The Three-Fund Portfolio

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GaryA505
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Re: The Three-Fund Portfolio -- A 10-Year Look-Back

Post by GaryA505 »

Taylor Larimore wrote: Wed Jan 05, 2022 12:08 pm Bogleheads:

On January 1, 2012, I made a post titled: "The Three-Fund Portfolio." It has become one of Bogleheads most popular topics with over 3,000 replies.

Today, approximately ten-years later, I went back to see how the three funds have performed. Vanguard makes it easy by showing ten-year returns and ten-year growth of $10,000 in each fund:

Vanguard Total Stock Market Index Fund Admiral (VSAX)-------16.29%---$45,224.11
Vanguard Total International Stock Index Fund Adm. (VTIAX)---7.68%---$20,953.33
Vanguard Total Bond Market Index Fund Adm (VBTLX)-----------2.86%---$13,253.39

Happy New Year!
Taylor
Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." --"Stay The Course."
AND, an equal weight portfolio of the three (balanced annually) would have produced a CAGR of 9.11%
(note that balancing using bands, or no balancing at all, would have increased this significantly)
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Re: The Three-Fund Portfolio

Post by Mr. Stubacca »

this is one of those days I like to come back and reinforce my move into the 3 fund portfolio. I look far too often at what's happening. A leftover from my tinkering days.

Someone mentioned to me that brk.b which I owned for many years has been running up a lot lately. i think it's almost double from whee i sold it about 5 years ago. Then I try to put it put of my mind and fight the foolish urge to now rebuy it at the peak.
Don't let the pursuit of the perfect stop the use of the good.
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Re: The Three-Fund Portfolio

Post by vtsnowdin »

Mr. Stubacca wrote: Wed Jan 05, 2022 1:07 pm this is one of those days I like to come back and reinforce my move into the 3 fund portfolio. I look far too often at what's happening. A leftover from my tinkering days.

Someone mentioned to me that brk.b which I owned for many years has been running up a lot lately. i think it's almost double from whee i sold it about 5 years ago. Then I try to put it put of my mind and fight the foolish urge to now rebuy it at the peak.
You still own it in your index funds. VTI has one percent of it's fund as BRK.b and all the broad index funds have to have some as well.
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Re: The Three-Fund Portfolio

Post by retire2022 »

A good recap of Total Stock Market Index VTSAX/VTI and the current state affairs at Vanguard.

https://seekingalpha.com/article/447844 ... -investors
annied12
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Re: The Three-Fund Portfolio

Post by annied12 »

Thank you Taylor.

I read about your 20% international and will follow it. It is a compromise that makes sense to me

On the bond side, what is your position about TIPS and I-bonds? Do you offset your bond percentage by either of these?
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

annied12 wrote: Sat Jan 08, 2022 7:03 am Thank you Taylor.

I read about your 20% international and will follow it. It is a compromise that makes sense to me

On the bond side, what is your position about TIPS and I-bonds? Do you offset your bond percentage by either of these?
annied12:

A primary benefit of The Three Fund Portfolio is its simplicity. There is always a temptation for investors to add more funds to our portfolio, especially funds that are currently doing well.

Almost without exception, bond funds with the highest return also have the highest the risk. I believe the best way to increase portfolio returns is simply to increase our stock allocation.

I recently added historical returns of the three-fund portfolio to the opening page of this topic. Study it and I think you will agree that adding more funds is unnecessary.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by annied12 »

Thank you Taylor.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

I have updated "2022 Inflation" into "Historical Returns" in my opening post.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." -- "The odds of outpacing an all-market index fund are, well, terrible."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by iim7V7IM7 »

Thank you Taylor.

Looking at the 1976 to 2021 data (46-years) that you shared, I noted the following.

- S&P 500 averaged 13.3% without subtracting for expenses
- MSCI EAFE averaged 11.5% without subtracting for expenses
- US Bond Market averaged 7.3% without subtracting for expenses
- Inflation averaged 3.8% over this 46-year period

These figures are significantly higher than Vanguard's 1926-2020 portfolio allocation models (94-years) which use a variety of US stock and bond indices hobbled together.

- US Stocks averaged 10.3% (3% lower)
- US Bonds averaged 6.1% (1.2% lower)

So the more recent 46-years had higher performance excluding the 1926-1975 period. My question to you when one is modeling a 3-fund portfolio across a future 30-year retirement what assumed rates of growth should one use for asset classes? I know that predicting the future is hard :happy.

Curious,

Bob
Taylor Larimore wrote: Thu Jan 13, 2022 11:04 am Bogleheads:

I have updated "2022 Inflation" into "Historical Returns" in my opening post.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." -- "The odds of outpacing an all-market index fund are, well, terrible."
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Re: The Three-Fund Portfolio

Post by sycamore »

iim7V7IM7 wrote: Thu Jan 20, 2022 8:14 am So the more recent 46-years had higher performance excluding the 1926-1975 period. My question to you when one is modeling a 3-fund portfolio across a future 30-year retirement what assumed rates of growth should one use for asset classes? I know that predicting the future is hard :happy.
I'm not Taylor but a helpful answer to your question is: don't model using a single set of growth rates. Run your model with multiple sets, one at the low end (to be conservative), one with the higher rates (more aggressive/risky), and maybe one in the middle. I think Fidelity's retirement planner does something like this where you can see outcomes based on what rates of return you want to assume.
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Re: The Three-Fund Portfolio

Post by dbr »

sycamore wrote: Thu Jan 20, 2022 9:12 am
iim7V7IM7 wrote: Thu Jan 20, 2022 8:14 am So the more recent 46-years had higher performance excluding the 1926-1975 period. My question to you when one is modeling a 3-fund portfolio across a future 30-year retirement what assumed rates of growth should one use for asset classes? I know that predicting the future is hard :happy.
I'm not Taylor but a helpful answer to your question is: don't model using a single set of growth rates. Run your model with multiple sets, one at the low end (to be conservative), one with the higher rates (more aggressive/risky), and maybe one in the middle. I think Fidelity's retirement planner does something like this where you can see outcomes based on what rates of return you want to assume.
Or, more elaborately use a Monte Carlo model, such as the Fidelity tool or Portfolio Visualizer or a statistical model based on historical data. FireCalc is an example of the latter but does not have a lot of specificity as to assets. CFireSim is another choice. In any case you have to take account not only of the average returns but also the statistical variability of returns and generate as a result a statistical distribution of results. A problem with MC simulations is still that of deciding on the input distributions while that can be avoided using historical data at the cost that history is not an accurate sample of the future.

Some outcomes, such as max drawdown, safe withdrawal rates, and portfolio efficiency are explicit results of variable returns that can't be addressed using average return estimates.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

iim7V7IM7 wrote: Thu Jan 20, 2022 8:14 amLooking at the 1976 to 2021 data (46-years) that you shared, I noted the following.

- S&P 500 averaged 13.3% without subtracting for expenses
- MSCI EAFE averaged 11.5% without subtracting for expenses
- US Bond Market averaged 7.3% without subtracting for expenses
- Inflation averaged 3.8% over this 46-year period

These figures are significantly higher than Vanguard's 1926-2020 portfolio allocation models (94-years) which use a variety of US stock and bond indices hobbled together.

- US Stocks averaged 10.3% (3% lower)
- US Bonds averaged 6.1% (1.2% lower)

So the more recent 46-years had higher performance excluding the 1926-1975 period. My question to you when one is modeling a 3-fund portfolio across a future 30-year retirement what assumed rates of growth should one use for asset classes? I know that predicting the future is hard :happy.

Curious,

Bob
[ quote fixed by admin LadyGeek]

Bob:

Thank you for your post showing the average returns of the three funds in my Three-Fund Portfolio (S&P 500 Index Fund and Total Stock Market Index Fund have nearly identical long-term returns).

In answer to your question which I underlined, I think your average returns are as good as any for assuming a long-term future growth rate. However, we are still guessing.

Thank you.
Taylor
Jack Bogle's Words of Wisdom: "No analysis of the past, no matter how painstaking, assures future superiority."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by iim7V7IM7 »

Thanks to all for your answers.

I have used the Monte Carlo simulator on Portfolio Visualizer. Sometimes when you select a "ticker" and "historic returns" it can use a very short period of time as a sample particularly if the fund or admiral share class did not exist for a long period of time. If you use "forecasted returns" you can enter target mean rates from a much longer period of time and substract expense ratios from it.
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Re: The Three-Fund Portfolio

Post by Franmom »

retire2022 wrote: Fri Jan 07, 2022 4:51 pm A good recap of Total Stock Market Index VTSAX/VTI and the current state affairs at Vanguard.

https://seekingalpha.com/article/447844 ... -investors
Thanks! This was a good explanation of why to invest in ETFs vs mutual funds. It also has me thinking twice about transferring my funds to Vanguard vs Fidelity.
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Re: The Three-Fund Portfolio

Post by LadyGeek »

Remember that you can hold Vanguard funds at Fidelity (or any other brokerage). My portfolio is now at Fidelity.

Here's how to do a 3-fund portfolio without Vanguard funds. See the wiki: Three-fund portfolio (Other than Vanguard, Boglehead-style)
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Re: The Three-Fund Portfolio

Post by GaryA505 »

retire2022 wrote: Fri Jan 07, 2022 4:51 pm A good recap of Total Stock Market Index VTSAX/VTI and the current state affairs at Vanguard.

https://seekingalpha.com/article/447844 ... -investors
Does anyone know how many jobs Vanguard, Fidelity, and Schwab outsource to countries outside the US?
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

I recently quoted Bill Bernstein (advisor to millionares) in another topic. It is an important quote so here it is again:
In his 2014 book "If You Can" Dr. Bernstein wrote:

Would you believe me if I told you that there's an investment strategy that a seven-year-old could understand, will take you fifteen minutes of work per year, outperform 90 percent of finance professionals in the long run, and make you a millionaire over time?

Well, it is true, and here it is: Start by saving 15 percent of your salary at age 26 into a 401(k) plan, an IRA, or a taable account or all three). Put equal amounts of that 15 percent into just three different mutual funds:

* A U.S. total stock market index fund

* An international total stock market index fund

* A U.S. total bond market index fund.
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." -- "The odds of outpacing an all-market index fund are, well, terrible."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by DLP »

Is the underperformance of VTI to other large cap blend funds over the last year cause for concern?
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Re: The Three-Fund Portfolio

Post by dbr »

DLP wrote: Mon Jan 24, 2022 7:27 am Is the underperformance of VTI to other large cap blend funds over the last year cause for concern?
No, absolutely not. A basic idea in holding a total market fund such as VTI is just exactly that you don't go around trying to respond to what the market has done thinking that your plan is not good enough unless you try to buy the immediate future based on the immediate past.
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Re: The Three-Fund Portfolio

Post by DLP »

dbr wrote: Mon Jan 24, 2022 8:20 am
DLP wrote: Mon Jan 24, 2022 7:27 am Is the underperformance of VTI to other large cap blend funds over the last year cause for concern?
No, absolutely not. A basic idea in holding a total market fund such as VTI is just exactly that you don't go around trying to respond to what the market has done thinking that your plan is not good enough unless you try to buy the immediate future based on the immediate past.
Thanks. Just curious, not making any changes, but why all of a sudden is VTI in the 79th percentile (per Morningstar) for the last year, when historically it has been one of the top performers?
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Re: The Three-Fund Portfolio

Post by dbr »

DLP wrote: Mon Jan 24, 2022 8:25 am
dbr wrote: Mon Jan 24, 2022 8:20 am
DLP wrote: Mon Jan 24, 2022 7:27 am Is the underperformance of VTI to other large cap blend funds over the last year cause for concern?
No, absolutely not. A basic idea in holding a total market fund such as VTI is just exactly that you don't go around trying to respond to what the market has done thinking that your plan is not good enough unless you try to buy the immediate future based on the immediate past.
Thanks. Just curious, not making any changes, but why all of a sudden is VTI in the 79th percentile (per Morningstar) for the last year, when historically it has been one of the top performers?
If you are looking a M* ratings, don't. They don't mean anything. Holders of VTI know they have exactly what they intend to have.

What happens with an M* rating is they compare funds to other "similar" funds, but those funds with a large cap bias that includes more high flying big tech probably has outperformed for awhile. But that is not something "wrong" with VTI; it is just that pieces of the market do come and go over time.

If a person really wanted to do this right they would have avoided VTI and bought Apple and Tesla years ago.
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Re: The Three-Fund Portfolio

Post by DLP »

Thanks! That makes sense
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Re: The Three-Fund Portfolio

Post by Structure »

Is there any software I can use to help visualize & re balance my portfolio over multiple different account types? ie a 401K/IRA/Brokerage/Savings? Targeting the 3 fund blend in us/international/bonds
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Re: The Three-Fund Portfolio

Post by ALinLI »

Hi Structure, I have not found any, i just created a simple spreadsheet in Excel listing all the positions and calculate the weighting
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Re: The Three-Fund Portfolio

Post by Fpdesignco »

Structure wrote: Mon Jan 31, 2022 1:03 am Is there any software I can use to help visualize & re balance my portfolio over multiple different account types? ie a 401K/IRA/Brokerage/Savings? Targeting the 3 fund blend in us/international/bonds
check this out - https://www.whitecoatinvestor.com/portf ... readsheet/
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Three-Fund Portfolio Videos

Post by Taylor Larimore »

"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by AlohaBill »

Some Bogleheads are asserting that the three fund portfolio is not diversified enough. I am wondering what your feeling is to this. We are currently invested in Vtinx and the two fund portfolio at Fidelity. I don’t see what else we can invest in without over complicating our investment portfolio.
Do you think this is part of a vast conspiracy by the financial industry to take down Bogleheaded investing philosophy? :D 8-) :?:
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Re: The Three-Fund Portfolio

Post by annied12 »

A question for Taylor -

We have our AA worked out (thanks to your help), but I am unsure about the amount of cash/cash equivalents to maintain when we retire, which will decrease after we take our social security (when we have to). Please provide your thoughts on the matter.

My wife and I are not big spenders and are considering retiring in under five years. (I may just reduce the workload and continue working 2-3 days a week.Luckily, I have that option.)

We do not have any health problems.

Please note that I have an annual RMD from an inherited IRA, which I view the same as having a pension.

Meanwhile, our ETFs (stock funds only in non-retirement accounts) generate dividends that we currently reinvest, which could be just as easily used as cash/cash equivalents by stopping the reinvestment feature.

These two (the annual amount of the RMD and stock dividends) will exceed our projected expenses.

Given the foregoing, what amount of cash/cash equivalents would you recommend and why?
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

annied12 wrote: Sun Feb 13, 2022 10:58 am A question for Taylor -

We have our AA worked out (thanks to your help), but I am unsure about the amount of cash/cash equivalents to maintain when we retire, which will decrease after we take our social security (when we have to). Please provide your thoughts on the matter.

My wife and I are not big spenders and are considering retiring in under five years. (I may just reduce the workload and continue working 2-3 days a week.Luckily, I have that option.)

We do not have any health problems.

Please note that I have an annual RMD from an inherited IRA, which I view the same as having a pension.

Meanwhile, our ETFs (stock funds only in non-retirement accounts) generate dividends that we currently reinvest, which could be just as easily used as cash/cash equivalents by stopping the reinvestment feature.

These two (the annual amount of the RMD and stock dividends) will exceed our projected expenses.

Given the foregoing, what amount of cash/cash equivalents would you recommend and why?
annied12:

If I understand your question correctly, you are asking about a "cash emergency fund."

Except for young investors, I am not a proponent of separate, low-yielding, "emergency funds" which may never be needed.

Most of us, can optain money quickly from our bank account, ATM, our portfolio, bank loan, insurance policy, relatives, etc..

Best wishes.
Taylor
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"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by annied12 »

Thank you very much Taylor.
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Re: The Three-Fund Portfolio

Post by annied12 »

A few more questions Taylor:

On rebalancing, in retirement, do you base the rebalancing on X% above/below your target or do you pick a date and use that time each year or couple of years to rebalance? Or do you kind of forget about it and try to draw down from your investments in such a way that it is leading to some rebalancing of the portfolio? Or some combination of the forgoing?

Prior to retirement, I basically use the new money as the basis for the rebalancing and kind of forget about rebalancing, which has led to, e.g., the bond fund portion of my portfolio dipping recently below the percentage that I would like.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

annied12 wrote: Tue Feb 15, 2022 5:32 am A few more questions Taylor:

On rebalancing, in retirement, do you base the rebalancing on X% above/below your target or do you pick a date and use that time each year or couple of years to rebalance? Or do you kind of forget about it and try to draw down from your investments in such a way that it is leading to some rebalancing of the portfolio? Or some combination of the forgoing?

Prior to retirement, I basically use the new money as the basis for the rebalancing and kind of forget about rebalancing, which has led to, e.g., the bond fund portion of my portfolio dipping recently below the percentage that I would like.
Annied12:

Investors are all different. My income now exceeds my expenses, also my time-frame is short (I'm 98), so in a sense my asset-allocation is no longer important.

When we were younger, we rebalanced whenever our three funds deviated more than about 10% from our asset-allocation plan.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Ninety-four percent of the differences in portfolio returns is explained by asset allocation."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by annied12 »

Thank you Taylor
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Re: The Three-Fund Portfolio

Post by annied12 »

Hi Taylor

I want to thank you for your time in answering the number of questions that I have.

I think it is pretty amazing that I am communicating with the author of a number of investment books and someone who fought in the battle of the bulge. I definitely would like to know about that as well. I am a history buff.

Anyhow, I have been reading some of the investment books, watching the Boglehaed videos and the videos that you mentioned in your three fund update in this investment stream, and simplifying our investment portfolio.

I would like to know your opinions on REITs and obtain a clarification on the 20% in foreign stocks

I am concerned about the potentially high costs of REITs, but it seems to have (at least as of the time of the book I was reading) a low correlation with both stocks and bonds.

On the 20% to foreign stocks, is that 20% of the stock portion of your portfolio or 20% of the overall portfolio. I assume the former. The various investment videos that I have watched have had it both ways. Please confirm your thoughts on the matter.

Thank you
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

annied12:

I will attempt to answer your questions:
I would like to know your opinions on REITs and obtain a clarification on the 20% in foreign stocks
REITs: I believe the market weight (3.6%) of REITs in the total market index fund is sufficient. Most large corporations own real estate. You may own your own home which is real estate. Avoid the temptation to clutter your portfolio with unnecessary funds/ETFs.

Foreign stocks: You can read why I selected a 20% allocation in foreign stocks here:How Much International Stock? A Suggestion.

My recommendation of "20% Foreign Stocks" refers to 20% of "stocks" not the "portfolio."

Best wishes
Taylor
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Russian stocks

Post by Taylor Larimore »

Bogleheads:

I am happy to see that Vanguard's Total International fund's investment in plunging Russian stocks was less than 1% (0.8%) in January.

Stay the course.

Taylor
Jack Bogle's Words of Wisdom (2010): "I'd approach this relatively new wave of international investing with caution, and stick to my recommendation that international funds--including BRIC funds--do not exceed one-fifth of an investor's equity position."
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Re: The Three-Fund Portfolio

Post by annied12 »

Thank you Taylor
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Re: The Three-Fund Portfolio

Post by LadyGeek »

Henryk has a question which I've moved into a new thread. See: [Can I construct a three-fund portfolio with this?]

(Thanks to the member who reported the post and explained what's wrong.)
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Re: The Three-Fund Portfolio

Post by AaronScott »

Hi Taylor,

I have a question about the theory and mechanics of the 3-fund portfolio. My limited understanding of finance includes the idea that so much of... well, everything, rests on the U.S. dollar being the biggest global reserve currency and the perception that U.S. bonds are the safest investment one could make. But what if - and humor me on this hypothetical - that wasn't the case? What if the dollar were replaced by another currency as the biggest global reserve, or U.S. bonds weren't perceived to be as safe as they are currently perceived to be? The entire Boglehead approach and philosophy, including index funds and passive investing, all came about in a world in which these two things were true, but this hasn't always been the case throughout world history. What if they change? Would we re-evaluate our approach to bonds, gold, international equities allocation, foreign currencies, etc.? Or is a 3-fund portfolio actually equipped to do well if such things change?

Thanks for humoring my curiosity!

Aaron
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

AaronScott:
Hi Taylor,

I have a question about the theory and mechanics of the 3-fund portfolio. My limited understanding of finance includes the idea that so much of... well, everything, rests on the U.S. dollar being the biggest global reserve currency and the perception that U.S. bonds are the safest investment one could make. But what if - and humor me on this hypothetical - that wasn't the case? What if the dollar were replaced by another currency as the biggest global reserve, or U.S. bonds weren't perceived to be as safe as they are currently perceived to be? The entire Boglehead approach and philosophy, including index funds and passive investing, all came about in a world in which these two things were true, but this hasn't always been the case throughout world history. What if they change? Would we re-evaluate our approach to bonds, gold, international equities allocation, foreign currencies, etc.? Or is a 3-fund portfolio actually equipped to do well if such things change?

Thanks for humoring my curiosity!

AaronScott:
I am not a good theorist. I did not realize that "everything rests on the U.S. dollar being the biggest global reserve currency and that U.S. bonds are the safest investment one could make" although it could well be true.

I feel confident that the diversification of The Three-Fund Portfolio, containing a total of over 15,000 domestic and international securities, will enable its owners to survive financially.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Absolutely no one knows what the stock market is going to do tomorrow, let alone next year. Nor which sector, style or region will lead and which will lag. Given this absolute uncertainty, the most logical strategy is to invest as broadly as possible."
"Simplicity is the master key to financial success." -- Jack Bogle
TurtleBeatsHare
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Re: The Three-Fund Portfolio

Post by TurtleBeatsHare »

AaronScott wrote: Sun Mar 13, 2022 5:50 pm Hi Taylor,

I have a question about the theory and mechanics of the 3-fund portfolio. My limited understanding of finance includes the idea that so much of... well, everything, rests on the U.S. dollar being the biggest global reserve currency and the perception that U.S. bonds are the safest investment one could make. But what if - and humor me on this hypothetical - that wasn't the case? What if the dollar were replaced by another currency as the biggest global reserve, or U.S. bonds weren't perceived to be as safe as they are currently perceived to be? The entire Boglehead approach and philosophy, including index funds and passive investing, all came about in a world in which these two things were true, but this hasn't always been the case throughout world history. What if they change? Would we re-evaluate our approach to bonds, gold, international equities allocation, foreign currencies, etc.? Or is a 3-fund portfolio actually equipped to do well if such things change?

Thanks for humoring my curiosity!

Aaron
Without writing an essay, two of the three funds in the portfolio are an ownership interest in companies. Those companies will continue to do business in some currency—whether their own, the US dollar, or whatever supplants the dollar. Owning everything is an excellent way to insure against a shift in which currency is used to transact most business because that shift will likely hurt some companies and help some other companies. By owning all companies, you’ll likely offset the losses with the winners and insure against this event.

Obviously, this answer DOES NOT apply to the bond fund—that would require a lot more analysis of the individual components of the fund, the terms specifying the currency that will be repaid by each bond, and whether/how the fund hedges against currency risk.

Edit: While I’m posting in Taylor’s lengthy thread, I should also say thank you for Taylor’s work on this. I believe firmly that this is the best portfolio for nearly all individual investors and it’s a shame that this isn’t taught in public schools as an essential life skill.
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bertilak
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Re: The Three-Fund Portfolio

Post by bertilak »

TurtleBeatsHare wrote: Wed Mar 16, 2022 10:27 am Edit: While I’m posting in Taylor’s lengthy thread, I should also say thank you for Taylor’s work on this. I believe firmly that this is the best portfolio for nearly all individual investors and it’s a shame that this isn’t taught in public schools as an essential life skill.
And it is an essential life skill. Stock-picking and market timing MIGHT be skills, but they are not ESSENTIAL. And pursuing them might even be harmful -- like the manly art of alligator wrestling!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
dbr
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Re: The Three-Fund Portfolio

Post by dbr »

bertilak wrote: Wed Mar 16, 2022 10:38 am
TurtleBeatsHare wrote: Wed Mar 16, 2022 10:27 am Edit: While I’m posting in Taylor’s lengthy thread, I should also say thank you for Taylor’s work on this. I believe firmly that this is the best portfolio for nearly all individual investors and it’s a shame that this isn’t taught in public schools as an essential life skill.
And it is an essential life skill. Stock-picking and market timing MIGHT be skills, but they are not ESSENTIAL. And pursuing them might even be harmful -- like the manly art of alligator wrestling!
I suspect that most efforts to include finance and investing in school end up involving sales pitches from predatory salesmen or misguided ventures into stock picking ala the investment club model. It might be interesting to see the debates that would surface if investing were included in core curriculum such as here for example. There is a standard but it doesn't go so far as to address investing in stocks and bonds.

https://view.officeapps.live.com/op/vie ... BROWSELINK
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bertilak
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Re: The Three-Fund Portfolio

Post by bertilak »

dbr wrote: Wed Mar 16, 2022 10:45 am
bertilak wrote: Wed Mar 16, 2022 10:38 am
TurtleBeatsHare wrote: Wed Mar 16, 2022 10:27 am Edit: While I’m posting in Taylor’s lengthy thread, I should also say thank you for Taylor’s work on this. I believe firmly that this is the best portfolio for nearly all individual investors and it’s a shame that this isn’t taught in public schools as an essential life skill.
And it is an essential life skill. Stock-picking and market timing MIGHT be skills, but they are not ESSENTIAL. And pursuing them might even be harmful -- like the manly art of alligator wrestling!
I suspect that most efforts to include finance and investing in school end up involving sales pitches from predatory salesmen or misguided ventures into stock picking ala the investment club model. It might be interesting to see the debates that would surface if investing were included in core curriculum such as here for example. There is a standard but it doesn't go so far as to address investing in stocks and bonds.

https://view.officeapps.live.com/op/vie ... BROWSELINK
I still remember a lesson we had in grade school about insurance. The school's heart may have been in the right place but it was simply a sophisticated way to make a sales pitch to the parents. We had "homework" that involved a checklist to get parents to fill out and a brochure from Hartford (with the deer/stag logo). "Hartford," in medieval language means "deer (hart) crossing (ford)." Not sure what that has to do with insurance but it was attention-getting for grade-schoolers.

The fact that I still remember attests to its effectiveness.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
nksid4683
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Re: The Three-Fund Portfolio

Post by nksid4683 »

New investor here looking to gather more and more info on the 3 fund portfolio. What is the dividend yield of the 3 fund portfolio constructed with VTI, VXUS and BND ?
dbr
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Re: The Three-Fund Portfolio

Post by dbr »

nksid4683 wrote: Wed Mar 16, 2022 10:14 pm New investor here looking to gather more and more info on the 3 fund portfolio. What is the dividend yield of the 3 fund portfolio constructed with VTI, VXUS and BND ?
That depends on what proportions of each you choose. The idea of the 3 fund portfolio still requires you to determine your asset allocation. Also unless you have no tax deferred space he dividend yield for those assets in 401k, 403, IRA and so on is not relevant.

If you are using Vanguard funds you can go here to find the SEC yields:

https://investor.vanguard.com/mutual-fu ... nd-returns

On those same pages you can select a fund and then look at the actual distributions to see the past distribution yield.

I'm curious why you want to know. Generally it isn't relevant to anything except tax planning in a taxable account.
nksid4683
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Re: The Three-Fund Portfolio

Post by nksid4683 »

Thank you.. as I mentioned, trying to just learn here. I plan to hold these in my Roth IRA as well as 401K account. My understanding is that I add the dividend yield to the overall return of the portfolio. Is that correct understanding? My desired allocation in 3 fund is VTI (50%) VXUS (30%) and BND (20%)
dbr
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Re: The Three-Fund Portfolio

Post by dbr »

nksid4683 wrote: Wed Mar 16, 2022 10:44 pm Thank you.. as I mentioned, trying to just learn here. I plan to hold these in my Roth IRA as well as 401K account. My understanding is that I add the dividend yield to the overall return of the portfolio. Is that correct understanding? My desired allocation in 3 fund is VTI (50%) VXUS (30%) and BND (20%)
No. Return includes the dividends already. Technically to measure the return of an investment held over a period of time you compare the end value of the holding to the beginning value of the holding with all payouts, dividends and capital gains distributions, reinvested.

If there are contributions to or withdrawals from the holding, dividends not reinvested being withdrawals, then the simple defintion of return does not apply and you have to use other choices suchs as:

https://www.investopedia.com/terms/i/ir ... NPV%20does.

https://www.investopedia.com/terms/t/ti ... 0return%20(TWR,inflows%20and%20outflows%20of%20money.

If you find a report at your broker labeled personal return that would be IRR.

It is a common mistake to think changes in the share price of an asset are the return. That is an error.
RetiOpening
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Re: The Three-Fund Portfolio

Post by RetiOpening »

I’m not sure if this question belongs in this thread or not, but here goes:

How do you find the conviction to choose a three-fund portfolio over a TDF like, in my case, VTIVX—Vanguard’s 2045 Target Date Fund? I have spent the last few months reading up on finance and Boglehead classics and some newer books and podcasts relating to factor investing and the like as well. My problem is that I actually become somewhat convinced that, say, a SCV tilt will pay off in 25 years or so, but I know I’m not convinced enough to be able to stick with the tilt through thick and thin. But that same reasoning goes for other things, like international equity allocation, rebalancing frequency, and even stock/bond ratio in general. 120 minus your age in stocks? Yeah, that sounds pretty good, but there’s no real conviction there. So I can’t resist the temptation to tinker.

In the end, I made the decision yesterday to consolidate my complicated and modestly well-researched six-fund portfolio into a single VTIVX fund, and I’m at peace with it (so far). My question is, am I really the only one with such struggles, and why isn’t a TDF the default instead of the three-fund allocation? (Taylor’s book on the three-fund was the first book of Boglehead literature I’ve ever read, BTW). It seems to be the ultimate in laziness as a virtue.
sycamore
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Re: The Three-Fund Portfolio

Post by sycamore »

RetiOpening wrote: Sun Mar 20, 2022 2:12 am My question is, am I really the only one with such struggles, and why isn’t a TDF the default instead of the three-fund allocation? (Taylor’s book on the three-fund was the first book of Boglehead literature I’ve ever read, BTW). It seems to be the ultimate in laziness as a virtue.
You're definitely not the only one.

Why is the TDF not the default? I suspect it's related to the minimize taxes principle from the Bogleheads Philosophy. A TDF in a taxable account works against that. It all comes down to your personal tax circumstances. Those can change from year to year so best to choose funds that are tax-efficient for the long-term.

If your portfolio is all in tax-advantaged accounts, you don't have to worry about the tax-efficiency -- a TDF can be the perfect choice for you.
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