Variations on Bogleheads® investing

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Bogleheads follow a set of principles that maximize the chances of a good retirement. But there are many different plans which are compatible with these underlying principles. Some investors diverge somewhat on some of the principles.

Having a play money account

Some investors find financial markets fascinating, and like trying alternative approaches. If taking this approach, John Bogle recommends setting aside 5% of a retirement portfolio as "play money". [note 1]

One approach would be the selection of individual stocks. Additional examples of strategies for this account include following a "tactical asset allocation" strategy in which the investor moves a portion of money in and out of stocks based on a prediction of what the market will do next. Or an investor could invest in a fund in the belief that it will outperform the market. Just note that even a couple of years of market-beating performance is no assurance of one's ability to beat the risk-adjusted returns of diversified equity index funds over time. So please don't become overconfident.

Investing in actively managed funds

Other Bogleheads like to invest a portion of their assets in a few carefully-selected actively-managed mutual funds, but, when adopting such strategies, Vanguard recommends that total market index funds should still make up the bulk of one's equity holdings. [1] Most managed funds are tax-inefficient so one is usually advised to hold them in tax-advantaged accounts.

Adding and overweighting of REITs

REITs (such as Vanguard REIT Fund) are also a common addition to some Bogleheads portfolios, since they have sometimes provided additional diversification from equities and bonds. As an example, refer to the portfolio recommended for individual investors by David Swenson, investment manager of the Yale endowment, in the figure below. REITs are tax-inefficient, and so need to be held in tax-advantaged accounts.

David Swensen's Lazy Portfolio, employing a REIT allocation Swensen Lazy Portfolio2.PNG

Adding more asset classes to a portfolio

Adding additional asset classes to a portfolio like gold, commodities, various bond sub-classes like asset-backed, mortgage securities, inflation indexed securities, zero coupon provides sometimes additional diversification to the portfolio.

Tilt to value and small cap

Many Bogleheads, following the research of Fama and French, like to slice and dice their equity holdings among multiple asset classes with the goal of overweighting small and value holdings relative to the total market. Refer to the popular "Coffeehouse Portfolio" recommended by Bill Schultheis in the figure below for an example of a size and value tilted portfolio. There is a great deal of historical evidence that such a portfolio will produce higher volatility-adjusted returns over time, but only for those investors who can not only manage a more complex allocation plan, but can stick with it through inevitable periods of underperformance. Most, if not all, of the expected benefits of slicing and dicing can be achieved very simply by "tilting" a total market portfolio with the addition of a small value fund (like Vanguard Small Cap Value). But again, such a portfolio has often underperformed a total market portfolio for a decade or more. [2] Investors who conclude they would be discouraged by such underperformance, should just stick with total market investing.

Bill Shultheis' Coffeehouse Portfolio, employing value and small cap tilts CoffeeHouse Portfolio.PNG

Slicing and dicing the market

Slice and Dice refers to dividing allocations within a given unitary asset class, such as stocks. Slice and dice portfolios are essentially diversified portfolios that seek to outpace the broad market index by systematically overweighting various sub-asset classes.

The concept of portfolio slice and dice is intended for experienced investors only. It is not recommended for new investors, as it intentionally deviates from the Bogleheads approach to managing your portfolio, which is investing in the total market. Past performance does not guarantee future performance.


  1. John Bogle recommends setting aside no more than 5% of your investments as "funny money", which is the most you can afford to lose and not jeopardize your retirement.

    Life is short. If you want to enjoy the fun, enjoy! But not with all of your hard-earned resources. Specifically, not with one penny more than 5% of your investment assets. At most! Have the fun of gambling, but not with your rent money - and certainly not with your retirement assets nor with your funds for your college education.

    Source: Bogle, John (2001). John Bogle on Investing, the First 50 Years. McGraw-Hill. p. 24. ISBN 0-07-136438-2.

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