my 4 fund portfolio - does this make sense?

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candyfloss
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my 4 fund portfolio - does this make sense?

Post by candyfloss »

I am planning to invest fixed amount to my taxable account each month ($1000/month). I am already investing in 100% US market (VTI) in my Roth IRA (FYI, all my 401K is in 2060 target fund) so I wanted to diversify this 4 fund portfolio to US and international stocks. I also don't want to allocate too much to bonds for now so will keep the percentage very low. Here's my plan:

VTI (Vanguard total stock market index fund), 45%
VXUS (Vanguard total international stock index fund), 33%
VWO (Vanguard emerging markets stock index fund), 17%
BND (Vanguard total bond market index fund), 5%

VXUS and VWO percentages are 33% and 17% because I want the developed and emerging markets to be roughly 5:5. Bogleheads experts, please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind. Thanks in advance for any of the suggestions!
Last edited by candyfloss on Fri Oct 15, 2021 9:55 am, edited 2 times in total.
pizzy
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Re: my 4 fund portfolio - does this make sense?

Post by pizzy »

candyfloss wrote: Fri Oct 15, 2021 8:45 am VXUS and VWO percentages are 33% and 17% because I want the developed and emerging markets to be roughly 5:5
What does 5:5 mean?
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Re: my 4 fund portfolio - does this make sense?

Post by vanbogle59 »

candyfloss wrote: Fri Oct 15, 2021 8:45 am please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind.
It makes perfect sense for a certain risk profile. Is that what you want?
Consider how this portfolio might have performed in .com bubble or 2008 or coronavirus. You OK with that?

Lots of people go 100% equities. Not me. :D :beer
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Re: my 4 fund portfolio - does this make sense?

Post by retiredjg »

candyfloss wrote: Fri Oct 15, 2021 8:45 am I am planning to invest fixed amount to my taxable account each month ($1000/month). I am already investing in 100% US market (VTI) in my Roth IRA (FYI, all my 401K is in 2060 target fund) so I wanted to diversify this 4 fund portfolio to US and international stocks. I also don't want to allocate too much to bonds for now so will keep the percentage very low. Here's my plan:

VTI 50%
VXUS 33%
VWO 17%
BND 5%

VXUS and VWO percentages are 33% and 17% because I want the developed and emerging markets to be roughly 5:5. Bogleheads experts, please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind. Thanks in advance for any of the suggestions!
It is always helpful to put in fund names so that people don't have to look them up. :happy

Holding a taxable bond in a taxable account is not always your best idea. A 5% allocation is not a fatal flaw by any means but if you are in a higher tax bracket, you might consider a tax-exempt bond fund instead.

That is a significant overweight toward emerging markets which I don't consider a great idea but perhaps some do. Balanced out with your other accounts, it may not matter so much.
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Re: my 4 fund portfolio - does this make sense?

Post by 3funder »

It's fine, except it adds up to 105%.
Last edited by 3funder on Fri Oct 15, 2021 12:47 pm, edited 1 time in total.
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Re: my 4 fund portfolio - does this make sense?

Post by retired@50 »

candyfloss wrote: Fri Oct 15, 2021 8:45 am Bogleheads experts, please let me know if this portfolio makes sense at all
No, for starters, the percentages add up to 105%

Instead of using 33% VXUS and 17% VWO...

Why not just use equal parts of VEA and VWO, if you want to maintain an equal amount of developed markets and emerging markets stock exposure.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: my 4 fund portfolio - does this make sense?

Post by Carousel »

candyfloss wrote: Fri Oct 15, 2021 8:45 am VTI 50%
VXUS 33%
VWO 17%
BND 5%

... please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind.
Last edited by Carousel on Tue Jan 11, 2022 8:39 am, edited 1 time in total.
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Re: my 4 fund portfolio - does this make sense?

Post by vanbogle59 »

retired@50 wrote: Fri Oct 15, 2021 9:44 am
No, for starters, the percentages add up to 105%
That's obviously a feature, not a bug.
I've been trying to get my portfolio to do that for years.
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Re: my 4 fund portfolio - does this make sense?

Post by candyfloss »

retired@50 wrote: Fri Oct 15, 2021 9:44 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am Bogleheads experts, please let me know if this portfolio makes sense at all
No, for starters, the percentages add up to 105%

Instead of using 33% VXUS and 17% VWO...

Why not just use equal parts of VEA and VWO, if you want to maintain an equal amount of developed markets and emerging markets stock exposure.

Regards,
Ha... thanks for pointing that out. VTI is actually 45%, I had a brain fart and thought that was 50%. Yeah equal amount of VEA and VWO will be easier, portfolio visualizer gives me very very similar performance of these two scenarios, so I might go with easier one. Thanks for your suggestion!
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Re: my 4 fund portfolio - does this make sense?

Post by candyfloss »

Carousel wrote: Fri Oct 15, 2021 9:45 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am VTI 50%
VXUS 33%
VWO 17%
BND 5%

... please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind.
Well, it totals 105%...
:oops: :oops: :oops:

I'm getting so stupid in the morning without coffee...
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Re: my 4 fund portfolio - does this make sense?

Post by retired@50 »

candyfloss wrote: Fri Oct 15, 2021 9:59 am
retired@50 wrote: Fri Oct 15, 2021 9:44 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am Bogleheads experts, please let me know if this portfolio makes sense at all
No, for starters, the percentages add up to 105%

Instead of using 33% VXUS and 17% VWO...

Why not just use equal parts of VEA and VWO, if you want to maintain an equal amount of developed markets and emerging markets stock exposure.

Regards,
Ha... thanks for pointing that out. VTI is actually 45%, I had a brain fart and thought that was 50%. Yeah equal amount of VEA and VWO will be easier, portfolio visualizer gives me very very similar performance of these two scenarios, so I might go with easier one. Thanks for your suggestion!
Using VEA / VWO in equal parts also has a small cost savings in the expense ratio when compared to VXUS / VWO in a 33:17 mix.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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candyfloss
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Re: my 4 fund portfolio - does this make sense?

Post by candyfloss »

retiredjg wrote: Fri Oct 15, 2021 9:37 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am I am planning to invest fixed amount to my taxable account each month ($1000/month). I am already investing in 100% US market (VTI) in my Roth IRA (FYI, all my 401K is in 2060 target fund) so I wanted to diversify this 4 fund portfolio to US and international stocks. I also don't want to allocate too much to bonds for now so will keep the percentage very low. Here's my plan:

VTI 50%
VXUS 33%
VWO 17%
BND 5%

VXUS and VWO percentages are 33% and 17% because I want the developed and emerging markets to be roughly 5:5. Bogleheads experts, please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind. Thanks in advance for any of the suggestions!
It is always helpful to put in fund names so that people don't have to look them up. :happy

Holding a taxable bond in a taxable account is not always your best idea. A 5% allocation is not a fatal flaw by any means but if you are in a higher tax bracket, you might consider a tax-exempt bond fund instead.

That is a significant overweight toward emerging markets which I don't consider a great idea but perhaps some do. Balanced out with your other accounts, it may not matter so much.
Thanks for reminding, I added fund names :happy :happy :happy

Do you think it's better to add bond to Roth or just replace BND with some tax-exempt bond? Is there any tax-exempt bond you would recommend?
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Re: my 4 fund portfolio - does this make sense?

Post by candyfloss »

retired@50 wrote: Fri Oct 15, 2021 10:02 am
candyfloss wrote: Fri Oct 15, 2021 9:59 am
retired@50 wrote: Fri Oct 15, 2021 9:44 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am Bogleheads experts, please let me know if this portfolio makes sense at all
No, for starters, the percentages add up to 105%

Instead of using 33% VXUS and 17% VWO...

Why not just use equal parts of VEA and VWO, if you want to maintain an equal amount of developed markets and emerging markets stock exposure.

Regards,
Ha... thanks for pointing that out. VTI is actually 45%, I had a brain fart and thought that was 50%. Yeah equal amount of VEA and VWO will be easier, portfolio visualizer gives me very very similar performance of these two scenarios, so I might go with easier one. Thanks for your suggestion!
Using VEA / VWO in equal parts also has a small cost savings in the expense ratio when compared to VXUS / VWO in a 33:17 mix.

Regards,
Oh that's even better. Thanks!

However, this still gives me a correlation score of 0.98 to US market... If I want to decrease the correlation a little more, what should I do? Change the ratio or adding a fifth fund?? What would you recommend? Thanks!!!
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Re: my 4 fund portfolio - does this make sense?

Post by retiredjg »

candyfloss wrote: Fri Oct 15, 2021 10:03 am Do you think it's better to add bond to Roth or just replace BND with some tax-exempt bond? Is there any tax-exempt bond you would recommend?
What is your tax bracket and state?

A small allocation to BND in taxable is not going to do much harm. A small allocation to bonds in Roth is not going to do much harm. Or you can increase the bond percentage in your target fund.
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Re: my 4 fund portfolio - does this make sense?

Post by candyfloss »

vanbogle59 wrote: Fri Oct 15, 2021 9:36 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind.
It makes perfect sense for a certain risk profile. Is that what you want?
Consider how this portfolio might have performed in .com bubble or 2008 or coronavirus. You OK with that?

Lots of people go 100% equities. Not me. :D :beer
It's a hard question to answer. I definitely don't want too much risk because I want to use this money for my house downpayment (in the future) so it's not for retirement or long-term investment. But, I also don't understand bonds too well and I heard bad things about bonds now so am a little hesitant to add a lot of bond to the portfolio. What would you recommend in my situation?
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Re: my 4 fund portfolio - does this make sense?

Post by vanbogle59 »

candyfloss wrote: Fri Oct 15, 2021 10:14 am
vanbogle59 wrote: Fri Oct 15, 2021 9:36 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind.
It makes perfect sense for a certain risk profile. Is that what you want?
Consider how this portfolio might have performed in .com bubble or 2008 or coronavirus. You OK with that?

Lots of people go 100% equities. Not me. :D :beer
It's a hard question to answer. I definitely don't want too much risk because I want to use this money for my house downpayment (in the future) so it's not for retirement or long-term investment. But, I also don't understand bonds too well and I heard bad things about bonds now so am a little hesitant to add a lot of bond to the portfolio. What would you recommend in my situation?
Saving for a house down payment?
"near" future: CDs.
"indiscriminate" future, just whenever you accumulate the $$$ you buy the house: what you have isn't stupid.
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Re: my 4 fund portfolio - does this make sense?

Post by candyfloss »

retiredjg wrote: Fri Oct 15, 2021 10:12 am
candyfloss wrote: Fri Oct 15, 2021 10:03 am Do you think it's better to add bond to Roth or just replace BND with some tax-exempt bond? Is there any tax-exempt bond you would recommend?
What is your tax bracket and state?

A small allocation to BND in taxable is not going to do much harm. A small allocation to bonds in Roth is not going to do much harm. Or you can increase the bond percentage in your target fund.

We are married filling jointly, last year was 22% bracket and this year probably will fall in 24%, and we are living in Wisconsin.
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Re: my 4 fund portfolio - does this make sense?

Post by humblecoder »

candyfloss wrote: Fri Oct 15, 2021 8:45 am I am planning to invest fixed amount to my taxable account each month ($1000/month). I am already investing in 100% US market (VTI) in my Roth IRA (FYI, all my 401K is in 2060 target fund) so I wanted to diversify this 4 fund portfolio to US and international stocks. I also don't want to allocate too much to bonds for now so will keep the percentage very low. Here's my plan:

VTI (Vanguard total stock market index fund), 45%
VXUS (Vanguard total international stock index fund), 33%
VWO (Vanguard emerging markets stock index fund), 17%
BND (Vanguard total bond market index fund), 5%

VXUS and VWO percentages are 33% and 17% because I want the developed and emerging markets to be roughly 5:5. Bogleheads experts, please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind. Thanks in advance for any of the suggestions!
VXUS is already approximately 25% emerging markets. So by doing this you have 50% of your international is in developed markets and 50% is in emerging markets. I assume that's what you mean by 5:5. Personally, I don't see any need to overweight emerging markets. This seems to go against the general BH principles. Is there a reason why you are overweighing Emerging Markets?
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Re: my 4 fund portfolio - does this make sense?

Post by candyfloss »

humblecoder wrote: Fri Oct 15, 2021 10:22 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am I am planning to invest fixed amount to my taxable account each month ($1000/month). I am already investing in 100% US market (VTI) in my Roth IRA (FYI, all my 401K is in 2060 target fund) so I wanted to diversify this 4 fund portfolio to US and international stocks. I also don't want to allocate too much to bonds for now so will keep the percentage very low. Here's my plan:

VTI (Vanguard total stock market index fund), 45%
VXUS (Vanguard total international stock index fund), 33%
VWO (Vanguard emerging markets stock index fund), 17%
BND (Vanguard total bond market index fund), 5%

VXUS and VWO percentages are 33% and 17% because I want the developed and emerging markets to be roughly 5:5. Bogleheads experts, please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind. Thanks in advance for any of the suggestions!
VXUS is already approximately 25% emerging markets. So by doing this you have 50% of your international is in developed markets and 50% is in emerging markets. I assume that's what you mean by 5:5. Personally, I don't see any need to overweight emerging markets. This seems to go against the general BH principles. Is there a reason why you are overweighing Emerging Markets?
Yes you are absolutely right about the 5:5. I think I made it sound a little confusing.

My initial intention of overweighing emerging market was to decorrelate the portfolio with US market, and to my short knowledge (please correct me if I'm wrong), developed market tends to correlate more with US market. So I hoped if US market not performing well then maybe emerging market would balance that out a little bit. However, the 4 fund mix still gives me pretty high correlation with the US market... What would be your recommended ratio of US: developed:emerging stocks:bonds? Or please let me know if you think other fund mix is better. I am a beginner in investment, so any suggestion would be much appreciated!
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Re: my 4 fund portfolio - does this make sense?

Post by calmaniac »

Looks like a reasonable asset allocation for long-term retirement account.

Saving for a house downpayment in the near future, not so much. If the market tanks for 3-4 years are you going to put off buying a house while you wait for the market to recover? Need something more stable for near-term use, like CDs or...
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Re: my 4 fund portfolio - does this make sense?

Post by candyfloss »

calmaniac wrote: Fri Oct 15, 2021 10:34 am Looks like a reasonable asset allocation for long-term retirement account.

Saving for a house downpayment in the near future, not so much. If the market tanks for 3-4 years are you going to put off buying a house while you wait for the market to recover? Need something more stable for near-term use, like CDs or...
It wouldn't be in "near" future but more of 3-6 year future I think. With the fear of inflation and such low interest rate, I don't want to put all my money in the savings account or CDs... I have 60K emergency fund in savings and I don't add my extra $1K/month to that. Should I just go with traditional and simple 60/40 or all-weather (risk parity) portfolio? Thanks for your advice!!!
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Re: my 4 fund portfolio - does this make sense?

Post by Outer Marker »

I see no reason to overweight EM, and would not recommend such an anemic fixed income allocation. Noted economist Benjamin Graham recommended a minimum 25% bond allocation, and in fact, a 70/30 portfolio has given up less than a single percentage point to 100/0 over the last century. https://investor.vanguard.com/investing ... allocation

Remember too that a bet on EM is a bet against the largest and most successful corporations in the world.

I'd go with something like:

50% TSM
25% TISM
25% Fixed income (Ibonds, Stable Value, and/or short, high quality bonds in this rate environment).
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Re: my 4 fund portfolio - does this make sense?

Post by humblecoder »

candyfloss wrote: Fri Oct 15, 2021 10:32 am My initial intention of overweighing emerging market was to decorrelate the portfolio with US market, and to my short knowledge (please correct me if I'm wrong), developed market tends to correlate more with US market. So I hoped if US market not performing well then maybe emerging market would balance that out a little bit. However, the 4 fund mix still gives me pretty high correlation with the US market... What would be your recommended ratio of US: developed:emerging stocks:bonds? Or please let me know if you think other fund mix is better. I am a beginner in investment, so any suggestion would be much appreciated!
I don't like to give specific advise on asset allocation, since that depends upon your risk tolerance, time horizon, etc

Just know that by overweighting emerging markets as you are doing, you are making your portfolio riskier. Perhaps over the long haul (20+ years) that risk will pay off. Or not. That's why it is called "risk" :-)

It looks like you have a high risk tolerance already since you are 95% stocks and 5% bonds, so maybe you are okay with rolling the dice so to speak.
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Re: my 4 fund portfolio - does this make sense?

Post by iceport »

humblecoder wrote: Fri Oct 15, 2021 10:22 am Personally, I don't see any need to overweight emerging markets. This seems to go against the general BH principles. Is there a reason why you are overweighing Emerging Markets?
You might be surprised to know that none other than Jack Bogle has been known to advocate a 50/50 split between developed and emerging markets. Granted, that's from a starting place of a maximum 20% of equities in international, so the volatility of EM would be confined to 10% of equities.

Still, there must have been something Jack Bogle saw in EM to recommend such an overweight.
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Re: my 4 fund portfolio - does this make sense?

Post by pizzy »

candyfloss wrote: Fri Oct 15, 2021 10:32 am
humblecoder wrote: Fri Oct 15, 2021 10:22 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am I am planning to invest fixed amount to my taxable account each month ($1000/month). I am already investing in 100% US market (VTI) in my Roth IRA (FYI, all my 401K is in 2060 target fund) so I wanted to diversify this 4 fund portfolio to US and international stocks. I also don't want to allocate too much to bonds for now so will keep the percentage very low. Here's my plan:

VTI (Vanguard total stock market index fund), 45%
VXUS (Vanguard total international stock index fund), 33%
VWO (Vanguard emerging markets stock index fund), 17%
BND (Vanguard total bond market index fund), 5%

VXUS and VWO percentages are 33% and 17% because I want the developed and emerging markets to be roughly 5:5. Bogleheads experts, please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind. Thanks in advance for any of the suggestions!
VXUS is already approximately 25% emerging markets. So by doing this you have 50% of your international is in developed markets and 50% is in emerging markets. I assume that's what you mean by 5:5. Personally, I don't see any need to overweight emerging markets. This seems to go against the general BH principles. Is there a reason why you are overweighing Emerging Markets?
Yes you are absolutely right about the 5:5. I think I made it sound a little confusing.

My initial intention of overweighing emerging market was to decorrelate the portfolio with US market, and to my short knowledge (please correct me if I'm wrong), developed market tends to correlate more with US market. So I hoped if US market not performing well then maybe emerging market would balance that out a little bit. However, the 4 fund mix still gives me pretty high correlation with the US market... What would be your recommended ratio of US: developed:emerging stocks:bonds? Or please let me know if you think other fund mix is better. I am a beginner in investment, so any suggestion would be much appreciated!
if you want to stick with 5% bonds, then 95% VT and 5% BND
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Re: my 4 fund portfolio - does this make sense?

Post by BL »

Check into I-bonds for very good rates right now for fixed income based on CPI-U. treasurydirect.gov online only.
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Re: my 4 fund portfolio - does this make sense?

Post by nisiprius »

candyfloss wrote: Fri Oct 15, 2021 8:45 am VTI (Vanguard total stock market index fund), 45%
VXUS (Vanguard total international stock index fund), 33%
VWO (Vanguard emerging markets stock index fund), 17%
BND (Vanguard total bond market index fund), 5%
candyfloss wrote: Fri Oct 15, 2021 10:08 am However, this still gives me a correlation score of 0.98 to US market... If I want to decrease the correlation a little more, what should I do?
1) I think you're misunderstanding something. PortfolioVisualizer makes it confusing by calculating that number.

You probably don't care about the correlation of your whole portfolio to the US market. The idea behind low correlations is supposed to be that within your whole portfolio, you are holding assets with low correlations to each other. And since most typical portfolios are getting most of their risk from stocks, you are looking add other asset classes with low correlation to the US stock market.

I personally think this concern with correlations is wildly overhyped in terms of what to expect from it, but in any case you should understand the theory. Now, the ideal situation would be if you knew of several different asset classes that were certain to have, going forward, somewhat comparable overall risk and return, yet low correlation with each other. If you mixed them, you would get some risk reduction in the portfolio as a whole, from the different parts not moving in lockstep. The math works, but the conditions aren't usually met--the asset classes with low correlations with stocks usually have low return, so they drag down return at the same time as they are easing total portfolio risk. Low correlations are not guaranteed to stay low, and in fact correlations between asset classes are often very unstable over time.

But in any case if you put 95% of your portfolio into stocks you are going to have high correlation with the stock market. And there is no reason to want to avoid that unless you are holding stocks in some other account as well.

2) It wouldn't suit me at all, but, absolutely, it "makes sense..." in the following way. Your proposed portfolio is well within the range of things a sane person could do while saying they were "inspired by Jack Bogle" or "following the Bogleheads investment philosophy." Let's look at all the "bad" things you are not doing.
  • You are not paying high expense ratios.
  • You are not using actively managed funds,
  • You are broadly diversified within each category you have chosen to hold.
  • You are not betting heavily on, nor against, any industry sector (e.g. tech).
  • You are not betting heavily on, nor or against, any single country.
  • You are not betting on, or against, any individual stock.
Compared to e.g. what Vanguard would have you holding in (say) Target Retirement 2060, you are consistently leaning aggressive in every way. Not a lot, but leaning. You're holding more stocks than Vanguard's fund. You're holding more international stocks. Most conspicuously, you have, I think I can call it a "heavy" tilt to emerging markets.

I have two concerns, both in the category of "this could make sense, but does it make sense for you?" One is the 95% stock allocation.

The second is, and I want to press you on this, why the heavy tilt toward emerging markets? I think there are three bad reasons for putting an overweight on emerging markets.
  1. Because they've been doing so well. (A lot of people were using that reason circa 2007).
  2. Because they've been doing so poorly, therefore they are "due" for a comeback.
  3. Because emerging market economies are growing so quickly.
I want to go farther with that third one. People who are advocating investing in the stocks of EM countries use it a lot, because it sounds as if it ought to be a good reason. Why wouldn't you want to be investing in the fastest-growing economies of the world? But you need to be willing to sound dumb and ask the dumb-sounding question: are you guaranteeing me that a faster-growing economies mean higher-returning stock markets?

You seem to be placing a bet on emerging market stocks. You have, oh let's say a coin-flip chance of being on the winning side of the bet. So let me state this very carefully. Overweighting EM is a decision to take some additional risk. It's your money, you are responsible for deciding what risks you can tolerate.
Last edited by nisiprius on Fri Oct 15, 2021 11:45 am, edited 1 time in total.
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Re: my 4 fund portfolio - does this make sense?

Post by humblecoder »

iceport wrote: Fri Oct 15, 2021 11:07 am
humblecoder wrote: Fri Oct 15, 2021 10:22 am Personally, I don't see any need to overweight emerging markets. This seems to go against the general BH principles. Is there a reason why you are overweighing Emerging Markets?
You might be surprised to know that none other than Jack Bogle has been known to advocate a 50/50 split between developed and emerging markets. Granted, that's from a starting place of a maximum 20% of equities in international, so the volatility of EM would be confined to 10% of equities.

Still, there must have been something Jack Bogle saw in EM to recommend such an overweight.
I hadn't heard that before. I googled "Jack Bogle emerging markets" to see maybe if there was some nuance I was missing, since I always like to learn from different opinions. However, most of the links state that his general advice was that international investing wasn't needed at all. His reasoning was that large US countries already have international exposure due to their multi-national nature, and most investors do better with simplicity, since there are fewer levers to tinker with which reduces the risk of "over-tinkering".

There are references to a statement where he said that if an investor is determined to invest overseas, they should invest no more than 20%, but it didn't sound like a ringing endorsement for international.

Personally, I invest in non-US funds and see no reason not to. And his company Vanguard generally recommends 40% of equities in non-US. So obviously there is room for different points of view that may not agree with Mr. Bogle.
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Re: my 4 fund portfolio - does this make sense?

Post by nisiprius »

I'm too lazy to find the exact quotation, but, yeah, he did. He was referring to what was trendy at the time. These aren't his exact words but I think this is an accurate representation of the gist, and I think it was made around 2006 or 2007 when EM had been going great guns and Burton Malkiel published a book with the title From Wall Street to the Great Wall: How Investors Can Profit from China's Booming Economy. John C. Bogle said something like this. I won't put quote marks around it. I

Something like:

I don't think anybody needs foreign stocks, but if you want, this is up to you, maybe you could put 10% into Total International and 10% into emerging markets... but no more than 20% in foreign stocks.
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Re: my 4 fund portfolio - does this make sense?

Post by pkcrafter »

The Clash on the Merits of Foreign Stocks--Bogle and Malkiel.

https://www.wsj.com/articles/SB92698493837176878

More articles...

https://duckduckgo.com/?q=John+Bogle+on ... 3-1&ia=web

I believe some exposure to international is good, but not 40%, maybe 20-25%.


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Re: my 4 fund portfolio - does this make sense?

Post by iceport »

humblecoder wrote: Fri Oct 15, 2021 11:42 am
iceport wrote: Fri Oct 15, 2021 11:07 am
humblecoder wrote: Fri Oct 15, 2021 10:22 am Personally, I don't see any need to overweight emerging markets. This seems to go against the general BH principles. Is there a reason why you are overweighing Emerging Markets?
You might be surprised to know that none other than Jack Bogle has been known to advocate a 50/50 split between developed and emerging markets. Granted, that's from a starting place of a maximum 20% of equities in international, so the volatility of EM would be confined to 10% of equities.

Still, there must have been something Jack Bogle saw in EM to recommend such an overweight.
I hadn't heard that before. I googled "Jack Bogle emerging markets" to see maybe if there was some nuance I was missing, since I always like to learn from different opinions. However, most of the links state that his general advice was that international investing wasn't needed at all. His reasoning was that large US countries already have international exposure due to their multi-national nature, and most investors do better with simplicity, since there are fewer levers to tinker with which reduces the risk of "over-tinkering".

There are references to a statement where he said that if an investor is determined to invest overseas, they should invest no more than 20%, but it didn't sound like a ringing endorsement for international.

Personally, I invest in non-US funds and see no reason not to. And his company Vanguard generally recommends 40% of equities in non-US. So obviously there is room for different points of view that may not agree with Mr. Bogle.
Yes humblecoder, there's certainly plenty of room for different perspectives. I was mostly picking up on your BH principle reference. I was quite surprised by Jack Bogle's position on EM when I came across it, particularly because Jack was, I think it's fair to say, on the rather conservative end of the investing spectrum. Then again, he was somewhat sympathetic to tactical asset allocation, so maybe his stance on EM reflected that?

I actually searched briefly for the threads where I first encountered his advocacy for an equal split between EM and developed international, but came up short. [I am incredibly disappointed in the search-ability of this forum! I can never seem to find posts that I know exist. It's frustrating as can be.] There were two active threads going on that I participated in, one of which might have even been started by Taylor Larimore with a link to a brief video of an interview with Jack. I think nisiprius summed up the gist of it accurately. But it wasn't just a thoughtless throw-away comment. He went on to note the volatility inherent with EM stocks, and warned that investors would need to tolerate that volatility and make a commitment to sticking with the allocation for the long haul.

Though it wasn't what I was looking for, I did find this post with a reference to a Wade Pfau blog entry documenting Jack's position:

Do you overweight emerging markets?

Sorry I can't find more for you on this.

Full disclosure: I have adopted a modest EM tilt at roughly 30% of international, but that had nothing to do with Jack's subsequent comments.
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Re: my 4 fund portfolio - does this make sense?

Post by BolderBoy »

nisiprius wrote: Fri Oct 15, 2021 11:51 amJohn C. Bogle said something like this. I won't put quote marks around it. I

Something like:

I don't think anybody needs foreign stocks, but if you want, this is up to you, maybe you could put 10% into Total International and 10% into emerging markets... but no more than 20% in foreign stocks.
That is a [mostly] accurate reflection of what Mr Bogle said at each of the three BH Conferences I attended.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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Re: my 4 fund portfolio - does this make sense?

Post by retiredjg »

candyfloss wrote: Fri Oct 15, 2021 10:41 am
calmaniac wrote: Fri Oct 15, 2021 10:34 am Looks like a reasonable asset allocation for long-term retirement account.

Saving for a house downpayment in the near future, not so much. If the market tanks for 3-4 years are you going to put off buying a house while you wait for the market to recover? Need something more stable for near-term use, like CDs or...
It wouldn't be in "near" future but more of 3-6 year future I think.
The investments you are considering are not appropriate for a downpayment for a house within 3 to 6 years. The exception would be if you don't mind putting off the house for several years if the market goes down.

You should invest for retirement and save for the house (or any other short term goal). High yield savings, CDs, short term bond, maybe 20% in stocks if 6 years seems likely.
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Re: my 4 fund portfolio - does this make sense?

Post by Carousel »

candyfloss wrote: Fri Oct 15, 2021 10:00 am
I'm getting so stupid in the morning without coffee...
:)
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Re: my 4 fund portfolio - does this make sense?

Post by UpperNwGuy »

Why do you want to overweight emerging markets?
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Re: my 4 fund portfolio - does this make sense?

Post by grabiner »

iceport wrote: Fri Oct 15, 2021 11:07 am
humblecoder wrote: Fri Oct 15, 2021 10:22 am Personally, I don't see any need to overweight emerging markets. This seems to go against the general BH principles. Is there a reason why you are overweighing Emerging Markets?
You might be surprised to know that none other than Jack Bogle has been known to advocate a 50/50 split between developed and emerging markets. Granted, that's from a starting place of a maximum 20% of equities in international, so the volatility of EM would be confined to 10% of equities.

Still, there must have been something Jack Bogle saw in EM to recommend such an overweight.
I overweight emerging markets because I expect them to have a lower correlation with the rest of my portfolio.

I would split 50/50 if the developed and emerging options were equally good. However, emerging markets have usually been less tax-efficient than developed markets because of more non-qualified dividends, and until recently, there was no good option for emerging markets small-cap. I may change this now that Avantis has AVES available for emerging markets, but I'm waiting to see more about what this ETF holds, and whether it is tax-efficient enough for my taxable account.
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Re: my 4 fund portfolio - does this make sense?

Post by iceport »

grabiner wrote: Sun Oct 17, 2021 8:38 pm
iceport wrote: Fri Oct 15, 2021 11:07 am
humblecoder wrote: Fri Oct 15, 2021 10:22 am Personally, I don't see any need to overweight emerging markets. This seems to go against the general BH principles. Is there a reason why you are overweighing Emerging Markets?
You might be surprised to know that none other than Jack Bogle has been known to advocate a 50/50 split between developed and emerging markets. Granted, that's from a starting place of a maximum 20% of equities in international, so the volatility of EM would be confined to 10% of equities.

Still, there must have been something Jack Bogle saw in EM to recommend such an overweight.
I overweight emerging markets because I expect them to have a lower correlation with the rest of my portfolio.

I would split 50/50 if the developed and emerging options were equally good. However, emerging markets have usually been less tax-efficient than developed markets because of more non-qualified dividends, and until recently, there was no good option for emerging markets small-cap. I may change this now that Avantis has AVES available for emerging markets, but I'm waiting to see more about what this ETF holds, and whether it is tax-efficient enough for my taxable account.
It's been a little while since I checked the latest Boglehead tax efficiency spreadsheet, but as I remember it, developed and emerging markets had very similar tax-efficiency — for my tax bracket, anyway. The effect of the non-qualified dividends is much worse for those in the higher tax brackets, where the spread between capital gains tax rate and income tax rate is much wider.

I use Vanguard's VSS for a small cap international tilt, and that's my only exposure to EM small cap, besides whatever's in the EM all-cap fund.

Besides hoping for lower correlation to US equities, I also view EM as a slightly higher risk/return asset. So in that respect, an EM tilt is similar to a small cap tilt. Unfortunately, any additional risk has not been compensated for a while. But I'll keep waiting. Even at 30% of international (or 50%, for that matter), the portfolio-level stake in EM is still pretty minor in a relatively balanced portfolio of stocks and bonds.
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Re: my 4 fund portfolio - does this make sense?

Post by socalindex »

I didnt want to start a new thread


PSA Vanguard has me on a 4 fund. vti , international total etf , total us bond etf and last total international bond etf.

I dont understand the international bond , Is that import?
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Re: my 4 fund portfolio - does this make sense?

Post by retiredjg »

socalindex wrote: Thu Mar 14, 2024 3:44 pm I didnt want to start a new thread


PSA Vanguard has me on a 4 fund. vti , international total etf , total us bond etf and last total international bond etf.

I dont understand the international bond , Is that import?
Vanguard feels it is important to hold both international stocks and international bonds. If you are using PAS, that is what you should expect them to put your money in.

Some people don't think it is important, but it is unlikely to hurt anything either. Important?

Not really. Your portfolio success will not depend on whether or not you hold foreign bonds. If you want to use PAS, don't worry about it at all.
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Re: my 4 fund portfolio - does this make sense?

Post by socalindex »

retiredjg wrote: Thu Mar 14, 2024 3:50 pm
socalindex wrote: Thu Mar 14, 2024 3:44 pm I didnt want to start a new thread


PSA Vanguard has me on a 4 fund. vti , international total etf , total us bond etf and last total international bond etf.

I dont understand the international bond , Is that import?
Vanguard feels it is important to hold both international stocks and international bonds. If you are using PAS, that is what you should expect them to put your money in.

Some people don't think it is important, but it is unlikely to hurt anything either. Important?

Not really. Your portfolio success will not depend on whether or not you hold foreign bonds. If you want to use PAS, don't worry about it at all.
:sharebeer thanks
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Re: my 4 fund portfolio - does this make sense?

Post by mbouck »

candyfloss wrote: Fri Oct 15, 2021 10:14 am
vanbogle59 wrote: Fri Oct 15, 2021 9:36 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind.
It makes perfect sense for a certain risk profile. Is that what you want?
Consider how this portfolio might have performed in .com bubble or 2008 or coronavirus. You OK with that?

Lots of people go 100% equities. Not me. :D :beer
It's a hard question to answer. I definitely don't want too much risk because I want to use this money for my house downpayment (in the future) so it's not for retirement or long-term investment. But, I also don't understand bonds too well and I heard bad things about bonds now so am a little hesitant to add a lot of bond to the portfolio. What would you recommend in my situation?
If this isn't for retirement I don't understand why you're messing with bonds at all IMHO. And even if it was for retirement I wouldn't be messing with bonds unless your retirement time horizon was near. I think the most important thing to ask yourself is - "what is my risk tolerance?" If you won't panic sell if/when your portfolio drops 50% (and continue to contribute when that happens) then I think there is no problem being 100% in equities. All that said I think the larger question is "what can I do to try to limit my downside/drawdowns"? If it was me, being in taxable, I'd probably do something like:

VTI 70%
VEA 20%
VWO 10%
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Re: my 4 fund portfolio - does this make sense?

Post by retiredjg »

mbouck wrote: Thu Mar 14, 2024 5:19 pm
candyfloss wrote: Fri Oct 15, 2021 10:14 am
vanbogle59 wrote: Fri Oct 15, 2021 9:36 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind.
It makes perfect sense for a certain risk profile. Is that what you want?
Consider how this portfolio might have performed in .com bubble or 2008 or coronavirus. You OK with that?

Lots of people go 100% equities. Not me. :D :beer
It's a hard question to answer. I definitely don't want too much risk because I want to use this money for my house downpayment (in the future) so it's not for retirement or long-term investment. But, I also don't understand bonds too well and I heard bad things about bonds now so am a little hesitant to add a lot of bond to the portfolio. What would you recommend in my situation?
If this isn't for retirement I don't understand why you're messing with bonds at all IMHO. And even if it was for retirement I wouldn't be messing with bonds unless your retirement time horizon was near. I think the most important thing to ask yourself is - "what is my risk tolerance?" If you won't panic sell if/when your portfolio drops 50% (and continue to contribute when that happens) then I think there is no problem being 100% in equities. All that said I think the larger question is "what can I do to try to limit my downside/drawdowns"? If it was me, being in taxable, I'd probably do something like:

VTI 70%
VEA 20%
VWO 10%
YOu are responding to a question that was asked almost 3 years ago.... :(
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Re: my 4 fund portfolio - does this make sense?

Post by mbouck »

socalindex wrote: Thu Mar 14, 2024 3:44 pm I didnt want to start a new thread


PSA Vanguard has me on a 4 fund. vti , international total etf , total us bond etf and last total international bond etf.

I dont understand the international bond , Is that import?
Thread was resurrected.
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Re: my 4 fund portfolio - does this make sense?

Post by boomer543 »

candyfloss wrote: Fri Oct 15, 2021 10:14 am
vanbogle59 wrote: Fri Oct 15, 2021 9:36 am
candyfloss wrote: Fri Oct 15, 2021 8:45 am please let me know if this portfolio makes sense at all, and what are the risks that I have to keep in mind.
It makes perfect sense for a certain risk profile. Is that what you want?
Consider how this portfolio might have performed in .com bubble or 2008 or coronavirus. You OK with that?

Lots of people go 100% equities. Not me. :D :beer
It's a hard question to answer. I definitely don't want too much risk because I want to use this money for my house downpayment (in the future) so it's not for retirement or long-term investment. But, I also don't understand bonds too well and I heard bad things about bonds now so am a little hesitant to add a lot of bond to the portfolio. What would you recommend in my situation?
For a house down payment in let’s say 5 to 7 years your portfolio is highly risky for a smaller amount than you wish when you want it. As you know, market downturns - 20, 30, 40 percent - can happen in a relative blink of an eye and recovery times can take years. Not good if you want or need a down payment during those volatile times.
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