The Three-Fund Portfolio

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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

I just learned from Boglehead dbr that we have had more than 60,000 "hits" on this topic. It is gratifying to see how The Three-Fund Portfolio is taking hold by U.S. investors.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
dbr
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Re: The Three-Fund Portfolio

Post by dbr »

Taylor Larimore wrote: Mon Nov 21, 2022 3:19 pm Bogleheads:

I just learned from Boglehead dbr that we have had more than 60,000 "hits" on this topic. It is gratifying to see how The Three-Fund Portfolio is taking hold by U.S. investors.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
Let me add the comment that I got that hit count by entering a search topic in the "Google" box in the upper right hand corner. The count you get may depend on exactly what terms you search and perhaps other parameters used by Google. Today I got just at this moment 42,700 on that search.
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Re: The Three-Fund Portfolio

Post by stevew912 »

What a wonderful post and thread. An additional benefit one should consider that served me well I'm not sure has been covered is legal compliance including employee codes of conduct for those still working, especially in sensitive lines of work like banking, investment management and law. Happy Thanksgiving everyone.
Blue456
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Re: The Three-Fund Portfolio

Post by Blue456 »

Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
longinvest
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Re: The Three-Fund Portfolio

Post by longinvest »

Blue456 wrote: Sun Dec 18, 2022 5:54 am Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
Blue456, VGIT is concentrated into only 111 intermediate-term Treasury bonds. In contrast, Vanguard's Total Bond Market ETF (BND) is broadly diversified across a total of 10,366 investment-grade bonds of various maturities and issuers. Taylor's Three-Fund Portfolio uses total-market index funds or ETFs. Other portfolios are probably best discussed in their own thread.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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Re: The Three-Fund Portfolio

Post by bertilak »

longinvest wrote: Sun Dec 18, 2022 8:27 am
Blue456 wrote: Sun Dec 18, 2022 5:54 am Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
Blue456, VGIT is concentrated into only 111 intermediate-term Treasury bonds. In contrast, Vanguard's Total Bond Market ETF (BND) is broadly diversified across a total of 10,366 investment-grade bonds of various maturities and issuers. Taylor's Three-Fund Portfolio uses total-market index funds or ETFs. Other portfolios are probably best discussed in their own thread.
Vanguard's Intermediate Term Bond fund (VBILX) has over 2000 bonds. I have used it as a TLH partner with Total Bond (VBTLX).
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Re: The Three-Fund Portfolio

Post by enad »

longinvest wrote: Sun Dec 18, 2022 8:27 am
Blue456 wrote: Sun Dec 18, 2022 5:54 am Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
Blue456, VGIT is concentrated into only 111 intermediate-term Treasury bonds. In contrast, Vanguard's Total Bond Market ETF (BND) is broadly diversified across a total of 10,366 investment-grade bonds of various maturities and issuers. Taylor's Three-Fund Portfolio uses total-market index funds or ETFs. Other portfolios are probably best discussed in their own thread.
In some accounts I use a combination of VGIT/VCIT in-lieu of BND to get more exposure to HQ IT Corporate Bonds (something that Jack talked about)
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Re: The Three-Fund Portfolio

Post by abuss368 »

Blue456 wrote: Sun Dec 18, 2022 5:54 am Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
Hi Blue 456 -

Taylor specifically selected Vanguard Total Bond Index and wrote about this in his book “The Bogleheads Guide to the Three Fund Portfolio”.

Taylor has often said any short or intermediate term investment grade bond fund that is low cost and diversified will provide safety and income to a portfolio.

Considering this thread is “The Three Fund Portfolio”, I will defer to Taylor here.

Thanks!
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Three-Fund Portfolio

Post by dbr »

Blue456 wrote: Sun Dec 18, 2022 5:54 am Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
Sure, lots of people do, and other things as well.

Showing that there is a significant difference amont different choices of low cost intermediate duration bond funds is pretty much impossible. Showing that there is a significant difference using other choices of fixed income is pretty difficult as well. Suggesting a low cost, pretty well diversified bond index fund is a no brainer. Other choices are also credible.

Myself, I am all intemediate duration TIPS funds, but I don't represent that as a panacea.
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Re: The Three-Fund Portfolio

Post by JSPECO9 »

longinvest wrote: Sun Dec 18, 2022 8:27 am
Blue456 wrote: Sun Dec 18, 2022 5:54 am Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
Blue456, VGIT is concentrated into only 111 intermediate-term Treasury bonds. In contrast, Vanguard's Total Bond Market ETF (BND) is broadly diversified across a total of 10,366 investment-grade bonds of various maturities and issuers. Taylor's Three-Fund Portfolio uses total-market index funds or ETFs. Other portfolios are probably best discussed in their own thread.
What difference would it make if it only held 1 treasury bond or 10,000 treasury bonds? Isn't it credit risk free? I ask because I'm also interested in using VGIT instead of BND.
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Re: The Three-Fund Portfolio

Post by longinvest »

JSPECO9 wrote: Sun Jan 01, 2023 10:13 am
longinvest wrote: Sun Dec 18, 2022 8:27 am
Blue456 wrote: Sun Dec 18, 2022 5:54 am Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
Blue456, VGIT is concentrated into only 111 intermediate-term Treasury bonds. In contrast, Vanguard's Total Bond Market ETF (BND) is broadly diversified across a total of 10,366 investment-grade bonds of various maturities and issuers. Taylor's Three-Fund Portfolio uses total-market index funds or ETFs. Other portfolios are probably best discussed in their own thread.
What difference would it make if it only held 1 treasury bond or 10,000 treasury bonds? Isn't it credit risk free? I ask because I'm also interested in using VGIT instead of BND.
JSPECO9, a bond portfolio carries other risks than default. Also, one view of broad diversification is about not putting all of one's bond eggs into a single U.S. government debt basket.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
732002
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target date fund in three fund retirement portfolio

Post by 732002 »

Considering a three fund portfolio with 33.3% each, TDF, VTSAX US equities, VBTLX US bonds.
The DTF would give some international exposure and automatically adjust asset allocation over time. Having funds split evenly
would help make rebalancing math simple.

This would be for retirement starting Jan 2026 at ages 62 and 64. asset allocation 60/40?
Estimated withdrawals 3% the first 5 years while taking one SS, 1.5% after taking second SS
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Re: The Three-Fund Portfolio

Post by JIMX7 »

We are retired and have a 4 fund portfolio with Vanguard its their cookie cutter go to.
VTI
VXUS
BND
BNDX
Pretty much a set and forget.
Now on the side we added a 4 stock portfolio.
AEE
EMR
KIM
VICI
Guess which one is doing better ?
Same amount of $ invested in both.
Also get the same advice from our advisor we are to aggressive. Won't need to withdraw from either for another 4 years. Any thoughts ?
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Re: The Three-Fund Portfolio

Post by abuss368 »

Taylor Larimore wrote: Sun Jan 01, 2012 5:02 pm __________________________________________________________________________________________________

Past rate of inflation (CPU) and annual fund returns in The Three-Fund Portfolio:

YEAR--INFLATION--BOND INDEX--S&P 500 INDEX------MSCI EAFE INDEX
1976-------4.9%--------15.6%------------23.8%--------------------3.6%
1977-------6.7-----------3.0-------------(-7.2)-------------------17.5
1978-------9.0-----------1.4---------------6.6--------------------33.1
1979------13.3-----------1.9--------------18.4-------------------10.9 (Highest Annual Inflation Rate)
1980------12.5-----------2.7--------------32.4-------------------25.4
1981-------8.9-----------6.3-------------(-4.9)------------------(-2.5)
1982-------3.8----------32.6--------------21.6------------------(-0.3) (Highest Bond Index Return)
1983-------3.8-----------8.4--------------22.6-------------------24.8
1984-------3.9----------15.2---------------6.3--------------------3.5
1985-------3.8----------22.1--------------31.7-------------------51.4
1986-------1.1----------15.2--------------18.7-------------------65.8 (Highest Stock Return)
1987-------4.4-----------2.8----------------5.2-------------------24.6
1988-------4.4-----------7.9---------------16.6-------------------27.8
1989-------4.6----------14.5---------------31.7------------------11.4
1990-------6.1-----------8.9---------------(-3.1)---------------(-22.8)
1991-------3.1----------16.0---------------30.5------------------12.4
1992-------2.9-----------7.4-----------------7.6----------------(-11.9)
1993-------2.7-----------9.7----------------10.1------------------32.6
1994-------2.7---------(-2.9)----------------1.3--------------------7.6
1995-------2.5----------18.5---------------37.6-------------------11.8 (Highest S&P Index Return)
1996-------3.3-----------3.6----------------23.0--------------------7.2
1997-------1.7-----------9.7----------------33.4--------------------2.6
1998-------1.6-----------8.7----------------28.6-------------------19.1
1999-------2.7---------(-0.8)---------------21.0-------------------28.3
2000-------3.4----------11.6---------------(-9.1)----------------(-15.8)
2001-------1.6-----------8.4--------------(-11.9)----------------(-19.8)
2002-------2.4----------10.3-------------(-22.1)----------------(-15.3)
2003-------1.9-----------4.1----------------28.7-------------------40.4
2004-------3.3-----------4.3----------------10.9-------------------20.9
2005-------3.4-----------2.4-----------------4.9-------------------15.8
2006-------2.5-----------4.3----------------15.8------------------26.8
2007-------4.1-----------7.0-----------------5.5------------------11.6
2008-------0.1-----------5.2--------------(-37.0)---------------(-43.1) (Lowest U.S. and International Stock Returns)
2009-------2.7-----------5.9----------------26.5------------------32.5
2010-------1.5-----------6.5----------------15.1-------------------8.2
2011-------3.0-----------7.7-----------------2.1----------------(-11.7)
2012-------1.7-----------4.3----------------16.0------------------17.9
2013-------1.5---------(-2.0)---------------32.4------------------23.3
2014-------1.6-----------6.0----------------13.7-----------------(-4.5)
2015-------0.7-----------0.5-----------------1.4-----------------(-0.4)
2016-------2.1-----------2.6----------------12.0-------------------1.5
2017-------2.1-----------3.5----------------21.8------------------25.6
2018-------2.5---------(-0.1)--------------(-4.4)---------------(-13.4)
2019-------2.3-----------8.7----------------31.5------------------22.7
2020-------1.4-----------7.7----------------18.4------------------11.3
2021-------7.0---------(-1.7)---------------25.7-------------------8.6
2022-------6.5--------(-13.2)-------------(-19.4)--------------(-16.0) (Lowest Bond Index Return)

Sources: Vanguard, U.S. Labor Department (CPI-U), Standard & Poors, Bloomberg Barclays Aggregate Bond Index, and DFTurner
Hi Taylor -

Thank you for updating the performance results.

Wow! Total International beat Total Stock last year!

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Charles Joseph
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Re: The Three-Fund Portfolio

Post by Charles Joseph »

JSPECO9 wrote: Sun Jan 01, 2023 10:13 am
longinvest wrote: Sun Dec 18, 2022 8:27 am
Blue456 wrote: Sun Dec 18, 2022 5:54 am Anybody uses intermediate duration treasuries (VGIT) instead of total bond market?
Blue456, VGIT is concentrated into only 111 intermediate-term Treasury bonds. In contrast, Vanguard's Total Bond Market ETF (BND) is broadly diversified across a total of 10,366 investment-grade bonds of various maturities and issuers. Taylor's Three-Fund Portfolio uses total-market index funds or ETFs. Other portfolios are probably best discussed in their own thread.
What difference would it make if it only held 1 treasury bond or 10,000 treasury bonds? Isn't it credit risk free? I ask because I'm also interested in using VGIT instead of BND.
I use VIGT (and treasury MMFs) in taxable for tax efficiency. My tax rate is too low for municipals, so the savings on state tax helps.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: The Three-Fund Portfolio

Post by ClevrChico »

Wow, what happened in 1986? (MCSI EAFE +65.8%!)
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Re: The Three-Fund Portfolio

Post by annied12 »

Hi Taylor:

The more I think about it, the more I have come to the conclusion that you are right to just simplify our investment lives and use a three fund portfolio and something very similar to it.

Thank you for your time and the good advice you have given us over the years

David and Ann Marie
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Re: The Three-Fund Portfolio

Post by wbarabas »

For a simple brokerage account. Would I be okay with
VTI/VXUS/and US treasuries?
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Re: The Three-Fund Portfolio

Post by dbr »

wbarabas wrote: Fri Jan 20, 2023 1:12 pm For a simple brokerage account. Would I be okay with
VTI/VXUS/and US treasuries?
If you mean to hold a typical intermediate duration Treasury fund of low cost rather than a Total Bond Index fund, then you will be okay, at least as far as the limits of what "okay" means.
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BND

Post by Taylor Larimore »

wbarabas wrote: Fri Jan 20, 2023 1:12 pm For a simple brokerage account. Would I be okay with
VTI/VXUS/and US treasuries?
wbarabas:

The answer is "yes" you would be "okay" with VTI (Total U.S.Stock Market), and VXUS (Total International Stock Market) and US treasuries.

I personally prefer BND as my bond holdings because it contains about 50% government securities and enjoys an AAA bond rating (the highest) resulting in better diversification and should provide a slightly higher return over long periods.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Deep down, I remain absolutely confident that the vast majority of American families will be well served by owning their equity holding in an all-U.S. stock-market index portfolio and holding their bonds in an all-U.S. bond-market index portfolio. (Investors in high tax brackets, however, would hold a very low-cost quasi-index portfolio of high-grade intermediate-term municipal bonds.)"
Last edited by Taylor Larimore on Thu Feb 09, 2023 6:42 pm, edited 1 time in total.
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"The Best Index Funds"

Post by Taylor Larimore »

Bogleheads:

Morningstar has posted a study titled "The Best Index Funds". I am pleased to see that all three funds in The Three-Fund Portfolio are Morningstar's "Best":

https://www.morningstar.com/articles/11 ... ndex-funds

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 gdasa »

Is it also okay to have one fund portfolio as well? I have been investing in VTSAX.
Last edited by gdasa on Sat Feb 11, 2023 10:21 am, edited 1 time in total.
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Re: The Three-Fund Portfolio

Post by bertilak »

gdasa wrote: Sat Feb 11, 2023 9:53 am Is it also okay to have one fund portfolio as well? I have been investing in VTSMX.
That is one third of the Three-Fund Portfolio. It is the same fund as VTSAX, but the share class is for those who only want (or can) afford a very small investment. Anyone with a reasonably sized portfolio should be using VTSAX. If you don't have enough for VTSAX, I suggest accumulating more in cash or money market fund until you do have enough. One can also use the ETF equivalent (VTI) which has a much smaller minimum.

To answer your question: Depending on your age, the single fund (VTSAX or VTI recommended) is thought by many to be a good choice. In a way it IS the three-fund portfolio with an AA of 100/0/0. I would recommend a little more diversity, perhaps 80/10/10, as a minimum equity-heavy portfolio. This is for someone with many years to go before the need to draw down the portfolio, presumably in retirement.
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Re: The Three-Fund Portfolio

Post by gdasa »

bertilak wrote: Sat Feb 11, 2023 10:13 am
gdasa wrote: Sat Feb 11, 2023 9:53 am Is it also okay to have one fund portfolio as well? I have been investing in VTSMX.
That is one third of the Three-Fund Portfolio. It is the same fund as VTSAX, but the share class is for those who only want (or can) afford a very small investment. Anyone with a reasonably sized portfolio should be using VTSAX. If you don't have enough for VTSAX, I suggest accumulating more in cash or money market fund until you do have enough. One can also use the ETF equivalent (VTI) which has a much smaller minimum.

To answer your question: Depending on your age, the single fund (VTSAX or VTI recommended) is thought by many to be a good choice. In a way it IS the three-fund portfolio with an AA of 100/0/0. I would recommend a little more diversity, perhaps 80/10/10, as a minimum equity-heavy portfolio. This is for someone with many years to go before the need to draw down the portfolio, presumably in retirement.
Thank you for your time. Appreciate your detailed response. I just logged my Vanguard account, and invested fund is VTSAX. I am now 34, and have been indexing since 2017. Prior to 2017, I was investing in single issue stocks. Is there any advantage for me the hold 10 or 20% cash/bond for my age group? Esp I can't draw out the funds for almost 30 years or so in the 401k/ROTH IRA accounts, plus I am also building S&P 500 Index ( VFIAX ) position in taxable brokerage account. Thank you!
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Re: The Three-Fund Portfolio

Post by bertilak »

gdasa wrote: Sat Feb 11, 2023 10:30 am
bertilak wrote: Sat Feb 11, 2023 10:13 am
gdasa wrote: Sat Feb 11, 2023 9:53 am Is it also okay to have one fund portfolio as well? I have been investing in VTSMX.
That is one third of the Three-Fund Portfolio. It is the same fund as VTSAX, but the share class is for those who only want (or can) afford a very small investment. Anyone with a reasonably sized portfolio should be using VTSAX. If you don't have enough for VTSAX, I suggest accumulating more in cash or money market fund until you do have enough. One can also use the ETF equivalent (VTI) which has a much smaller minimum.

To answer your question: Depending on your age, the single fund (VTSAX or VTI recommended) is thought by many to be a good choice. In a way it IS the three-fund portfolio with an AA of 100/0/0. I would recommend a little more diversity, perhaps 80/10/10, as a minimum equity-heavy portfolio. This is for someone with many years to go before the need to draw down the portfolio, presumably in retirement.
Thank you for your time. Appreciate your detailed response. I just logged my Vanguard account, and invested fund is VTSAX. I am now 34, and have been indexing since 2017. Prior to 2017, I was investing in single issue stocks. Is there any advantage for me the hold 10 or 20% cash/bond for my age group? Esp I can't draw out the funds for almost 30 years or so in the 401k/ROTH IRA accounts, plus I am also building S&P 500 Index ( VFIAX ) position in taxable brokerage account. Thank you!
In the taxable account you may, someday, want to do Tax Loss Harvesting. and some would say having different funds in taxable vs tax-deferred helps with that since, for example, reinvesting dividends in one fund will not interfere with TLH in the other. This is really not a big deal and I, personally, never worry about it. I also don't maintain a cash position in my IRA, but I let dividends in my taxable account accumulate as cash because I like to have some cash available for unexpected expenses and so I can decide what asset class to invest them in for AA maintenance purposes. (Some call this re-balancing, but I prefer to think of it as AA maintenance; I avoid selling in order to buy.)
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Re: The Three-Fund Portfolio

Post by kojima »

For someone in their 30's with their IRA, does it make sense to have a small allocation to BND in their IRA portfolio? What would be an appropriate replacement?

70% VTI
20% VXUS
10% ?
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

This is a very good video by Jarrad Morrow discussing how to invest successfully using the many advantages of The Three-Fund Portfolio. This is the link:

Why The 3 Fund Portfolio Is King

Best wishes.
Taylor
Jack Bogle's Words of Wisdom:"The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan. --There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."

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

Post by BogleJauch »

Thank you.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

I put 3-Fund Portfolio into Google and received 238,000,000 results.

I am pleased that our The Three-Fund Portfolio appears to be the largest portfolio in the world (for good reasons):
* Avoids wasted time and the possibility of mistakes trying to pick the best of thousands of mutual funds and ETFs.
* No individual stock risk.
* Highest return with lowest risk. Efficient.
* Very diversified with over 20,000 worldwide securities (lower risk).
* Very low expense ratios.
* Very low (hidden) turnover costs.
* Very tax-efficient.
* The many Advantages of Simplicity.
* No adviser risk.
* No fund manager risk.
* No style drift.
* No asset bloat.
* No tracking error to cause abandonment of the strategy.
* No fund overlap.
* No front-running that reduces sub-index returns.
* Automatic rebalancing within each fund.
* No need for a portfolio tracking program.
* Less worry. Never under-performs the market.
* Easy to maintain for the owner, spouse, caregivers and heirs.
* More free time.
* Mathematically certain to outperform most investors.
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan." -- "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk." -- "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by wwhan »

The three fund portfolio is a very good solution to simplify investing and still have adequate returns. Thank you Taylor for promoting this.

I basically follow the three fund portfolio, but due to some of my investments being in a Fidelity 401K, my actual International (Foreign Large blend) & US index (Equity, 500 Index) are different funds in the Fidelity 401K. For the Vanguard funds, choices are more straight forward.

My fixed income is split accross tax deferred accounts and taxable savings accounts, which gives a slightly different twist on the fixed income portion. Over time my taxable income investment has changed (now retired), so now I am less likely to own individual Muni bonds than in the past.

Everyone's specific investing solution will vary considering; total $ value, income tax bracket, age and specific account locations.

For fixed income, which is the most complex part of my overall portfolio, I have used; Vanguard bond funds, Individual state Muni bonds, Treasury bonds, CDs & Vanguard Treasury money market funds. A few years ago, before Covid, I shorted the duration of my fixed income accounts, since the interest rate was overdue to go up.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

when wrote: Sun Apr 16, 2023 3:54 pm The three fund portfolio is a very good solution to simplify investing and still have adequate returns. Thank you Taylor for promoting this.

I basically follow the three fund portfolio, but due to some of my investments being in a Fidelity 401K, my actual International (Foreign Large blend) & US index (Equity, 500 Index) are different funds in the Fidelity 401K. For the Vanguard funds, choices are more straight forward.

My fixed income is split accross tax deferred accounts and taxable savings accounts, which gives a slightly different twist on the fixed income portion. Over time my taxable income investment has changed (now retired), so now I am less likely to own individual Muni bonds than in the past.

Everyone's specific investing solution will vary considering; total $ value, income tax bracket, age and specific account locations.

For fixed income, which is the most complex part of my overall portfolio, I have used; Vanguard bond funds, Individual state Muni bonds, Treasury bonds, CDs & Vanguard Treasury money market funds. A few years ago, before Covid, I shorted the duration of my fixed income accounts, since the interest rate was overdue to go up.
wwhan:

I see nothing seriously wrong by adding a low-cost, tax-efficient fund to The Three-Fund Portfolio -- but consider the loss of efficiency and the additional complexity. If you are in a high-tax bracket a tax-exempt bond fund may be better (in a taxable account) than a total bond market index fund.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Never underrate either the majesty of simplicity or its proven effectiveness as a long-term strategy for productive investing."
"Simplicity is the master key to financial success." -- Jack Bogle
MandarinOrange
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Re: The Three-Fund Portfolio

Post by MandarinOrange »

When is the best time of year to make an annual retirement withdrawal from a three-fund portfolio? My husband and I have finally retired and will be withdrawing for the first time.

We're not old enough for RMDs and are just wanting to sell mutual funds and move the money to a savings/checking account once a year for spending. Our three-fund portfolio is split up between a taxable account, and each of us have an IRA, Roth IRA, & HSA.

I've calculated our annual withdrawal amount (using the Bogleheads Variable Percentage Withdrawal (VPW) method).

Going forward, is it best to take an annual withdrawal on Dec 31 of the previous year for spending money in the current year? Or is it better to take the money out on Jan 1 of the current year (or even later in the year)?

I'm assuming it would depend on individual tax situations, but are there any other reasons to do it one way or another? Dividends and interest concerns? What do people do?

I also thought about taking withdrawals monthly or quarterly but thought annually would be the simplest.
Last edited by MandarinOrange on Sat Apr 22, 2023 2:52 pm, edited 3 times in total.
dbr
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Re: The Three-Fund Portfolio

Post by dbr »

MandarinOrange wrote: Fri Apr 21, 2023 7:53 pm When is the best time of year to make an annual retirement withdrawal from a three-fund portfolio?

For example, is it best to take your annual withdrawal on Dec 31 of 2022 for spending money in 2023? Or is it better to take the money out on Jan 1, 2023 (or even later in the year)?

I'm assuming it would depend on individual tax situations, but are there any other reasons to do it one way or another?
When you take an RMD the first step is effectively moving the money from a tax deferred account and what it was invested in there to a taxable account and what it is invested in there. So the issue is how do you want your money allocated over the course of the year. Different people could reasonably choose any variation in what they do and it would make sense for them.

Sometime there are other considerations. I like to keep the tax deferred account invested to year end but then most of it is spent to income tax withholding that pays my entire tax payment for the year, usually with a little left over. Not everyone would have things matched up that way.

Note, as a practical matter leaving transactions literally to the last day of the month would be a mistake. I usually execute things around the beginning of December to make sure it all processes as it should.
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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

Former Financial Advisor, Humphrey Yang, has produced a video featuring The Three-Fund Portfolio. This is the link:

https://www.youtube.com/watch?v=R0rEZYA01lM

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan." -- "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
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A440
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Re: The Three-Fund Portfolio

Post by A440 »

Thank you Taylor.
This is my 5th year since I 've implemented the 3-fund portfolio. No regrets. It is working as it should. I did an annual rebalance yesterday that took all of 5 minutes.
"Life should be exciting, your investments should be boring" :happy
I don't know what the future holds, but I know who holds my future.
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A440
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Re: The Three-Fund Portfolio

Post by A440 »

Should the Three-Fund Portfolio be implemented in taxable accounts as well? The bond portion would through off a lot of income every month.
I don't know what the future holds, but I know who holds my future.
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bertilak
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Re: The Three-Fund Portfolio

Post by bertilak »

A440 wrote: Sat May 06, 2023 4:42 pm Should the Three-Fund Portfolio be implemented in taxable accounts as well? The bond portion would through off a lot of income every month.
The three fund portfolio should be implemented across ALL your accounts. It is wise to locate assets with the best tax consequences so it is likely that not every account, individually, will have identical asset allocations. The should all add up t the AA you chose.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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A440
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Re: The Three-Fund Portfolio

Post by A440 »

bertilak wrote: Sat May 06, 2023 4:47 pm
A440 wrote: Sat May 06, 2023 4:42 pm Should the Three-Fund Portfolio be implemented in taxable accounts as well? The bond portion would through off a lot of income every month.
The three fund portfolio should be implemented across ALL your accounts. It is wise to locate assets with the best tax consequences so it is likely that not every account, individually, will have identical asset allocations. The should all add up t the AA you chose.
What would be the advice if making a large lump sum deposit into taxable accounts? Would it be a good idea to use a Lifestrategy Fund that matches your AA? I'm not sure how else to get my AA to meet my goals when a limited amount can be added to tax-deferred/tax-free accounts every year.
I don't know what the future holds, but I know who holds my future.
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bertilak
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Re: The Three-Fund Portfolio

Post by bertilak »

A440 wrote: Sat May 06, 2023 4:54 pm
bertilak wrote: Sat May 06, 2023 4:47 pm
A440 wrote: Sat May 06, 2023 4:42 pm Should the Three-Fund Portfolio be implemented in taxable accounts as well? The bond portion would through off a lot of income every month.
The three fund portfolio should be implemented across ALL your accounts. It is wise to locate assets with the best tax consequences so it is likely that not every account, individually, will have identical asset allocations. The should all add up t the AA you chose.
What would be the advice if making a large lump sum deposit into taxable accounts? Would it be a good idea to use a Lifestrategy Fund that matches your AA? I'm not sure how else to get my AA to meet my goals when a limited amount can be added to tax-deferred/tax-free accounts every year.
Just do the best you can and don't worry about it. I have bonds in a taxable account because they don't all "fit" in my IRA. Not a big enough deal to worry about.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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Taylor Larimore
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Three-Fund Portfolio Leads The Pack

Post by Taylor Larimore »

Bogleheads:

Every now and then I link to Paul Farrell's Lazy Portfolios on MarketWatch to see how my portfolio is performing. The Three-Fund Portfolio has been a winner in bull markets. Now we can see that The Three-Fund Portfolio is a winner in bear markets:

TOTAL RETURNS FOR 8 LAZY PORTFOLIOS:

Portfolio-------------------------------------1-yr----------3-yrs-----------5-yrs----------10-yrs
Aronson Family Taxable------------------2.62%---------6.44%----------3.96%---------5.45%
Fundadvice Ultimate Buy & Hold-------3.00%---------6.66%----------3.45%---------4.20%
Dr. Bernstein's Smart Money-------------2.39%---------7.58%----------4.19%---------5.30%
Coffeehouse--------------------------------0.85%---------6.33%----------4.03%---------5.21%
Yale U's Unconventional------------------0.36%---------5.83%----------4.75%---------5.50%
Bernstein's No Brainer--------------------6.09%---------9.26%----------5.22%---------6.63%
Margaritaville------------------------------3.92%---------8.15%----------5.00%---------5.59%
Second Grader's Starter**----------------5.47%--------10.70%----------6.60%---------8.04%

** The Three-Fund Portfolio designed by Allen Roth containing 60% Vanguard Total Stock Market VTSMX, 30% Vanguard Total International Stock Market
VGTSX and 10% Vanguard Total Bond Market VBMFX

Thank you Mr. Bogle!
Last edited by Taylor Larimore on Thu May 11, 2023 5:30 pm, edited 2 times in total.
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Re: The Three-Fund Portfolio

Post by martincmartin »

Interesting that 100% stocks (S&P 500) does better than all of them at 3, 5 and 10 years. And better than all but two others over the last year.
Echard
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Re: The Three-Fund Portfolio

Post by Echard »

martincmartin wrote: Thu May 11, 2023 5:07 pm Interesting that 100% stocks (S&P 500) does better than all of them at 3, 5 and 10 years. And better than all but two others over the last year.
This is something that I was just looking at. I'm already in retirement and compared the 10 year performance of the S&P 500 VFIAX to the VBIAX 60/40 fund. What struck me as I looked at the charts over the last 10 years is that the "risk reduction" just didn't seem to produce much value over that time period. I assume that is because of how low bond returns were during the last ten years. I would think it would perform much better for the coming years due to higher rates. It actually caused me to question whether 60/40 is worth it, even in retirement.
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Re: The Three-Fund Portfolio

Post by seajay »

Echard wrote: Fri May 12, 2023 3:35 pm
martincmartin wrote: Thu May 11, 2023 5:07 pm Interesting that 100% stocks (S&P 500) does better than all of them at 3, 5 and 10 years. And better than all but two others over the last year.
This is something that I was just looking at. I'm already in retirement and compared the 10 year performance of the S&P 500 VFIAX to the VBIAX 60/40 fund. What struck me as I looked at the charts over the last 10 years is that the "risk reduction" just didn't seem to produce much value over that time period. I assume that is because of how low bond returns were during the last ten years. I would think it would perform much better for the coming years due to higher rates. It actually caused me to question whether 60/40 is worth it, even in retirement.
Run PV Monte Carlo for 60/40 TSM/TBM and note the 95% success rate for a 30 year 4% SWR. 50th percentile case ended with twice the inflation adjusted start date amount. 10th percentile ended with 30%, 90th percentile ended with 5.7 times.

Do the same for 100% TSM and 86% success rate, 2.5 times 50th percentile, 0% 10th percentile, 12 times 90th percentile outcomes.

On average 100% TSM ended with more (2.5 vs 2 times in the 50th percentile case), but had more failures (only 86% were successful compared to 95% for 60/40).

100% was more volatile in outcome. Better in the average case, but worse for the 14% for whom it failed compared to 5% for 60/40.

A sizeable number will have done better with 100% TSM, but at the risk of potentially being one of the larger proportion for whom it didn't work out well.

Is targeting potentially leaving a larger legacy worth the additional risk of failure? On average leaving 2.5 times rather than 2 times, at the risk of being in a 14% set versus 5% set for whom things didn't work out well. If maximizing legacy is a primary objective then you could do better than 100% TSM with something like this (67/33 SCV/gold)
Tatala
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Re: The Three-Fund Portfolio

Post by Tatala »

Taylor Larimore wrote: Mon Nov 21, 2022 3:19 pm Bogleheads:

I just learned from Boglehead dbr that we have had more than 60,000 "hits" on this topic. It is gratifying to see how The Three-Fund Portfolio is taking hold by U.S. investors.

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


Well I finally did it after so many years , im 72 now. I tried everything day trading, newsletters, dividend programs, advisors, roboa dvisors etc. Today I set up my 3 fund portfolio for myself. I can tell you that I feel like the weight of 500 pounds lifted off me. No more watching Bloomberg, checking my positions every few seconds , worrying.
This is not only financial, its emotional for me, I can now go out and enjoy my retirement
Thank you Taylor
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Tatala wrote:
Well I finally did it after so many years , im 72 now. I tried everything day trading, newsletters, dividend programs, advisors, roboa dvisors etc. Today I set up my 3 fund portfolio for myself. I can tell you that I feel like the weight of 500 pounds lifted off me. No more watching Bloomberg, checking my positions every few seconds , worrying.
This is not only financial, its emotional for me, I can now go out and enjoy my retirement
Thank you Taylor
Tatala:

And I "Thank you" for your post.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan." -- "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
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wwhan
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Re: The Three-Fund Portfolio

Post by wwhan »

martincmartin wrote: Thu May 11, 2023 5:07 pm Interesting that 100% stocks (S&P 500) does better than all of them at 3, 5 and 10 years. And better than all but two others over the last year.
As someone said, I am not sure who said it; "The enemy of a good plan is the search for the perfect plan"

I think the priority of an adequate and safe plan is what drives people to use 60/40 or 50/50. Black swan events do happen and sometimes it can take years to recover.

I have a target of 55%/45%, with a maximum possible deviation of +/- 5%. The 45% is fixed income assets. The taxable account fixed income portion is mostly in Treasury bonds/T-bills, with some VUSXX. California has a minimum 9.3% state tax.

I sleep well at night, with this allocation. I am retired (5 years now) & plan to live on only 2.5% of my total portfolio. No need to take excessive risk.

Everyone's financial plan is personal and adapted to their situation, but there is no need to make it complex.
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Miriam2
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Re: The Three-Fund Portfolio

Post by Miriam2 »

wwhan wrote: Tue May 16, 2023 1:24 pm
martincmartin wrote: Thu May 11, 2023 5:07 pm Interesting that 100% stocks (S&P 500) does better than all of them at 3, 5 and 10 years. And better than all but two others over the last year.
As someone said, I am not sure who said it; "The enemy of a good plan is the search for the perfect plan"

I think the priority of an adequate and safe plan is what drives people to use 60/40 or 50/50. Black swan events do happen and sometimes it can take years to recover.

I have a target of 55%/45%, with a maximum possible deviation of +/- 5%. The 45% is fixed income assets. The taxable account fixed income portion is mostly in Treasury bonds/T-bills, with some VUSXX. California has a minimum 9.3% state tax.

I sleep well at night, with this allocation. I am retired (5 years now) & plan to live on only 2.5% of my total portfolio. No need to take excessive risk.

Everyone's financial plan is personal and adapted to their situation, but there is no need to make it complex.
Nice advice from someone (wwhan) who has been a Boglehead since March 4, 2007 - that's over 16 years :D

(Bogleheads dot org began Feb. 19, 2007)
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Re: The Three-Fund Portfolio

Post by Leesbro63 »

Miriam2 wrote: Tue May 16, 2023 5:34 pm
(Bogleheads dot org began Feb. 19, 2007)
Yeah but the predecessor of this Bogleheads bulletin board, which was on Morningstar, was the "real" beginning of Bogleheads and started about 10 years before that. Although your point is still valid!
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

Optimized Portfolio has produced an excellent updated review of The Three-Fund Portfolio. This is the link:

https://www.optimizedportfolio.com/bogl ... portfolio/

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan." -- "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: The Three-Fund Portfolio

Post by wwhan »

......

Yeah but the predecessor of this Bogleheads bulletin board, which was on Morningstar, was the "real" beginning of Bogleheads and started about 10 years before that. Although your point is still valid!
Yeah, true I did not join Morningstar until 1999, so I was not there at the beginning. I remember when we switched to this bogleheads.org forum from the Morningstar forum.
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