The Three-Fund Portfolio

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Tatala
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Re: The Three-Fund Portfolio

Post by Tatala »

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
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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

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
Tatala:

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
Echard
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Re: The Three-Fund Portfolio

Post by Echard »

seajay wrote: Mon May 15, 2023 1:30 pm
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)
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.
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bertilak
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Re: The Three-Fund Portfolio

Post by bertilak »

Echard wrote: Sat May 20, 2023 10:27 am I know this goes against the passive investment philosophy. I just can't fathom a scenario where earning 2% on bonds is worth it.
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.
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seajay
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Re: The Three-Fund Portfolio

Post by seajay »

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.
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.

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).
JSPECO9
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Re: The Three-Fund Portfolio

Post by JSPECO9 »

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.
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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

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.
JSPEC09:

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
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JohnW2
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Re: The Three-Fund Portfolio

Post by JohnW2 »

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.
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."
Thanks so much for the shout-out and kind words, Taylor! :happy

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®.
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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

JohnW2:

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
pizzy
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Re: The Three-Fund Portfolio

Post by pizzy »

Taylor Larimore wrote: Thu May 25, 2023 1:04 pm JohnW2:

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."
I imagine JohnW2 is John Williamson of Optimized Portfolio.
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Blue456
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Re: The Three-Fund Portfolio

Post by Blue456 »

Echard wrote: Sat May 20, 2023 10:27 am I just can't fathom a scenario where earning 2% on bonds is worth it.
What if inflation is close to 0% for extended period of time? Better yet there is a deflation -1%.
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JohnW2
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Re: The Three-Fund Portfolio

Post by JohnW2 »

Taylor Larimore wrote: Thu May 25, 2023 1:04 pm JohnW2:

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."
Yes. I am it.
pizzy wrote: Thu May 25, 2023 1:07 pm I imagine JohnW2 is John Williamson of Optimized Portfolio.
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®.
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Taylor Larimore
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

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
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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JohnW2
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Re: The Three-Fund Portfolio

Post by JohnW2 »

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.
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."
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.

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®.
TheContrarian
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Re: The Three Fund Portfolio

Post by TheContrarian »

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.
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?
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Re: The Three Fund Portfolio

Post by JohnW2 »

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?
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.

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®.
TheContrarian
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Re: The Three Fund Portfolio

Post by TheContrarian »

JohnW2 wrote: Wed May 31, 2023 3:50 pm
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?
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.

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.
I improved your portfolio visualizer analysis by using older vanguard funds.

Also, if we’re worried about the govt as an issuer, why should we be more worried about investment grade corporate issuers?

Thanks!
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JohnW2
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Re: The Three Fund Portfolio

Post by JohnW2 »

isaachemingway wrote: Thu Jun 01, 2023 9:32 am
JohnW2 wrote: Wed May 31, 2023 3:50 pm
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?
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.

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.
I improved your portfolio visualizer analysis by using older vanguard funds.

Also, if we’re worried about the govt as an issuer, why should we be more worried about investment grade corporate issuers?

Thanks!
Those funds have different effective maturities.

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®.
TheContrarian
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Re: The Three Fund Portfolio

Post by TheContrarian »

JohnW2 wrote: Thu Jun 01, 2023 1:08 pm
isaachemingway wrote: Thu Jun 01, 2023 9:32 am
JohnW2 wrote: Wed May 31, 2023 3:50 pm
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?
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.

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.
I improved your portfolio visualizer analysis by using older vanguard funds.

Also, if we’re worried about the govt as an issuer, why should we be more worried about investment grade corporate issuers?

Thanks!
Those funds have different effective maturities.

PV's preloaded indexes may be more useful for this.

Here's a good study on this idea.
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?
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Re: The Three Fund Portfolio

Post by TheContrarian »

isaachemingway wrote: Fri Jun 02, 2023 10:19 am
JohnW2 wrote: Thu Jun 01, 2023 1:08 pm
isaachemingway wrote: Thu Jun 01, 2023 9:32 am
JohnW2 wrote: Wed May 31, 2023 3:50 pm
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?
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.

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.
I improved your portfolio visualizer analysis by using older vanguard funds.

Also, if we’re worried about the govt as an issuer, why should we be more worried about investment grade corporate issuers?

Thanks!
Those funds have different effective maturities.

PV's preloaded indexes may be more useful for this.

Here's a good study on this idea.
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?
Curious to hear your thoughts on my above comments. Thanks for the helpful input and study!
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Re: The Three-Fund Portfolio

Post by JohnW2 »

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.
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Re: The Three-Fund Portfolio

Post by Blue456 »

JohnW2 wrote: Sun Jun 04, 2023 1:24 pm 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.
I assume by corporations you mean US corporations.
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Re: The Three-Fund Portfolio

Post by JohnW2 »

Blue456 wrote: Sun Jun 04, 2023 7:39 pm
JohnW2 wrote: Sun Jun 04, 2023 1:24 pm 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.
I assume by corporations you mean US corporations.
Yes.
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

Post by upekkha »

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!
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sal14
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Re: The Three-Fund Portfolio

Post by sal14 »

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?
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Re: The Three-Fund Portfolio

Post by LadyGeek »

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.
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JSPECO9
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Re: The Three-Fund Portfolio

Post by JSPECO9 »

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…

Post by savvyknight »

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!
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Re: Reformed American Funds Investor…

Post by JohnW2 »

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!
Welcome aboard. Unless I missed it, it sounds like you may still need some international exposure though?
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Re: Reformed American Funds Investor…

Post by savvyknight »

JohnW2 wrote: Wed Jun 21, 2023 10:26 pm
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!
Welcome aboard. Unless I missed it, it sounds like you may still need some international exposure though?
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.
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Re: The Three-Fund Portfolio

Post by abuss368 »

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
Hi Tatala -

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."
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"Bogleheads 3 Fund Portfolio Review"

Post by Taylor Larimore »

[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
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."
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Re: "Bogleheads 3 Fund Portfolio Review"

Post by Peter Foley »

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
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Re: "Bogleheads 3 Fund Portfolio Review"

Post by Taylor Larimore »

Peter:

Thank you for the contents outline of this excellent review.

Best wishes.

Taylor
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Re: "Bogleheads 3 Fund Portfolio Review"

Post by JohnW2 »

Thanks for the shout-out, Taylor! :happy
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Re: The Three-Fund Portfolio

Post by LadyGeek »

I merged Taylor Larimore's thread into the ongoing discussion.
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Re: The Three-Fund Portfolio

Post by Echard »

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?
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Re: The Three-Fund Portfolio

Post by GaryA505 »

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?
No thanks. It would add a lot of interest rate risk.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: The Three-Fund Portfolio

Post by elforeign »

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?
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Re: The Three-Fund Portfolio

Post by Cocoa Beach Bum »

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
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Re: The Three-Fund Portfolio

Post by GaryA505 »

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
That's good to know. I may want to hold some ex-US in taxable so VEA would be acceptable there.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

Bogleheads:

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
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Re: The Three-Fund Portfolio

Post by abuss368 »

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.
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."
Hi Taylor -

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."
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Re: The Three-Fund Portfolio

Post by JohnW2 »

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?
Was that possibly me on Reddit? I'm a huge proponent of treasuries over corporates or TBM.
GaryA505 wrote: Tue Jun 27, 2023 8:52 am
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?
No thanks. It would add a lot of interest rate risk.
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).
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Re: The Three-Fund Portfolio

Post by Mr. Stubacca »

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?
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Re: The Three-Fund Portfolio

Post by dbr »

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?
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.

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.
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Re: The Three-Fund Portfolio

Post by Taylor Larimore »

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
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."
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Re: The Three-Fund Portfolio

Post by oldzey »

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
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Re: The Three-Fund Portfolio

Post by Echard »

JohnW2 wrote: Tue Jun 27, 2023 9:23 pm
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?
Was that possibly me on Reddit? I'm a huge proponent of treasuries over corporates or TBM.
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.

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.
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Re: The Three-Fund Portfolio

Post by JohnW2 »

Echard wrote: Sat Jul 08, 2023 12:32 pm
JohnW2 wrote: Tue Jun 27, 2023 9:23 pm
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?
Was that possibly me on Reddit? I'm a huge proponent of treasuries over corporates or TBM.
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.

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.
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.

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®.
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