Boglehead Core Principles - Sound Theory?

[VanWinkle]

I have found that when investing is boring, my portfolio goes up more than when I try to
do exciting things. Retirement is about keeping what you worked all of those
years for. Index funds fit the bill for boring in most cases. Bogleheads was a great
teacher and Jack Bogle was a gem-met him in 2017.

 

[Yegey]

90% of fund managers don't beat the indexes over time. If you can find those managers or do better on your own great for you. Over the years I've owned ~200+ individual funds and companies or bonds - all the major ones. About a year ago I said heck with this and went almost all SP500 index and 4 bond funds. Wish I would have done that AND STUCK WITH IT 10-20 years ago. I still have a hard time not buying this or that individual asset from time to time but I'm working on it.

I had done something similar back in the 90's. Part of it was that in an actively managed fund, the managers may not stick around so even if you identify them, they move somewhere else. I end up switching to mostly passive by end of the 90's. My TIPS fund is actively managed.

 

[yakers]

Mostly a Boglehead, was a VG Diehard before that. Solid principles but I do not follow it precisely, I do own VG managed funds, Wellingto & Wellsley have been fine by me. Maybe just index funds would have been better but mine are definitely OK. LBYM and costs matter are the key points for my retirement. And I had a pension. I would always advise to at least take IRA matching funds although I never had any.

 

[wolf]

Bob Brinker's Marketimer. Wow, use to listen to radio show all the time. So long ago.
Worked for me.

 

[Yegey]

I used to listen to Bob Brinker when I was younger but never really got much out of it. I end up adopting more of a passive indexing.

An alternative to the BH would actually be contribute enough like 15-20% and then invest to a passively managed target fund usually within their employer retirement plan. Based on personal observation and in various studies, Target fund investors rarely make changes because they are detached. Being detached is usually a good thing during accumulation and even withdraw period. If you examine Boglehead Forum, even BH investors are prone to market crashes and over optimization of portfolio. May be the target portfolio is cookie cutter, it may do better than a BH investors if the BH investors have a bad tendency to overtinker their portfolio.

You got to be careful though. Target funds are not all the same. You may end up investing in one that has high fee or some sort of non-functional tactical allocation or sector rotation.

 

[OldShooter]

I have found that when investing is boring, my portfolio goes up more than when I try to
do exciting things. Retirement is about keeping what you worked all of those
years for. Index funds fit the bill for boring in most cases. Bogleheads was a great
teacher and Jack Bogle was a gem-met him in 2017.

I tell the students in my Adult-Ed class this:

"Investing is boring. If you're not bored, you're doing it wrong."

 

[SecondCor521]

It's not on this list, but I have never used the "bucket" concept. I managed my portfolio as a whole.

I've never seen buckets discussed at Bogleheads, so it is not surprising to see it missing from the list.

It's discussed here sometimes. I don't think it's popular here, but maybe that's just because it's not my cup of tea.

 

[Koolau]

I tell the students in my Adult-Ed class this:

"Investing is boring. If you're not bored, you're doing it wrong."

Heh, heh, I'm bored - until I look at the final number. Then, heaven help me, I get excited. I hope that's okay!

 

[mrfeh]

I've never seen buckets discussed at Bogleheads, so it is not surprising to see it missing from the list.

It's discussed here sometimes. I don't think it's popular here, but maybe that's just because it's not my cup of tea.

Buckets are discussed at bh.org on a regular basis.

 

[street]

Bogleheads theory is the foundation for anyone that wants to be sustainable in retirement and to reach it. Solid as a rock and really didn't learn much from their ten commandments because I had those genes and was already doing them for the most part. They gave me confidence to move into ER.
I don't visit there anymore or very little but they did answer some of my early uncertain times before I ER.

 

[Steelpony]

Summed up:

• live below your means
• risk tolerance and assessment
• 2/3/x fund strategies
• low expense ratios
• diversification
• tax efficiency
• sound asset allocation
• etc., blah, etc.

I get asked frequently about my investment strategy. From this forum I discovered Bogleheads and found that it matches my strategy consistently and without conflict. My roots are Bob Brinker's Marketimer and I've done OK with that.

That said, is it arrogance or ignorance to go through life thinking these core principles are just opinionated prattle or does the collective success of those who follow these principles speak for itself?

The reason I'm thinking about this is when asked about my own strategy I refer people to the Bogleheads wiki and tell them to start there. I'm sensitive to being the grumpy old man who is set in his ways. I've been successful using this strategy and know others who have also been successful.

After 45 years of amateur income investing experience I follow most of the same guidelines with these modifications finding this list way to restrictive and boilerplate:

I arrange investments into ever changing known current cash flow requirements, possible unknown current cash flow requirements and unknown future additional cash flow requirements if they ever arise.Three areas.

As an income investor this is my definition of diversification and allocation. Each section holds a number of investments matching my risk tolerance and it’s purpose in that area. Our total highly personalized mix of investments equals 21 presently,16 in one area. This is my “sound” asset allocation which can be fine tuned as our personal facts unfold. Management resembles steering a car.

Even before health issues become known and your remaining lifespan dwindles there may be plenty of opportunities to live beyond “your means” in short spurts because there’s a lot of slop built in. Only one section is used monthly while the other two are left compounding until/unless used as supplemental cash flow.

 

[jollystomper]

I do not seeing those foundations as "boring", I see them more as "simple". At this stage in my life, I prefer to simplify my investments. This will make it easier to me and my heirs to deal with things.

Rarely have I seen folks get in trouble with this simple approach. On the other hand, I know more than a few who thought they could do better than this basic approach - essentially trying find things to swing for the fences - and screwed up their financial situation.

 

[big-papa]

It's not on this list, but I have never used the "bucket" concept. I managed my portfolio as a whole.

Same - most studies on "buckets" (which is a specific term having to do with a portfolio withdrawal technique where money flows from high risk, through moderate risk, and then to cash before being withdrawn for spending) show it to be, at best, a mental accounting trick but that usually has the same, or nearly the same, results as just holding a fixed AA and withdrawing from it and rebalancing.

Long thread on this over on bogleheads: The “Bucket Strategy” is ineffective (ERN) - Bogleheads.org
And plenty of other webpages out there that discuss it.

It doesn't show up on the list because it's not one of a fundamental bogleheads principles which can be found here:

https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy

Cheers

 

[Yegey]

I do not seeing those foundations as "boring", I see them more as "simple". At this stage in my life, I prefer to simplify my investments. This will make it easier to me and my heirs to deal with things.

Rarely have I seen folks get in trouble with this simple approach. On the other hand, I know more than a few who thought they could do better than this basic approach - essentially trying find things to swing for the fences - and screwed up their financial situation.

I often wonder when people (this is not directed at you by the way) wants excitement from their investment. I want my investment to give me money with as little excitement as possible.

 

[big-papa]

I often wonder when people (this is not directed at you by the way) wants excitement from their investment. I want my investment to give me money with as little excitement as possible.

I actually don't wonder. For many of us, getting to the stage where we don't want excitement was all part of the learning process as we matured as investors. For some of us, that's the only way we would have gotten there.

Cheers.

 

[Yegey]

Same - most studies on "buckets" (which is a specific term having to do with a portfolio withdrawal technique where money flows from high risk, through moderate risk, and then to cash before being withdrawn for spending) show it to be, at best, a mental accounting trick but that usually has the same, or nearly the same, results as just holding a fixed AA and withdrawing from it and rebalancing.

Long thread on this over on bogleheads: The “Bucket Strategy” is ineffective (ERN) - Bogleheads.org
And plenty of other webpages out there that discuss it.

Cheers

I am wondering if this is just some form of mental accounting. Let's use emergency fund as an example, I like to keep emergency fund separate from my retirement portfolio. This is because my expenses usually grows a lot slower than my retirement portfolio so I would have to constantly adjust my percentage of cash. Some people however prefer to keep it as a single portfolio. Both way essentially do the same thing but uses different mental accounting.

As for bucket, I feel that the idea is that you have fixed income to draw on when the stock market crashes so you don't damage your portfolio by selling depressed equity. However, if you have a fixed income portion, it will likely not fall as much as stock and you will end up drawing on bonds when the stock market is down. This is pretty much the same as a bucket system except buckets rebalance a bit differently. Again, I feel this is mental accounting.

 

[deserat]

My buckets are taxable, tax deferred and Roth - hoping to be heaviest in Roth.

 

[big-papa]

I am wondering if this is just some form of mental accounting. Let's use emergency fund as an example, I like to keep emergency fund separate from my retirement portfolio. This is because my expenses usually grows a lot slower than my retirement portfolio so I would have to constantly adjust my percentage of cash. Some people however prefer to keep it as a single portfolio. Both way essentially do the same thing but uses different mental accounting.

As for bucket, I feel that the idea is that you have fixed income to draw on when the stock market crashes so you don't damage your portfolio by selling depressed equity. However, if you have a fixed income portion, it will likely not fall as much as stock and you will end up drawing on bonds when the stock market is down. This is pretty much the same as a bucket system except buckets rebalance a bit differently. Again, I feel this is mental accounting.

Yes, your second paragraph is correct - you're moving back towards your AA by withdrawing only bonds. Depending on rebalance policy (time based or deviation from your target based), it might have been the way you would have been withdrawing anyway - that is, spending only from your bonds was deliberately part of your rebalancing policy to start with. Anyway, if you know that it's mental accounting, then it loses its power.

Again, this is "at best". At its worse, you have to decide when stocks have dropped enough that you switch only to bonds. And like all market timing schemes, you also have to decide when stocks have recovered sufficiently that you go back to your regularly scheduled programming.

I wouldn't confuse this with fixed sources of spending. For example, our nondiscretionary spending comes solely from TIPS ladders, SS, and dividends from our stock fund. The rest is in Stock from which we only sell shares for larger lumpy expenses, whether they're expected or not. And we don't rebalance between those two sources of spending so while, at any given time, there is an AA, it is not an AA that we ever target to be anything specific. It would break the whole concept of having more deterministic income streams for nondiscretionary spending.

Cheers.

 

[Fotodog]

I started reading the BH forums a couple of years before I retired and before I found this site. Like Street said, I already followed most of their core principles but I’m grateful for the knowledge gained concerning diversifying into fixed income, keeping fees low, and Sequence of Returns Risk. It really helped me develop a plan and feel comfortable with managing my portfolio.

Where I differ is the strict adherence of most people there to bond funds, because that’s what Jack advocated. I put 40% of my portfolio into a bond fund in 2021 and watched as it dropped substantially over the next couple of years. I had discovered this forum by that time, and one thread in particular made a big impact on my investing philosophy: the Golden Age of Fixed Income created by Freedom76, with contributions from many other members here. I eventually sold my bond funds and now use bond ladders. I prefer knowing my interest rate and return of principal.

 

[big-papa]

I started reading the BH forums a couple of years before I retired and before I found this site. Like Street said, I already followed most of their core principles but I’m grateful for the knowledge gained concerning diversifying into fixed income, keeping fees low, and Sequence of Returns Risk. It really helped me develop a plan and feel comfortable with managing my portfolio.

Where I differ is the strict adherence of most people there to bond funds, because that’s what Jack advocated. I put 40% of my portfolio into a bond fund in 2021 and watched as it dropped substantially over the next couple of years. I had discovered this forum by that time, and one thread in particular made a big impact on my investing philosophy: the Golden Age of Fixed Income created by Freedom76, with contributions from many other members here. I eventually sold my bond funds and now use bond ladders. I prefer knowing my interest rate and return of principal.

+1 on bond funds. I have ranted a bit about them over on bogleheads in the past.
The industry has basically taken what is fundamentally an income producing investment (bonds) and put it inside a wrapper (a fund) and turned it into a returns investment - at least for the way most people use bond funds and for what they pay attention to. I doubt anybody outside of active bond traders would have thought of bonds in this way before bond funds came along.

And, of course it leads to a lot of confusion about what "bond performance" means. First there is the imprecision of using the term "bonds" when what is usually meant is "bond funds". And secondly, it shows a lack of understanding of the relationship between yields and NAV given how many were caught off guard in 2021. There was an expectation by many that with inflation rising that their TIPS funds would do great. Those who held TIPS funds were disappointed but those who were purchasing ladders at the time were elated since they could purchase the same deterministic income stream more cheaply.

Despite my rant, I still think there's a place for bond funds for many during the accumulation years. That's what I did and I have no regrets but made a gradual move to the TIPS ladders we currently have, starting with a 2-fund approach where I matched the aggregate fund duration of the 2 funds to my investment horizon for a few years before I retired, to then switching it all out to a full TIPS ladder at the point that a 30 year ladder would last as long as my retirement planning dictates.

Cheers.

 

[Chuckanut]

Unlike many people here I never had high paying jobs or owned a business that gave me a yearly income well into 6 figures.

Yet Bogle’s principals allowed me to retire early with enough money to live comfortably and describe myself as a retired senior citizen of modest but independent means. IOW, I can pay my way with no worries whether it’s morning coffee at the Big Donut or flying across the ocean for a multi-week vacation in foreign land.

Smart living also counts for much. Dollars go a lot further when they are not wasted on avoidable fees, extra cost goodies that add nothing to quality of life, and getting things fixed because there were not properly maintained.

 

[Diogenes]

The industry has basically taken what is fundamentally an income producing investment (bonds) and put it inside a wrapper (a fund) and turned it into a returns investment ...

And, of course it leads to a lot of confusion about what "bond performance" means. First there is the imprecision of using the term "bonds" when what is usually meant is "bond funds". And secondly, it shows a lack of understanding of the relationship between yields and NAV given how many were caught off guard in 2021. ...

I made that mistake, seduced by the idea of diversification and reducing volatility. True enough, in 2000-2009, bonds would have been a blissful holding. And I was told by the good folks at Vanguard, that with my low spending profile, it's "safer" to have a larger allocation to bonds.

As for bonds being a "returns investment" vs. an income investment... ever since the book Liar's Poker came out, it was hard to retain the view, of bonds as a steady vehicle for generating income. Bonds were recognized as a speculative asset, but still with some basis to believe that they can't crash like stocks, and even if there's a downside, they're recover faster than stocks. That delusion was rudely disabused in 2022. Some folks were more hurt by 2022 than by 2008 or 2000.

To your other point, it's much easier to buy an individual stock, than an individual bond. The former is a few clicks on a computer screen, or for a troglodyte like me, a phone call to Vanguard. For the latter - well, honestly I have no idea how to even execute a trade, let alone how to make a judicious selection.

The BH philosophy advocates for the 3-fund index portfolio: US stocks, ex-US stocks, and bonds. It says nothing about allocation! That allocation could be 85-15-5, respectively. And in hindsight, it should have been.

 

[Yegey]

I don't think there is a particular adherent to a particular bond strategy on Boglehead forum. There are a million threads about different bond strategies ranging from the well known Total Bond market to people who liability match.

My personal take is that if you are doing some sort of liability matching. it's best to use some sort of collasping bond ladder or some sort of annuities to elimiante interest rate risk. If you are not doing that, it's probably better to stick to a bond fund because rebalancing will be messy. Perhaps for people who do want the ladder, the solution is to not rebalance.

It's also really hard to bullet proof the portfolio against everything. The bond fund strategy seems to work until around 2022.

 

[Route246]

+1 on bond funds. I have ranted a bit about them over on bogleheads in the past.
The industry has basically taken what is fundamentally an income producing investment (bonds) and put it inside a wrapper (a fund) and turned it into a returns investment - at least for the way most people use bond funds and for what they pay attention to. I doubt anybody outside of active bond traders would have thought of bonds in this way before bond funds came along.

And, of course it leads to a lot of confusion about what "bond performance" means. First there is the imprecision of using the term "bonds" when what is usually meant is "bond funds". And secondly, it shows a lack of understanding of the relationship between yields and NAV given how many were caught off guard in 2021. There was an expectation by many that with inflation rising that their TIPS funds would do great. Those who held TIPS funds were disappointed but those who were purchasing ladders at the time were elated since they could purchase the same deterministic income stream more cheaply.

Despite my rant, I still think there's a place for bond funds for many during the accumulation years. That's what I did and I have no regrets but made a gradual move to the TIPS ladders we currently have, starting with a 2-fund approach where I matched the aggregate fund duration of the 2 funds to my investment horizon for a few years before I retired, to then switching it all out to a full TIPS ladder at the point that a 30 year ladder would last as long as my retirement planning dictates.

Cheers.

I haven't studied bond funds, just had a similar experience to yours. Once I figured this out, ran it by my CPA and realized bond funds don't do what I was expecting them to do I ran for the doors. I'm currently in MM treasury and am quite happy there.

 

[imjustawarrior]

I find it interesting how much time people spend on bonds. For me, they have much less impact on my portfolio than equities.

I am a 3 fund boglehead with a 75/25 AA.