That's my plan - but nothing I can do now other than to start buying TIPS or treasuries for Fixed asset (new money) and eventually get to 50:50 or there abouts with BND and Treasuries. Will take time and hopefully by then all this craziness will be behind us with interest rates dropping (which will likely show that in the long run the 3 fund was just fine.)Kookaburra wrote: ↑Fri Oct 28, 2022 4:16 pmI knew I would get this answer, lol. I’m ok dumping Vanguard’s suggestion of international bonds, but I’m inclined to go with a 50/50 nominal/TIPS in retirement.
The Three-Fund Portfolio
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
A 50-50 mix of nominal treasuries and TIPS makes sense to me. A 50-50 mix to a a total bond index and TIPS does not appeal to me. In the past, TIPS and corporate bonds have had a high correlation and both have been more correlated with stocks than nominal treasuries. A 50-50 mix of total bond and TIPS is only about 20% nominal treasuries.Kookaburra wrote: ↑Fri Oct 28, 2022 4:16 pmI knew I would get this answer, lol. I’m ok dumping Vanguard’s suggestion of international bonds, but I’m inclined to go with a 50/50 nominal/TIPS in retirement.
There is nothing sacred about the so called 3-fund portfolio. Moreover, deciding how many funds you will hold a priori is not a part of best practice of asset allocation. An asset allocation should be prepared with asset classes, not fund products. Then implementations of asset classes should be chosen. Index funds often are excellent implementations of asset classes.
The question should not be: why isn't some attempt at a 1-size-fits-all portfolio different, but what asset allocation is best suited to meeting your goals?
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
I use a two fund portfolio, US TMI and TIPS (actually, my TIPS are in a rolling ten year ladder, so my own "fund" with zero ER ) Works for me....
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
The 3 fund portfolio - is pretty much the bedrock of bogleheads - the Wiki - you go through when you first join says - figure out your AA based on risk - use Bonds and Equities (index funds) - Total Stock Market and Total Bond. It's a big deal and I feel is pretty sacred part of Bogleheads.Northern Flicker wrote: ↑Fri Oct 28, 2022 4:46 pmA 50-50 mix of nominal treasuries and TIPS makes sense to me. A 50-50 mix to a a total bond index and TIPS does not appeal to me. In the past, TIPS and corporate bonds have had a high correlation and both have been more correlated with stocks than nominal treasuries. A 50-50 mix of total bond and TIPS is only about 20% nominal treasuries.Kookaburra wrote: ↑Fri Oct 28, 2022 4:16 pmI knew I would get this answer, lol. I’m ok dumping Vanguard’s suggestion of international bonds, but I’m inclined to go with a 50/50 nominal/TIPS in retirement.
There is nothing sacred about the so called 3-fund portfolio. Moreover, deciding how many funds you will hold a priori is not a part of best practice of asset allocation. An asset allocation should be prepared with asset classes, not fund products. Then implementations of asset classes should be chosen. Index funds often are excellent implementations of asset classes.
The question should not be: why isn't some attempt at a 1-size-fits-all portfolio different, but what asset allocation is best suited to meeting your goals?
https://www.bogleheads.org/wiki/Boglehe ... philosophy
Right or wrong - it is a big deal and I wouldn't make light of it.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
I think it is unfortunate that anyone would take any kind of investment advice as sacred. It is certainly unfortunate that someone would take specification of specific asset selections as a big deal. Maybe somewhere there needs to be some kind of message that there are lots of specific asset selections that work just fine. That is especially true of choices among ways to hold fixed income.
I do see financial advice sometimes where examples of specific investment selection that should be understood as illustrations of concept are taken to be commandments to be obeyed (the sacred again).
It also makes sense not to leave an impression that all sorts or nuanced details have to be gotten just right to allow people to be successful with their financial plans.
It is not always simple to write something that threads a path among all this.
I do see financial advice sometimes where examples of specific investment selection that should be understood as illustrations of concept are taken to be commandments to be obeyed (the sacred again).
It also makes sense not to leave an impression that all sorts or nuanced details have to be gotten just right to allow people to be successful with their financial plans.
It is not always simple to write something that threads a path among all this.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
I also note that the graph on the first page of the link shows "Bonds and Tips" while the samples deeper down (more links) show the Total Bond Market.dbr wrote: ↑Fri Oct 28, 2022 5:27 pm I think it is unfortunate that anyone would take any kind of investment advice as sacred. It is certainly unfortunate that someone would take specification of specific asset selections as a big deal. Maybe somewhere there needs to be some kind of message that there are lots of specific asset selections that work just fine. That is especially true of choices among ways to hold fixed income.
I do see financial advice sometimes where examples of specific investment selection that should be understood as illustrations of concept are taken to be commandments to be obeyed (the sacred again).
It also makes sense not to leave an impression that all sorts or nuanced details have to be gotten just right to allow people to be successful with their financial plans.
It is not always simple to write something that threads a path among all this.
The general concept is keeping things as simple as possible while meeting your goals; that might mean three funds but it might mean more than three. For someone in a high tax bracket and out of deferred space to put taxable bonds, a muni index in taxable is quite logical and automatically extends the simplest three fund portfolio to four funds.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
this article from Rick Ferri suggests 20% of the fixed income portion of one's portfolio in TIPS has been a helpful diversifier:Kookaburra wrote: ↑Fri Oct 28, 2022 4:18 pmI was referring to the 3-fund portfolio as espoused on this forum and for which books have been written? Vanguard has twisted this, some ways good (adding TIPS) and some ways “bad” (adding Intl Bonds).arcticpineapplecorp. wrote: ↑Fri Oct 28, 2022 4:15 pmyou could make the argument that Vanguard's target date retirement fund isn't all too dissimilar from the three fund portfolio (the only difference with the target date fund being the inclusion of a fourth fund, total international bond index fund is added to the other three).Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
If we look at the target date fund with vanguard it does add TIPS when the fund gets past the date and/or becomes the Target Date Retirement INCOME fund.
how much in tips does the Target Date Retirement Income Fund hold?
17.3% of the entire fund
source: https://investor.vanguard.com/investmen ... omposition
would you consider that a "substantial" amount in TIPS?
whether you do or don't, you can mirror your three fund portfolio after a target date retirement income fund and hold:
total US stock index fund,
total international stock index fund,
total US bond index fund and
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares if you wish (avoiding the total international bond market index fund that's contained in the vanguard target date funds).
https://www.forbes.com/sites/rickferri/ ... fbd0ba92ea
if you look at the vanguard target date retirement income fund TIPS make up 24% of the fixed income portion of the fund:
https://investor.vanguard.com/investmen ... omposition
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
The better question might be:.Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
Why don't Total Bond Funds include TIPs?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Indeed. Considering it excludes TIPS and munis, it is anything but “total”.marcopolo wrote: ↑Fri Oct 28, 2022 5:41 pmThe better question might be:.Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
Why don't Total Bond Funds include TIPs?
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
That would have been awesome.marcopolo wrote: ↑Fri Oct 28, 2022 5:41 pmThe better question might be:.Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
Why don't Total Bond Funds include TIPs?
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
This is my question too.marcopolo wrote: ↑Fri Oct 28, 2022 5:41 pmThe better question might be:.Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
Why don't Total Bond Funds include TIPs?
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
I found the answer to that question a while ago - it is here:
Does the Total Bond Market Index Fund have TIPS?
Does the Total Bond Market Index Fund have TIPS?
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Nor does it include junk bonds, mbs, CMOs, convertible bonds. Or preferreds which act more like the bonds in a total bond fund then those that I have already mentioned.Kookaburra wrote: ↑Fri Oct 28, 2022 5:49 pmIndeed. Considering it excludes TIPS and munis, it is anything but “total”.marcopolo wrote: ↑Fri Oct 28, 2022 5:41 pmThe better question might be:.Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
Why don't Total Bond Funds include TIPs?
You want to group similar assets together - and TIPS do not act like nominal bonds. I mean that I have seen arguments that dividend paying stocks can be used as a bond substitute? Where does one draw the line?
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
I think what we are saying is there has to be a more appropriate word than “total”.alex_686 wrote: ↑Fri Oct 28, 2022 6:02 pmNor does it include junk bonds, mbs, CMOs, convertible bonds. Or preferreds which act more like the bonds in a total bond fund then those that I have already mentioned.Kookaburra wrote: ↑Fri Oct 28, 2022 5:49 pmIndeed. Considering it excludes TIPS and munis, it is anything but “total”.marcopolo wrote: ↑Fri Oct 28, 2022 5:41 pmThe better question might be:.Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
Why don't Total Bond Funds include TIPs?
You want to group similar assets together - and TIPS do not act like nominal bonds. I mean that I have seen arguments that dividend paying stocks can be used as a bond substitute? Where does one draw the line?
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
If "mbs" is mortgage-backed securities, then today Vanguard Total Bond reports 20.1% Government mortgage-backed and 2.2% commercial mortgage-backed securities in its portfolio.alex_686 wrote: ↑Fri Oct 28, 2022 6:02 pm Nor does it include junk bonds, mbs, CMOs, convertible bonds. Or preferreds which act more like the bonds in a total bond fund then those that I have already mentioned.
You want to group similar assets together - and TIPS do not act like nominal bonds. I mean that I have seen arguments that dividend paying stocks can be used as a bond substitute? Where does one draw the line?
"I'm an indexer. I own the market. And I'm happy." (John Bogle, "BusinessWeek", 8/17/07) ☕ Maritime signal flag W - Whiskey: "I require medical assistance."
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Kookaburra:Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
We purchased Vanguard Total Bond Market Index Fund (VBTLX) in 1986. Later we purchased Vanguard Inflation-Protected Securities Fund (VAIPX) when it was first introduced in June, 2000. We later exchanged VAIPX for Vanguard Short-Term Inflation-Protected Securities Index (VTIPX). It is notable that all three of these bond funds have similar 10-year returns.
I have learned the importance of simplicity and, therefore did not include a TIPS fund in The Three-Fund Portfolio.
What Experts Say About Simplicity
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Either that or recognize that the words used in names of funds are not particularly meaningful. I would suppose that if TBM did include TIPS the result would not be very popular as those not wanting TIPS would avoid the fund and those wanting TIPS would find the fraction in TIPS to be completely insufficient.Kookaburra wrote: ↑Fri Oct 28, 2022 6:17 pmI think what we are saying is there has to be a more appropriate word than “total”.alex_686 wrote: ↑Fri Oct 28, 2022 6:02 pmNor does it include junk bonds, mbs, CMOs, convertible bonds. Or preferreds which act more like the bonds in a total bond fund then those that I have already mentioned.Kookaburra wrote: ↑Fri Oct 28, 2022 5:49 pmIndeed. Considering it excludes TIPS and munis, it is anything but “total”.marcopolo wrote: ↑Fri Oct 28, 2022 5:41 pmThe better question might be:.Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
Why don't Total Bond Funds include TIPs?
You want to group similar assets together - and TIPS do not act like nominal bonds. I mean that I have seen arguments that dividend paying stocks can be used as a bond substitute? Where does one draw the line?
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Hi TaylorTaylor Larimore wrote: ↑Fri Oct 28, 2022 7:08 pmKookaburra:Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
We purchased Vanguard Total Bond Market Index Fund (VBTLX) in 1986. Later we purchased Vanguard Inflation-Protected Securities Fund (VAIPX) when it was first introduced in June, 2000. We later exchanged VAIPX for Vanguard Short-Term Inflation-Protected Securities Index (VTIPX). It is notable that all three of these bond funds have similar 10-year returns.
I have learned the importance of simplicity and, therefore did not include a TIPS fund in The Three-Fund Portfolio.
What Experts Say About Simplicity
Best wishes.
TaylorJack Bogle's Words of Wisdom: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
Can I ask you what the reason was for your switching from VAIPX to VTIPX?
Thanks
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
I'm loath to criticize the Three Fund Portfolio, but I see no issue with anyone going 50/50 BND/TIPS in the bond section. By definition, you've now got a Four Fund Portfolio, but still ... we're in inflationary times, and having TIPS included may help people sleep at night.
Isn't the main benefit of any simple investment portfolio template, to help the investor stay the course? The White Coat Investor(?) site had an article (I can't find it, sorry) where (if I recall correctly) they enumerated over 150 suggested diversified portfolios, and said that if you adopted any of them and stuck with them for decades, you'd do alright (3 Fund, All Weather, Butterfly, Buffet 90/10, Balanced Index, Dividend Aristocrats, Permanent Portfolio, Wellington, Wellesley, whatever) you'd have done, and will do, just fine. It's the sticking with it in all conditions, for all those years, that's the key.
I own TIPS in my Target 2020 Fund, for what it's worth ...
Isn't the main benefit of any simple investment portfolio template, to help the investor stay the course? The White Coat Investor(?) site had an article (I can't find it, sorry) where (if I recall correctly) they enumerated over 150 suggested diversified portfolios, and said that if you adopted any of them and stuck with them for decades, you'd do alright (3 Fund, All Weather, Butterfly, Buffet 90/10, Balanced Index, Dividend Aristocrats, Permanent Portfolio, Wellington, Wellesley, whatever) you'd have done, and will do, just fine. It's the sticking with it in all conditions, for all those years, that's the key.
I own TIPS in my Target 2020 Fund, for what it's worth ...
74% VTHRX/8% DODWX/12% TIAA Traditional/6% SWVXX
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Kookaburra:Kookaburra wrote: ↑Fri Oct 28, 2022 10:19 pm
Hi Taylor
Can I ask you what the reason was for your switching from VAIPX to VTIPX?
Thanks
Sorry, I don't remember the reason.
Best wishes
Taylor
Jack Bogle's Words of Wisdom: "The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Why do you hold bonds in your portfolio? Once you answer this what bond funds or other fixed income product meets that need?
Re: The Three-Fund Portfolio
I merged Kookaburra's thread into the ongoing discussion.
(Thanks to the member who reported the post and provided a link to this thread.)
(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Edit: Deleted post - came off argumentative and not helpful.Marseille07 wrote: ↑Sat Oct 29, 2022 1:06 pmUnfortunately this is the key question some folks failed to answer, or their answer is "because 3-funder said so."
Last edited by rebellovw on Sat Oct 29, 2022 4:54 pm, edited 1 time in total.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
This makes no sense. Did you read the reply? There was no claim to know why someone else holds bonds in their portfolio. That's for them to answer. If someone don't know why they have a fixed income allocation then how can there be a discussion?rebellovw wrote: ↑Sat Oct 29, 2022 1:47 pmSince you know better you should start your own thread with a better portfolio. Let’s see how that works out.Marseille07 wrote: ↑Sat Oct 29, 2022 1:06 pmUnfortunately this is the key question some folks failed to answer, or their answer is "because 3-funder said so."
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
The purpose of bonds is to lower the risk of the overall portfolio. By adjusting the stock/bond ratio one can "dial in" the desired level of risk.
Why no international bonds nor TIPS in the three-fund portfolio?
A. International bonds provide no more risk-reduction that domestic bonds, so it is an added complexity that makes it no easier to do risk adjustment at the portfolio level.
B. TIPS can be a risk reducer but if your overall risk is not what you want, adjust the stock/bond ratio.
There are other portfolio models besides the three-fund portfolio and you, or anyone, are welcome to choose one. The three-fund portfolio is offered by Taylor Larimore as an effective, efficient, and easy-to-manage portfolio. I and many others like it. Look again at Taylor's discussion of the three-fund portfolio at the top of this thread. Look for the objectives and how they are met.
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: Why is a TIPS fund not in the 3-Fund Portfolio?
That's your purpose. That's not THE purpose.bertilak wrote: ↑Sat Oct 29, 2022 2:08 pmThe purpose of bonds is to lower the risk of the overall portfolio. Adjusting the stock/bond ration can "dial in" the level of risk you desire.
Why no international bonds nor TIPS in the three-fund portfolio?
A. International bonds provide no more risk-reduction that domestic bonds, so it is an added complexity that makes it no easier to do risk adjustment at the portfolio level.
B. TIPS can be a risk reducer but if your overall risk is not what you want, adjust the stock/bond ratio.
There are other portfolio models besides the three-fund portfolio and you, or anyone, are welcome to choose one. The three-fund portfolio is offered by Taylor Larimore as an effective, efficient, and easy-to-manage portfolio. I and many others like it. Look again at Taylor's discussion of the three-fund portfolio at the top of this thread. Look for the objectives and how they are met.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
I don't get B.: Are you saying that instead of holding TIPS you may just aswell hold less nominal bonds?bertilak wrote: ↑Sat Oct 29, 2022 2:08 pmThe purpose of bonds is to lower the risk of the overall portfolio. By adjusting the stock/bond ratio one can "dial in" the desired level of risk.
Why no international bonds nor TIPS in the three-fund portfolio?
A. International bonds provide no more risk-reduction that domestic bonds, so it is an added complexity that makes it no easier to do risk adjustment at the portfolio level.
B. TIPS can be a risk reducer but if your overall risk is not what you want, adjust the stock/bond ratio.
As far as I'm aware TIPS correlation to US stock market has been close to zero since 2000. So I'm not sure stocks are a good substitute for TIPS. Or did I get you wrong?
I'm really interested in the answer to your question "Why no TIPS in the three-fund portfolio?"
Last edited by Poe22 on Sat Oct 29, 2022 2:32 pm, edited 3 times in total.
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Well, look at Taylor's first post in this thread and give me a better summary of THE purpose. I admit I simplified as I saw no value in repeating what has been written. I was trying to give a concise answer to the question posed. (Why hold bonds?)Nate79 wrote: ↑Sat Oct 29, 2022 2:10 pmThat's your purpose. That's not THE purpose.bertilak wrote: ↑Sat Oct 29, 2022 2:08 pmThe purpose of bonds is to lower the risk of the overall portfolio. Adjusting the stock/bond ration can "dial in" the level of risk you desire.
Why no international bonds nor TIPS in the three-fund portfolio?
A. International bonds provide no more risk-reduction that domestic bonds, so it is an added complexity that makes it no easier to do risk adjustment at the portfolio level.
B. TIPS can be a risk reducer but if your overall risk is not what you want, adjust the stock/bond ratio.
There are other portfolio models besides the three-fund portfolio and you, or anyone, are welcome to choose one. The three-fund portfolio is offered by Taylor Larimore as an effective, efficient, and easy-to-manage portfolio. I and many others like it. Look again at Taylor's discussion of the three-fund portfolio at the top of this thread. Look for the objectives and how they are met.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Thank you. You stated it better than I would have.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Edit: Deleted post - came off argumentative and not helpful.Nate79 wrote: ↑Sat Oct 29, 2022 2:03 pmThis makes no sense. Did you read the reply? There was no claim to know why someone else holds bonds in their portfolio. That's for them to answer. If someone don't know why they have a fixed income allocation then how can there be a discussion?rebellovw wrote: ↑Sat Oct 29, 2022 1:47 pmSince you know better you should start your own thread with a better portfolio. Let’s see how that works out.Marseille07 wrote: ↑Sat Oct 29, 2022 1:06 pmUnfortunately this is the key question some folks failed to answer, or their answer is "because 3-funder said so."
Last edited by rebellovw on Sat Oct 29, 2022 4:55 pm, edited 2 times in total.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Couldn’t agree more. Thanks Bert.bertilak wrote: ↑Sat Oct 29, 2022 2:16 pmWell, look at Taylor's first post in this thread and give me a better summary of THE purpose. I admit I simplified as I saw no value in repeating what has been written. I was trying to give a concise answer to the question posed. (Why hold bonds?)Nate79 wrote: ↑Sat Oct 29, 2022 2:10 pmThat's your purpose. That's not THE purpose.bertilak wrote: ↑Sat Oct 29, 2022 2:08 pmThe purpose of bonds is to lower the risk of the overall portfolio. Adjusting the stock/bond ration can "dial in" the level of risk you desire.
Why no international bonds nor TIPS in the three-fund portfolio?
A. International bonds provide no more risk-reduction that domestic bonds, so it is an added complexity that makes it no easier to do risk adjustment at the portfolio level.
B. TIPS can be a risk reducer but if your overall risk is not what you want, adjust the stock/bond ratio.
There are other portfolio models besides the three-fund portfolio and you, or anyone, are welcome to choose one. The three-fund portfolio is offered by Taylor Larimore as an effective, efficient, and easy-to-manage portfolio. I and many others like it. Look again at Taylor's discussion of the three-fund portfolio at the top of this thread. Look for the objectives and how they are met.
Last edited by rebellovw on Sat Oct 29, 2022 4:53 pm, edited 1 time in total.
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Hi Taylor -Taylor Larimore wrote: ↑Fri Oct 28, 2022 7:08 pmKookaburra:Kookaburra wrote: ↑Fri Oct 28, 2022 4:04 pm The past couple years have laid bare the beat-down that unexpected inflation can impart on one’s nominal bond holdings. Since this can be particularly devastating to retirees, why does the oft-praised 3-Fund portfolio not include a substantial allocation to TIPS, such as VTAPX or VAIPX?
Should it?
We purchased Vanguard Total Bond Market Index Fund (VBTLX) in 1986. Later we purchased Vanguard Inflation-Protected Securities Fund (VAIPX) when it was first introduced in June, 2000. We later exchanged VAIPX for Vanguard Short-Term Inflation-Protected Securities Index (VTIPX). It is notable that all three of these bond funds have similar 10-year returns.
I have learned the importance of simplicity and, therefore did not include a TIPS fund in The Three-Fund Portfolio.
What Experts Say About Simplicity
Best wishes.
TaylorJack Bogle's Words of Wisdom: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
We too follow essentially the same path. We had multiple bond funds and eventually Total Bond and Intermediate TIPS. We simply consolidated with Total Bond and in hindsight it was a good decision from a simplicity perspective. In terms of performance, the added complexity has not made much difference.
There is good reason why Total Bond is the largest bond fund on the planet.
Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
You're blowing the context out of proportion.
The question was not whether you should hold fixed income. It was to ask yourself why you hold X duration, Y yield and Z percentage of your portfolio in fixed income.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Sorry - not to be argumentative.Marseille07 wrote: ↑Sat Oct 29, 2022 4:16 pmYou're blowing the context out of proportion.
The question was not whether you should hold fixed income. It was to ask yourself why you hold X duration, Y yield and Z percentage of your portfolio in fixed income.
I want around 60/40. My 40 is mostly TBM - which also includes two years of cash emergency fund (CDs and iBonds).
As far as duration - I think the intermediate duration works and with TBM - that's only 7 years - so there will be some pain - but as new bonds are bought in TBM it should even out - 7 years isn't long.
I for sure want the highest yields possible for a safe fund. TBM going down so hard this year has been quite painful but the yields are nice and the price is starting to go up - but who knows - it can tank further.
From a simplicity standpoint - I believe Jack Bogle recommended TBM.
We can see that Taylor tried out some TIPs type funds and came back to TBM - but I believe in the long run/grand scheme of things - it is probably a wash.
I've started on TIPs to experiment with them (brokeragelink)
I think many prefer KISS - stick with TSM and TBM whereas others like me - out of recent experience (and hearing Buffet talk about - fixed should be in Treasuries) feel that now my Fixed Income should likely be 50/50 TBM/Treasuries + TIPs. So I'm going to try to grow my fixed asset into Treasuries with new funds.
Thanks,
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
You have a reasonable plan, and you had asked yourself the questions and answered them already. That's all I was encouraging everyone to dorebellovw wrote: ↑Sat Oct 29, 2022 4:40 pm Sorry - not to be argumentative.
I want around 60/40. My 40 is mostly TBM - which also includes two years of cash emergency fund (CDs and iBonds).
As far as duration - I think the intermediate duration works and with TBM - that's only 7 years - so there will be some pain - but as new bonds are bought in TBM it should even out - 7 years isn't long.
I for sure want the highest yields possible for a safe fund. TBM going down so hard this year has been quite painful but the yields are nice and the price is starting to go up - but who knows - it can tank further.
From a simplicity standpoint - I believe Jack Bogle recommended TBM.
We can see that Taylor tried out some TIPs type funds and came back to TBM - but I believe in the long run/grand scheme of things - it is probably a wash.
I've started on TIPs to experiment with them (brokeragelink)
I think many prefer KISS - stick with TSM and TBM whereas others like me - out of recent experience (and hearing Buffet talk about - fixed should be in Treasuries) feel that now my Fixed Income should likely be 50/50 TBM/Treasuries + TIPs. So I'm going to try to grow my fixed asset into Treasuries with new funds.
Thanks,
I ask these questions myself too and discuss with other posters.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Thank you!Marseille07 wrote: ↑Sat Oct 29, 2022 4:44 pmYou have a reasonable plan, and you had asked yourself the questions and answered them already. That's all I was encouraging everyone to dorebellovw wrote: ↑Sat Oct 29, 2022 4:40 pm Sorry - not to be argumentative.
I want around 60/40. My 40 is mostly TBM - which also includes two years of cash emergency fund (CDs and iBonds).
As far as duration - I think the intermediate duration works and with TBM - that's only 7 years - so there will be some pain - but as new bonds are bought in TBM it should even out - 7 years isn't long.
I for sure want the highest yields possible for a safe fund. TBM going down so hard this year has been quite painful but the yields are nice and the price is starting to go up - but who knows - it can tank further.
From a simplicity standpoint - I believe Jack Bogle recommended TBM.
We can see that Taylor tried out some TIPs type funds and came back to TBM - but I believe in the long run/grand scheme of things - it is probably a wash.
I've started on TIPs to experiment with them (brokeragelink)
I think many prefer KISS - stick with TSM and TBM whereas others like me - out of recent experience (and hearing Buffet talk about - fixed should be in Treasuries) feel that now my Fixed Income should likely be 50/50 TBM/Treasuries + TIPs. So I'm going to try to grow my fixed asset into Treasuries with new funds.
Thanks,
I ask these questions myself too and discuss with other posters.
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
We haven't had much inflation expectation for the past decade until recently. Now it looks a little different, and TIPS outperform:Taylor Larimore wrote: ↑Fri Oct 28, 2022 7:08 pm It is notable that all three of these bond funds have similar 10-year returns.
https://www.portfoliovisualizer.com/bac ... ion2_2=100
So I still do not understand: If I can only win but not lose by holding TIPS compared to nominal bonds, why should I not hold TIPS? It seems to be an asymetric risk for retirees who mainly have real, not nominal liabilities. Or am I mistaken?
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
You are not. This is why 100% of my long term fixed investments are in TIPS.Poe22 wrote: ↑Sun Oct 30, 2022 1:18 amWe haven't had much inflation expectation for the past decade until recently. Now it looks a little different, and TIPS outperform:Taylor Larimore wrote: ↑Fri Oct 28, 2022 7:08 pm It is notable that all three of these bond funds have similar 10-year returns.
https://www.portfoliovisualizer.com/bac ... ion2_2=100
So I still do not understand: If I can only win but not lose by holding TIPS compared to nominal bonds, why should I not hold TIPS? It seems to be an asymetric risk for retirees who mainly have real, not nominal liabilities. Or am I mistaken?
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
Maybe they thought TIPS would go down quite a bit along with stocks? https://www.portfoliovisualizer.com/bac ... ion2_2=100
This kind of drawdown isn't pleasing when stocks are crashing at the same time.
- Taylor Larimore
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Re: The Three-Fund Portfolio
Bogleheads:
I was asked (and replied) why doesn't the Three-Fund Portfolio included TIPS? The Morningstar article linked below explains why TIPS "Flopped."
Lesson learned: "Less is more."
When Inflation Surfaced--TIPS Flopped .
Best wishes.
Taylor
I was asked (and replied) why doesn't the Three-Fund Portfolio included TIPS? The Morningstar article linked below explains why TIPS "Flopped."
Lesson learned: "Less is more."
When Inflation Surfaced--TIPS Flopped .
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
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
This is an interesting observation I cannot explain. However, overall, intermediate treasuries seem to have been only slightly less correlated to the total stock market than TIPS since 2001 though. And: Same Sharpe ratio.Marseille07 wrote: ↑Sun Oct 30, 2022 12:47 pmMaybe they thought TIPS would go down quite a bit along with stocks? https://www.portfoliovisualizer.com/bac ... ion2_2=100
This kind of drawdown isn't pleasing when stocks are crashing at the same time.
https://www.portfoliovisualizer.com/bac ... ion2_2=100
- Taylor Larimore
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Re: The Three-Fund Portfolio
Bogleheads:
I am happy to read this post by Triple digit golfer:
Taylor
I am happy to read this post by Triple digit golfer:
Best wishes."I've held a basic 3 fund portfolio for as long as I've been investing. I'm (we are) a 37 year old millionaire with a good but not extravagant salary with a stay at home wife and daughter. Discipline, consistency, and a good savings rate works even without holding 100% of the highest performing investment."
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
Taylor I allocated to the 3 fund portfolio in 2013. Thank you once again for sharing with us this great allocation.Taylor Larimore wrote: ↑Sun Nov 06, 2022 12:13 pm Bogleheads:
I am happy to read this post by Triple digit golfer:Best wishes."I've held a basic 3 fund portfolio for as long as I've been investing. I'm (we are) a 37 year old millionaire with a good but not extravagant salary with a stay at home wife and daughter. Discipline, consistency, and a good savings rate works even without holding 100% of the highest performing investment."
TaylorJack 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."
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
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Re: The Three-Fund Portfolio
Dave:
It makes me happy when I learn about an investor who is pleased with their 3-fund portfolio. It is also beneficial for other investors who may be undecided.
Best wishes.
Taylor
It makes me happy when I learn about an investor who is pleased with their 3-fund portfolio. It is also beneficial for other investors who may be undecided.
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Never think you know more than the market. Nobody does." -- "In my view, owning the market and holding it forever is the ultimate strategy for winners."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: The Three-Fund Portfolio
Hi Taylor,Taylor Larimore wrote: ↑Sun Nov 06, 2022 1:19 pm Dave:
It makes me happy when I learn about an investor who is pleased with their 3-fund portfolio. It is also beneficial for other investors who may be undecided.
Best wishes.
TaylorJack Bogle's Words of Wisdom: "Never think you know more than the market. Nobody does." -- "In my view, owning the market and holding it forever is the ultimate strategy for winners."
Thank you for all you’ve done for this community.
Aside from your knowing and talking about Jack Bogle, your contributions to Bogleheads, and the 3 fund portfolio and the resulting financial impact you’ve had on others, what is the one other thing you feel the most proudest about?
Thanks!
- Taylor Larimore
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Re: The Three-Fund Portfolio
Hola:Hola wrote: ↑Sun Nov 06, 2022 1:46 pmHi Taylor,Taylor Larimore wrote: ↑Sun Nov 06, 2022 1:19 pm Dave:
It makes me happy when I learn about an investor who is pleased with their 3-fund portfolio. It is also beneficial for other investors who may be undecided.
Best wishes.
TaylorJack Bogle's Words of Wisdom: "Never think you know more than the market. Nobody does." -- "In my view, owning the market and holding it forever is the ultimate strategy for winners."
Thank you for all you’ve done for this community.
Aside from your knowing and talking about Jack Bogle, your contributions to Bogleheads, and the 3 fund portfolio and the resulting financial impact you’ve had on others, what is the one other thing you feel the most proudest about?
Thanks!
I was born in the USA and raised by loving parents. in 1950 I married the 1949 Orange Bowl Theme Girl. We had three sons. Pat died after 62 years of a happy marriage. Her ashes (and one son) are in Biscayne Bay near my Miami condominium.
A friend I knew from long ago is now my partner. My surviving sons take me to lunch every week. I am a very lucky man.
The thing I am most proudest of: I did my best.
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “Success in short can be measured, not in what we attain for ourselves, but in what we contribute to society.”
"Simplicity is the master key to financial success." -- Jack Bogle
Re: The Three-Fund Portfolio
I wouldn’t presume to tell you what you should be proud of. But, with Veterans’ Day rapidly approaching, you can certainly be proud of your World War II service. Clearly one of the folks who gave “The Greatest Generation” its name. Thank you.Taylor Larimore wrote: ↑Sun Nov 06, 2022 6:16 pmHola:Hola wrote: ↑Sun Nov 06, 2022 1:46 pmHi Taylor,Taylor Larimore wrote: ↑Sun Nov 06, 2022 1:19 pm Dave:
It makes me happy when I learn about an investor who is pleased with their 3-fund portfolio. It is also beneficial for other investors who may be undecided.
Best wishes.
TaylorJack Bogle's Words of Wisdom: "Never think you know more than the market. Nobody does." -- "In my view, owning the market and holding it forever is the ultimate strategy for winners."
Thank you for all you’ve done for this community.
Aside from your knowing and talking about Jack Bogle, your contributions to Bogleheads, and the 3 fund portfolio and the resulting financial impact you’ve had on others, what is the one other thing you feel the most proudest about?
Thanks!
I was born in the USA and raised by loving parents. in 1950 I married the 1949 Orange Bowl Theme Girl. We had three sons. Pat died after 62 years of a happy marriage. Her ashes (and one son) are in Biscayne Bay near my Miami condominium.
A friend I knew from long ago is now my partner. My surviving sons take me to lunch every week. I am a very lucky man.
The thing I am most proudest of: I did my best.
Best wishes.
TaylorJack Bogle's Words of Wisdom: “Success in short can be measured, not in what we attain for ourselves, but in what we contribute to society.”
Friar1610 |
50-ish/50-ish - a satisficer, not a maximizer
Re: Why is a TIPS fund not in the 3-Fund Portfolio?
While the fund names still include "total", I've noticed that in some contexts, Vanguard now refers to their role in a portfolio with narrower names. For example, the name of VTBIX is "Total Bond Market II Index Fund". But the explanatory material around the Vanguard Target Date funds that include VTBIX label it in the glide path using the more precise description "U.S. nominal bonds".Kookaburra wrote: ↑Fri Oct 28, 2022 6:17 pmI think what we are saying is there has to be a more appropriate word than “total”.alex_686 wrote: ↑Fri Oct 28, 2022 6:02 pm Nor does it include junk bonds, mbs, CMOs, convertible bonds. Or preferreds which act more like the bonds in a total bond fund then those that I have already mentioned.
You want to group similar assets together - and TIPS do not act like nominal bonds. I mean that I have seen arguments that dividend paying stocks can be used as a bond substitute? Where does one draw the line?
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Re: Why is a TIPS fund not in the 3-Fund Portfolio?
I always thought it was just a really bad sequel.mnelson wrote: ↑Fri Nov 11, 2022 1:32 amWhile the fund names still include "total", I've noticed that in some contexts, Vanguard now refers to their role in a portfolio with narrower names. For example, the name of VTBIX is "Total Bond Market II Index Fund". But the explanatory material around the Vanguard Target Date funds that include VTBIX label it in the glide path using the more precise description "U.S. nominal bonds".Kookaburra wrote: ↑Fri Oct 28, 2022 6:17 pmI think what we are saying is there has to be a more appropriate word than “total”.alex_686 wrote: ↑Fri Oct 28, 2022 6:02 pm Nor does it include junk bonds, mbs, CMOs, convertible bonds. Or preferreds which act more like the bonds in a total bond fund then those that I have already mentioned.
You want to group similar assets together - and TIPS do not act like nominal bonds. I mean that I have seen arguments that dividend paying stocks can be used as a bond substitute? Where does one draw the line?