The Three-Fund Portfolio
Re: The Three-Fund Portfolio
Is a 3 fund portfolio using g a 50/50 split stocks and Bonds, too aggressive for a 70 year old. I am currently taking distributions yearly. Considering we are in an increasing interest environment, bonds sank last year . This year it looks kind of the same , so I could go with the 110-age, but I cant figure which way to handle this.
TY
TY
- Taylor Larimore
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Re: The Three-Fund Portfolio
Tatala:Tatala wrote: ↑Fri May 19, 2023 1:08 pm Is a 3 fund portfolio using g a 50/50 split stocks and Bonds, too aggressive for a 70 year old. I am currently taking distributions yearly. Considering we are in an increasing interest environment, bonds sank last year . This year it looks kind of the same , so I could go with the 110-age, but I cant figure which way to handle this.
TY
Age is not the only criteria for determining our best stock/bond ratio. Use the link below -- then stay-the-course:
Investor Questionnaire.
Best wishes.
Taylor
Jack Bogle's Words of WIsdom: “The enemy of a good plan is the dream of a perfect plan.”
"Simplicity is the master key to financial success." -- Jack Bogle
Re: The Three-Fund Portfolio
Yes, I had done that and the balanced portfolio obviously always wins, hence why 60/40 is such a popular strategy. From today forward, 60/40 makes so much sense given that rates are much better now. However, if we drop back down to really low rates again (probably unlikely), it does raise questions about whether it's worth leaving money in bonds for extended periods at very low rates. I know this goes against the passive investment philosophy. I just can't fathom a scenario where earning 2% on bonds is worth it.seajay wrote: ↑Mon May 15, 2023 1:30 pmRun 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.Echard wrote: ↑Fri May 12, 2023 3:35 pmThis 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.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.
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)
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Re: The Three-Fund Portfolio
How about when there is a big stock market crash? It is in these unfathomable circumstances that a mix of stocks and bonds becomes worth it. Some will try to time this and others will use the Boy Scout approach: Be Prepared. Depending on how critical your investments are to your income, you may wish to be more or less prepared. Adjust the AA of your three-funder accordingly.
Last edited by bertilak on Sat May 20, 2023 10:45 am, edited 1 time in total.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Re: The Three-Fund Portfolio
Think in real (after inflation) terms and before (very low interest rates) were accompanied by very low inflation rates, treasury bonds were paying marginally negative real yields. More recently however, such as here in the UK, inflation is higher than treasury yields, so bonds are paying considerably more negative real yields.Echard wrote: ↑Sat May 20, 2023 10:27 amFrom today forward, 60/40 makes so much sense given that rates are much better now. However, if we drop back down to really low rates again (probably unlikely), it does raise questions about whether it's worth leaving money in bonds for extended periods at very low rates. I know this goes against the passive investment philosophy. I just can't fathom a scenario where earning 2% on bonds is worth it.
With paired assets you might want one that reasonably consistently paces inflation, low (real) volatility, and another that zig zags more wildly around that, in such case rebalancing will tend to add more of the volatile asset when its zagged, reduce when its zigged (or is it the other way around, not sure if zag is down, zig is up ... or the other way around).
Re: The Three-Fund Portfolio
All it took was me losing thousands of dollars from drinking the factor juice and countless hours lost playing with backtest portfolio visualizer trying to optimize my portfolio to realize how simple this is.
Hello, Three-Fund Portfolio. Looking forward to investing simplicity for the rest of my life.
Thank you Taylor and Jack for your wisdom and guidance.
Hello, Three-Fund Portfolio. Looking forward to investing simplicity for the rest of my life.
Thank you Taylor and Jack for your wisdom and guidance.
- Taylor Larimore
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Re: The Three-Fund Portfolio
JSPEC09:JSPECO9 wrote: ↑Wed May 24, 2023 11:23 am All it took was me losing thousands of dollars from drinking the factor juice and countless hours lost playing with backtest portfolio visualizer trying to optimize my portfolio to realize how simple this is.
Hello, Three-Fund Portfolio. Looking forward to investing simplicity for the rest of my life.
Thank you Taylor and Jack for your wisdom and guidance.
Few things make me happier than learning someone has benefited from "The Three-Fund Portfolio" and its "Simplicity."
"The Three-Fund Portfolio" has given me a worry-free and comfortable retirement for many years and I am sure it will work for you.
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
Re: The Three-Fund Portfolio
Thanks so much for the shout-out and kind words, Taylor!Taylor Larimore wrote: ↑Thu May 18, 2023 6:41 pm 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.
TaylorJack 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."
The Three-Fund continues to be my default recommendation for novices, as well as the simple "VT and chill" for those wanting to go 100% stocks.
Planning to do a new updated video on the Three-Fund soon with a much more detailed segment on the merits of international diversification for U.S. investors.
Also revisiting your book for some casual reading and reaffirmations.
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
- Taylor Larimore
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Re: The Three-Fund Portfolio
JohnW2:
Are you associated with Optimized Portfolio?
Thank you.
Taylor
Are you associated with Optimized Portfolio?
Thank you.
Taylor
Jack Bogle's Words of Wisdom: "I favor the all-market index fund as the best choice for most investors."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: The Three-Fund Portfolio
I imagine JohnW2 is John Williamson of Optimized Portfolio.Taylor Larimore wrote: ↑Thu May 25, 2023 1:04 pm JohnW2:
Are you associated with Optimized Portfolio?
Thank you.
TaylorJack Bogle's Words of Wisdom: "I favor the all-market index fund as the best choice for most investors."
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Re: The Three-Fund Portfolio
Yes. I am it.Taylor Larimore wrote: ↑Thu May 25, 2023 1:04 pm JohnW2:
Are you associated with Optimized Portfolio?
Thank you.
TaylorJack Bogle's Words of Wisdom: "I favor the all-market index fund as the best choice for most investors."
Correct.
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
- Taylor Larimore
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Re: The Three-Fund Portfolio
JohnW2:
I am delighted to learn that you are the very knowledgeable person behind the wonderful Optimized Portfolio website. Your video recommending The Three-Fund Portfolio is fair, accurate and I think--persuasive.
I recently reviewed Paul Farrell's Lazy Portfolios on MarketWatch which may be of interest. You will not be surprised to learn that The Three-Fund Portfolio leads the pack of professional investors in both bull and bear markets (Dr. Bernstein's portfolio is a one-year exception):
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 Second Grader's Starter Portfolio designed by Allen Roth contains 60% Vanguard Total Stock Market VTSMX, 30% Vanguard Total International Stock Market (VGTSX) and 10% Vanguard Total Bond Market (VBMFX).
Best wishes.
Taylor
I am delighted to learn that you are the very knowledgeable person behind the wonderful Optimized Portfolio website. Your video recommending The Three-Fund Portfolio is fair, accurate and I think--persuasive.
I recently reviewed Paul Farrell's Lazy Portfolios on MarketWatch which may be of interest. You will not be surprised to learn that The Three-Fund Portfolio leads the pack of professional investors in both bull and bear markets (Dr. Bernstein's portfolio is a one-year exception):
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 Second Grader's Starter Portfolio designed by Allen Roth contains 60% Vanguard Total Stock Market VTSMX, 30% Vanguard Total International Stock Market (VGTSX) and 10% Vanguard Total Bond Market (VBMFX).
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
Re: The Three-Fund Portfolio
Thanks so much for the kind words, Taylor! Feels like just last week, but that video is almost 3 years old now so I need to do an updated one.Taylor Larimore wrote: ↑Fri May 26, 2023 7:29 pm JohnW2:
I am delighted to learn that you are the very knowledgeable person behind the wonderful Optimized Portfolio website. Your video recommending The Three-Fund Portfolio is fair, accurate and I think--persuasive.
I recently reviewed Paul Farrell's Lazy Portfolios on MarketWatch which may be of interest. You will not be surprised to learn that The Three-Fund Portfolio leads the pack of professional investors in both bull and bear markets (Dr. Bernstein's portfolio is a one-year exception):
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 Second Grader's Starter Portfolio designed by Allen Roth contains 60% Vanguard Total Stock Market VTSMX, 30% Vanguard Total International Stock Market (VGTSX) and 10% Vanguard Total Bond Market (VBMFX).
Best wishes.
TaylorJack 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."
And yes indeed, hard to beat the simplicity of the 3-Fund over the long term.
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
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Re: The Three Fund Portfolio
I prefer the Vanguard investment grade bond fund (VFICX) because it relies on many different issuers rather than relying on a single issuer (US Treasury). Also, it has provided superior returns with hardly any added risk. Thoughts?tpm871 wrote: ↑Mon Jan 02, 2012 1:27 am In terms of fees, you'd be better off with a mix of Vanguard Europe, Pacific Rim, and Emerging Markets fund rather than ISM. Europe and Pacific (which comprise most of ISM) have an ER of 0.14, whereas ISM has an ER of 0.20. There's also better rebalancing opportunities with having them separate, and taxes associated with rebalancing can be avoided by only selling shares held in tax deferred accounts. The downside though is no Canada stocks... and a little bit more complexity.
I think a Treasury Bond Fund is better than TBM, since it is less correlated with equities (e.g., since TBM holds corporate bonds). I don't think the logic of "owning the whole market" makes as much sense for bonds as it does for stocks; for example, I don't want to own junk bonds just because they are a part of the bond market -- I prefer to take most of my risk in equities.
Re: The Three Fund Portfolio
This is not true when looking holistically at the portfolio that includes stocks. I used those funds specifically just to illustrate the concept because they have roughly the same effective maturity off the top of my head.isaachemingway wrote: ↑Wed May 31, 2023 7:30 am I prefer the Vanguard investment grade bond fund (VFICX) because it relies on many different issuers rather than relying on a single issuer (US Treasury). Also, it has provided superior returns with hardly any added risk. Thoughts?
Viewing assets in isolation can lead to the wrong conclusions. While it sometimes can be hard to wrap your head around, diversifying within an asset class does not necessarily equal a more diversified portfolio.
Now obviously that's a perfectly valid argument to squeeze out more risk/yield/return if for some weird reason the portfolio is 100% intermediate bonds, but I'm guessing (and hoping) no one is doing that.
Moreover, there's definitely added risk; look at corporates vs. treasuries (and again, the total portfolio that includes those with stocks) in any major stock market crash.
Lastly, if we're worried about the U.S. Treasury as an issuer, we should be much more worried about U.S. corporate issuers.
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
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Re: The Three Fund Portfolio
I improved your portfolio visualizer analysis by using older vanguard funds.JohnW2 wrote: ↑Wed May 31, 2023 3:50 pmThis is not true when looking holistically at the portfolio that includes stocks. I used those funds specifically just to illustrate the concept because they have roughly the same effective maturity off the top of my head.isaachemingway wrote: ↑Wed May 31, 2023 7:30 am I prefer the Vanguard investment grade bond fund (VFICX) because it relies on many different issuers rather than relying on a single issuer (US Treasury). Also, it has provided superior returns with hardly any added risk. Thoughts?
Viewing assets in isolation can lead to the wrong conclusions. While it sometimes can be hard to wrap your head around, diversifying within an asset class does not necessarily equal a more diversified portfolio.
Now obviously that's a perfectly valid argument to squeeze out more risk/yield/return if for some weird reason the portfolio is 100% intermediate bonds, but I'm guessing (and hoping) no one is doing that.
Moreover, there's definitely added risk; look at corporates vs. treasuries (and again, the total portfolio that includes those with stocks) in any major stock market crash.
Lastly, if we're worried about the U.S. Treasury as an issuer, we should be much more worried about U.S. corporate issuers.
Also, if we’re worried about the govt as an issuer, why should we be more worried about investment grade corporate issuers?
Thanks!
Re: The Three Fund Portfolio
Those funds have different effective maturities.isaachemingway wrote: ↑Thu Jun 01, 2023 9:32 amI improved your portfolio visualizer analysis by using older vanguard funds.JohnW2 wrote: ↑Wed May 31, 2023 3:50 pmThis is not true when looking holistically at the portfolio that includes stocks. I used those funds specifically just to illustrate the concept because they have roughly the same effective maturity off the top of my head.isaachemingway wrote: ↑Wed May 31, 2023 7:30 am I prefer the Vanguard investment grade bond fund (VFICX) because it relies on many different issuers rather than relying on a single issuer (US Treasury). Also, it has provided superior returns with hardly any added risk. Thoughts?
Viewing assets in isolation can lead to the wrong conclusions. While it sometimes can be hard to wrap your head around, diversifying within an asset class does not necessarily equal a more diversified portfolio.
Now obviously that's a perfectly valid argument to squeeze out more risk/yield/return if for some weird reason the portfolio is 100% intermediate bonds, but I'm guessing (and hoping) no one is doing that.
Moreover, there's definitely added risk; look at corporates vs. treasuries (and again, the total portfolio that includes those with stocks) in any major stock market crash.
Lastly, if we're worried about the U.S. Treasury as an issuer, we should be much more worried about U.S. corporate issuers.
Also, if we’re worried about the govt as an issuer, why should we be more worried about investment grade corporate issuers?
Thanks!
PV's preloaded indexes may be more useful for this.
Here's a good study on this idea.
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
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Re: The Three Fund Portfolio
Thanks for the study! However, I still don't understand why, if we’re worried about the govt as an issuer, we should be more worried about investment-grade corporate issuers? Surely if the govt ever did default on principal or interest payments, there would be plenty of investment-grade corporate issuers that would still make their payments on time. Right?JohnW2 wrote: ↑Thu Jun 01, 2023 1:08 pmThose funds have different effective maturities.isaachemingway wrote: ↑Thu Jun 01, 2023 9:32 amI improved your portfolio visualizer analysis by using older vanguard funds.JohnW2 wrote: ↑Wed May 31, 2023 3:50 pmThis is not true when looking holistically at the portfolio that includes stocks. I used those funds specifically just to illustrate the concept because they have roughly the same effective maturity off the top of my head.isaachemingway wrote: ↑Wed May 31, 2023 7:30 am I prefer the Vanguard investment grade bond fund (VFICX) because it relies on many different issuers rather than relying on a single issuer (US Treasury). Also, it has provided superior returns with hardly any added risk. Thoughts?
Viewing assets in isolation can lead to the wrong conclusions. While it sometimes can be hard to wrap your head around, diversifying within an asset class does not necessarily equal a more diversified portfolio.
Now obviously that's a perfectly valid argument to squeeze out more risk/yield/return if for some weird reason the portfolio is 100% intermediate bonds, but I'm guessing (and hoping) no one is doing that.
Moreover, there's definitely added risk; look at corporates vs. treasuries (and again, the total portfolio that includes those with stocks) in any major stock market crash.
Lastly, if we're worried about the U.S. Treasury as an issuer, we should be much more worried about U.S. corporate issuers.
Also, if we’re worried about the govt as an issuer, why should we be more worried about investment grade corporate issuers?
Thanks!
PV's preloaded indexes may be more useful for this.
Here's a good study on this idea.
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Re: The Three Fund Portfolio
Curious to hear your thoughts on my above comments. Thanks for the helpful input and study!isaachemingway wrote: ↑Fri Jun 02, 2023 10:19 amThanks for the study! However, I still don't understand why, if we’re worried about the govt as an issuer, we should be more worried about investment-grade corporate issuers? Surely if the govt ever did default on principal or interest payments, there would be plenty of investment-grade corporate issuers that would still make their payments on time. Right?JohnW2 wrote: ↑Thu Jun 01, 2023 1:08 pmThose funds have different effective maturities.isaachemingway wrote: ↑Thu Jun 01, 2023 9:32 amI improved your portfolio visualizer analysis by using older vanguard funds.JohnW2 wrote: ↑Wed May 31, 2023 3:50 pmThis is not true when looking holistically at the portfolio that includes stocks. I used those funds specifically just to illustrate the concept because they have roughly the same effective maturity off the top of my head.isaachemingway wrote: ↑Wed May 31, 2023 7:30 am I prefer the Vanguard investment grade bond fund (VFICX) because it relies on many different issuers rather than relying on a single issuer (US Treasury). Also, it has provided superior returns with hardly any added risk. Thoughts?
Viewing assets in isolation can lead to the wrong conclusions. While it sometimes can be hard to wrap your head around, diversifying within an asset class does not necessarily equal a more diversified portfolio.
Now obviously that's a perfectly valid argument to squeeze out more risk/yield/return if for some weird reason the portfolio is 100% intermediate bonds, but I'm guessing (and hoping) no one is doing that.
Moreover, there's definitely added risk; look at corporates vs. treasuries (and again, the total portfolio that includes those with stocks) in any major stock market crash.
Lastly, if we're worried about the U.S. Treasury as an issuer, we should be much more worried about U.S. corporate issuers.
Also, if we’re worried about the govt as an issuer, why should we be more worried about investment grade corporate issuers?
Thanks!
PV's preloaded indexes may be more useful for this.
Here's a good study on this idea.
Re: The Three-Fund Portfolio
I'd submit that any scenario or environment in which we see the U.S. Treasury default should probably make us much more worried about the ability of corporations to pay their debts. That's why U.S. treasuries possess "crisis alpha" in the first place.
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
Re: The Three-Fund Portfolio
I assume by corporations you mean US corporations.
Re: The Three-Fund Portfolio
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
Re: The Three-Fund Portfolio
Having learned of the three-fund portfolio from other sources, I'm now reading The Bogleheads' Guide to the Three-Fund Portfolio. Many thanks to all of my fellow Bogleheads who have helped me see the proverbial light!
"The greatest enemy of a good plan is the dream of a perfect plan." - Carl Von Clausewitz
Re: The Three-Fund Portfolio
As a 30 year old, what would be a good split for a 3 fund portfolio? I'm thinking 20% bonds, 80% stocks (80% US/20% International) but Im wondering if I would be better off with less/no bond exposure or no bonds until I'm near retirement?
Re: The Three-Fund Portfolio
FYI - sal14 has an ongoing thread: 401k Bond Options
Please discuss answers in that thread. sal14 - This allows us to focus on your personal situation.
Please discuss answers in that thread. sal14 - This allows us to focus on your personal situation.
Re: The Three-Fund Portfolio
If the goal is maximum diversification, why not BNDW (Total World Bond) over BND (Total U.S. Bond)? We believe in Total World Stock, why not for bonds?
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Reformed American Funds Investor…
Well, after several days of reading, I’ve gone through this entire thread. And, I have to say, it’s prompted me to do my own research and made me a believer.
My investing knowledge began to take shape 20 years ago when I took a job at Edward Jones as a broker. I absolutely loved learning about the markets and how they worked. Having a Series 7 license definitely taught me about the investing world.
The brokers that trained me (and EJ as a whole) were very big on American Funds, so, naturally, I drank the Kool-Aid and become big on them too. And, in all fairness, American Funds aren’t bad. For actively managed funds, they have relatively cheap fees and good long term performance.
I wasn’t with EJ long, but my conviction for American Funds hung around for a long time. And, truthfully, I did very well with Growth Fund of America, Fundamental Investors, American Balanced, and Capital Income Builder.
However, in the last ten years, my income has shot up tremendously. I now make too much money to contribute to Roths and I don’t even get to keep all of my money that I contribute into my 401k invested without getting refunds because I’m a “highly compensated employee” (it’s a good problem to have). So, I began investing heavily into after tax brokerage accounts.
At first, there were no issues. But then, the accounts started to grow in value and I started to get hit with capital gains taxes. And they hurt! So, I began to purchase etfs. But, my mind never went to total market. Instead, I bought VNQ (REIT), VIG (dividend growth), VUG (growth), VTV (value) and VTEB (muni bonds). Once again, these are all good funds, and, consequently, served me well.
But, the management of these funds was a little cumbersome. I also have to acknowledge that I was missing out on big chunks of the market as well.
When 2022 rolled around, I had an opportunity to make some changes. My twin sons were going to be starting college, and my wife and I decided that we would buy them a condo to live in while going to school. Between selling funds for the condo and a dropping market, I was able to unload my remaining American Funds and start buying VTI and BND. Life was getting much simpler!
Now, I’m down to the last few months of unloading my remaining VUG, VIG and VTV shares. Thanks to Taylor and the fine folks of the board, I’m officially moving everything to three funds. This whole community is much appreciated, thanks to all!
My investing knowledge began to take shape 20 years ago when I took a job at Edward Jones as a broker. I absolutely loved learning about the markets and how they worked. Having a Series 7 license definitely taught me about the investing world.
The brokers that trained me (and EJ as a whole) were very big on American Funds, so, naturally, I drank the Kool-Aid and become big on them too. And, in all fairness, American Funds aren’t bad. For actively managed funds, they have relatively cheap fees and good long term performance.
I wasn’t with EJ long, but my conviction for American Funds hung around for a long time. And, truthfully, I did very well with Growth Fund of America, Fundamental Investors, American Balanced, and Capital Income Builder.
However, in the last ten years, my income has shot up tremendously. I now make too much money to contribute to Roths and I don’t even get to keep all of my money that I contribute into my 401k invested without getting refunds because I’m a “highly compensated employee” (it’s a good problem to have). So, I began investing heavily into after tax brokerage accounts.
At first, there were no issues. But then, the accounts started to grow in value and I started to get hit with capital gains taxes. And they hurt! So, I began to purchase etfs. But, my mind never went to total market. Instead, I bought VNQ (REIT), VIG (dividend growth), VUG (growth), VTV (value) and VTEB (muni bonds). Once again, these are all good funds, and, consequently, served me well.
But, the management of these funds was a little cumbersome. I also have to acknowledge that I was missing out on big chunks of the market as well.
When 2022 rolled around, I had an opportunity to make some changes. My twin sons were going to be starting college, and my wife and I decided that we would buy them a condo to live in while going to school. Between selling funds for the condo and a dropping market, I was able to unload my remaining American Funds and start buying VTI and BND. Life was getting much simpler!
Now, I’m down to the last few months of unloading my remaining VUG, VIG and VTV shares. Thanks to Taylor and the fine folks of the board, I’m officially moving everything to three funds. This whole community is much appreciated, thanks to all!
Re: Reformed American Funds Investor…
Welcome aboard. Unless I missed it, it sounds like you may still need some international exposure though?savvyknight wrote: ↑Wed Jun 21, 2023 1:58 pm Well, after several days of reading, I’ve gone through this entire thread. And, I have to say, it’s prompted me to do my own research and made me a believer.
My investing knowledge began to take shape 20 years ago when I took a job at Edward Jones as a broker. I absolutely loved learning about the markets and how they worked. Having a Series 7 license definitely taught me about the investing world.
The brokers that trained me (and EJ as a whole) were very big on American Funds, so, naturally, I drank the Kool-Aid and become big on them too. And, in all fairness, American Funds aren’t bad. For actively managed funds, they have relatively cheap fees and good long term performance.
I wasn’t with EJ long, but my conviction for American Funds hung around for a long time. And, truthfully, I did very well with Growth Fund of America, Fundamental Investors, American Balanced, and Capital Income Builder.
However, in the last ten years, my income has shot up tremendously. I now make too much money to contribute to Roths and I don’t even get to keep all of my money that I contribute into my 401k invested without getting refunds because I’m a “highly compensated employee” (it’s a good problem to have). So, I began investing heavily into after tax brokerage accounts.
At first, there were no issues. But then, the accounts started to grow in value and I started to get hit with capital gains taxes. And they hurt! So, I began to purchase etfs. But, my mind never went to total market. Instead, I bought VNQ (REIT), VIG (dividend growth), VUG (growth), VTV (value) and VTEB (muni bonds). Once again, these are all good funds, and, consequently, served me well.
But, the management of these funds was a little cumbersome. I also have to acknowledge that I was missing out on big chunks of the market as well.
When 2022 rolled around, I had an opportunity to make some changes. My twin sons were going to be starting college, and my wife and I decided that we would buy them a condo to live in while going to school. Between selling funds for the condo and a dropping market, I was able to unload my remaining American Funds and start buying VTI and BND. Life was getting much simpler!
Now, I’m down to the last few months of unloading my remaining VUG, VIG and VTV shares. Thanks to Taylor and the fine folks of the board, I’m officially moving everything to three funds. This whole community is much appreciated, thanks to all!
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
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Re: Reformed American Funds Investor…
I’m working on it. 401k, IRAs and Roths are already balanced to my desired AA. My brokerage is where most new money is going, and that money includes international. Also, as I unload VIG, VUG and VTV, I’ll be able to hit my international allocation.JohnW2 wrote: ↑Wed Jun 21, 2023 10:26 pmWelcome aboard. Unless I missed it, it sounds like you may still need some international exposure though?savvyknight wrote: ↑Wed Jun 21, 2023 1:58 pm Well, after several days of reading, I’ve gone through this entire thread. And, I have to say, it’s prompted me to do my own research and made me a believer.
My investing knowledge began to take shape 20 years ago when I took a job at Edward Jones as a broker. I absolutely loved learning about the markets and how they worked. Having a Series 7 license definitely taught me about the investing world.
The brokers that trained me (and EJ as a whole) were very big on American Funds, so, naturally, I drank the Kool-Aid and become big on them too. And, in all fairness, American Funds aren’t bad. For actively managed funds, they have relatively cheap fees and good long term performance.
I wasn’t with EJ long, but my conviction for American Funds hung around for a long time. And, truthfully, I did very well with Growth Fund of America, Fundamental Investors, American Balanced, and Capital Income Builder.
However, in the last ten years, my income has shot up tremendously. I now make too much money to contribute to Roths and I don’t even get to keep all of my money that I contribute into my 401k invested without getting refunds because I’m a “highly compensated employee” (it’s a good problem to have). So, I began investing heavily into after tax brokerage accounts.
At first, there were no issues. But then, the accounts started to grow in value and I started to get hit with capital gains taxes. And they hurt! So, I began to purchase etfs. But, my mind never went to total market. Instead, I bought VNQ (REIT), VIG (dividend growth), VUG (growth), VTV (value) and VTEB (muni bonds). Once again, these are all good funds, and, consequently, served me well.
But, the management of these funds was a little cumbersome. I also have to acknowledge that I was missing out on big chunks of the market as well.
When 2022 rolled around, I had an opportunity to make some changes. My twin sons were going to be starting college, and my wife and I decided that we would buy them a condo to live in while going to school. Between selling funds for the condo and a dropping market, I was able to unload my remaining American Funds and start buying VTI and BND. Life was getting much simpler!
Now, I’m down to the last few months of unloading my remaining VUG, VIG and VTV shares. Thanks to Taylor and the fine folks of the board, I’m officially moving everything to three funds. This whole community is much appreciated, thanks to all!
- abuss368
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Re: The Three-Fund Portfolio
Hi Tatala -Tatala wrote: ↑Fri May 19, 2023 1:08 pm Is a 3 fund portfolio using g a 50/50 split stocks and Bonds, too aggressive for a 70 year old. I am currently taking distributions yearly. Considering we are in an increasing interest environment, bonds sank last year . This year it looks kind of the same , so I could go with the 110-age, but I cant figure which way to handle this.
TY
The Three Fund Portfolio is an excellent strategy ant any age and point during an investment journey.
The question becomes what should an investors target asset allocation be based on your goals, timeframe, and tolerance for risk.
Often I like the “sleep test” to help answer that. As the markets rise and fall, if you are not worried or up at night then you have a good asset allocation. If you are worried, stressed, and up at night, consider adjusting the bond allocation accordingly.
Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
- Taylor Larimore
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- Location: Miami FL
"Bogleheads 3 Fund Portfolio Review"
[Thread merged into here --admin LadyGeek]
Bogleheads:
"Optimized Portfolio" has posted this in-depth review of The 3-Fund Portfolio by Boglehead John Williamson:
Bogleheads 3 Fund Portfolio Review and Vanguard ETFs (2023)
Best wishes.
Taylor
Bogleheads:
"Optimized Portfolio" has posted this in-depth review of The 3-Fund Portfolio by Boglehead John Williamson:
Bogleheads 3 Fund Portfolio Review and Vanguard ETFs (2023)
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
- Peter Foley
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Re: "Bogleheads 3 Fund Portfolio Review"
Just a heads up - here is the contents outline
Contents
Bogleheads 3 Fund Portfolio Review Video
What Is the Bogleheads 3 Fund Portfolio?
Why Index Funds?
Why International Stocks?
Bogleheads 3 Fund Portfolio Benefits
Bogleheads 3 Fund Portfolio – Choosing Assets and ETFs
U.S. Stocks
International Stocks
Bonds
Why No International Bonds?
Bogleheads 3 Fund Portfolio Portfolio Historical Performance vs. S&P 500
Bogleheads 3 Fund Portfolio ETF Pies for M1 Finance
Traditional – Total Bond Market
Intermediate Term Treasury Bonds
Long Term Treasury Bonds
Contents
Bogleheads 3 Fund Portfolio Review Video
What Is the Bogleheads 3 Fund Portfolio?
Why Index Funds?
Why International Stocks?
Bogleheads 3 Fund Portfolio Benefits
Bogleheads 3 Fund Portfolio – Choosing Assets and ETFs
U.S. Stocks
International Stocks
Bonds
Why No International Bonds?
Bogleheads 3 Fund Portfolio Portfolio Historical Performance vs. S&P 500
Bogleheads 3 Fund Portfolio ETF Pies for M1 Finance
Traditional – Total Bond Market
Intermediate Term Treasury Bonds
Long Term Treasury Bonds
- Taylor Larimore
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- Location: Miami FL
Re: "Bogleheads 3 Fund Portfolio Review"
Peter:
Thank you for the contents outline of this excellent review.
Best wishes.
Taylor
Thank you for the contents outline of this excellent review.
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “Learn every day, but especially from the experiences of others. It's cheaper!”.
"Simplicity is the master key to financial success." -- Jack Bogle
Re: "Bogleheads 3 Fund Portfolio Review"
Thanks for the shout-out, Taylor!
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
Re: The Three-Fund Portfolio
I merged Taylor Larimore's thread into the ongoing discussion.
Re: The Three-Fund Portfolio
It's been a few weeks since I checked in on this thread. It is a fantastic discussion. I noticed that there has been a discussion of government bonds vs corporate bonds. I saw a post on Reddit recently that said no one should own corporate bonds, that government bonds perform better. I had difficulty believing this given that over time corporate bonds deliver higher returns, albeit with higher risk. Plus my own portfolio is heavily weighted towards corporate bonds.
I noticed the reference in this thread just a few posts above here to a study that also showed government bonds outperformed corporate bonds. Interesting results. I then did Backtesting and Monte Carlo simulations between government and corporate bond funds of various maturities, much like folks on here have done.
The results were very interesting. Long term bonds, government or corporate, performed very well. In some time periods government did outperform corporate for similar maturities.
The Total Bond fund for the 3 fund portfolio is weighted roughly 67%/33% govt/corporate. There is an argument that substituting a 100% long term government bond fund for the Total Bond fund produces significantly better returns with lower risk. This is due to both the low correlation of government bonds with stocks, and the longer maturity/duration of long term bonds vs the intermediate term maturity/duration of the Total Bond fund.
So, has anyone given consideration to substituting a 100% long-term government bond fund for the Total Bond fund?
I noticed the reference in this thread just a few posts above here to a study that also showed government bonds outperformed corporate bonds. Interesting results. I then did Backtesting and Monte Carlo simulations between government and corporate bond funds of various maturities, much like folks on here have done.
The results were very interesting. Long term bonds, government or corporate, performed very well. In some time periods government did outperform corporate for similar maturities.
The Total Bond fund for the 3 fund portfolio is weighted roughly 67%/33% govt/corporate. There is an argument that substituting a 100% long term government bond fund for the Total Bond fund produces significantly better returns with lower risk. This is due to both the low correlation of government bonds with stocks, and the longer maturity/duration of long term bonds vs the intermediate term maturity/duration of the Total Bond fund.
So, has anyone given consideration to substituting a 100% long-term government bond fund for the Total Bond fund?
Re: The Three-Fund Portfolio
No thanks. It would add a lot of interest rate risk.Echard wrote: ↑Tue Jun 27, 2023 8:31 am It's been a few weeks since I checked in on this thread. It is a fantastic discussion. I noticed that there has been a discussion of government bonds vs corporate bonds. I saw a post on Reddit recently that said no one should own corporate bonds, that government bonds perform better. I had difficulty believing this given that over time corporate bonds deliver higher returns, albeit with higher risk. Plus my own portfolio is heavily weighted towards corporate bonds.
I noticed the reference in this thread just a few posts above here to a study that also showed government bonds outperformed corporate bonds. Interesting results. I then did Backtesting and Monte Carlo simulations between government and corporate bond funds of various maturities, much like folks on here have done.
The results were very interesting. Long term bonds, government or corporate, performed very well. In some time periods government did outperform corporate for similar maturities.
The Total Bond fund for the 3 fund portfolio is weighted roughly 67%/33% govt/corporate. There is an argument that substituting a 100% long term government bond fund for the Total Bond fund produces significantly better returns with lower risk. This is due to both the low correlation of government bonds with stocks, and the longer maturity/duration of long term bonds vs the intermediate term maturity/duration of the Total Bond fund.
So, has anyone given consideration to substituting a 100% long-term government bond fund for the Total Bond fund?
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
Re: The Three-Fund Portfolio
I see a lot of recommendations for VXUS rather than VEA - I've also reviewed comparisons on both and see they are slightly different in their individual holdings, but hold largely the same stocks at the top end. Also, VEA is a lower expense ratio than VXUS, so i'm curious why I haven't seen VEA mentioned as an alternative to VXUS?
- Cocoa Beach Bum
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- Location: Florida
Re: The Three-Fund Portfolio
VEA is less diverse than VXUS because it excludes emerging markets stocks. However, they perform similarly and VEA has a higher proportion of qualified dividends than VXUS (94.02% vs 73.73% in 2022) . So I own VEA in my taxable account and VXUS in my IRAs.
YMMV
YMMV
“How did you go bankrupt?" "Two ways. Gradually, then suddenly.”
Re: The Three-Fund Portfolio
That's good to know. I may want to hold some ex-US in taxable so VEA would be acceptable there.Cocoa Beach Bum wrote: ↑Tue Jun 27, 2023 10:01 am VEA is less diverse than VXUS because it excludes emerging markets stocks. However, they perform similarly and VEA has a higher proportion of qualified dividends than VXUS (94.02% vs 73.73% in 2022) . So I own VEA in my taxable account and VXUS in my IRAs.
YMMV
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
- Taylor Larimore
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- Location: Miami FL
Re: The Three-Fund Portfolio
Bogleheads:
A recent article recommending "The Three-Fund Portfolio":
Here's Why Investors Love The 3-Fund Portfolio
Best wishes.
Taylor
A recent article recommending "The Three-Fund Portfolio":
Here's Why Investors Love The 3-Fund 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."
"Simplicity is the master key to financial success." -- Jack Bogle
- abuss368
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- Joined: Mon Aug 03, 2009 2:33 pm
- Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
- Contact:
Re: The Three-Fund Portfolio
Hi Taylor -Taylor Larimore wrote: ↑Tue Jun 27, 2023 1:06 pm Bogleheads:
A recent article recommending "The Three-Fund Portfolio":
Here's Why Investors Love The 3-Fund Portfolio
Best wishes.
TaylorJack 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."
A wonderful article regarding the Three Fund Portfolio!
Bogleheads are learning more and more the value and many benefits of simplicity.
Thank you for sharing and hope you are well.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: The Three-Fund Portfolio
Was that possibly me on Reddit? I'm a huge proponent of treasuries over corporates or TBM.Echard wrote: ↑Tue Jun 27, 2023 8:31 am It's been a few weeks since I checked in on this thread. It is a fantastic discussion. I noticed that there has been a discussion of government bonds vs corporate bonds. I saw a post on Reddit recently that said no one should own corporate bonds, that government bonds perform better. I had difficulty believing this given that over time corporate bonds deliver higher returns, albeit with higher risk. Plus my own portfolio is heavily weighted towards corporate bonds.
I noticed the reference in this thread just a few posts above here to a study that also showed government bonds outperformed corporate bonds. Interesting results. I then did Backtesting and Monte Carlo simulations between government and corporate bond funds of various maturities, much like folks on here have done.
The results were very interesting. Long term bonds, government or corporate, performed very well. In some time periods government did outperform corporate for similar maturities.
The Total Bond fund for the 3 fund portfolio is weighted roughly 67%/33% govt/corporate. There is an argument that substituting a 100% long term government bond fund for the Total Bond fund produces significantly better returns with lower risk. This is due to both the low correlation of government bonds with stocks, and the longer maturity/duration of long term bonds vs the intermediate term maturity/duration of the Total Bond fund.
So, has anyone given consideration to substituting a 100% long-term government bond fund for the Total Bond fund?
Not if the investor's time horizon is greater than or equal to the effective duration of the long-term bond allocation, in which case shorter bonds would expose them to more interest rate risk (in the form of reinvestment risk).GaryA505 wrote: ↑Tue Jun 27, 2023 8:52 amNo thanks. It would add a lot of interest rate risk.Echard wrote: ↑Tue Jun 27, 2023 8:31 am It's been a few weeks since I checked in on this thread. It is a fantastic discussion. I noticed that there has been a discussion of government bonds vs corporate bonds. I saw a post on Reddit recently that said no one should own corporate bonds, that government bonds perform better. I had difficulty believing this given that over time corporate bonds deliver higher returns, albeit with higher risk. Plus my own portfolio is heavily weighted towards corporate bonds.
I noticed the reference in this thread just a few posts above here to a study that also showed government bonds outperformed corporate bonds. Interesting results. I then did Backtesting and Monte Carlo simulations between government and corporate bond funds of various maturities, much like folks on here have done.
The results were very interesting. Long term bonds, government or corporate, performed very well. In some time periods government did outperform corporate for similar maturities.
The Total Bond fund for the 3 fund portfolio is weighted roughly 67%/33% govt/corporate. There is an argument that substituting a 100% long term government bond fund for the Total Bond fund produces significantly better returns with lower risk. This is due to both the low correlation of government bonds with stocks, and the longer maturity/duration of long term bonds vs the intermediate term maturity/duration of the Total Bond fund.
So, has anyone given consideration to substituting a 100% long-term government bond fund for the Total Bond fund?
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.
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Re: The Three-Fund Portfolio
So I have been using the 3 fund philosophy for a few years now in my retirement accounts.. I don't consider my cash/CD as part of retirement accounts. Its in taxable accounts which I view differently.
With money market/CD rates at 4-5% I am thinking - does it make sense to shift some money from bonds to cd/money market in the retirement accounts. Not all of it, but a portion?
With money market/CD rates at 4-5% I am thinking - does it make sense to shift some money from bonds to cd/money market in the retirement accounts. Not all of it, but a portion?
Don't let the pursuit of the perfect stop the use of the good.
Re: The Three-Fund Portfolio
I think you missed the opportunity to remove money from assets with significant term risk by about two years. Fortunately you did not remove money from longer term assets during the massive run-ups of 2018-2020.Mr. Stubacca wrote: ↑Thu Jun 29, 2023 10:23 am So I have been using the 3 fund philosophy for a few years now in my retirement accounts.. I don't consider my cash/CD as part of retirement accounts. Its in taxable accounts which I view differently.
With money market/CD rates at 4-5% I am thinking - does it make sense to shift some money from bonds to cd/money market in the retirement accounts. Not all of it, but a portion?
The SEC yield on VBTLX is now 4.3%, so there may not be much difference. CDs of reasonable term have arguably been competitive with bonds for the individual investor, so that would be a wash over time. Money market funds have significant reinvestment risk for long term investors.
The general idea of a 3 fund philosophy is to select three funds that make sense to be held over time for long term objectives. That has not changed. Whether or not you personally want to dance around with constant interest rate driven reallocation is up to you, but the 3 fund idea is intended to discourage people from doing that.
- Taylor Larimore
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- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
Re: The Three-Fund Portfolio
Bogleheads:
Today (using Google) I counted the number of articles and videos (with links) featuring The Three Fund Portfolio:
63 Articles
20 Videos
It appears that The Three-Fund Portfolio has (for many reasons) become the most popular portfolio in the United States
Best wishes.
Taylor
Today (using Google) I counted the number of articles and videos (with links) featuring The Three Fund Portfolio:
63 Articles
20 Videos
It appears that The Three-Fund Portfolio has (for many reasons) become the most popular portfolio in the United States
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
Re: The Three-Fund Portfolio
Congratulations, Taylor!
An online article about The Three-Fund Portfolio was what initially pointed me to Bogleheads.org.
I'll also add that your book, The Bogleheads' Guide to the Three-Fund Portfolio , is a great graduation gift for students. So far this year, I've given three of my graduating college students (who showed an keen interest in investing) a copy of your book.
Best,
oldzey
An online article about The Three-Fund Portfolio was what initially pointed me to Bogleheads.org.
I'll also add that your book, The Bogleheads' Guide to the Three-Fund Portfolio , is a great graduation gift for students. So far this year, I've given three of my graduating college students (who showed an keen interest in investing) a copy of your book.
Best,
oldzey
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
Re: The Three-Fund Portfolio
I don't know if that was you, but whoever it was sent me down a multi-week rat hole of looking at fixed income allocation models and ways to optimize risk and return. There was greater merit to the argument than I originally realized. Several Monte Carlo analyses did show that holding purely government bonds did better in many periods than a mix of corporate and government. That then led to a bunch of research on holding TIPS/iBonds vs Treasuries/Agencies.JohnW2 wrote: ↑Tue Jun 27, 2023 9:23 pmWas that possibly me on Reddit? I'm a huge proponent of treasuries over corporates or TBM.Echard wrote: ↑Tue Jun 27, 2023 8:31 am It's been a few weeks since I checked in on this thread. It is a fantastic discussion. I noticed that there has been a discussion of government bonds vs corporate bonds. I saw a post on Reddit recently that said no one should own corporate bonds, that government bonds perform better. I had difficulty believing this given that over time corporate bonds deliver higher returns, albeit with higher risk. Plus my own portfolio is heavily weighted towards corporate bonds.
I noticed the reference in this thread just a few posts above here to a study that also showed government bonds outperformed corporate bonds. Interesting results. I then did Backtesting and Monte Carlo simulations between government and corporate bond funds of various maturities, much like folks on here have done.
The results were very interesting. Long term bonds, government or corporate, performed very well. In some time periods government did outperform corporate for similar maturities.
The Total Bond fund for the 3 fund portfolio is weighted roughly 67%/33% govt/corporate. There is an argument that substituting a 100% long term government bond fund for the Total Bond fund produces significantly better returns with lower risk. This is due to both the low correlation of government bonds with stocks, and the longer maturity/duration of long term bonds vs the intermediate term maturity/duration of the Total Bond fund.
So, has anyone given consideration to substituting a 100% long-term government bond fund for the Total Bond fund?
When you look at the poor performance of BND over the last 10+ years (granted it's been a low interest rate environment with a spike in rates at the end, so of course it's going to look bad), it really caused me to question putting all my eggs into the BND basket. As I see it, fixed income funds could be split among:
corporate - maybe too risky for many, but during many periods they did significantly outperform govt bonds
high yield - same as corporate, but on steroids; I still have quite a bit here as a hangover from pre-retirement.
treasury/agency - definitely a roll to play
TIPS/ibonds - definitely a roll to play
CDs - sometimes yield more than treasuries with minimally higher risk
Cash - currently yielding 5% so not a bad place to sit and wait, especially with an inverted yield curve.
The real question in my mind is how funds should be allocated among these. I guess that starts to move away from the whole three fund portfolio concept.
Re: The Three-Fund Portfolio
I'd mostly agree with your brief list assessment there. While it may sound a bit extreme at first glance, I maintain that there's no reason to own corporates (and especially junk bonds) unless for some weird reason the portfolio is 100% bonds and you want to ratchet up the risk/yield of that bond portfolio, as those types of bonds have no unique sources of risk not already possessed by stocks and gov't bonds. I also happen to think this should be somewhat intuitive when you stop and really think about it, and the research seems to bear it out.Echard wrote: ↑Sat Jul 08, 2023 12:32 pmI don't know if that was you, but whoever it was sent me down a multi-week rat hole of looking at fixed income allocation models and ways to optimize risk and return. There was greater merit to the argument than I originally realized. Several Monte Carlo analyses did show that holding purely government bonds did better in many periods than a mix of corporate and government. That then led to a bunch of research on holding TIPS/iBonds vs Treasuries/Agencies.JohnW2 wrote: ↑Tue Jun 27, 2023 9:23 pmWas that possibly me on Reddit? I'm a huge proponent of treasuries over corporates or TBM.Echard wrote: ↑Tue Jun 27, 2023 8:31 am It's been a few weeks since I checked in on this thread. It is a fantastic discussion. I noticed that there has been a discussion of government bonds vs corporate bonds. I saw a post on Reddit recently that said no one should own corporate bonds, that government bonds perform better. I had difficulty believing this given that over time corporate bonds deliver higher returns, albeit with higher risk. Plus my own portfolio is heavily weighted towards corporate bonds.
I noticed the reference in this thread just a few posts above here to a study that also showed government bonds outperformed corporate bonds. Interesting results. I then did Backtesting and Monte Carlo simulations between government and corporate bond funds of various maturities, much like folks on here have done.
The results were very interesting. Long term bonds, government or corporate, performed very well. In some time periods government did outperform corporate for similar maturities.
The Total Bond fund for the 3 fund portfolio is weighted roughly 67%/33% govt/corporate. There is an argument that substituting a 100% long term government bond fund for the Total Bond fund produces significantly better returns with lower risk. This is due to both the low correlation of government bonds with stocks, and the longer maturity/duration of long term bonds vs the intermediate term maturity/duration of the Total Bond fund.
So, has anyone given consideration to substituting a 100% long-term government bond fund for the Total Bond fund?
When you look at the poor performance of BND over the last 10+ years (granted it's been a low interest rate environment with a spike in rates at the end, so of course it's going to look bad), it really caused me to question putting all my eggs into the BND basket. As I see it, fixed income funds could be split among:
corporate - maybe too risky for many, but during many periods they did significantly outperform govt bonds
high yield - same as corporate, but on steroids; I still have quite a bit here as a hangover from pre-retirement.
treasury/agency - definitely a roll to play
TIPS/ibonds - definitely a roll to play
CDs - sometimes yield more than treasuries with minimally higher risk
Cash - currently yielding 5% so not a bad place to sit and wait, especially with an inverted yield curve.
The real question in my mind is how funds should be allocated among these. I guess that starts to move away from the whole three fund portfolio concept.
Definitely still works with the Three Fund Portfolio, though. A naive, hypothetical example for a 60/40 allocation would be something like:
30% Total US stock market (VTI)
30% Total Int'l stock market (VXUS)
40% Total US Treasury bond market (GOVT)
Global stock market. SCV tilt. 10% U.S. Treasury STRIPS. HFEA lottery ticket. Intrigued by Return Stacking™. Writes about investing stuff, but probably gets it wrong about half the time. APMA®.