The number of independent 30 year periods in the data used for most of these studies you refer to as scientific. For those who might read the blog post above and become interested in the Boglehead website, please be forewarned – the Signal to Noise ratio there is VERY LOW. But having spent more than a decade answering questions like yours, you do get a lot better answers when you take the time to organize the post and spell them out. Avoid expensive stockbrokers and their hidden fees. We’re coming to Florida and might be able to finally take you up on that sailing offer. Example 2: Stocks in Roth; Bonds in Taxable Bonds take the hit in this portfolio and only return 2.01% (since we must reduce the 3% assumed return by the investor’s marginal tax rate of 33% – this is a great example of the tax drag in action). There are different ways to gain access to leverage, all with their own problems. Very few people do because it doesn’t always translate to more returns. After you fill up all your tax-advantaged accounts (Roth IRA, 401k), don’t be afraid to start investing in a taxable account. But if they disagreed, I argued, they should limit their holdings to 20% of their stock portion, given the significant extra risks involved (such as currency risk and sovereign risk). You wrote: “He says hold your age in bonds.” I devoted two pages to “asset allocation” but I was not clear when I wrote, “Your age in bonds is a good starting point.”, I wish I had said: “Your asset allocation depends on 1) Your goals. Even those difficulties paled in comparison to what Taylor must have felt in the dark of night on Monday, June 5th, 1944 high above the French coastline aboard a C-47, much less on Christmas Day in Bastogne later that year while surrounded by Germans. 5 times a taxable account could be beneficial. The problem is actually implementing this strategy. If any of this is new to you, you really need to read this book. 10 Advantages of the Taxable Investment Account 1) Liquidity. Either way, simple is good. It has it’s own unique set of risks. The three fund portfolio has been Taylor’s schtick and it is probably as good as any, still, the fact that it mostly ignores what are probably the two largest asset classes (global real estate and global ex-US bonds) should cause one to at least pause and think about whether this was arrived at with sound principles or is just a convenient construct. If in the 22%-32% bracket, your rate is 15%. Multi-country data prior to the 1970s was basically non-existent. 1. No one knows what tomorrow may bring. I read your post on taxable accounts which suggests using tax efficient index funds for stocks. I agree with that statement. Coincidentally, Fido emailed me yesterday announcing a new total market index fund and a total international index fund with zero expense ratio (FZROX and FZLIX). you don’t need act pretentious about this, let me also be blunt, this is a financial blog ran by an ER doc not an application to Yale, please don’t teach the etiquette of writing. However, this book was worth making an exception for. And finally I read your post about keeping bonds in a taxable account while the POF says bonds should be in the tax sheltered account. So when you sell a mutual fund at a price (NAV) higher than the price you purchased it, you will have a capital gain for which you will owe a tax. Now, let’s look at what the most tax-efficient way might be. NTSX is a 90/60 balanced fund that should be fairly tax efficient because it doesn't do daily resets. The tax benefits of retirement accounts are well known. The book summarizes the most important information on the blog and contains material not found on the site at all. Or is there another post that helps sort this out from the 10,000 foot level? Invest often and stay consistent. At any rate, if you do choose to “tilt” a portfolio, I think it is critical to first understand the base to tilt from first, and this book will teach that. Like I said, I don’t care if you don’t own bonds. The rest is gambling. Buy the book just to say thanks to one of the last of the Greatest Generation. These general rules are contradictory, yet each seems equally logical. I mean, can you really call it “science” when there are only 3 data points? Funny how those “frugal” critics fail to realize just how much higher their expense ratios are than the funds advocated in the book. For someone like me just starting off I wouldn’t want 40% bonds to match my age correct? I also moonlight a fair bit, and am working on developing some passive income. It's recommended that this is implemented in an IRA since it generates a lot of tax drag. Let me be more blunt: Making me look up ticker symbols to answer your question is putting the work you should have done spelling out the fund names on me since I have to then look them up. If not maybe its time to write one . Not the same good thing. My opinion was based on the expectation that the American economy would continue to grow over the long term, and that the market values of U.S. corporations would row faster than the values of non-U.S. corporations. Bonds are supposed to provide a negatively correlated asset, and too often they just provide a less correlated asset, thus nullifying their purpose in the portfolio. If you’re able to afford to do so, there’s a very good chance your taxable income is above $80,000 (if married filing jointly in 2020) or $40,000 (for single filers in 2020). The more complicated the investment gets, the more risk is comes with because the person managing it has to be willing to take the time to manage it and manage it correctly. You were planning to give the money anyway, so no loss there, but you get to donate not only the loss, but also the entire value of the donation. Judging by the forums the elephant in the room isn’t factor investing, it’s % bonds. Look at all the fancy ways to invest that have come and gone in his 94 years! But if you want bonds in your taxable account, some are more tax-efficient than others. 5 times a taxable account could be beneficial An individual taxable account is an investment account offered by a brokerage. The taxable account is not your enemy. NTSX is pretty new but looking at a backtest, NTSX had higher overall returns this year. - The WCI Online Course, The Physician Philosopher's Guide to Personal Finance - A Review, Practical Investing Advice for Doctors: The Pareto Principle. This podcast is hosted by Rick Ferri, and is sponsored by the John C. Bogle Center for Financial Literacy. Total Bond (VBTLX) 14% I haven’t read the book myself, but the one big draw back of the three-fund portfolio is that many companies/hospitals, including my own, do not have these three funds available in their 401K/403B. If you didn’t lose money in any of those time periods, I’d counsel you to take a bit less risk until you hit your first bear market. Other reasons people buy bonds that real estate does not necessarily provide include: Liquidity Thoughts? VBTLX =10% The book on Lifecycle Investing suggests using deep ITM LEAPs on SPY. But don’t pretend real estate (or stocks) are bonds. However, to make this argument is to not fully understand the methodology that went into the research, or the dependability of the results. You have to ask yourself if you truly have the skills to manage them. Press J to jump to the feed. If less, that happens every time there hasn’t been a bear market for a while, it’s nothing new. Skepticism is fine, and I agree any true scholar should have skepticism, but it is the outright dismissal of the research that I find rather unwarranted. After you fill up all your tax-advantaged accounts (Roth IRA, 401k), don’t be afraid to start investing in a taxable account. I still have some TSM in tax protected too, but at the rate my taxable account is growing, that’ll have to be swapped for some of the other stuff. Click to learn more! It's not quite If You Can, but it's short enough that just about anyone can get through it. I’ve read some articles in some magazines geared towards advisors that recommend that as an alternative to the bond portion. But as rates rise, bonds in tax-protected makes more and more sense. It’s considered good form online to spell out the names of funds so readers don’t have to look them up. VTIAX = Vanguard Total International Stock Market Fund we know AA determines 90% and more of your long term results I want to open a taxable account to invest this money, what funds or ETFs should I be investing in? If you think the signal to noise ratio is low at Bogleheads, you should check out some of the other places online where people discuss investing. (Note that there are any number of single funds at Vanguard or elsewhere which could serve the same purpose, but with more than just the two asset classes). Stocks and stock funds - because they generate lower taxes than taxable bonds and bond funds do. My asset allocation is 70/30 US/international. Then quarterly after dividends are paid out, you can manually re-invest your accumulated dividends into whichever fund fund brings you closer to your desired allocation. But if you held the investment for at least a year, you get a reduced tax rate on them. Future 529 plan recipients. Seriously though, like with anything, take what you find valuable from the writings of others and leave the rest. save. I even conceded to you above that one could certainly make a credible argument for buying the total market and all the factors that come with it. Investing in a 529 Plan vs Taxable Account. Depends on where rates go. The Bogleheads' Guide to Investing warns against investing in bonds in taxable accounts. I max the 401K and profit sharing. But for those looking to maximize their total return over a long period of time, it is worth it to read, and understand the academic research for why factor investing is a superior portfolio construction methodology. Not only does he tell you which three mutual funds to use, but he tells you how much to put in each of them. You can get at the money anytime you choose and spend it on anything you want, with no restrictions. I think the concept makes sense mathematically: by using leverage, you can smooth out your equity exposure over your life to gain temporal diversification. He says this about it: “Index funds are designed simply to assure you that you will earn your fair share of the returns delivered in each segment of The Three Fund Portfolio or any other indexing strategy that meets your needs.”. Fees are going to be the number one detriment to long term investing success. I believe Mr. Bogle says you can count the value of your Social Security as part of the Bond portion, so the allocation would be less than your age. VINEX = Vanguard International Explorer Fund. I do have great respect for Taylor who has been unbelievably generous with his time and wisdom. Because you are guessing just like everyone else. – Total Bond Market fund 20%, FTBFX. Read this scary story if you dare. Again, if you are in the 10% or 15% bracket, your rate is 0%.” share. The second was just a hint of gloating. Interest from municipal bonds is tax-free at federal, state, and local levels. You are looking at your entire portfolio as one big account, right? Instant 5% return = $500. The Bogleheads forum and wiki promote and teach investors how to use low-cost passive investing and tax-deferred or tax-advantaged accounts to prepare for their retirements. I’m a “high income earner” (Over 500K). The 3 fund portfolio is for those who don’t need to ultra tune their portfolio. Recent research shows that 100% stocks is safer than 50/50 bonds/stocks. The first was that he doesn't exactly endorse the three fund portfolio. So, the “keep it simple” index investing philosophy may look a little different for those of us in this situation, in which case the Bernstein No-Brainer portfolio seems to work quite well (25% small cap index, 25% large cap index, 25% european/internationa index, and 25% bonds). https://www.whitecoatinvestor.com/my-two-asset-location-pet-peeves/. But sure, change the goal posts and the rules and you’ll have a different winner. What I would simply say is that we should be asking the question about whether there is evidence that deviating from the market portfolio could lead to better long term investment returns.