4 Fund Portfolio vs 3 Fund Portfolio

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ShadesOutWest
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4 Fund Portfolio vs 3 Fund Portfolio

Post by ShadesOutWest »

I am currently using a 4 fund (all Vanguard) approach to getting similar returns to the 3 fund portfolio with less volatility. To do this I use VDIGX (65%), VIGAX (5%), VUSTX (24%) and VSIGX (6%). Putting my portfolio up against VTSMX (60%), VGTSX (20%) and VBMFX (20%), both returned almost 12% per year on average from Jan 2010 to July 2021. The difference being that my 4 fund portfolio had a Standard Deviation (volatility) of 8.54% to the 3 fund portfolio of 12.22%. One argument in support of the 3 fund portfolios larger volatility would be that it is 80% stock. My counter to that is that my 4 fund portfolio allows for less stock, more bond and still get a similar return.

Annual Return for each from Jan 2010 to July 2021:

4 Fund Portfolio: 11.97% Annual
3 Fund Portfolio: 11.81% Annual

I used Portfolio Visualizer to do the backdate comparisons.
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Triple digit golfer
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Re: 4 Fund Portfolio vs 3 Fund Portfolio

Post by Triple digit golfer »

It had a similar return. That doesn't mean it will moving forward. Growth has outperformed value the last decade. I'm guessing that plus the long term treasury fund benefitting from falling interest rates benefitted that portfolio. Two things I would absolutely not count on going forward.
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iceport
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Re: 4 Fund Portfolio vs 3 Fund Portfolio

Post by iceport »

ShadesOutWest,

Do you have a question?
ShadesOutWest wrote: Thu Jul 29, 2021 7:03 pm My counter to that is that my 4 fund portfolio allows for less stock, more bond and still getgot a similar return.
It appears that you used the wrong tense in that part.

ShadesOutWest wrote: Thu Jul 29, 2021 7:03 pm I used Portfolio Visualizer to do the backdate comparisons.
The question I have is: How did you design the portfolio? What was the basis of your choice and proportion of funds? Were they based on back-testing also?

If so, the next question I have is: What will you do if/when the portfolio you designed under-performs the "total market" portfolio? Will you continue to hold it, or will you look for alternatives?

I must say, compared to the three fund portfolio using the US and international total market funds, your portfolio holds the stocks of significantly fewer companies. The largest holding — and only significant equity holding at 65% of the portfolio — only includes 41 companies. It's fairly well distributed among major market sectors, though.

Still, it's probably inevitable that there will be some unnerving tracking error at some point, compared to the three fund portfolio. It's best to be prepared for that.


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pkcrafter
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Re: 4 Fund Portfolio vs 3 Fund Portfolio

Post by pkcrafter »

Welcome, shadesOutWest,

I looks to me like you've made your portfolio based on current/recent performance, and it might prove to be a mistake. Growth and value take turns leading with returns, and I might guess that growth is close to the end of it's run. A better strategy is to hold both in total market. Here is a famous paper by John Bogle on growth vs value--The Telltail Chart

http://johncbogle.com/speeches/JCB_Morningstar_6-02.pdf


Paul
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LadyGeek
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Re: 4 Fund Portfolio vs 3 Fund Portfolio

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general discussion).
pkcrafter wrote: Thu Jul 29, 2021 8:55 pm Welcome, shadesOutWest,

I looks to me like you've made your portfolio based on current/recent performance, and it might prove to be a mistake. Growth and value take turns leading with returns, and I might guess that growth is close to the end of it's run. A better strategy is to hold both in total market. Here is a famous paper by John Bogle on growth vs value--The Telltail Chart

http://johncbogle.com/speeches/JCB_Morningstar_6-02.pdf


Paul
Here's the wiki version: Telltale chart
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Jack FFR1846
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Re: 4 Fund Portfolio vs 3 Fund Portfolio

Post by Jack FFR1846 »

Your portfolio is fine. Don't get all tangled up in overthinking it. Mine isn't different (in theory) from yours, really. Sort of anti-small, anti-value. I approve. The SCV people are going to be running around with their hands in the air, however, so be ready for that.
Bogle: Smart Beta is stupid
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