Just fyi in case you weren't aware, I ended up making a more thorough, updated video on the Bogleheads 3 Fund Portfolio here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
Bonds are dream killers until they go up when stocks go down (Treasuries anyway). EDV is best as a hedge and at offering rebalancing benefits when stocks drop.
Slept like a baby.I do have to admit,since retirement my portfolio was rebalanced to 97% stocks and 3% bonds.I am getting more conservative as I approach my 60's.@@michaelb7829
I like that idea. Here's a high-risk strategy that's actually pretty sensible IMO if you're interested: th-cam.com/video/lwMHuHE9MzQ/w-d-xo.html&ab_channel=OptimizedPortfolio
Thomas, if you want a new one to relisten to every so often, in case you weren't aware, I ended up making a more thorough, updated video on the Bogleheads 3 Fund Portfolio here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
Here's what I do personally: Roth: 100% VTI. Brokerage: VGT (growth), SCHD (dividends), VCLT (bonds; I opt for the corporate side because I prefer to buy government bonds directly on Treasury Direct).
Getting these people will ease a lot. And at last, you’ll realise you have safe your funds. The money we throw into stock without even taking consideration to whether it’s good for holding or not is our hard earn money. So we should accept someone professional to make good management of it for proper growth.
@@steffan683 Talking about my analyst I met her sometime last year in Manchester. Her name is Loretta Wilkinson. She has helped me grow my money from £60,000 to £400,000. I can afford a house now, is her help.
In my Roth IRA I have a 5 fund portfolio that's similar. VOO, VO, VB, VNQ, BND and contribute to equally on a weekly basis. This allows me to invest a little higher in Small and Mid-Cap funds than would be possible though VTI alone. Rather than invest internationally I prefer VNQ which invests in real estate stocks. While BND gives me that 20% bond protection.
Just fyi in case you weren't aware, I ended up making a more thorough, updated video on the Bogleheads 3 Fund Portfolio here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
I have a 30 year save horizon portfolio so atm I am not in bonds (will adjust with bonds as I grow older) I use 7 index funds (highest weight in global) with an average total fee of 0,18% annually. 1 Global all-stock (Naturally US heavy) My own country's index (Sweden) 1 Domestic large cap 1 Domestic small cap 1 European index 1 Emerging markets (Naturally china/asia heavy) 1 Pacific (Australia, Hong Kong, Singapore, New Zealand) 1 Japanese index fund
Think I just became your 200th subscriber! I'm currently reading the Little Book and am becoming a Boglehead myself haha :D Thanks for the great video - if I may give a little peace of advice though: You could consider having the camera a bit further away so we can see your hand gestures as well. In my opinion this might make the videos even more lively (especially if you're reading from a teleprompter - I do that too :P)
Thank you for your video. 40 years in the 3 fund portfolio is all well and good but what formula would you advise for just turned 60 year olds but intend to keep working for at least another 10 years ? Any advice would be appreciated :)
Thanks! Just fyi in case you missed it, newer updated video is here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html The good thing about the 3 Fund is it works for young and old folks, just might need to change the % of stocks and bonds.
Arrived at these conclusions independently, with the exception that I use an emerging markets fixed income instead of domestic corporate because the negative correlation is stronger... gives me more “anchor” per dollar. Bogle has it right for almost everyone: “buy everything and hold it forever.”
Just fyi in case you weren't aware, I ended up making a more thorough, updated video on the Bogleheads 3 Fund Portfolio here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
Your content is amazing! You have heavily influenced my recent investment decisions, inspiring buys into Ntsx, Ntsi, and HFEA. I independently decided I trusted avantis, getting into avuv and avdv, but hearing that you like them increases my confidence in that decision. One question: why only 20% international stocks? What reason can you give for such a significant home country bias? I’m about 40% international (excluding my HFEA lotto ticket).
Thanks so much for the kind words and for the comment, Jason! Glad you've found my ramblings useful. So first, the Bogleheads 3 Fund Portfolio was one of my very first blog posts years ago. My own personal international exposure is greater than 20% at this point. Secondly, given the context of the topic, I had to consider that most U.S. Bogleheads do indeed still maintain a significant home country bias around 80/20, for better or for worse, and most U.S. investors still prefer or at least feel more comfortable doing so, so that's the model I published. Is it optimal? Impossible to say. Jack himself didn't even like international stocks for a long time until he finally came around in his later years. If you check out my blog post on diversification, you'll see I'm a big fan of going global with stocks.
80% VTI and 20% VXUS. Equities provide a higher return on investment. VTI's ROE is about 19% and VXUS's ROE is about 12%. Therefore, the ROE of the portfolio is about 17.6%. The ROE of the portfolio is leagues higher than the returns you could make holding bonds with a "Return on Debt" on average of about 4.5% in the long run.
@@WPaKFamily Adding bonds almost always increases the risk-adjusted return of a portfolio of equities. Most also overestimate their tolerance for risk and don't have the stomach for 100% stocks.
I have a question for you. I have a large lump sum to invest now (over 100K$). I just discovered that dollar-cost averaging could (should) be used in that situation and not only once your initial investment is made. Knowing (or not) what could potential coming, would you recommend me to spread this amount in small regular investments over the course of 6-12 months to spread out the risk?
How do you recommend selecting international allocation for a US investor? Match global market cap? Or overweight us slightly? I’m driving myself crazy trying to find “The perfect allocation”. What’s the justification for 20% international? Love your videos, thanks!
Agnostic would just be total market with VXUS or even VT. I choose to slightly overweight Emerging Markets so I use VEA and VWO separately. Perfect allocation can only be known in hindsight. Don't overthink it. 20% is the minimum Vanguard suggests will provide meaningful diversification. That's also the avg. int'l exposure of US investors' retirement accounts. Thanks!
@@OptimizedPortfolio Thanks for you reply. I tried going 60/40 to match VT but I realized I'm more comfortable just putting 25% of my investments in international. So i'll just go with that for now. Not worth stressing over. Thanks again, youre the best!
It might even be prudent to go 50% U.S. equities 50% international or close to it. The justification is simple: if the U.S. declines you are diversified globally.
VTSAX and VIGAX here. Use muni bond, MLP and REIT inheritance towards maxing out Roth IRA each year. So heavy in non equity can afford to gorge on equities right now but I doubt I will ever invest in bonds on my own. They are not what they used to be.
Don't bother with corporate bonds. They mostly correlate with the stock market but with lower returns. Plus, you are exposed to significant credit risk in exchange for a coupon payment that is only slightly higher than long-term treasuries. The risk-to-reward ratio is not there. Long-term treasuries are a great diversifier since they protect you from deflationary busts and have zero credit risk. As long as you have inflation-protected assets like stocks, real estate, gold, and commodities to counter-balance the treasuries, then you shouldnt have to worry to much about the duration risk.
I have a question: if the market crashes will you sell the bonds that automatically increased in value to buy the cheaper stocks that are on sale? I’m 30 and I would keep bonds to hedge a crash
Rebalance to your allocation once / year. Maybe increase the bond fund by 1% / year to 50% maximum. Maybe reduce % at a market crash ( 2000, 2008, 2020 )
How would a portfolio like this be impacted if interest rates were to go negative? Would it still be worth holding bonds or would it be prudent to go 100% equities or cash instead? Would this impact the duration you would want to use for your portfolio? Also, would this be an argument for diversifying your bond allocation globally as well?
Impossible to say. Bond pricing doesn't happen in a vacuum. All else equal, the bond investor holding for longer than the effective duration should be indifferent to interest rate changes. Just as we shouldn't try to time the stock market, we also probably shouldn't try to time the bond market.
@@OptimizedPortfolio got it, I think it makes sense that bonds would not become entirely unprofitable because even with negative interest rates, bonds with a negative return will still be more valuable than those with a lower interest rate. Although I didn't want to clarify, do you think this could be an argument to diversify your bond allocation outside of the US? For example, a German citizen running the three fund portfolio would be dealing with negative interest rates if they used their home country treasury bills. So it would be beneficial for them to buy US treasury bills.
@@OptimizedPortfolio But like you said, negative interest rates do not happen in a vacuum and the macroeconomic environment that would spur such a move would have a huge impact on foreign bonds as well as domestic/international equities.
@@Delta3angle The evidence seems to suggest going international with bonds is unlikely to help and unlikely to hurt the portfolio. I like to stick with US Treasuries.
Why would you not want diversified currencies too? I also think 1985 to now is a US love story that doesn’t necessarily repeat itself. We are becoming a small piece of the global economy slowly, it seems truly diversifying both in terms unhedged international bonds makes more sense than ever purely from a diversity standpoint, not a predicting the market sense.
After watching this excellent video, I'm considering modifying my 3-Fund portfolio by splitting BND into 50% VGIT and 50% BND to increase my exposure to Treasuries. Thoughts?
Glad you found the video informative! Splitting hairs at that point; no reason to own both. That would result in roughly 87% treasuries and 13% corporates.
Interesting, you stated on your webpage to start with long term bonds then switch to intermediate. But on this vid you stated you prefer long term bonds.
Just visited your Channel. Excellent video, thorough, totally first rate. Could you share your educational background with us? Could you co-produce a piece with Nick Doyle?
@@OptimizedPortfolio your work is wonderful; thanks. a BS/Math will do the trick. Nick Doyle has finance videos on youtube, 47 as I recall. He is solid and projects an image that he is solely interested in the betterment of is audience. You project well but you rush through the topics so fast that I fear people miss a lot. slow down,if I may suggest.
Just one-size-fits-most since most Bogleheads seem to like to overweight US. You're right. Up to you ultimately. I'll probably do a new BH 3 Fund video soon that touches on this.
@OptimizedPortfolio I was just thinking about the SCHD because it is a dividend portfolio. But the other ETFs of this 3 fund portfolio have lots of dividends? If so, would it be redundant adding the SCHD as 4th ETF?
@@GustavodeMatos Remember dividends don't really do anything, as share price compensates. We might care about targeting low volatility large caps with robust profitability, but that has nothing to do with dividends per se. SCHD is a decent naive proxy for such stocks, but again, it's already captured inside a total market fund.
Regarding International stocks... Your 1970-2008 data is rather dated. Looking at the 25-yr period 1997-2021, and using Vanguard's Total US Stock Market (VTSMX) and Total International Stock Market (VGTSX), a stock portfolio mix of 80% US and 20% International had a compound annual growth rate of 8.11% compared to 8.89% for a US-only portfolio. The International fund had far worse performance of 4.56% and was correlated 86% to the Total US Stock Market. Adding International stocks only serves to dilute the portfolio returns. Data from Portfolio Visualizer.
That's sort of the point. ALL that US outperformance has come AFTER 2009. www.optimizedportfolio.com/diversification/ I need to an updated version of this video with some more data points.
@@OptimizedPortfolio Your claim that all of the US return came after 2009 is just not true. Using the data for the two Vanguard stock funds from 1997-2009, the Total US market return was 5.25% with a std deviation of 16.9%, compared to Total International return of 4.93% and a std deviation of 18.6%, with an 86% correlation. From 1997-2009, the US had higher returns and lower risk, period. Additionally, from 2010-2021, the US market return was 14.89% with 14.3% std deviation, while International return was 5.84% with 15.6% std deviation. The purpose of diversification is to improve returns and/or reduce risk (measured by the std deviation of returns). The US had higher returns and lower std deviations during 1997-2009 and 2010-2021. International returns were lower, more volatile, and highly correlated to the US market. So, why add this asset class which also brings the substantial currency risk of owning stocks denominated in foreign currencies ? Data from Portfolio Visualizer.
@@kevink7777 The whole point is that we don't know which will outperform going forward, so I buy everything. And of course you can't just compare one fund to the other. We're talking about the portfolio as a whole. Such is the beauty of diversification: www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2009&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=1000&annualOperation=1&annualAdjustment=500&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=100&allocation1_3=60&symbol2=VGTSX&allocation2_2=100&allocation2_3=40
So, is the Vanguard 500 Index Investor just referring to the S&P 500? @Optimized Portfolio. Also, should I still consider adding bonds to my portfolio if I am 26?
@@philswensen5863 would you recommend adding anything else or no? Mid cap, small cap or mega cap? Do I need to have international exposure or no? Are Reits a good idea in a Roth IRA?
@@mrderek800 just going off of Jack's book Common Sense Investing, I keep it simple and just use the index. Sometimes growth does better, sometimes value; to know exactly when you would need clairvoyance. Usually international stocks are heavily correlated to US economy but over a long time the average falls short
This may be the ideal portfolio for most investors except for Total Bond Market index, which has around a 7 year duration. Better off to use Short Term Treasury or a CD/Treasury ladder in tax deferred or a short term muni in taxable. These have a lot less duration risk and no credit quality risk.
For about the 5th time, the investor using a bond duration shorter than their investing horizon has taken on MORE interest rate risk, not less, in the form of reinvestment risk. This is true even with TBM with a 7 year duration for young investors, who likely have a 30+ year horizon. Please go read up on how bonds work and stop parroting "dUrAtIoN rIsK" or something Bernstein said about safety using mental accounting. Munis typically only benefit very high income earners.
@@OptimizedPortfolio Please review long bond performance in the last several years due to duration risk while the Fed has been raising interest rates. This long bond underperformance has coincided with stock underperformance. As far as matching bond duration to time horizon, this makes no sense at all, it is simply wrong.
@@PassivePortfolios Please stop basing all your arguments on the past few years; that's silly, tiresome, and intellectually lazy. And bond immunization - matching one's horizon to bond duration to eliminate interest rate risk, which is taught in finance courses and advisor certification programs - is "simply wrong," you say? Solid argument. News to me. We should probably let everyone know. The irony of you saying is "makes no sense at all" is palpable, as that's a clear indication that you don't understand it. That's okay. Most don't. But then most don't go around senselessly yelling "duration risk!" At least now you can't say you didn't learn anything: www.investopedia.com/terms/i/immunization.asp
@@OptimizedPortfolio I'm 31 and currently have 20% of my portfolio in bonds. half in BND, and the other half in EDV. But im debating whether or not to go full EDV, because many people on Bogleheads also suggest the first 20% in long treasuries.
@@Katsuya89 I agree with them. I'm also not a huge fan of BND in a diversified portfolio alongside stocks: www.optimizedportfolio.com/treasury-bonds-vs-corporate-bonds/ I see no reason to use both EDV and BND. They have very different effective durations.
@@OptimizedPortfolio I just checked out your website. A lot of useful info on there man. Keep it up. My main reason for holding BND was in case an emergency happened where i needed to sell some of my bonds to pay for whatever it is. Because from what i've seen BND is pretty flat, almost like cash. So my plan was to use the EDV portion of my bond allocation as a hedge, and my bnd portion as a safe haven. Or maybe i'm overthinking things?
@@Katsuya89 Thanks for the kind words! View the portfolio as a whole, not as individual pieces in isolation. BND shouldn't be considered a cash replacement anyway. For example, with BND's avg. maturity of 9 years and EDV's of 25 years, you essentially have a bond position with an effective maturity of 17 years.
He did initially, but he later came around to int'l stocks. In any case, not everything Bogle said should be taken as gospel. He also wanted more corporate bonds in a total bond market fund.
I’m confused. At 10:00 you can clearly see that that just investing in S&P 500 was way better in growth and beat out all of the portfolios. Why is that not mentioned and discussed?
Travis, the S&P 500 is used as a benchmark for comparison with most lazy portfolios. We wouldn't expect the 3-Fund to beat it on pure total return, as stocks tend to outperform bonds. That's not its intended purpose. The 3-Fund Portfolio is for someone who wants less volatility and risk - and thus likely a higher risk-adjusted return - than an S&P 500 index fund. As such, an investor seeking out the Bogleheads 3 Fund Portfolio does not want an S&P 500 index fund as their entire portfolio, and vice versa. Moreover, a 100% stocks portfolio would not be appropriate for a retiree. Thus, "better" is subjective and personal in this case. The S&P 500 had better general returns over the period, but the 3 Fund had "better" risk metrics such as volatility and max drawdown. As usual, it comes down to time horizon and personal risk tolerance. Had you needed to withdraw anytime between 2008 and 2012, the 3-Fund would have come out ahead with higher general returns as well.
But for someone 10+ years away from retirement (presumably your target audience) it is entirely appropriate and you leave a lot of gains on the table. Sticking your 401k in the 500 ( or vti since they track each other almost identically) until you’re 10 years out of retirement would be the simplest strategy of all. You shouldn’t be accessing it any way so that risk is gone. Add bonds as you age up
@@rickyaz8640 Agreed, I am 30 years out from the start of my hopeful retirement age. Even when I hit retirement I'm only going to be drawing a little bit every year, I could still handle major swings and drawbacks. So I would still stay somewhat risky for gains. But yes, I am 100% in stocks, no bonds. I could see once you get a little bit further into retirement to start doing this 80% stocks / 20% Bonds plan, and even go more heavily into bonds very quickly as you get further into retirement.
@@rickyaz8640 Agreed, though again, 100% stocks doesn't fit everyone's personal risk tolerance. Moreover, most investors severely overestimate their tolerance for risk, only realizing it when a crash happens and they panic sell. Risk doesn't simply disappear just because you're not withdrawing money. The Bogleheads 3 Fund Portfolio is only one of many lazy portfolios and approaches out there.
Hey Mike, I can't provide personalized advice. I'd encourage you to choose an asset allocation (www.optimizedportfolio.com/asset-allocation/) and check out some lazy portfolios: www.optimizedportfolio.com/lazy-portfolios/ Hope this helps.
Starter portfolio: 100% total stock market index fund Mid-life portfolio: 50% total stock market index fund 50% total bond market index fund Retirement portfolio: 20% total stock 80% total bond
I feel that this is very biased to the US market. The All world share index is already close to 60% US stocks. The Total US share index is 100% US. This is heavily betting on the US economy which over the test period is correct but where there to be a new world order, I think this portfolio would be doomed.
@@OptimizedPortfolio why is this? gold is uncorrelated to stocks and will perform far better then bonds, if its yield you are concerned about there are ways to get yield from gold
@@JimJamJuicy 1. Bonds have a lower correlation to stocks than gold. 2. Bonds have positive future expected returns; gold is not a value-producing asset and has an expected real return of about zero. 3. Gold has not been a reliable inflation hedge historically. Gold may make sense if one already owns bonds, but there's no good reason to choose gold as a diversifier over bonds to hold alongside stocks. "Yield" means little to me, but even T-bills are paying nearly 5% right now. I love how bonds have been "dead" about 10 times over the past half century or so. If you know gold will outperform bonds, I'd love to borrow your crystal ball. Mine is broken.
@@OptimizedPortfolio some of this made sense in the past but we have shifted to a new world, usd is losing reserve currency status and will not be able to ship inlation off shore, soverign debt crisis knocking and usd will hyperinflate, physical gold (and bitcoin) are only assets that will make any sense soon, debt based assets will be worthless as technically they already are, central banks are busily buying as much gold as they can for good reason, we r in a unique period of history
7:22 “The infamous Larry Swedroe” WTH, maybe even WTF, Are you using “infamous” to mean “infamous”, or “well known?” ? Do you really want to start a beef with LS here? In any event , a distraction for your viewers.
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Updated video here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html Invest in this portfolio here: optimizedportfolio.com/go/bh-3-fund
This video offered the most clarity and breakdown of a 3 fund portfolio I've seen on youtube. You have another subscriber, sir.
Wow, what a nice compliment! Thanks! Definitely glad to hear it was clear; that's always what I'm going for.
Just fyi in case you weren't aware, I ended up making a more thorough, updated video on the Bogleheads 3 Fund Portfolio here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
Just want to say thanks for making purely informational videos and not trying to make it “entertainment” like so many others do. Subscribed.
Thanks, Gregory!
Ira= 60%vtsax 20%vexax 20%vtiax No bonds,those things are dream killers. This allocation has served me well for decades-even well into retirement.
@Jason can you tell me why you went with vanguard than others like fidelity?
Bonds are dream killers until they go up when stocks go down (Treasuries anyway). EDV is best as a hedge and at offering rebalancing benefits when stocks drop.
Thanks for sharing, Kelly!
And how did you feel when your million(s) in the portfolio went down 40% on man occasions? Did you hold and sleep well?
Slept like a baby.I do have to admit,since retirement my portfolio was rebalanced to 97% stocks and 3% bonds.I am getting more conservative as I approach my 60's.@@michaelb7829
I can't believe you only have 1.03K subscribers. You are one of the best at what you do!
Thanks for the kind words!
VTI, VXUS, BND is my all time favorite! I've weathered many storms with combo and would highly recommend it. Excellent Vid!!!!!
Thanks, Spiros!
what about VOO?
What a joke of a portfolio.
@@michaelhutchinson2854why
@@michaelhutchinson2854 What a joke of a comment that you took the time to come here and write.
Relistening to this every so often to balance against learning about high-risk strategies
I like that idea. Here's a high-risk strategy that's actually pretty sensible IMO if you're interested: th-cam.com/video/lwMHuHE9MzQ/w-d-xo.html&ab_channel=OptimizedPortfolio
Thomas, if you want a new one to relisten to every so often, in case you weren't aware, I ended up making a more thorough, updated video on the Bogleheads 3 Fund Portfolio here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
Here's what I do personally:
Roth: 100% VTI.
Brokerage: VGT (growth), SCHD (dividends), VCLT (bonds; I opt for the corporate side because I prefer to buy government bonds directly on Treasury Direct).
Thanks for sharing, Jack!
Enjoyed your video. Just adjusted my 401k to a 60/20/20 allocation. Thanks for helping me decide to make the adjustment.
Glad you found the info helpful, Noreen!
Is it a good idea to have a stock broker in Uk?
Yes, Mate. It is.
@@saanvi848 Please why do you say so? I wanna know. I have lost a lot. Trying to manage my stocks myself.
I’m too tied up with work. I have no time to analyze which stock to buy.
Getting these people will ease a lot. And at last, you’ll realise you have safe your funds. The money we throw into stock without even taking consideration to whether it’s good for holding or not is our hard earn money. So we should accept someone professional to make good management of it for proper growth.
@@steffan683 Talking about my analyst I met her sometime last year in Manchester. Her name is Loretta Wilkinson. She has helped me grow my money from £60,000 to £400,000. I can afford a house now, is her help.
In my Roth IRA I have a 5 fund portfolio that's similar. VOO, VO, VB, VNQ, BND and contribute to equally on a weekly basis. This allows me to invest a little higher in Small and Mid-Cap funds than would be possible though VTI alone.
Rather than invest internationally I prefer VNQ which invests in real estate stocks. While BND gives me that 20% bond protection.
Thanks for sharing, Joseph!
Great summary! I love the simplicity of the general advice of Bogle and the simplicity of your video about it!!
Thanks!
Just fyi in case you weren't aware, I ended up making a more thorough, updated video on the Bogleheads 3 Fund Portfolio here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
I have a 30 year save horizon portfolio so atm I am not in bonds (will adjust with bonds as I grow older)
I use 7 index funds (highest weight in global) with an average total fee of 0,18% annually.
1 Global all-stock (Naturally US heavy)
My own country's index (Sweden)
1 Domestic large cap
1 Domestic small cap
1 European index
1 Emerging markets (Naturally china/asia heavy)
1 Pacific (Australia, Hong Kong, Singapore, New Zealand)
1 Japanese index fund
Thanks for watching!
Think I just became your 200th subscriber! I'm currently reading the Little Book and am becoming a Boglehead myself haha :D
Thanks for the great video - if I may give a little peace of advice though: You could consider having the camera a bit further away so we can see your hand gestures as well. In my opinion this might make the videos even more lively (especially if you're reading from a teleprompter - I do that too :P)
Awesome! Thanks for the feedback!
I have that book. Very compelling stuff.
Ended up using that advice to bring my hands into the frame. Seems so obvious now!
I like the idea but I’m used to being heavy and downsizing was weird for me. I chose vti, vxus, bnd and bndx. I want it all.
Thanks for watching!
Thank you for your video. 40 years in the 3 fund portfolio is all well and good but what formula would you advise for just turned 60 year olds but intend to keep working for at least another 10 years ? Any advice would be appreciated :)
Thanks! Just fyi in case you missed it, newer updated video is here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
The good thing about the 3 Fund is it works for young and old folks, just might need to change the % of stocks and bonds.
Many thanks my friend !!! :)@@OptimizedPortfolio
Arrived at these conclusions independently, with the exception that I use an emerging markets fixed income instead of domestic corporate because the negative correlation is stronger... gives me more “anchor” per dollar. Bogle has it right for almost everyone: “buy everything and hold it forever.”
Thanks for sharing, Frank!
Great information and delivery!! Thank you!
Thanks, Karyn! Glad you found it useful. Thank you for watching!
Just fyi in case you weren't aware, I ended up making a more thorough, updated video on the Bogleheads 3 Fund Portfolio here: th-cam.com/video/w36sJdbsBhA/w-d-xo.html
Your content is amazing! You have heavily influenced my recent investment decisions, inspiring buys into Ntsx, Ntsi, and HFEA. I independently decided I trusted avantis, getting into avuv and avdv, but hearing that you like them increases my confidence in that decision.
One question: why only 20% international stocks? What reason can you give for such a significant home country bias? I’m about 40% international (excluding my HFEA lotto ticket).
Thanks so much for the kind words and for the comment, Jason! Glad you've found my ramblings useful. So first, the Bogleheads 3 Fund Portfolio was one of my very first blog posts years ago. My own personal international exposure is greater than 20% at this point. Secondly, given the context of the topic, I had to consider that most U.S. Bogleheads do indeed still maintain a significant home country bias around 80/20, for better or for worse, and most U.S. investors still prefer or at least feel more comfortable doing so, so that's the model I published. Is it optimal? Impossible to say. Jack himself didn't even like international stocks for a long time until he finally came around in his later years. If you check out my blog post on diversification, you'll see I'm a big fan of going global with stocks.
Thanks! I’ll check it out.
The best investment guide one can find. Thank you so much! Subscribed!!!
Thanks for the kind words!
Very informative just what I was looking for
Really helped my decision making
New subscriber
Glad to hear it!
80% VTI and 20% VXUS. Equities provide a higher return on investment. VTI's ROE is about 19% and VXUS's ROE is about 12%. Therefore, the ROE of the portfolio is about 17.6%. The ROE of the portfolio is leagues higher than the returns you could make holding bonds with a "Return on Debt" on average of about 4.5% in the long run.
Bonds should only be as an alternative to cash savings to increase the interest you receive for loaning your cash. This is outside of your portfolio.
Thanks for watching!
@@WPaKFamily Adding bonds almost always increases the risk-adjusted return of a portfolio of equities. Most also overestimate their tolerance for risk and don't have the stomach for 100% stocks.
Great vedio. I subscribed. I am in my early 40s, what portfolia do you suggest me to use within the 37 portfolia you listed?
Can't go wrong with the 3 Fund here.
I have a question for you. I have a large lump sum to invest now (over 100K$). I just discovered that dollar-cost averaging could (should) be used in that situation and not only once your initial investment is made. Knowing (or not) what could potential coming, would you recommend me to spread this amount in small regular investments over the course of 6-12 months to spread out the risk?
th-cam.com/video/zM8jFdhHUl4/w-d-xo.html
How do you recommend selecting international allocation for a US investor? Match global market cap? Or overweight us slightly?
I’m driving myself crazy trying to find “The perfect allocation”. What’s the justification for 20% international?
Love your videos, thanks!
Agnostic would just be total market with VXUS or even VT.
I choose to slightly overweight Emerging Markets so I use VEA and VWO separately.
Perfect allocation can only be known in hindsight. Don't overthink it.
20% is the minimum Vanguard suggests will provide meaningful diversification. That's also the avg. int'l exposure of US investors' retirement accounts.
Thanks!
@@OptimizedPortfolio Thanks for you reply. I tried going 60/40 to match VT but I realized I'm more comfortable just putting 25% of my investments in international. So i'll just go with that for now. Not worth stressing over. Thanks again, youre the best!
It might even be prudent to go 50% U.S. equities 50% international or close to it. The justification is simple: if the U.S. declines you are diversified globally.
I have 40% stocks and 60% bonds and I sleep well thanks Vanguard
Thanks for sharing!
VTSAX and VIGAX here. Use muni bond, MLP and REIT inheritance towards maxing out Roth IRA each year. So heavy in non equity can afford to gorge on equities right now but I doubt I will ever invest in bonds on my own. They are not what they used to be.
Thanks for watching!
A MLP in an IRA might have to pay taxes on it! Investigate!
Don't bother with corporate bonds. They mostly correlate with the stock market but with lower returns. Plus, you are exposed to significant credit risk in exchange for a coupon payment that is only slightly higher than long-term treasuries. The risk-to-reward ratio is not there.
Long-term treasuries are a great diversifier since they protect you from deflationary busts and have zero credit risk. As long as you have inflation-protected assets like stocks, real estate, gold, and commodities to counter-balance the treasuries, then you shouldnt have to worry to much about the duration risk.
Agreed
I have a question: if the market crashes will you sell the bonds that automatically increased in value to buy the cheaper stocks that are on sale?
I’m 30 and I would keep bonds to hedge a crash
I don't try to time the market. If one could consistently, that sounds like a nice idea.
Rebalance to your allocation once / year.
Maybe increase the bond fund by 1% / year to 50% maximum. Maybe reduce % at a market crash ( 2000, 2008, 2020 )
Hello! I'm new to your channel and like what I have seen so far in a few of your video's. I also will subscribe!
Thanks!
I'm 70% vti 20% vxus and 10% bnd .... is this okay for a 30 yr horizon?
Thanks for watching!
How would a portfolio like this be impacted if interest rates were to go negative? Would it still be worth holding bonds or would it be prudent to go 100% equities or cash instead? Would this impact the duration you would want to use for your portfolio? Also, would this be an argument for diversifying your bond allocation globally as well?
Impossible to say. Bond pricing doesn't happen in a vacuum. All else equal, the bond investor holding for longer than the effective duration should be indifferent to interest rate changes. Just as we shouldn't try to time the stock market, we also probably shouldn't try to time the bond market.
@@OptimizedPortfolio got it, I think it makes sense that bonds would not become entirely unprofitable because even with negative interest rates, bonds with a negative return will still be more valuable than those with a lower interest rate. Although I didn't want to clarify, do you think this could be an argument to diversify your bond allocation outside of the US? For example, a German citizen running the three fund portfolio would be dealing with negative interest rates if they used their home country treasury bills. So it would be beneficial for them to buy US treasury bills.
@@OptimizedPortfolio But like you said, negative interest rates do not happen in a vacuum and the macroeconomic environment that would spur such a move would have a huge impact on foreign bonds as well as domestic/international equities.
@@Delta3angle The evidence seems to suggest going international with bonds is unlikely to help and unlikely to hurt the portfolio. I like to stick with US Treasuries.
What is your take on target date retirement funds for a 401k?
I love them.
Why would you not want diversified currencies too?
I also think 1985 to now is a US love story that doesn’t necessarily repeat itself. We are becoming a small piece of the global economy slowly, it seems truly diversifying both in terms unhedged international bonds makes more sense than ever purely from a diversity standpoint, not a predicting the market sense.
After watching this excellent video, I'm considering modifying my 3-Fund portfolio by splitting BND into 50% VGIT and 50% BND to increase my exposure to Treasuries. Thoughts?
Glad you found the video informative! Splitting hairs at that point; no reason to own both. That would result in roughly 87% treasuries and 13% corporates.
Guys just put 30k in dispersed in those percentages and forget it. Move on to your next investment
Thanks for watching!
I like this portfolio idea! But, What’s recommended for mid 30’s adults who want to retire in 5 years like me? 😆
avuv + voo
Could still use this portfolio. Asset allocation is the more important decision.
Interesting, you stated on your webpage to start with long term bonds then switch to intermediate. But on this vid you stated you prefer long term bonds.
I prefer at least about 10% in long treasuries always. Most investors have a glidepath in which bond allocation increases and bond duration decreases.
Just visited your Channel. Excellent video, thorough, totally first rate. Could you share your educational background with us? Could you co-produce a piece with Nick Doyle?
Thanks! No formal background in finance. Bachelors degree in math. I don't know who Nick Doyle is.
@@OptimizedPortfolio your work is wonderful; thanks. a BS/Math will do the trick. Nick Doyle has finance videos on youtube, 47 as I recall. He is solid and projects an image that he is solely interested in the betterment of is audience. You project well but you rush through the topics so fast that I fear people miss a lot. slow down,if I may suggest.
@@Guest-dl2vw Thanks for the feedback!
Great recommendations! Thanks
Thanks for watching!
For those who have Schwab accounts can they use SWTSX, SWISX & SWAGX or what would you recommend?
I don't know Schwab's tickers off the top of my head but these are probably fine. At a glance, it looks like SWISX does not include Emerging Markets.
What’s the reason for over weighting US? You have 25% exus where global market cap suggests closer to 40% exus
Just one-size-fits-most since most Bogleheads seem to like to overweight US. You're right. Up to you ultimately. I'll probably do a new BH 3 Fund video soon that touches on this.
@@OptimizedPortfolio makes sense! Lots of bogleheads like to underweight international
Well done, thank you.
Thanks!
Good video. Would it be useful to add a Specific Dividend ETF, like the SCHD ETF to this portfolio? Thank you.
Thanks! Depends on the exposure you're desiring. SCHD is already inside a total US market index fund.
@OptimizedPortfolio I was just thinking about the SCHD because it is a dividend portfolio. But the other ETFs of this 3 fund portfolio have lots of dividends? If so, would it be redundant adding the SCHD as 4th ETF?
@@GustavodeMatos Remember dividends don't really do anything, as share price compensates. We might care about targeting low volatility large caps with robust profitability, but that has nothing to do with dividends per se. SCHD is a decent naive proxy for such stocks, but again, it's already captured inside a total market fund.
Great video, would it be possible to do an equivalent video for non-US based investors?
Thanks, Scott! Unfortunately I'm unfamiliar with the products available in other countries.
@@OptimizedPortfolio thanks for replying, have been looking into Ireland based ETFs to reduce dividend US taxes and potential estate tax risks
Source for the blindfold monkey data please.
jpm.pm-research.com/content/39/4/91
Comment for algorithms 🙂
Lol
🙌
Regarding International stocks... Your 1970-2008 data is rather dated. Looking at the 25-yr period 1997-2021, and using Vanguard's Total US Stock Market (VTSMX) and Total International Stock Market (VGTSX), a stock portfolio mix of 80% US and 20% International had a compound annual growth rate of 8.11% compared to 8.89% for a US-only portfolio. The International fund had far worse performance of 4.56% and was correlated 86% to the Total US Stock Market. Adding International stocks only serves to dilute the portfolio returns. Data from Portfolio Visualizer.
That's sort of the point. ALL that US outperformance has come AFTER 2009. www.optimizedportfolio.com/diversification/
I need to an updated version of this video with some more data points.
@@OptimizedPortfolio Your claim that all of the US return came after 2009 is just not true. Using the data for the two Vanguard stock funds from 1997-2009, the Total US market return was 5.25% with a std deviation of 16.9%, compared to Total International return of 4.93% and a std deviation of 18.6%, with an 86% correlation. From 1997-2009, the US had higher returns and lower risk, period. Additionally, from 2010-2021, the US market return was 14.89% with 14.3% std deviation, while International return was 5.84% with 15.6% std deviation. The purpose of diversification is to improve returns and/or reduce risk (measured by the std deviation of returns). The US had higher returns and lower std deviations during 1997-2009 and 2010-2021. International returns were lower, more volatile, and highly correlated to the US market. So, why add this asset class which also brings the substantial currency risk of owning stocks denominated in foreign currencies ? Data from Portfolio Visualizer.
@@kevink7777 The whole point is that we don't know which will outperform going forward, so I buy everything. And of course you can't just compare one fund to the other. We're talking about the portfolio as a whole. Such is the beauty of diversification: www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2009&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=1000&annualOperation=1&annualAdjustment=500&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=100&allocation1_3=60&symbol2=VGTSX&allocation2_2=100&allocation2_3=40
In case you missed it, I ended up doing a dedicated video on this exact topic: th-cam.com/video/fmhZb0hODNo/w-d-xo.html
So, is the Vanguard 500 Index Investor just referring to the S&P 500? @Optimized Portfolio. Also, should I still consider adding bonds to my portfolio if I am 26?
Yes and just go all in on the S&P or VTI. you can't go wrong with that for 30 years
@@philswensen5863 would you recommend adding anything else or no? Mid cap, small cap or mega cap? Do I need to have international exposure or no? Are Reits a good idea in a Roth IRA?
@@mrderek800 just going off of Jack's book Common Sense Investing, I keep it simple and just use the index. Sometimes growth does better, sometimes value; to know exactly when you would need clairvoyance. Usually international stocks are heavily correlated to US economy but over a long time the average falls short
Yes.
Depends on your risk tolerance. I can't provide personalized advice.
This may be the ideal portfolio for most investors except for Total Bond Market index, which has around a 7 year duration. Better off to use Short Term Treasury or a CD/Treasury ladder in tax deferred or a short term muni in taxable. These have a lot less duration risk and no credit quality risk.
For about the 5th time, the investor using a bond duration shorter than their investing horizon has taken on MORE interest rate risk, not less, in the form of reinvestment risk. This is true even with TBM with a 7 year duration for young investors, who likely have a 30+ year horizon.
Please go read up on how bonds work and stop parroting "dUrAtIoN rIsK" or something Bernstein said about safety using mental accounting.
Munis typically only benefit very high income earners.
@@OptimizedPortfolio Please review long bond performance in the last several years due to duration risk while the Fed has been raising interest rates. This long bond underperformance has coincided with stock underperformance. As far as matching bond duration to time horizon, this makes no sense at all, it is simply wrong.
@@PassivePortfolios Please stop basing all your arguments on the past few years; that's silly, tiresome, and intellectually lazy.
And bond immunization - matching one's horizon to bond duration to eliminate interest rate risk, which is taught in finance courses and advisor certification programs - is "simply wrong," you say? Solid argument. News to me. We should probably let everyone know.
The irony of you saying is "makes no sense at all" is palpable, as that's a clear indication that you don't understand it. That's okay. Most don't. But then most don't go around senselessly yelling "duration risk!" At least now you can't say you didn't learn anything: www.investopedia.com/terms/i/immunization.asp
Appreciated
Thanks for watching!
Why not VT 80 and bonds 20?
That's totally fine. Many like to overweight US. And in taxable you'd get the foreign tax credit every year by using VTI + VXUS.
What are your thoughts on EDV instead of VGLT for long term treasuries?
Depends on one's time horizon and subsequent desired bond duration. EDV is longer.
@@OptimizedPortfolio I'm 31 and currently have 20% of my portfolio in bonds. half in BND, and the other half in EDV. But im debating whether or not to go full EDV, because many people on Bogleheads also suggest the first 20% in long treasuries.
@@Katsuya89 I agree with them. I'm also not a huge fan of BND in a diversified portfolio alongside stocks: www.optimizedportfolio.com/treasury-bonds-vs-corporate-bonds/
I see no reason to use both EDV and BND. They have very different effective durations.
@@OptimizedPortfolio I just checked out your website. A lot of useful info on there man. Keep it up.
My main reason for holding BND was in case an emergency happened where i needed to sell some of my bonds to pay for whatever it is. Because from what i've seen BND is pretty flat, almost like cash. So my plan was to use the EDV portion of my bond allocation as a hedge, and my bnd portion as a safe haven. Or maybe i'm overthinking things?
@@Katsuya89 Thanks for the kind words! View the portfolio as a whole, not as individual pieces in isolation. BND shouldn't be considered a cash replacement anyway. For example, with BND's avg. maturity of 9 years and EDV's of 25 years, you essentially have a bond position with an effective maturity of 17 years.
Man this 3 fund portfolio sounds a lot like the vanguard target retirement fund my 401k is in.
Probably very similar.
any prefered bond etfs you can suggest? BNDW or BND is sufficient?
I prefer treasury bonds like I noted in the video, but BND, BNDX, and BNDW are all fine choices for total bond market funds.
@@OptimizedPortfolio Thank you. You prob prefer BLV.
@@izik6894 I prefer treasury bond funds like VGIT, VGLT, etc.
@@OptimizedPortfolio why VGIT OVER BND?
@@izik6894 Like I said, treasuries over total bond for me.
good
great
FSKAX and FTIHX🤞
🙌
Why not just VWENX 80% with VSMAX20%
Completely different portfolio.
What about the BND etf?
What about it? Mentioned at 05:02.
@@OptimizedPortfolio oops. I missed it. Thanks.
50/50 on QQQM and SCHD
Thanks for watching!
very nice and true
Thanks for watching!
I was sure I heard Bogle say he did not like to invest in international stocks.
He did initially, but he later came around to int'l stocks. In any case, not everything Bogle said should be taken as gospel. He also wanted more corporate bonds in a total bond market fund.
In case you missed it, I ended up doing a dedicated video on this exact topic: th-cam.com/video/fmhZb0hODNo/w-d-xo.html
I’m confused. At 10:00 you can clearly see that that just investing in S&P 500 was way better in growth and beat out all of the portfolios. Why is that not mentioned and discussed?
Travis, the S&P 500 is used as a benchmark for comparison with most lazy portfolios. We wouldn't expect the 3-Fund to beat it on pure total return, as stocks tend to outperform bonds. That's not its intended purpose. The 3-Fund Portfolio is for someone who wants less volatility and risk - and thus likely a higher risk-adjusted return - than an S&P 500 index fund. As such, an investor seeking out the Bogleheads 3 Fund Portfolio does not want an S&P 500 index fund as their entire portfolio, and vice versa. Moreover, a 100% stocks portfolio would not be appropriate for a retiree.
Thus, "better" is subjective and personal in this case. The S&P 500 had better general returns over the period, but the 3 Fund had "better" risk metrics such as volatility and max drawdown. As usual, it comes down to time horizon and personal risk tolerance.
Had you needed to withdraw anytime between 2008 and 2012, the 3-Fund would have come out ahead with higher general returns as well.
@@OptimizedPortfolio Thank you for the explanation. That makes a lot of sense.
But for someone 10+ years away from retirement (presumably your target audience) it is entirely appropriate and you leave a lot of gains on the table. Sticking your 401k in the 500 ( or vti since they track each other almost identically) until you’re 10 years out of retirement would be the simplest strategy of all. You shouldn’t be accessing it any way so that risk is gone. Add bonds as you age up
@@rickyaz8640 Agreed, I am 30 years out from the start of my hopeful retirement age. Even when I hit retirement I'm only going to be drawing a little bit every year, I could still handle major swings and drawbacks. So I would still stay somewhat risky for gains. But yes, I am 100% in stocks, no bonds. I could see once you get a little bit further into retirement to start doing this 80% stocks / 20% Bonds plan, and even go more heavily into bonds very quickly as you get further into retirement.
@@rickyaz8640 Agreed, though again, 100% stocks doesn't fit everyone's personal risk tolerance. Moreover, most investors severely overestimate their tolerance for risk, only realizing it when a crash happens and they panic sell. Risk doesn't simply disappear just because you're not withdrawing money.
The Bogleheads 3 Fund Portfolio is only one of many lazy portfolios and approaches out there.
I am 61 can you please create for me portfolio thank you
Hey Mike, I can't provide personalized advice. I'd encourage you to choose an asset allocation (www.optimizedportfolio.com/asset-allocation/) and check out some lazy portfolios: www.optimizedportfolio.com/lazy-portfolios/
Hope this helps.
Starter portfolio: 100% total stock market index fund
Mid-life portfolio: 50% total stock market index fund 50% total bond market index fund
Retirement portfolio: 20% total stock 80% total bond
Thanks for watching!
I feel that this is very biased to the US market. The All world share index is already close to 60% US stocks. The Total US share index is 100% US. This is heavily betting on the US economy which over the test period is correct but where there to be a new world order, I think this portfolio would be doomed.
It is very biased to the U.S. I noted as much.
BNDW = BNDX + BND
Correct
A 40 year old having 20% invested in bonds with a 20 year investment horizon is incredibly conservative. Poor asset allocation imo
Thanks for watching!
Here’s an idea. Bonds are dead and fiat is dying. Replace the bond allocation with gold in the 3 fund portfolio
It's certainly an idea. Not a good one, IMO.
@@OptimizedPortfolio why is this? gold is uncorrelated to stocks and will perform far better then bonds, if its yield you are concerned about there are ways to get yield from gold
@@JimJamJuicy 1. Bonds have a lower correlation to stocks than gold. 2. Bonds have positive future expected returns; gold is not a value-producing asset and has an expected real return of about zero. 3. Gold has not been a reliable inflation hedge historically. Gold may make sense if one already owns bonds, but there's no good reason to choose gold as a diversifier over bonds to hold alongside stocks. "Yield" means little to me, but even T-bills are paying nearly 5% right now. I love how bonds have been "dead" about 10 times over the past half century or so. If you know gold will outperform bonds, I'd love to borrow your crystal ball. Mine is broken.
@@OptimizedPortfolio some of this made sense in the past but we have shifted to a new world, usd is losing reserve currency status and will not be able to ship inlation off shore, soverign debt crisis knocking and usd will hyperinflate, physical gold (and bitcoin) are only assets that will make any sense soon, debt based assets will be worthless as technically they already are, central banks are busily buying as much gold as they can for good reason, we r in a unique period of history
@@JimJamJuicy Only time will tell. Best of luck.
Blindfolded monkeys can throw darts?!
Stevie Wonder can throw darts. The question is whether he will hit anywhere close to the intended target.
Impressive indeed.
7:22 “The infamous Larry Swedroe”
WTH, maybe even WTF,
Are you using “infamous” to mean “infamous”, or “well known?”
?
Do you really want to start a beef with LS here?
In any event , a distraction for your viewers.
Well known. Legendary. He's been a huge influence for me. What are you talking about?
Plot point of "The Three Amigos"
Realized I'm an idiot and had been using the word "infamous" incorrectly my entire life. I thought it was interchangeable with "well known."
Nasdaq 100 100%
Completely unrelated.
Comment for algorithms 🙂
Thanks for watching!