Bogleheads Portfolio Allocation Guide

The Bogleheads Portfolio Allocation Guide is a great resource for anyone looking to create a diversified investment portfolio. The guide suggests a 3-fund portfolio as a starting point, which consists of a total stock market fund, a total bond market fund, and a short-term bond fund.

A 3-fund portfolio is easy to maintain and requires minimal trading. It's also a low-cost approach, which is in line with the Bogleheads' philosophy of keeping costs low.

The total stock market fund should account for 70% to 80% of your portfolio, while the total bond market fund should make up 20% to 30%.

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Your asset allocation is the foundation of your investment portfolio, and it's essential to get it right. It's the percentage of your portfolio invested in stocks, bonds, and cash.

Consider your entire portfolio when choosing your asset allocation, including both your employer's retirement plan and your existing investments. This will help you balance your return needs with your risk tolerance.

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When deciding on your asset allocation, remember that it's not a one-time decision. You should regularly review and adjust your allocations as your financial goals and risk tolerance change.

The "Core Four" portfolios, proposed by Rick Ferri, are a low-cost foundation for your portfolio. They consist of four funds: a total US stock market fund, a total international stock market fund, a total bond market fund, and a real estate investment trust (REIT) fund.

Here are some examples of the Core Four portfolios:

Rick Ferri suggests allocating 50% to US stock, 40% to international, and 10% to REIT. However, the exact allocation percentages are not critical, and you can adjust them to suit your needs.

One traditional rough rule-of-thumb is "age in bonds", where the percentage of stocks equals 100 minus your age. This is a conservative approach and may lead to smaller percentages of stocks than you'd like.

The second decision is what percentage of your stock allocation should be US (domestic) and what should be international. This is a less critical decision, as both US and international stocks have similar risk profiles and long-term returns.

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Investing in a Boglehead portfolio involves developing a workable plan and sticking to it.

The Boglehead philosophy emphasizes the importance of investing early and often, which can help you take advantage of compound interest and grow your wealth over time.

Developing a workable plan involves considering your risk tolerance, financial goals, and time horizon.

Investing in index funds is a key component of a Boglehead portfolio, as they provide broad diversification and can help you keep costs low.

A total market index fund, such as the Vanguard Total Stock Market Index Fund, can provide exposure to the entire US stock market.

The Three-Fund Portfolio, which consists of the Vanguard Total Stock Market Index Fund, the Vanguard Total International Stock Market Index Fund, and the Vanguard Total Bond Market Index Fund, is a simple and effective way to diversify your portfolio.

Here are the key principles of the Boglehead philosophy:

By following these principles, you can create a Boglehead portfolio that is tailored to your needs and helps you achieve your long-term financial goals.

You can create a Bogleheads-style portfolio with just three funds. These funds are designed to be low-cost and provide broad diversification. Taylor Larimore's Three-Fund Portfolio is a popular example, which includes Total US Stock Market, Total International Stock Market, and Total Bond Market.

One way to implement this portfolio is by using the Vanguard Total Stock Market Index Fund (VTSAX), Vanguard Total International Stock Index Fund (VTIAX), and Vanguard Total Bond Market Fund (VBTLX). Alternatively, you can use ETFs like Total Stock Market ETF (VTI), Vanguard Total International Stock Index Fund (VXUS), and Vanguard Total Bond Market ETF (BND).

Here are some sample three-fund portfolios, including their allocations:

Note that these are just a few examples, and you can adjust the allocations to suit your individual needs and risk tolerance.

A three-fund portfolio is a simple and effective way to invest. It consists of three low-cost, broadly diversified index funds.

You can choose from a variety of funds, such as Vanguard's Total Stock Market Index Fund, Total International Stock Index Fund, and Total Bond Market Fund. These funds have expense ratios as low as 0.04%.

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Here are some examples of three-fund portfolios:

Some popular three-fund portfolios include Taylor Larimore's Lazy Portfolio, Scott Burns' Margarita Portfolio, and Rick Ferri's Lazy Three-Fund Portfolio.

These portfolios offer a range of benefits, including no advisor risk, no asset bloat, and low tracking error. They also provide above-average returns, simplified contributions and withdrawals, and low maintenance.

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Inflation-protected securities, like TIPS, are designed to help diversify your portfolio by providing protection against inflation.

Their purpose is to provide some protection against inflation, which is different from a conventional bond fund.

You can add inflation-protected securities to the bond portion of your portfolio, up to 50% of the bond allocation, as a Boglehead approach.

The choice of how much to use is arbitrary, based on your level of comfort, rather than a theoretical decision.

You can choose to use no inflation-protected fund, or up to 50% (or more), depending on how well you can sleep at night.

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Bonds can be a bit tricky, but don't worry, I've got some insights to share. The three-fund portfolio's bond component is a good place to start.

Some people suggest using inflation-protected securities, like TIPS, to help diversify your portfolio further by providing some protection against inflation. This can be done by adding inflation-protected securities to the bond portion of your portfolio, perhaps up to 50% of the bond allocation.

The choice is arbitrary, and it's based on a level of comfort rather than one based on theory. This is because the decision to use inflation-protected securities is more about personal preference than a hard and fast rule.

Now, let's take a look at some specific bond options. Vanguard's Target Retirement funds have modified their bond portion to include international bonds, specifically 70% Vanguard Total Bond Market Index Fund and 30% Total International Bond Index Fund. This change doesn't seem to have a big effect, but some people may find it appealing to follow Vanguard's lead.

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Another option is to use non-brokered bank CDs instead of a traditional bond fund. This is a suggestion made by some well-informed Bogleheads, and it's worth considering.

Here are some specific bond funds that are often recommended:

These funds are all low-cost and offer a range of bond options. It's worth noting that some experts, like Burton Malkiel and Charles Ellis, recommend replacing a traditional high-grade bond fund with a 50/50 mix of emerging markets bonds and a high-dividend stock fund. However, this is a more radical suggestion and may not be suitable for everyone.

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You can start with a simple portfolio and gradually add more funds as you become more comfortable with investing. A two-fund portfolio, for example, can be created using the Total World Stock Index fund and the Total Bond Market Index Fund.

Rick Ferri's Two-Fund Portfolio is a good starting point, with a 60% allocation to the Total World Stock Market and 40% to the Total Bond Market. You can choose between mutual funds or ETFs, with the latter often having lower expense ratios.

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The relative percentage of domestic and international stocks is a matter of debate, but some experts recommend holding them in the same proportions as they represent in the total world economy, which is about 50% U.S. and 50% international.

A three-fund portfolio can be created by adding an international stock fund to the Vanguard Balanced Index Fund, which holds 60% Total Stock Market Index Fund and 40% Total Bond Market Index Fund. You can also use a single Target Retirement fund, but you should decide for yourself what percentage of stocks to hold, based on your personal risk tolerance.

Here are some general guidelines for choosing your asset allocation:

Remember, there are no shortcuts when it comes to choosing your asset allocation, and you should decide for yourself what percentage of stocks to hold based on your personal risk tolerance.

Developing a solid investment philosophy is key to long-term success. According to the Boglehead Investing Philosophy, it's essential to develop a workable plan.

To create a workable plan, consider the following key principles: diversify your investments, keep costs low, and minimize taxes. The Boglehead Investing Philosophy emphasizes the importance of diversification, suggesting that you never bear too much or too little risk.

Here are the core principles of the Boglehead Investing Philosophy:

The return on investment is a crucial aspect of any investment philosophy. A three-fund portfolio, for example, aims to provide a balanced return by allocating 40% to Total Stock Market Index, which has historically provided returns in the range of 7-10% per year.

To give you a better idea of the potential returns, here's a breakdown of the three-fund portfolio's asset allocation:

This allocation can provide a relatively stable return, with the bond market index potentially generating returns in the range of 4-6% per year.

The Boglehead Investing Philosophy is a set of principles that can help guide your investment decisions. It's a straightforward approach that emphasizes simplicity and low costs.

Develop a workable plan, invest early and often, and never bear too much or too little risk. This is the foundation of the Boglehead philosophy, as outlined by Taylor Larimore.

Diversification is key, so aim to own a mix of different asset classes, such as stocks, bonds, and international investments. This will help you spread risk and increase potential returns.

Never try to time the market, as this can be a recipe for disaster. Instead, focus on a long-term strategy that's based on your goals and risk tolerance.

Use index funds when possible, as they offer broad diversification and low costs. Vanguard's Target date retirement funds, for example, are a type of index fund that can provide a model for your portfolio.

Keep costs low by choosing low-cost index funds and minimizing fees. This will help you keep more of your returns and avoid unnecessary expenses.

Minimize taxes by choosing tax-efficient investments and considering the tax implications of your portfolio. Vanguard's Total Bond Market Index Fund, for example, is a low-cost option that can help you minimize taxes.

Invest with simplicity by keeping your portfolio small and easy to manage. A three-fund portfolio, for example, can be a great way to simplify your investments while still achieving broad diversification.

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Stay the course by sticking to your long-term strategy, even when markets are volatile. This requires discipline and patience, but it's essential for achieving your investment goals.

Here's a summary of the Boglehead Investing Philosophy in a concise list:

Choosing Your Location is a crucial part of investment planning. Your portfolio may be split between multiple locations, including tax-advantaged retirement accounts and taxable accounts.

Tax-efficient fund placement is key to making the most of your investments. In general, the international fund should go into a taxable account.

The bond fund is a good candidate for a tax-advantaged account, as it can grow tax-free. This can help reduce your tax liability over time.

Domestic equity funds should fill in the remaining space in your portfolio. Having the right asset allocation and asset location is ideal, so you may need to hold the same funds in multiple accounts.

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Developing a workable plan is key to successful investing, and following a few simple principles can help guide you in the right direction.

Taylor's advice is to invest early and often, which means starting as soon as possible and consistently adding to your portfolio over time.

Never try to time the market, as this can lead to costly mistakes and undermine your long-term goals.

To implement the Three-Fund Portfolio, Taylor recommends holding your age in bonds, with the remainder split between Total Stock Market Index Fund and Total International Stock Market Index Fund.

Here's a breakdown of the recommended portfolio allocation for a 30-year-old:

Remember, it's essential to stay the course, even when the market is in a downturn.

Implementation of the Boglehead Investing Philosophy can be broken down into a simple, actionable plan. This philosophy emphasizes the importance of developing a workable plan.

Taylor's advice is to invest early and often, which can make a significant difference in your financial future.

Developing a workable plan involves several key steps, including never trying to time the market and using index funds when possible.

Here's a summary of the Boglehead wisdom:

Some investors prefer a more structured approach, such as the Three-Fund Portfolio.

This portfolio involves holding your age in bonds, so if you're 30 years old, your portfolio should be 30% bonds.

Here's an example of the Three-Fund Portfolio:

The Three-Fund Portfolio also includes advice on how to deal with 401(k) and other tax-advantaged retirement plans.

Taylor's version of staying the course can be summarized in two sentences: "When stocks are in a Bear Market…you will be strongly tempted to sell at least a portion of your stock funds. DON'T DO IT."

When selecting funds for your employer plan, start by reviewing the available funds and selecting the ones that match your desired asset allocation.

Employer plans can have many investment options, presenting investors with a long list of unfamiliar names. This is why a checklist can help you find the offerings that can help fill your desired asset allocations.

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Look for the major asset class categories, such as US stock, international stock, small cap stocks, value stocks, and US bonds. Fixed income, such as cash reserves, counts as bonds.

Some bond funds may be listed as "inflation protected." Seek out the plan's index funds, such as the "SSgA S&P 500 Index" (US stocks) or "SSgA US Bond Index" (US bonds) or "SSgA Global Equity Ex US Index" (International stocks).

The fund's fact sheet will list the asset allocation information. Be sure to calculate the expected cost of utilizing a brokerage window that provides access to a wider selection of indexed investment options, taking into account all fees that would apply.

The plan may not provide total market index funds. A common example is a plan offering only an S&P 500 index fund. You may want to approximate the total market by using funds that "complete" the S&P 500 index.

If you decide to reconstitute a total market fund using multiple funds, you can find detailed information on how to approximate total market allocations at the plan's resources.

Note that if you hold multiple accounts, you need not hold each of your portfolio's asset classes within the employer plan, unless you prefer to mirror the allocation in each account.

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