Agree all the way around. It's also a common misconception that being a bogleheads means holding the 3-fund portfolio. It is but one manifestation of a portfolio that follows the principals, which are supposed to be framework, not a rulebook.
Cheers
Boglehead Core Principles - Sound Theory?
- Thread starter Route246
- Start date
Cheers
Yep. More than one person built their portfolio based on a 2008 backtest, thinking that bonds could save their bacon in a bad stock year. What people might not have understood is that when 2 assets have close to zero correlation over long time periods, anything can happen over short time periods. Nobody complained when, occasionally, in pre-2008 years bonds, and stocks both had very good years. But they failed to understand that both could also have very bad years as well, as we saw in 2022.
Bond funds have, in the past, recovered. Sometimes more quickly than in other times. How much volatility you want out of your bonds funds, including recovery time, is also going to be a function of the bond fund type and duration. But we know the drill - a shorter duration bond fund won't have as much volatility as a long duration bond fund will but will also not return as much in your portfolio.
There is no question that the steps to purchase a stock or stock fund is simpler than an individual bond. I had never bought an individual bond in my life until March of this year. I knew I wanted to build 3 TIPS ladders. I pulled up tipsladder.com and read the bogleheads thread to learn how to design my ladders. Then I found a step-by-step youtube video for both buying and selling TIPS bonds on the secondary market at Fidelity which is where our IRAs are. I made notes and did a dry run. Then I purchased 1 ladder a day over a 3 day period. One ladder was short, but the other 2 were a full 30 years each and it took a while to get through each one to make the purchases. While not as easy as stock, it wasn't as hard as I was led to believe, either. And it's almost "one and done". There are currently 4 consecutive years where there are no TIPS maturing, but tipsladder.com guides you through that as well, having you purchase more bonds in the last year before the tape and in the first year after the gap. I will plug the first hole in late January and then for the next 3 January's and then we're done. That will also be my first sale since you have to sell some of the extras purchased to buy the new ones to close the gap.
For me, this was fairly straightforward. I can't imagine going through the effort to purchase individual corporate or muni bonds, having to assess credit ratings and the effects of the callability of such bonds. I'd have to turn into more of an active bond trader and I have no interest in that.
The bogleheads philosophy does not specifically call out the 3-fund portfolio. It's higher level than that with points about being diversified and buying "broad index" funds. The 3-fund portfolio is but one manifestation of a portfolio that adheres to the bogleheads philosophy and it's popular on bogleheads, but it's not the only one. Regarding allocation, it states that one should not take on too much or too little risk. There can not be a one-size fits all answer to that question since everybody's situation is different. It's left as an exercise to the reader to figure out what sort of portfolio might match an individual investor's risk appetite. Wiki pages and plenty of threads there to help people figure out their risk appetite.
And one of the aspects of risk appetite that can't be ignored is emotional. Is the investor likely to make a behavioral error based on market turmoil or not? Sometimes you can't honestly answer that question unless you've lived through it.
Cheers.
Last edited:
olyveoil
Recycles dryer sheets
It's a good start. But, the unmitigated dogma of some of the bogleheads make them insufferable.
Yep - I've learned to scroll on by the dogmatic ones. And a lot of time is spent there between people arguing whether there are actually 20 angels dancing on the head of a pin instead of 19 and whether 19 is actually a close enough approximation. At some point, I learned that I don't have to participate in every argument I'm invited to. Still there are 2 or 3 people over there over the years that I learned more from than just about any other source. Many/most of them have moved on.
What I find insufferable and what is causing me to spend less and less time there is the repetitiveness. Same discussions, same arguments, same counterarguments and no consensus (because there can never be one). New people coming onboard is generally what re-hashes the old discussions because 1) they don't read any of the wikis before posting and 2) they don't use the search utility to help them find out if the question they're asking has been posed before and 3) the long time, more dogmatic members are still certain that there is only one way - and that's their way.
Cheers
GoBirds
Recycles dryer sheets
I never understood bonds so I have Wellesley in my 401k and Roth and a small amount in Wellington in taxable (don’t tell the bogleheads) where I take the dividends and capital gains to use for Roth etc (maybe 2k in CGs)
Last edited:
Plenty of bogleheads own Wellington as well as Wellesley. They're not as unified a group as many people think they are.
Cheers.
imjustawarrior
Thinks s/he gets paid by the post
That's the truth. If anyone says anything that the dogmatic members don't agree with, they will beat the poster into submission.
If it truly goes off the rails, somebody will report the post or even the entire thread and the moderators will lock it. The worst offenders ultimately get banned.
grasshopper
Thinks s/he gets paid by the post
- Joined
- Oct 9, 2010
- Messages
- 2,873
Although I retired in 2006 age 54, I owe a lot to Vanguards basic principles since around 1985. Made me look, so ER and BH forums have the same sign up date Oct 2010. I have also been helped a lot on ER the "where all the women are strong, all the men are good-looking, and all the children are above average." Thanks.
TheWizard
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Those are portfolio segments, not buckets in the sense we're talking about, but okay...
Very true. And sometimes we can’t answer that question, even after having lived it! We forget our lessons. Was I brave on the battlefield? No, I was a coward. But hey, that was 17 years ago! Next time I’ll be brave, right? Maybe.
Even so, we have to distinguish between two kinds of emotional consequences. Again I trot-out my convenient strawmen, Smith and Jones. Both are heavily allocated to equity index funds. Both are absolutely aghast during the next bear market. Smith caves under pressure, and sells his stocks near the bottom. Jones becomes a sobbing sniveling carcass of helpless flesh, but in his very helplessness, he disassociates himself from his portfolio, taking zero actions. Months pass, then years. Smith has suffered grievous losses. Jones is doing fine, in terms of his portfolio... but he’s too shaken to ever spend a nickel, and has no confidence in himself, his money, his very sense of being.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Actually, I think LBYM is most important, because if you consistently LBYM that means that you are consistently saving.
If that saving went into low yield savings accounts then you would probably still be fine.
But if you dedicate that savings to broad based equities then you'll be even better off.
If that saving went into low yield savings accounts then you would probably still be fine.
But if you dedicate that savings to broad based equities then you'll be even better off.
street
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
That's the truth!!! Lol
PhrugalPhan
Recycles dryer sheets
Bogleheads isn't the only place this happens (I'm not talking about here). Just a few weeks ago on another finance forum I posted about this very issue as it had mostly killed the forum. While agreeing the forum was dieing most responses insisted they weren't the problem. Go figure.
Out-to-Lunch
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yeah, I was a member of the Vanguard Diehards forum back on M*, and joined the current BH forum when it was founded. I learned a lot there. I think of it like a graduate course where, in addition to learing a theoretical framework, you also have to do case studies and worked examples.
Eventually, I felt that I learned enough that I didn't need to continuously read their musings. The arguing over minutiae got old. Big-Papa's desciption in post #54 is spot-on.
I credit BH with giving me a solid foundation. Let's put it this way: I would not be reading EARLY-retirement.org if not for BH. But once I saved enough and learned the most important principles, I moved on to this forum in hopes of gleaning some insight on how to enjoy my early retirement.
Eventually, I felt that I learned enough that I didn't need to continuously read their musings. The arguing over minutiae got old. Big-Papa's desciption in post #54 is spot-on.
I credit BH with giving me a solid foundation. Let's put it this way: I would not be reading EARLY-retirement.org if not for BH. But once I saved enough and learned the most important principles, I moved on to this forum in hopes of gleaning some insight on how to enjoy my early retirement.
I am with you on this one. For a 75/25 AA, The long term return difference between a 75/25 with intermediate treasury and one with cash from 1977-2024 would be around 0.5%. The downmarket and volatility doesn't change that much either because there isn't enough fixed income.
However, as people get older, they tend to increase their fixed income. a 25/75 AA would mean bond return dominates. Now a 1977-2024 with 75% intermediate bond would return a nominal return of 7.88%, while the same portfolio with cash would return 6.43%
As for constructing a bond portfolio as a companion to stock, a lot of people who construct your portfolio using 2008 back testing probably then realized it didn't work with the 2022. Keep in mind that constructing the bonds to guard against a 2022 situation with shorter duration means it won't work as well in a 2008 situation. Cash/stock did worse than bond/stock in 2008.
Personally, I think some parts of my portfolio will always fail me. US stocks were such a drag in the lost decade, but my international kept some of that going. In the next decade, international dragged. Bonds did better than stock in the lost decade, but has done badly in the last 5 years. This in my opinion is the diversification effect. It does work, but imperfectly. It will sometimes fail you completely like in 2022. Even if it's successful, part of your portfolio will always drag.
I know...it was sort of posted in jest. I am mainly Bogleish in my investment strategy, I don't use buckets per the 'bucket' theory. As for Bogleheads being doctrinaire, I don't see them being as bad as some here have reported. They do have rules, mainly I think to minimize friction on the board. Nevertheless, the tools they have on their wiki and the discussions regarding specifics on how to use those tools are excellent. This board isn't as technical in that way. Each has its benefits.
The thing about the Bogle approach is it aims to simplify investing-and it works over the long haul. It satisfices one's goals versus optimizing. The trade-off is one gets time back.
Koolau
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Heh, heh, it looms large in their legend.
Absolutely - kind of reminds me of how my grandparents and my Dad were permanently changed by the Great Depression, having nothing to do with investing (they never did) but having everything to do with frugality.
On a closely related note, one should never assume that one's risk appetite is a constant. People and circumstances do change over time.
My own story is that I was mostly too busy laying people off at work to pay much attention to my investments in 2008. But late in the year, things started to settle down at work and I looked at my 401K and taxable mutual fund account and panic-sold in October and stopped contributions. Then I started reading, first coming across Scott Burns' lazy portfolios. Fresh with some new knowledge in less than a month, I was back in. I got lucky in the time period where I was out of the market was a time period where the market didn't move much. I also learned about Fidelity's frequent trader policy and got emails and phone calls from them which I didn't respond to. I did change my investments some over time after that event and I got to walk away with loss carryovers that lasted for quite a number of years after that. 2022 came around and I wasn't bothered by it one bit and didn't change anything and kept contributing. In 2023 I retired.
Cheers
old medic
Thinks s/he gets paid by the post
- Joined
- Jul 28, 2020
- Messages
- 2,876
ABSOLUTLY.... and still learning.
VanWinkle
Thinks s/he gets paid by the post
I feel the same, and if not for 2022, these bond fund bashing posts wouldn't be as popular. Everyone loves to bash a one year loser. Money market funds will not keep up with a short term or intermediate bond fund. I had 50% of my funds in total bond in 2022, and it is still there today. Patience is paying off as the rates are declining again and Capital gains are boosting returns. I'm fine with people building ladders and buying individual bonds, it's just not a job I want.
My feeling is from 2009 to 2020, it didn't pay to have shorter duration. With money market making essentially zero, During this period bonds made money but may be half the return of the previous decade. However, inflation shoot up and even 5 years later, bonds have negative real returns. This isn't unusual, bonds had negative real return from time to time even over long periods of time.
I have to admit that until recently I had avoided any bonds thinking of the long term return even during the lost decade, but now I need to preserve my portfolio in case I need to retire.
I am wondering if there was equity bashing during the lost decade. I then to avoid discussion and news during bad cycles, not wanting to stab myself.
There’s a lot to say, so let’s start at the beginning.
BH(BogleHead) investing is a great and simple approach, especially for people who don’t know much about investing. It also works well for most investors because even professionals rarely beat it over the long run.
At the core of BH investing are funds like VOO, SPY, or VTI for stocks and BND for bonds. The stocks ones are among the best indexes ever created, largely because they are built on the U.S. economy, arguably the greatest engine of opportunity and capitalism in history.
That said, a few additional thoughts are worth considering:
BH(BogleHead) investing is a great and simple approach, especially for people who don’t know much about investing. It also works well for most investors because even professionals rarely beat it over the long run.
At the core of BH investing are funds like VOO, SPY, or VTI for stocks and BND for bonds. The stocks ones are among the best indexes ever created, largely because they are built on the U.S. economy, arguably the greatest engine of opportunity and capitalism in history.
That said, a few additional thoughts are worth considering:
- Concentration vs. the index:
If the S&P 500 is one of the best indexes, then its top companies should be even better. Technology now drives much of the global economy, and over the last 15 years QQQ has nearly doubled the performance of VOO, about 1,190% versus 619% (see chart). That raises the question of whether the SP500 is always optimal. - Risk tolerance isn’t static:
Risk tolerance is hard to define, especially as a portfolio grows. A young investor with $100K who loses 40% may shrug it off. But a 55-year-old who loses 30% of a $1 million portfolio may panic and sell near the bottom. Risk tolerance changes with age, portfolio size, and life circumstances. - Diversification is more complex than it sounds:
Is the S&P 500 diversified enough on its own, or do you really need multiple stock indexes? Is more diversification always better? The S&P 500 performed exceptionally well from 2010 to today, but lost money for a full decade from 01/2000 to 01/2010. Diversification choices matter more than most people admit. - Tax efficiency vs. risk-adjusted returns:
Tax efficiency is important, but it’s not everything. Most people I know with portfolios over $500K, including myself, built the majority of their savings through work and 401(k) plans. Personally, I place much more importance on risk-adjusted performance than on tax efficiency alone. - Retirement is the hardest problem:
Managing retirement correctly is far more difficult than accumulation. BH strategies, and many articles and experts, don’t offer practical answers for most Americans. The common advice assumes very large portfolios, which most people don’t have. Telling people to “just work longer” isn’t realistic for many. - Lack of openness to alternatives:
BH communities are often closed to other approaches. When I posted on their site in the mid-80s and shared my models and funds, I was warned and dismissed. That’s not how learning or growth happens. Over time, I found additional funds that met my criteria and helped me reach my goals with much lower volatility and stress, something BH proponents never adequately addressed. - Bonds: The BH Total Bond Index (BND) has proven to be a disappointing bond option. Over the past five years it has lost money, and over the past 10–15 years its average annual return has been only about 1.9–2.4%. During the same period, I achieved X times that return with lower volatility.
Last edited:
street
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I like your tutorial and view a lot and is spot on IMO. BH was a good site find for me right off the bat for the simple criteria. But ER seems to have that extra knowledge and strength going once retired.
ER is the rock for retirement people by far.
Your #2 Risk view is opposite of my view. I don't believe I will ever change my pattern on AA. I will stay at the 80% range in equities for my life till death. I always have done the unorthodox way compared to all most every degree of what you should do though.
Lorenzo
Thinks s/he gets paid by the post
I think my former FA was Boglehead-ish. He left me with a 3 or 4-fund portfolio, apparently believed the tech-heavy S&P 500 was not diversified enough and so had me in even broader equity index funds, and his approach to the topic of retirement was "work as long as you can." I had only vague familiarity with the name Jack Bogle, and if I had known my FA was basically just following a well-known philosophy and that there was a discussion forum based around it I would have fired that FA 20 years ago instead of 2 years ago.
Similar threads
- stephenson
- Travel Information
- Replies: 13
- Views: 2K
- JohnnyPHX
- Other topics
- Replies: 32
- Views: 3K
