Portfolio Types 4


Hi guys, today will be a short post about Portfolio Types.

Today I’m going to focus on “Lazy Portfolios” which are popularized by Bogleheads. I am pretty much cutting and pasting this from the Bogleheads wiki, but I will clean up this post to make it look better later, with my commentary. Today is school field trip day with my daughter so I just wanted to get this posted before I take her to the aquarium.

Updated 7-12-2016

The format is:

Allocation Split – Name of Fund – Mutual Fund Ticker (ER) Admiral’s Ticker (ER) ETF Ticker (ER)

Two fund portfolio – Rick Ferri

This portfolio is pretty much as simple as it gets:

60% – Vanguard Total World Stock Index Fund — VTWSX (.30%) [no Admiral’s] VT (.18%)
40% – Vanguard Total Bond Market Index Fund — VBMFX (.20%) VBTLX (.07%) BND (.07%)

Total World Stock has both US and International Stock Indexes within it and Total Bond is the most diversified bond index fund. Simply by holding these two funds you are basically investing in a massive amount of stocks (US and International) and bonds. It really doesn’t get more simple than this one. This portfolio is for people who don’t want to tinker -at all-.

Since we usually define things in terms of a X% Stock / Y% Bond split in terms of allocation, Rick Ferri suggests a 60/40 split. If you read my asset allocation post, this is a very conservative split for people less than 30 years old, and a very aggressive split for someone over 60 years old. In my opinion, if you opt for this portfolio, I would just leave it at 60/40, rebalancing yearly, until you turn 40. Then rebalance every year based on your “age in bonds” adage 59/41 at 41 years old, 58/42 at 42 years old and so on.


Three fund portfolio 

This one makes a point to have two separate stock portfolios, one for the US and one for International. I am partial to this one, just because it makes sense to me.

Taylor Larimore’s Version

– Vanguard Total Stock Market Index Fund — VTSMX (.17%) VTSAX (.05%) VTI (.05%)
– Vanguard Total International Stock Index Fund  — VGTSX (.22%) VTIAX (.14%) VXUS (.14%)
– Vanguard Total Bond Market Index Fund — VBMFX (.20%) VBTLX (.07%) BND (.07%)

Taylor Larimore’s version makes the most sense to me, but I don’t think he specifically suggests any particular asset allocation since none are explicitly listed on the Bogleheads wiki. I think this is because Taylor Larimore advocates that people need to understand their own risk tolerance. “Age in bonds” is a good starting point, but it depends on your risk tolerance.

80/20 is considered “aggressive” for a 30 year old, but may not be aggressive enough for you.

Full disclosure: My current asset allocations are 80/20 for my 401k and 70/30 for my wife’s 401k and 457. Why? I don’t know, it’s how I felt at the time I guess. This is somewhat aggressive for me since I am 35 years old. However, my own risk tolerance allows for it. I don’t plan to change this allocation until I turn 40 or so, when I have a better idea of how much money I have saved and how much risk I want to take on. Risk tolerance changes with age.


Scott Burn’s Version

34% – Vanguard Total Stock Market Index Fund — VTSMX (.17%) VTSAX (.05%) VTI (.05%)
33% – Vanguard Total International Stock Index Fund — VGTSX (.22%) VTIAX (.14%) VXUS (.14%)
33% – Vanguard Inflation-Protected Securities Fund — VIPSX (.20%) VAIPX (.11%) [no ETF]

Scott Burn’s uses Treasury Inflation-Protected Securities Funds (TIPS) instead of Bonds. He does not tilt at all towards the US Stock Market or the International Market, only giving the Total Stock (US) a slight edge with 34% instead of 33% for International. This was like just for the sake of rounding in a 33/33/33 split. In this portfolio bonds ~ IPS. Overall, his stock/bond split is 67/33.

Similar to the Rick Ferri’s two fund portfolio, you can start with a 67/33 split which is conservative for a 25 year old, but right on the mark for a 33 year old. If you want to tinker a little with the allocation, that’s probably fine. If you want a simple plan, just start putting away the money with a 67/33 split, rebalancing every year to that split. Then at 35 or 40 years old, start rebalancing yearly to whatever you are comfortable with based on “age in bonds” adage.

What use TIPs? TIPS have some advantages and disadvantages compared to conventional bonds. It’s kind of a potato-puhtahtoe kind of thing in my opinion.

I will discuss TIPS in a future post.


Rick Ferri’s Version

40% – Vanguard Total Stock Market Index Fund — VTSMX (.17%) VTSAX (.05%) VTI (.05%)
20% – Vanguard Total International Stock Index Fund — VGTSX (.22%) VTIAX (.14%) VXUS (.14%)
40% – Vanguard Total Bond Market Index Fund — VBMFX (.20%) VBTLX (.07%) BND (.07%)

Rick Ferri suggests a 60/40 split for Stock/Bond with a tilt for more US stocks (40% Total Stock Market versus 20% International Stock)

Rick Ferri and Taylor Larimore (above) essentially suggest the same funds, but Rick Ferri likes a 60/40 Stock/Bond split, similar to his two fund portfolio.

The same advice I give for the two fund portfolio works here.


Four fund portfolios “Core Four”

This one throws in a Real Estate Investment Trust (REIT) Index Fund into the usual stock/bond mix for slightly more diversification.

30% – Vanguard Total Stock Market Index Fund — VTSMX (0.17%) VTSAX (0.05%) VTI (0.05%)
24% – Vanguard Total International Stock Index Fund — VGTSX (0.22%) VTIAX (0.14%) VXUS (0.14%)
40% – Vanguard Total Bond Market Index Fund — VBMFX (0.20%) VBTLX (0.07%) BND (0.07%)
6% –  Vanguard REIT Index Fund — VGSIX (0.26%) VGSLX (0.12%) VNQ (0.12%)

The above is a 54/46 Stock/Bond&REIT split.

Why add an REIT? 

REITs do not really correlate with stocks and bonds, so this adds some diversification to your portfolio.

I will discuss REITs in a future post.


I will talk more about using ETFs versus regular Investor’s shares versus Admiral’s shares later as well.

In case people were wondering, The LifeStrategy and Target Retirement funds are four-fund portfolios, which are auto rebalanced by your expected retirement date.


TL;DR

Any of the above portfolios are pretty darn good.

I like Taylor Larimore’s version of the three fund portfolio because it makes the most sense to me.

LifeStrategy and Target Retirement Funds are probably the ultimate set it and forget it funds since they auto rebalance.

I will discuss TIPS and REITs further in a future post.

 

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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About Sensei

A young attending physician trying to navigate the mine field that is life after medical school…


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