Popular Investment Strategies

[Sabrek]

Hello everyone,
I have started to research well-known investment strategies. I have come across various very different strategies, such as:

- The Two-Fund Portfolio: (50% Vanguard Total World Stock Index Fund (VT) + 50% Vanguard Total Bond Market (BND))
- Warren Buffett's 90/10 portfolio: (90% Vanguard S&P 500 ETF (VOO) + 10% Vanguard Short-Term Treasury ETF (VGSH))
- The Three-Fund Portfolio: (33% Vanguard Total World Stock Index Fund (VT) + 33% Vanguard Total Bond Market (BND) + 33% Vanguard Total International Stock Market Fund (VXUS))
- Four Corners Portfolio: (25% Vanguard Growth Index Fund Admiral Shares (VIGAX) + 25% Vanguard Value Index Fund Admiral Shares (VVIAX) + 25% Vanguard Small-Cap Growth Index Fund Admiral Shares (VSGAX) + 25% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX))

- etc.

Do you use one of these strategies? Or do you use other well-known investment strategies? If so, why do you use this specific strategy?

[MOD EDIT]

I would like to test which strategies work how well against the S&P500. Since I would like to decide on a strategy.

I thank you in advance!

 

[aja8888]

Hello everyone,
I have started to research well-known investment strategies. I have come across various very different strategies, such as:

- The Two-Fund Portfolio: (50% Vanguard Total World Stock Index Fund (VT) + 50% Vanguard Total Bond Market (BND))
- Warren Buffett's 90/10 portfolio: (90% Vanguard S&P 500 ETF (VOO) + 10% Vanguard Short-Term Treasury ETF (VGSH))
- The Three-Fund Portfolio: (33% Vanguard Total World Stock Index Fund (VT) + 33% Vanguard Total Bond Market (BND) + 33% Vanguard Total International Stock Market Fund (VXUS))
- Four Corners Portfolio: (25% Vanguard Growth Index Fund Admiral Shares (VIGAX) + 25% Vanguard Value Index Fund Admiral Shares (VVIAX) + 25% Vanguard Small-Cap Growth Index Fund Admiral Shares (VSGAX) + 25% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX))

- etc.

Do you use one of these strategies? Or do you use other well-known investment strategies? If so, why do you use this specific strategy?

[MOD EDIT]

I would like to test which strategies work how well against the S&P500. Since I would like to decide on a strategy.

I thank you in advance!

You can backtest all of them against the S&P 500 using this:

https://www.portfoliovisualizer.com/

 

[Winemaker]

Welcome to the forum! You can learn a lot here, and we maybe able to learn from you. Much information to read throughout the many years of posts.

What about the Popular to Sabrek Strategy? It was designed especially by Sabrek for Sabrek.

One could go on and on about "popular" strategies but one must pick the scab off to see what outcome is desired. As many on this site (and lurkers) have learned, owning a bond fund the past few years has been horrible, but owning individual bonds has had a better outcome. I have some funds in a mid cap fund as well as small cap, but that's me being diversified. You may be looking for income or total return. Nothing is cookie cutter in my opinion.

I can't find the link but Morningstar has a lookback tool to see what past results could have been. Good luck, and it's not as complicated.

 

[Sunset]

OP you forgot the: Randomly pick some various funds/etfs/stocks that sound like they might be good

What is pretty halarious in my own investing is: years ago I had a few thousand dollars in an account and figured I needed to buy something.

So I bought a stock, thinking well they probably won't go bankrupt. Turned out to be my Biggest Gainer.

Thanks....... Bill Gates ...

 

[Al18]

I don't like any of those porfolio's - as bond index funds can go down. I dumped all bond funds about 19 months ago and switched to call protected CD's - they never go down.

 

[razztazz]

The Two-Fund Portfolio: (50% Vanguard Total World Stock Index Fund (VT) + 50% Vanguard Total Bond Market (BND))

My own investments have been built mostly along these lines with the following exceptions:

The S&P 500 has plenty of foreign exposure in it already, so no foreign market stuff.

I stopped caring about bonds a long time ago and just use a money market fund

 

[VanWinkle]

I don't like any of those porfolio's - as bond index funds can go down. I dumped all bond funds about 19 months ago and switched to call protected CD's - they never go down.

recency bias maybe.... You'll be very safe if you only buy things that never go down. But going up and down is called volatility and risk and reward are usually linked closely. Bond indexes don't make the portfolio bad but it may not be the best thing for a 29 year old.

 

[Al18]

I own plenty of stocks, stock funds and ETF - so not against taking risk. I expected bonds to remain steady, buy was proven wrong in 2008 and 2022. If you look at Bond fund yields over the past decade, yields have been low. I’ve been buying CD’s since before I could drive and know they never go down and pay a known, guaranteed interest rate.

My advice for a 29 year old is to invest mostly in a Target date fund, with smaller amounts in an SP500 fund/ETF, some savings and CD’s.

 

[youbet]

I own plenty of stocks, stock funds and ETF - so not against taking risk. I expected bonds to remain steady, buy was proven wrong in 2008 and 2022. If you look at Bond fund yields over the past decade, yields have been low. I’ve been buying CD’s since before I could drive and know they never go down and pay a known, guaranteed interest rate.

My advice for a 29 year old is to invest mostly in a Target date fund, with smaller amounts in an SP500 fund/ETF, some savings and CD’s.

Kinda strange you would say you don't do bond funds and then suggest investing mostly in a target date fund........

 

[Al18]

A target date fund for a 29 year old has very little invested in bond funds.

 

[frayne]

I'd say keep it simple. One index fund, either Total Stock Market or S&P 500 for 60-70% of your portfolio and keep the remainder 30-40% in short term CDs and MM funds.

 

[GhostofTomJoad]

Strategies...

No cookie-cutter strategy here. Over time, you learn, and hopefully get better at picking winners--- like living, itself. Everyone's goals are different. Starting off with different levels of money available. Some of us are just LUCKY to inherit a bunch of money, some not.

I'm at 56% stocks, 37% bonds, at 69 years of age.

 

[VanWinkle]

A target date fund for a 29 year old has very little invested in bond funds.

And that's a good thing with all of the years to compound, as long as the 29 year old doesn't get spooked and sell equities when they take a 40% reduction in value during a bear market. Thousands did unfortunately.

 

[VanWinkle]

I own plenty of stocks, stock funds and ETF - so not against taking risk. I expected bonds to remain steady, buy was proven wrong in 2008 and 2022. If you look at Bond fund yields over the past decade, yields have been low. I’ve been buying CD’s since before I could drive and know they never go down and pay a known, guaranteed interest rate.

My advice for a 29 year old is to invest mostly in a Target date fund, with smaller amounts in an SP500 fund/ETF, some savings and CD’s.

By the way, 2022 was not a good year for total bond, but in 2008 it was a great ballast for the sinking ships- 5.15% 2009-6.04% and 2010 6.54%. High yield bonds did bad and hope you didn't mean those as ballast.

Just sticking with the facts.

VW

 

[marko]

OP you forgot the: Randomly pick some various funds/etfs/stocks that sound like they might be good

What is pretty halarious in my own investing is: years ago I had a few thousand dollars in an account and figured I needed to buy something.

So I bought a stock, thinking well they probably won't go bankrupt. Turned out to be my Biggest Gainer.

Thanks....... Bill Gates ...

Thirty or forty years ago my brother came to me with about $50k. At the time I knew absolutely nothing about investing and just randomly thew a dart and picked.........Fidelity Magellan Fund. I knew nothing about it and did no research. But......

 

[youbet]

A target date fund for a 29 year old has very little invested in bond funds.

But it will over time. That’s why you buy a target date fund. Buying a target date fund is not avoiding bond funds, it's embracing bond funds and an increasing allocation to them over time. Read the prospectus.

 

[pb4uski]

My DS is in VFIFX, a 2050 Target Retirement fund; and it is 90/10.

 

[Dabbler]

I'm partial to Dimensional's original recipe for equities [below] — which I do my best to "clone" using ETFs — with its value and small cap tilts. And I ladder five year's worth of future spending into direct CDs, while maintaining several savings accounts that provide liquidity for annual expenses (including estimated taxes) and which also store "dry powder" for tactical equity purchases that rebalance my portfolio toward the Dimensional model when the market (or sectors within it) undergo corrections, or worse.

The long term Dimensional performance can be seen here, dynamically:
https://www.ifa.com/portfolios/100#3

The basic (original) proportions of the "recipe" are allocated thus:
10% Real Estate [REITs]
60% US
30% International — Note the 2:1 ratio of US to International

This can be drilled down some more, with a Small tilt, like this:
10% Real Estate
40% US Large
20% US Small [again, a 2:1 ratio of Large to Small]
20% International — Developed
10% International — Emerging [again, a 2:1 ratio — Developed to Emerging]

Adding Value tilts will refine things even more:
10% Real Estate
20% US Large
20% US Large Value
10% US Small
10% US Small Value
10% Developed Value
10% Developed Small
10% Emerging

It's a rough approximation, especially when cloning with ETFs — especially from Vanguard — (for which, for example, there is no Emerging Value fund of which I'm aware). And, as noted above, this is an older Dimensional model (based on Fama & French's early research) which has been modified in recent years (mostly reducing real estate, and adding more tilts).

The allocation details are not as important as staying reasonably close to your chosen "recipe" (through rebalancing, and subsequent contributions / purchases) . . . which effectively directs you to "buy low" — make purchases into areas that are relatively weak, i.e., "on sale."

If at least some of your portfolio is in tax-advantaged IRAs — traditional or Roth — then the rebalancing is tax free. At your age, however, rater than "pruning" I'd mostly stick to utilizing new contributions as a means of maintaining your target allocation — noting when areas are off 3% or more, and need "watering."

And you can always wait for an opportunistic time to strike (i.e., bear markets) by accumulating cash until then. Buffet has said (I'm paraphrasing) that the market is a vehicle for transferring wealth to the patient, from the impatient. So, no, I'm not a fan of regular dollar-cost averaging; I'd rather wait to strike, like the Zen cat pretending to sleep as the mouse approaches

While some say that a 30% allocation overseas is too high (John Bogle advocated 20%) Ken Fisher has pointed out that the US comprises only around 55% of world assets; he suggests targeting a benchmark like ACWI.

Bard says: "The United States represents about 57.9% of the MSCI ACWI IMI as of December 31, 2023. This means that nearly 58% of the investble market capitalization in the All Country World Index Investable Market Index is made up of U.S. companies."

In sum, I'd suggest you
(1) set yourself a model portfolio to your liking — a recipe to your taste, as it were . . . whether using three ingredients, or ten;
(2) track it's growth through Empower's free website (formerly Personal Capital) https://www.empower.com/empower-personal-wealth-transition;
(3) feed your portfolio, over the years, to maintain (in aggregate) the proportions of your model allocation

[Tax advantaged asset "location" — not allocation — is a topic for another day!]

But before any of this gets under way, be sure to set yourself "3 Buckets" — Now, Soon & Later — where your Later bucket holds your equities, for growth into retirement (modeled above); Soon holds CDs and/or Bonds, to cover you for the next five years; and Now comprises your completely liquid savings, for this current year (or two), including your emergency fund.

Good Luck!


PS In retirement now, I lean toward the UBS survey of HNW individuals that skews toward an average allocation of 55% Equities. But, at your age, with more years of "human capital" [w*rk] ahead of you, and FIRE in your sights, I would aim much higher — contributing as much as you can. My formula used to be in thirds: one third for taxes; one third to save; and one third to spend. Depending on income, budget, and location (taxes, etc.) your mileage will surely vary!

 

[DrRoy]

No, except that most of my equity holdings are S&P 500 in some form. I also have an individual corporate bond ladder, no bond funds.

 

[VanWinkle]

My DS is in VFIFX, a 2050 Target Retirement fund; and it is 90/10.

He'll be 22% bonds in 10 years and 37% bonds in 20 years. This is a
sound progression to protect the downside as the portfolio gets larger.

 

[Palmtree]

At 63, I'm closer to the classic 60:40 with it really being 60% in Total Stock funds, (of which 20% is in international) 30% in BND (total bond fund) and 10% in money market. Overall I'm fairly happy but with two caveats.
1.The severe downturn of bonds funds has shaken my faith in them being ballast when markets fall. I'm not selling any of them, but I doubt I'll buy anymore. In the future I'll buy CD's or individual bonds.
2. International has lagged the U.S. market for many, many years and, though my crystal ball is hazy, I don't think that's going to change any time soon. Like the bond funds, I will not sell what I have, but I will not buy any more either.

 

[Taco]

I think your personal strategy should depend on 1) your age and 2) how well you tolerate volatility. And, keep things simple.

If you are young, and can stay invested when the markets drop, then 100% in equities is the way to go. Add to it every month - set it and forget it. Many years later, you'll be glad you did

If you cannot stomach watching a huge drop, or if you are in or nearing retirement, you will probably want some percentage in fixed income. You'll have to decide how much.

For equities, 100% in a low cost total market index fund is a good and easy option.
For fixed, there are bonds, bond funds, CDs, treasuries - I think it is harder to recommend an easy option here. But one of those options or a combination of them should work.

 

[Dabbler]

If you take the big picture into consideration, with regard to market fluctuation(s) and reversion(s) to the mean, you can leverage temporary low returns to your advantage in order to "buy low" — "Be greedy when others are fearful, and fearful when others are greedy."

A rearview mirror of shifts in market sentiment can be easily seen in Callan's "Periodic Table of Investment Returns"

History may not repeat itself, certainly not in any predictable way . . . but surely it rhymes!

 

[fishfactory]

I have had success with a paid service, allocatesmartly.com. They have optimized portfolios you can follow based on your goals. You can go to their website and check out their service and access their blog for free.

 

[DrBrisket]

Portfoliocharts has several more strategies along with lots of charts and information. There’s even a tool to quickly test your own ideas.