3 Fund (Bogle) or 2 Fund (Buffet) Portfolio Strategy?

[RetiredAt49]

I’m retiring at the end of this year and curious which strategy you’d recommend.

Age: 49
Taxable brokerage account: $1.65 million (moving this away from WMC to DIY)
Traditional IRA: $500,000 (moving this from WMC to DIY)

We also have $1.5 million in rental properties that we plan to sell off in the next few years but they currently generate $50,000/year in revenue. My wife is getting a business buyout of $6,400/month for next 8 years.

We also own our home worth $500,000 and a cabin worth $500,000.

We have $150,000 in savings and plan to live if that + business buyout + rental income the next 1-2 years before we start to withdraw from taxable investment account.

Years 3-8 plan to withdraw about $75,000 from taxable account except for a year or two when we get new cars.

At that point plan is to live off of approximately $125,000/year.

 

[Koolau]

Probably lots of folks here know what is in each of the two portfolios you mention. I do not. I've always been a fan of Scott Burns' concept of the "Couch Potato" portfolio which is basically 2 or at most 3 extremely-low-cost index funds which end up with an "appropriate" ratio of equities and bonds/cash. Balancing yearly. It's not-quite-but-almost set-and-forget.

It sounds like you want a cookie cutter portfolio and I would agree that has a lot of advantages. I'm not smart enough - or ambitious enough to "manage" my own portfolio, beyond balancing my 3 indexes and a few off-the-wall investments on the side.

Sounds like you have plenty in your stash (supplemented by several income streams AND anticipating SS in the future.) On that basis, it would be difficult to make a bad choice unless we've all made a bad choice. IOW, 40/60 equites:bonds to 60/40 equities to bonds. Pare the 4% rule down to maybe 3.5% because of your age and that should be close enough. Be ready to make cuts if something goes wrong in the markets or personal life. Good to go.

Many of us here measure with a micrometer and cut with an ax. Others (myself included) "wing it" to a certain extent. Lots of ways to get there. Having a decent stash plus extra income streams helps a lot.


BUT remember that YMMV.

 

[OldShooter]

Personally, I don't think its wise to bet solely on the US for future growth. We just invest in everything, VTWAX. One fund to rule them all. Lots of debate on this and we will only know the answer in the rear view mirror.

Here is Dr. French's opinion on home country bias: https://famafrench.dimensional.com/videos/home-bias.aspx

Here is a Vanguard paper on the subject: "Global equity investing:The benefits of diversification and sizing your allocation" https://www.vanguard.com/pdf/ISGGEB.pdf
Vanguard on International: https://investor.vanguard.com/investing/investment/international-investing

You may get an argument that something like 40% of the S&P's revenue is from outside the US, but that misses a lot of international markets. Companies like Volkswagen, Cemex, Shell, Nestlé, AmBev, ... and all investment opportunities in emerging markets especially China. Google "biggest companies in the world" and you will see how narrow a 100% home country bias is.

You may also get an argument (hello, @pb4!) that the international sector has underperformed in the last decade. To some that is a reason to avoid it, to some that is a reason to expect reversion to the mean, and to some it's a matter of principal to not pick sectors.

Re Buffet I love the guy, especially his pithy quotations, but an S&P focus excludes small and mid size companies, value companies, and many growth companies. I would at least make the "one fund" choice be a total US market fund.

So, recommendation? No recipe from me. Read and understand, then make your choice. Either choice will probably produce very attractive results.

 

[mrfeh]

We follow the 3 fund portfolio, with tweaks.

If you take that route, the next question is: how much in ex-US? I haven't spent much time on BH.org lately, but 3-4 years ago the general consensus seemed to be somewhere between 20 and 40% of equities should be ex-US.

 

[Koolau]

Agree that ex-US is important in order to be diversified as widely as possible. I don't worry too much about the overlap within the S&P or other more-or-less US indexes. I'm too lazy to tease out the actual % US vs ex-US. Just shot-gun it and sit back (remembering to rebalance.) YMMV

 

[OldShooter]

Agree that ex-US is important in order to be diversified as widely as possible. I don't worry too much about the overlap within the S&P or other more-or-less US indexes. I'm too lazy to tease out the actual % US vs ex-US. Just shot-gun it and sit back (remembering to rebalance.) YMMV

A few years back, US was about 45% of the world market cap. Lately it has been around 55%. Since we're not trying to overweight the US even though we live in the US, 100% VTWAX works fine for us -- rebalancing is automatic. VT is the ETF flavor of VTWAX.

Someone wanting some home country bias could add VTSAX to a basic VTWAX portfolio and worry less about rebalancing.