Core-4 Asset Allocation

[slowsaver]

Does anybody have any thoughts (or links to articles) discussing Core-4 asset allocation? Here's a quick description: Lazy portfolios - Bogleheads

I can find plenty of articles describing what it is, but not many counter-arguments or analysis about how it's performed so-far, etc. Thanks!

 

[Animorph]

It looks like pretty much the basic starter portfolio we would recommend here, plus REITs. The REITs are OK, I use 10% in my portfolio (half international), but not something I would add at the start. I think the Vanguard target retirement funds would look quite a bit like this.

 

[LOL!]

I'm not sure what you mean by "… how it's performed so-far …."

It's a passively-managed low-expense-ratio index fund portfolio which means that it will over the long-term outperform on a risk-adjusted basis just about anything out there except a few lucky portfolios. And it will do this without the investor knowing anything except how to rebalance and add to the portfolio. What else do you need to know?

 

[Midpack]

The lazy portfolios are all solid choices for those who've given up swinging for the fences (like most here, self included) and can meet their personal objectives by beating the averages (after expenses). Rick Ferri is one of several good advisors along those lines. Not sure what you want to compare to, just Google for lots of reading material, here's just one Comparison for Rick Ferri Core Four - AssetBuilder Inc., Registered Investment Advisor

 

[samclem]

Does anybody have any thoughts (or links to articles) discussing Core-4 asset allocation? Here's a quick description: Lazy portfolios - Bogleheads

Sorry, I don't have any hard data on the performance of this portfolio. It might be hard to find a "stock" writeup on the performance because Rick Ferri encourages users to adjust the portfolio to their desired bond allocation first.

I see it as an easy-to-live-with portfolio that will perform like the other 3- and 4-fund lazy portfolios featured int he Bogleheads wiki. These would do better than the investments chosen by most investors, and are easy to understand. There's some research indicating that varying from these a bit to include a higher percentage of value stocks and small stocks provides slightly higher total returns at the same or less volatility than these "total market" approaches, and my particular asset allocation has some low-cost funds that provide this "tilt". But the "Core-4" looks like a good, simple approach that would serve most investors well.

If you have funds in both taxable and tax-deffered or non-taxable accounts, you'd want to put the various funds in the right accounts to minimize future taxes. This Bogleheads wiki article explains the process well.

 

[samclem]

Also: While there's nothing here about the Core-4 portfolio, Paul Farrel has been monitoring the most common "lazy portfolios" for a long time. This page shows returns for some of the more common ones going back 10 years, and links to recent articles he and others have written about these.

There's not much point in trying to pick the "best" one based on past performance: as you'd expect, the ones with a bit higher % of stocks did great if stocks happened to do well over the selected period, while portfolios with more bonds or cash did better when those assets outperformed. It's probably more important to first understand how diversification helps reduce volatility in a portfolio, then just pick a suggested portfolio (or a modification of your own) that makes sense to you and stick with it.

 

[slowsaver]

Ok, great. Just wanted to make sure there aren't any red flags to be aware of. I've been looking for something simpler, since most of the money I'm investing now is outside of protected 401k/Roth plans and I'm not enjoying trying to maintain a more complicated AA and not get hit by taxes too hard.

There are a couple of Vanguard "tax-managed" funds that seem to make the core-4 look quite doable (although the REIT slice stays in the 401k & Roth -- it's a smaller slice anyway): VTMFX (50-50 Bonds/stocks), VTMGX (international). Again, any red flags with these tax managed funds? Thanks.

 

[Midpack]

Ok, great. Just wanted to make sure there aren't any red flags to be aware of. I've been looking for something simpler, since most of the money I'm investing now is outside of protected 401k/Roth plans and I'm not enjoying trying to maintain a more complicated AA and not get hit by taxes too hard.

There are a couple of Vanguard "tax-managed" funds that seem to make the core-4 look quite doable (although the REIT slice stays in the 401k & Roth -- it's a smaller slice anyway): VTMFX (50-50 Bonds/stocks), VTMGX (international). Again, any red flags with these tax managed funds? Thanks.

No red flags here, I've owned VTMGX & VTMSX for about 8 years, and they've been good to me, returns and tax efficiency. I am sure VTMFX is similarly managed. International below for example, tax managed and not...

 

[slowsaver]

No red flags here, I've owned VTMGX & VTMSX for about 8 years, and they've been good to me, returns and tax efficiency. I am sure VTMFX is similarly managed. International below for example, tax managed and not...

Nice. I was looking at VTMSX (Small-Cap), but was disappointed they did not have one tilted more toward Value. But I think I'm better off keeping it simple for now.

 

[LOL!]

The tax-managed funds are on their way out and closed to new investors. They have no reason to exist anymore since the total market index funds are very tax efficient by their nature.

As for a small-cap value index fund: VISVX / VBR is the answer. Once again, there is no need for a special "tax-managed" fund since the index funds are as efficient as one can get nowadays.

 

[Options]

Just about everything John Bogle has ever written advises to always keep investing simple. A 3 or 4 core fund PF would meet this criteria. Others like pulling the lever on the slot machine, so they take a more active approach. Best recommendation I've ever heard is to educate yourself (i.e., read investment books) and decide what's right for you.

 

[SVHoper]

... I'm investing now is outside of protected 401k/Roth plans and I'm not enjoying trying to maintain a more complicated AA and not get hit by taxes too hard.

There are a couple of Vanguard "tax-managed" funds that seem to make the core-4 look quite doable (although the REIT slice stays in the 401k & Roth -- it's a smaller slice anyway): VTMFX (50-50 Bonds/stocks), VTMGX (international). Again, any red flags with these tax managed funds? Thanks.

Although there is some controversy (can hold muni). I think the general boglehead wisdom is not to hold bonds (balanced, target funds) in taxable.

If you run out of tax-deferred (Bonds and REIT and value), then tilting to small with VTMSX Tax managed small or just VB small ETF/Fund in taxable is a pretty acceptable addition to total stock and total international.

The other point you may want to read about is shortening the duration of your bonds.