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Comment by lukewrites | Hacker News Reader

Hold a two- (or three-) fund portfolio of low cost index funds; invest in it regularly and stay the course. It's OK to invest in individual stocks, but do it for fun, not as (or with) your retirement savings.

I like Bogle's "Little Book of Common Sense Investing"[0] a little more than the Bogleheads Guide, but they're both good :)

[0] https://www.powells.com/book/-9781119404507

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^ This! Also, the most valuable part of investing is asset allocation, i.e. how you split your money up between stocks and bonds (and optionally real estate). Take your age, and put that percentage of your money into bonds (if you're 30, put 30% of your money in bonds). Bonds are safer and you want to conserve your money as you age. Make sure the bond maturity dates aren't later than you're going to need them. Reallocate your assets every 18 months so that your diversification continues to match your age. Read fund prospectuses to learn about the fees and expenses they incur -- this is boring, but the lower the fees and expenses the better your portfolio will perform.

Regarding "your age in bonds", it's worth noting that Vanguard's all-in-one retirement funds don't follow this advice at all. For example, the Target Retirement 2050 fund has 10% bonds [1], while I would expect most people buying this fund to be 30+.

[1] https://investor.vanguard.com/mutual-funds/profile/VFIFX

I'd suggest ramping up bonds shortly before retirement (and then ramping them back down again afterwards, which the vanguard funds do not do -- mostly because they cannot tell if you have actually retired on your target date).[1]

[1]: https://earlyretirementnow.com/2017/09/13/the-ultimate-guide...

There's the "100 minus your age rule", the "110 minus your age" rule... Linear, simple, all easy to remember — not necessarily "tuned".

Unless you are borrowing at the risk free rate (levering your bonds), I don’t think this is the best advice, unless you are open to holding junk bonds. Your Sharpe ratio is largely irrelevant [(returns - risk free rate) / std dev]. What you want is to optimize your Sortino ratio [loss / std dev]. Or, put another way, it’s more preferable that you make 100% returns one year, and lose 25% the next than to make 25% each year.

The bonds are going to really drag on your returns and since bonds don’t seem correlated with equities anymore, they might not even be an equity hedge. Risk parity portfolios are designed to solve this problem through leverage.

I just back tested this to 2012. If you put $10,000 in in 2012, and just invested in the S&P500, you'd have $23,046. If you just did VTI (Vanguard Total Stock Market), you'd have $22,754. If you do 60% domestic and 40% international (VTI and VXUS) you'd have $19,325. If you did the recommended 3 stock portfolio (VTI 42%, VXUS 18%, and BND 40%) you'd have $16,668.

So while they all made money, the three portfolio made the least money. Unfortunately the Vanguard ETFs don't go back before the last recession, otherwise it would be interesting to see how the numbers invert.

The last few years are an outlier -- the US had a historic bull run and international stocks underperformed significantly. The point of the 3-fund is that it's a solid strategy no matter what the market looks like.

Yeah if I can find the data I'd back test further, but I suspect you'd be right.

https://www.portfoliovisualizer.com/backtest-asset-class-all...

You can backtest it there. BTW 100% stock will likely beat the stock+fund, but at the cost of higher volatility (which can be an issue if you need the money eg during retirement)

I really like this site for backtesting different mixes: https://portfoliocharts.com/portfolios/

A big part of that is that the average punter knows nothing, and that approach is likely to avoid losses.

When people go all VTI, they tend to freak out when the market goes down, sell near the bottom and forget about it, only to buy it again after the value goes up.

You are giving the average punter too much credit. If they could time the bottom like that, you could harness them to beat the markets.

It's easy to pick in retrospect but the 3 fund portfolio also carried less risk and will probably win in the longer term. Which one wins over the past 3 months? :)

Saying a portfolio allocation of 100% stocks 0% bonds outperformed 60/40 during the longest bull run in history is shortsighted. Here's a more thorough analysis - https://finpage.blog/2017/01/04/three-fund-portfolio-2016-up...

It's interesting that the 20y compound return are pretty close. I don't understand the STDev value in the tables, and it is not explained. Is that the the standard deviation of the annual returns?

Seven years is a short window in the span of a lifetime.

Google "VTSAX". I originally had 3 funds but now holding just one - VTSAX. But of course, that will change as I get closer to retirement (still far :-))

The 3 fund portfolio is better, which also includes international stocks and bonds. https://www.bogleheads.org/wiki/Three-fund_portfolio#Vanguar...

Maybe, depending on the definition of better. The single VTSAX fund has substantially outperformed the three-fund mix.

In my case, I believe we're in a rising rate environment, therefore I'd rather not hold bonds; I'm realistically investing for my kids' consumption rather than our own (we have the basics well-covered already); VTSAX holds companies that have substantial outside the US exposure and most of my future expenses are tightly tied to the fortunes of the US economy.

If your timeline is > 35 years, you're in the US, and intending to stay in the US, I could argue that pure VTSAX is better. Any of them are better than a "professional" financial advisor, IMO.

Not so far. VTSAX and VTI are basically the same thing.

If you put $10,000 in in 2012, and just invested in the S&P500, you'd have $23,046. If you just did VTI (Vanguard Total Stock Market), you'd have $22,754 (and VTSAX would be $22,731). If you did the recommended 3 stock portfolio (VTI 42%, VXUS 18%, and BND 40%) you'd have $16,668.

So while they all made money, the three stock portfolio made the least money. Unfortunately the Vanguard ETFs don't go back before the last recession, otherwise it would be interesting to see how the numbers invert, or if they do.

It has one of the LOWEST fees and has great returns I put my full 401k into VTSAX, as I have other diversified savings elsewhere.

My 401K is on a different fund only because VTSAX is not one of the options (but it's on an index fund tracking S&P 500). My IRA is fully on VTSAX. If I have an option, I'll put all my investments on VTSAX - I'm rooting for the US economy!

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