and begin earning real income. The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

ASSET CLASS SUGGESTED WEIGHT TICKER
us stocks 25% VTI
intl stocks 14% VEA
emerging mkts stocks 14% VWO
us real estate 9% VNQ
foreign real estate 7% VNQI
TIPS 15% TIP
us treasuries 7% TLT or BND
commodities 9% DBC

He also notes that gold can be used in place of some or all commodities, exposure, or pulled from TIPs.

Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
That portfolio is too complicated. Consider buying John Bogle “The Little Book of Common Sense Investing”. Jack will show you how Total Stock and Total Bond is all that is needed to build a well diversified and low cost portfolio.

“Simplicity is the master key to financial success”!

Tony
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Beginner's Guide to Investing Book

Post by abuss368 »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm I recently purchased and read a book to hep familiarize myself with how to best diversify my portfolio as I start adulthood and begin earning real income. The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

ASSET CLASS SUGGESTED WEIGHT TICKER
us stocks 25% VTI
intl stocks 14% VEA
emerging mkts stocks 14% VWO
us real estate 9% VNQ
foreign real estate 7% VNQI
TIPS 15% TIP
us treasuries 7% TLT or BND
commodities 9% DBC

He also notes that gold can be used in place of some or all commodities, exposure, or pulled from TIPs.

Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
Don’t forget that 8 funds is a lot of complexity and higher cost.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Beginner's Guide to Investing Book

Post by dbr »

A fundamental part of selecting a portfolio is understanding how much risk is involved. That portfolio is about 70/30 in stocks to bonds and is not automatically appropriate for everyone, unless the argument is being made that all investors should invest at the same risk.

I suspect that this recommendation comes from some sort of mean variance optimization algorithm gone mad, but it would help to see what he says about how the recipe was arrived at. If you don't know how it was arrived at I would not think adopting it is a very good idea. Also recommendations like this have a tendency to change rapidly over time as different optimizations pop out with small changes in the current assumptions.

In any case it is not necessary to have that much complexity nor to invest at that exact a specification to have an allocation that serves its purpose to meet your objectives.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Beginner's Guide to Investing Book

Post by dbr »

OK I grabbed a copy of the book on my Kindle unlimited and scanned what you are looking at.

The portfolio is basically one that is recommended by David Swenson (RIP). You could follow up on this by reading Swenson.

Here are the comments in this forum: https://www.google.com/search?sitesearc ... &q=swenson

I would say that on this forum there is discussion more than agreement regarding Swenson's portfolio ideas, but he is a recognized giant in the field. The basis for the whole thing is Modern Portfolio Theory stuff that your author is giving rudiments of in the book. It is basically CAPM and efficient frontier ideas.

Note: Swenson doesn't have gold or commodities, both of which are a discussion. You can read references to the great Swedroe-Ferri commodities debate (a possible figment of my imagination) as well as debates about high yield bonds and REITs on this forum as well:

https://www.google.com/search?sitesearc ... ri+swedroe

Here is a much simpler, easy to implement, and serviceable approach to asset allocation:

https://www.bogleheads.org/wiki/Three-fund_portfolio
David Althaus
Posts: 418
Joined: Wed Feb 14, 2018 7:05 pm

Re: Beginner's Guide to Investing Book

Post by David Althaus »

You may consider:

1. Taylor Larimore's "Boglehead Guide to the Three Fund Portfolio". There are a number of reasons adopting this portfolio will serve you well over your lifetime. At least 20 reasons you may not have thought of; and, will help you get on the course and then stay on course
2. JL Collins' "The Simple Path to Wealth". Walks you through why index investing leads to the superior outcome. Also helps you through asset allocation, asset location, and how to save in an engaging style--long on practical application short on theory.

Both are available on Kindle and Audible.

As already stated the Bogle book is great. Simplicity is the winning strategy.

All the best.
User avatar
mrpotatoheadsays
Posts: 546
Joined: Fri Mar 16, 2012 2:36 pm

Re: Beginner's Guide to Investing Book

Post by mrpotatoheadsays »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm Is this a good place for me to start?
No.

Before you go picking funds, you need an overall strategy (or plan).

Then read: "We're Talking Millions — 12 Simple Ways To Supercharge Your Retirement"
(https://paulmerriman.com/wp-content/upl ... llions.pdf)

The Boglehead approach is simple and effective, but it's based on a marketing strategy. Approaches based on academia (e.g. Nobel laureate Eugene Fama and Kenneth French; also Paul Merriman) are simple to complex but can be more effective.

Anyone book telling you to "invest" in bars of gold should be placed in the trash.
User avatar
RickBoglehead
Posts: 7877
Joined: Wed Feb 14, 2018 8:10 am
Location: In a house

Re: Beginner's Guide to Investing Book

Post by RickBoglehead »

Johm221122 wrote: Tue May 11, 2021 8:53 pm Try the wiki
https://www.bogleheads.org/wiki/Getting_started
Bogleheads® emphasize regular saving, broad diversification, and sticking to one's investment plan regardless of market conditions. We follow a small number of simple investment principles that have been shown over time to produce risk-adjusted returns far greater than those achieved by the average investor
This was suggested to the OP back on April 15th when they first joined and posted.

OP, if you want to understand the strategy of the three fund portfolio, you might want to read the book that describes it, and/or read the Wiki as suggested. The Bogleheads Guide to Investing
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Beginner's Guide to Investing Book

Post by pkcrafter »

mrpotatoheadsays wrote: Wed May 12, 2021 8:42 am
Before you go picking funds, you need an overall strategy (or plan).

Then read: "We're Talking Millions — 12 Simple Ways To Supercharge Your Retirement"
(https://paulmerriman.com/wp-content/upl ... llions.pdf)

The Boglehead approach is simple and effective, but it's based on a marketing strategy.
Approaches based on academia (e.g. Nobel laureate Eugene Fama and Kenneth French; also Paul Merriman) are simple to complex but can be more effective.
Bogleheads is based on a marketing strategy?? Can you please explain that.

I haven't read Merriman's book, but it does sound interesting and I will order it. But I really hesitate taking anyone's advice that begin with buying American loaded funds.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Beginner's Guide to Investing Book

Post by dbr »

Merriman seems to be a strong advocate for small and value tilting. I think it would be better to consider the why's and why not's rather than just jump to a "system."

But he is pretty much Boglehead in general, it seems to me.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Beginner's Guide to Investing Book

Post by retiredjg »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
It is certainly an OK place to start. And recipes like this are very typical of 2012ish. But, it is more complex than needed and it contains a couple of "tilts" (holding extra of an asset class).

Tilting is probably best left to people with more experience than a beginner. For example, if you want to hold a lot of extra emerging markets, you should have a reason why (other than following a recipe) and understand that it may not work out so well.

I'd suggest a simpler model - total US stock index, total international index and some bonds, total bond market if available. This is commonly called the "3 fund portfolio" although it may take more than 3 funds to achieve this type of model. The 3 fund portfolio contains everything in your list except the TIPS and maybe the commodities.
User avatar
JupiterJones
Posts: 3624
Joined: Tue Aug 24, 2010 3:25 pm
Location: Nashville, TN

Re: Beginner's Guide to Investing Book

Post by JupiterJones »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

[...]
If that's what he advises for beginners, his "expert" portfolio must be a real doozy! :D

I'll echo the recommendations to consider just starting out with a simple 3-fund portfolio, or maybe even an equivalent Target Retirement all-in-one fund, based on a mix of stocks and bonds that meets your own risk tolerance.

Books I recommend for beginners (or really anyone):
  • Investing Made Simple -- Mike Piper
  • Investing for Dummies -- Eric Tyson
  • The Smartest Investment Book You'll Ever Read -- Daniel Solin
These are all engagingly-written (i.e., not boooooring) books that don't over-complicate things and (most importantly) give solid advice.
"Stay on target! Stay on target!"
epictetus
Posts: 796
Joined: Sat Mar 10, 2007 5:43 pm

Re: Beginner's Guide to Investing Book

Post by epictetus »

Strongly suggest reading John Bogle's "Little Book of Common Sense Investing."
Focus on what you can control
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: Beginner's Guide to Investing Book

Post by Taylor Larimore »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm I recently purchased and read a book to hep familiarize myself with how to best diversify my portfolio as I start adulthood and begin earning real income. The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

ASSET CLASS SUGGESTED WEIGHT TICKER
us stocks 25% VTI
intl stocks 14% VEA
emerging mkts stocks 14% VWO
us real estate 9% VNQ
foreign real estate 7% VNQI
TIPS 15% TIP
us treasuries 7% TLT or BND
commodities 9% DBC

He also notes that gold can be used in place of some or all commodities, exposure, or pulled from TIPs.

Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
Seahawks754:

Consider the many benefits of The Three-Fund Portfolio. The Bogleheads' book by the same name is available at Amazon.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."

"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Beginner's Guide to Investing Book

Post by abuss368 »

epictetus wrote: Wed May 12, 2021 5:46 pm Strongly suggest reading John Bogle's "Little Book of Common Sense Investing."
One of my FAVORITE Jack Bogle books!

Tony
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
mrpotatoheadsays
Posts: 546
Joined: Fri Mar 16, 2012 2:36 pm

Re: Beginner's Guide to Investing Book

Post by mrpotatoheadsays »

pkcrafter wrote: Wed May 12, 2021 9:46 am
mrpotatoheadsays wrote: Wed May 12, 2021 8:42 am
I haven't read Merriman's book, but it does sound interesting and I will order it. But I really hesitate taking anyone's advice that begin with buying American loaded funds.
The link is a free download.

Paul Merriman does NOT advise buying the American Fund's loaded funds. You must be thinking of Dave Ramsey.

Paul is pro low-cost indexes with portfolio's based on analysis of historical data and studies from academia.
luckyducky99
Posts: 415
Joined: Sun Dec 15, 2019 6:47 pm

Re: Beginner's Guide to Investing Book

Post by luckyducky99 »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm I recently purchased and read a book to hep familiarize myself with how to best diversify my portfolio as I start adulthood and begin earning real income. The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

ASSET CLASS SUGGESTED WEIGHT TICKER
us stocks 25% VTI
intl stocks 14% VEA
emerging mkts stocks 14% VWO
us real estate 9% VNQ
foreign real estate 7% VNQI
TIPS 15% TIP
us treasuries 7% TLT or BND
commodities 9% DBC

He also notes that gold can be used in place of some or all commodities, exposure, or pulled from TIPs.

Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
Looks fine generally. But if you're just getting started, it kind of has a lot going on.

A few things stand out:

* Emerging markets is overweight relative to the rest of international. They are riskier than international and I personally I wouldn't overweight them, but you may chose to. It's just important to understand that and know what you're doing, and why.

* REITS supposedly diversify but this is... controversial. Note that if you're going to hold REITs, they are tax inefficient, so avoid them in taxable if possible.

* If you're young, I'd avoid TIPS because your future earnings should offer enough protection from inflation. A 2/1 TIPS/nominals ratio like you have is fairly dramatic unless you're near or in retirement, I think.

* BND and TLT are not comparable. BND is an intermediate term total bond fund, which includes treasuries but many other things (corporate bonds, mortgages, etc.). TLT is only long term treasuries. You should decide whether you want just treasuries or treasuries, corporates, etc. You should also decide what duration you want your bonds to have. Generally if you're younger you want longer duration, with respect to treasuries anyway.

* Commodities have no expected real return. I wouldn't hold them because you should expect to lose money after costs. Some people like them. Maybe you agree with the case for them that the book lays out. If you do, that's fine, just know what you're getting into.

The important thing is to understand why you're holding what you're holding, to be able to justify it to yourself, and stick with it. For example, if you do this, then if REITS or commodities tank, are you willing to keep putting more money into them?
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Beginner's Guide to Investing Book

Post by pkcrafter »

mrpotatoheadsays wrote: Sat May 22, 2021 1:20 pm
pkcrafter wrote: Wed May 12, 2021 9:46 am
mrpotatoheadsays wrote: Wed May 12, 2021 8:42 am
I haven't read Merriman's book, but it does sound interesting and I will order it. But I really hesitate taking anyone's advice that begin with buying American loaded funds.
The link is a free download.

Paul Merriman does NOT advise buying the American Fund's loaded funds. You must be thinking of Dave Ramsey.

Paul is pro low-cost indexes with portfolio's based on analysis of historical data and studies from academia.
Thanks for commenting on Merriman, and you are correct, he does not recommend American. Maybe I was thinking of Ramsey. At any rate, while looking into this I did find a pretty good reference article by Merriman that I will post.



thanks,

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
User avatar
Peter Foley
Posts: 5533
Joined: Fri Nov 23, 2007 9:34 am
Location: Lake Wobegon

Re: Beginner's Guide to Investing Book

Post by Peter Foley »

I agree with many who have posted that this is not a good way to start.

I would start with the three fund portfolio mentioned. Part of my reasoning is that if you invest in too many segments at the beginning, some of the small segments will not have meaningful holding for years. Think of it in terms of a $500/month contribution to an IRA. After a year you have $6,000. Of the $6,000, 7% or $420 will be in foreign real estate. That is simply not meaningful. Should you decide to add foreign real estate after investing for a couple years it would take less than two monthly contributions to catch up.

Check out the Lazy Portfolios on the Wiki. Take a close look at those with five funds or fewer. I can certainly understand a portfolio with US stocks, foreign stocks, bonds, and inflation protected non equities like TIPS. That's plenty for a start.
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Beginner's Guide to Investing Book

Post by ruralavalon »

Welcome to the forum :) .

Seahawks754 wrote: Tue May 11, 2021 8:37 pmIs this a good place for me to start?
A good place to start is usually your employer's plan (401k, 403b, 457b, TSP) if available. It is usually best to make maximum contributions to any tax-advantaged plan you can use.

When young the most important investing decision you can make is to establish a high rate of contributions. "Savings rate is the most important retirement savings decision, not only because of the math but because of the way it drives your financial mindset and habits. The basic raw stock/bond risk decision comes second. And the finer details--index or active, factors or total market, alts or no alts--are a distant third." Forum discussion on Jonathan Clements’ article "Show me the Money".

Seahawks754 wrote: Tue May 11, 2021 8:37 pm I recently purchased and read a book to hep familiarize myself with how to best diversify my portfolio as I start adulthood and begin earning real income. The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

ASSET CLASS SUGGESTED WEIGHT TICKER
us stocks 25% VTI
intl stocks 14% VEA
emerging mkts stocks 14% VWO
us real estate 9% VNQ
foreign real estate 7% VNQI
TIPS 15% TIP
us treasuries 7% TLT or BND
commodities 9% DBC

He also notes that gold can be used in place of some or all commodities, exposure, or pulled from TIPs.

Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
That's too complicated in my opinion. The UNdiversified specialty funds are a poor way to start in my opinion. I don't think that a TIPS fund is a good idea for a young investor.

In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Ferdinand2014
Posts: 2390
Joined: Mon Dec 17, 2018 5:49 pm

Re: Beginner's Guide to Investing Book

Post by Ferdinand2014 »

Seahawks754 wrote: Tue May 11, 2021 8:37 pm I recently purchased and read a book to hep familiarize myself with how to best diversify my portfolio as I start adulthood and begin earning real income. The book was published in 2013 and is called 'A Beginner's Guide to Investing' by Alex H. Frey. He recommends diversifying as follows:

ASSET CLASS SUGGESTED WEIGHT TICKER
us stocks 25% VTI
intl stocks 14% VEA
emerging mkts stocks 14% VWO
us real estate 9% VNQ
foreign real estate 7% VNQI
TIPS 15% TIP
us treasuries 7% TLT or BND
commodities 9% DBC

He also notes that gold can be used in place of some or all commodities, exposure, or pulled from TIPs.

Is this a good place for me to start? Have things changed much since the publication of this book, or are there better resources out there that anyone can recommend? Thank you in advance to anyone who takes the time to answer. I also apologize for my poor formatting haha.
No it is not a good portfolio to start with. It is too complicated, tilts against market cap weighting and includes commodities which is not an asset that has an expected positive return. If you are just starting out I would suggest a low cost target date fund appropriate for your risk or retirement age.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
User avatar
mrpotatoheadsays
Posts: 546
Joined: Fri Mar 16, 2012 2:36 pm

Re: Beginner's Guide to Investing Book

Post by mrpotatoheadsays »

pkcrafter wrote: Wed May 12, 2021 9:46 am
Bogleheads is based on a marketing strategy?? Can you please explain that.
Sure. Jack Bogle, the focal point of Bogleheads, was originally selling a mutual fund to the public. Simply put, the marketing strategy was that a low-cost, market-based, market-capitalization weighted index fund would outperformed most other funds. At that time, almost all funds were actively managed.

Bogle was lucky; the S&P 500, which his fund was based-on, quickly produced stellar returns. Had Bogle opened the same fund in the year 2000, it likely would have been shutdown. Nonetheless, passive investing won and now the market has thousands of index funds along with many indexes.

Over the years, Bogle's marketing strategy changed. First the S&P 500 was the "market", now it's all US traded stocks via the Total Stock Index (i.e. another fund to sell). What's the difference? Practically nothing. From 1990-2019, the annual return and standard deviation for S&P 500 Index was 10.0% and 17.2%; for the Total Stock Index it was 10.2% and 17.4%. The Total Bond Index is a bond counterpart of the Total Stock Index (i.e. another fund to sell). But, if your financial strategy includes bonds for the purpose of reduced volatility, a diversified portfolio of short and intermediate-term US Treasuries has less volatility. For years, Bogle was against an International component to his recommended stock portfolio, then 10% was OK (i.e. another fund to sell), now it seems to be 30%. Today's Boglehead now parrots Total Stock, Total International, Total Bond and "Stay the Course".

Rick Ferri (prominent Boglehead, author, podcaster) got into the act by allocating 10% of the above stock portfolio to a REIT index. I'm not sure what he's selling; perhaps a book or website clicks. Nonetheless, his strategy has proven to be ho-hum.


Here are some portfolios and returns are for the years 1990-2019 (annual return / standard deviation).

- S&P 500: 10.0% / 17.2%
- US Total Market: 10.2% / 17.4%

- Bogleheads 70/30 US Total/International Total: 8.8% / 17.1%
- Ferri 60/30/10 US Total/International Total/REITs: 8.9% / 16.4%

- Fama/French 70/30 US Total/US Small-Cap Value: 11.4% / 17.8%
- Fama/French 70/30 Global Total/US Small-Cap Value: 9.5% / 17.6%
- Merriman 50/50 US Large-Cap Value/US Small-Cap Value: 12.3% / 20.6%
- Merriman 25/25/25/25 S&P500/US Large-Cap Value/US Small-Cap/US Small-Cap Value: 11.8% / 18.9%
Post Reply