Another of the so-called lazy portfolios comes to us via the Bogleheads wiki (and elsewhere – just Google it!). This is just another asset allocation model that is even easier to implement than others I have presented. It eliminates angst and provided long-term security and returns.
The Bogleheads
This is a community of investors that takes their name in honor of the legendary Jack Bogle. He was the founder of Vanguard and created their first low-cost index fund. The community focuses on low-cost DIY investing strategies. I have been studying the 3-fund portfolio.
Here are three funds (both the mutual fund and matching ETF) selected from Vanguard’s array of low-cost options. The three funds include:
- U.S. bonds (e.g., VBTLX or BND)
- U.S. equities (e.g., VTSAX or VTI)
- international (e.g., VTIAX or VXUS)
Allocation
These funds are typically allocated equally in thirds. Many of the analyses are based on this allocation. Jack Bogle was known to revere the three-fund portfolio for the “majesty of simplicity,” a phrase he used.
But if you’ve read the Intelligent Investor by Benjamin Graham, you may remember reading about “your age in bonds.” That is, you hold a percentage in the bond fund equivalent to your age. So if you’re 50 years old, you would have 50% in bonds. This is seen as too conservative even by Bogle himself. If you started later like me, it’s far too conservative to catch up! In any event, “age in bonds” is a strategy used by target retirement funds. So if you’re 20-something, maybe you could try it.
Performance
Investing in these 3-funds rivals the gains of the most expensive managed funds. In fact, index funds outperform the majority of professionally managed mutual funds. Plus Jack Bogle said the best way to make great returns is to keep what you invest away from commission-based investment advisors and fund managers.
For more information, read (or listen to) The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk by Taylor Larimore. I am in the process and will have an even more complete analysis of the three fund portfolio in an upcoming post.