Core Four Portfolios 2015 update

Core four portfolios are simple indexed portfolios that allocate assets across four asset class mutual or exchange-traded funds.

The 2015 performance of the core four portfolio based on Vanguard’s life strategy and target date portfolio allocations, and of Rick Ferri’s core four portfolio are tabulated below. The portfolios assume using investor share funds. Using lower cost admiral shares adds approximately 0.10% added return.

Portfolio 80/20 60/40 40/60 20/80
Vanguard -0.81% -0.47% -0.14% 0.19%
Rick Ferri -0.67% -0.43% -0.19% 0.06%

Vanguard core four portfolios

Starting February 6, 2013, Vanguard began offering investors four fund portfolios, invested in four “total market” index funds through the firm’s series of low cost target date and target risk (called LifeStrategy) balanced index funds. Furthermore, the firm’s on-line portfolio allocation tools now suggest similar four fund allocations.

The Vanguard target date and LifeStrategy portfolios allocate investments across the following asset class index funds:

    1. Vanguard Total Stock Market Index Fund, holding approximately 3700 stocks,
    2. Vanguard Total International Stock Index Fund, holding approximately 6000 stocks,
    3. Vanguard Total Bond Market Index Fund, holding approximately 7800 bonds,
    4. Vanguard Total International Bond Index Fund, holding approximately 4000 bonds.

Vanguard allocates 40% of a portfolio’s stock allocation to international stocks and allocates 30% of a portfolio’s bond allocation to international bonds. The charts below show the portfolio allocations for four stock/bond allocation splits. (Click charts to enlarge).

Expense

The four portfolio constituents have the following expense ratios.

Expense ratios

Fund Investor shares Admiral shares ETF shares
Total Market 0.17% 0.04% 0.04%
Total International Stock 0.19% 0.12% 0.13%
Total Bond 0.18% 0.07% 0.07%
Total International Bond 0.17% 0.14% 0.15%
Historical returns

The portfolio has a two-year performance history. The portfolio returns reflect using investor share funds. Portfolios using lower cost admiral shares have an approximate 0.10% increase in annual performance. Returns will also differ for different international stock and bond allocations.

Portfolio 80/20 60/40 40/60 20/80
2015 -0.81% -0.47% -0.14% 0.19%
2014 6.29% 6.38% 6.48% 6.58%
Rick Ferri Core Four

Investment author and advisor Rick Ferri proposes a four fund portfolio that adds a US equity REIT fund to a portfolio consisting of US stocks, International stocks, and US bonds.The asset allocation menu holds the following positions:

      1. A US total market index fund
      2. An international total market index fund
      3. A US REIT index fund
      4. A US total bond market fund

Rick proposes that investors first determine their bond allocation. With the remaining funds, allocate 60% to US stock, 30% to international and 10% to REITs. For example, this formula would provide the following allocations (click charts to enlarge):

Using Vanguard funds

Rick suggests using these Vanguard index funds/etfs for implementing the Core Four portfolio. Vanguard offers lower cost admiral shares for investors having a minimum fund balance of $10,000.

Core-4 Investor Class share funds are:

Fund Ticker Expense ratio
Vanguard Total Stock Market Index Fund Investor Shares VTSMX 0.15%
Vanguard Total International Stock Index Fund Investor Shares VGTSX 0.19%
Vanguard REIT Index Fund Investor Shares VGSIX 0.25%
Vanguard Total Bond Market Index Fund Investor Shares VBMFX 0.18%

Core-4 Admiral Class share funds are:

Fund Ticker Expense ratio
Vanguard Total Stock Market Index Fund Admiral Shares VTSAX 0.04%
Vanguard Total International Stock Index Fund Admiral Shares VTIAX 0.12%
Vanguard REIT Index Fund Admiral Shares VGSLX 0.11%
Vanguard Total Bond Market Index Fund Admiral Shares VBTLX 0.07%

Core-4 Investor ETF Class share funds are:

Fund Ticker Expense ratio
Vanguard Total Stock Market ETF VTI 0.04%
Vanguard Total International Stock ETF VXUS 0.13%
Vanguard REIT ETF VNQ 0.11%
Vanguard Total Bond Market ETF BND 0.07%
Equity REITS

The rationale for adding equity REITs to a portfolio is quite simply the size of commercial real estate as an asset class in the economy. Advice on investing in real property is as old as the ancient Talmud: “Let every man divide his money into three parts, and invest a third in land, a third in business, and let him keep a third in reserve” and as current as David Swensen, the investment manager for the Yale endowment fund, who advises investors to include commercial real estate in his model portfolio.

If you work in the real estate business, or if you are already directly own and manage real estate rental properties, you may not want or need added exposure to equity real estate.

Historical returns

The following tables provide return data for Rick Ferri’s Core Four portfolio assuming investment in Vanguard investor share index funds. Now past returns are no guarantee of future returns, but the history reveals how each portfolio allocation has performed over both the 2000 -2002 and 2008 bear markets and ensuing recoveries

Rick Ferri Core Four portfolio returns

Year 80/20 60/40 40/60 20/80
2015 -0.67% -0.43% -0.19% 0.06%
2014 8.51% 7.82% 7.14% 6.45%
2013 19.35% 13.95% 8.55% 3.14%
2012 14.37% 11.79% 9.31% 6.63%
2011 -0.84% 1.26% 3.36% 5.46%
2010 14.42% 12.42% 10.42% 8.42%
2009 26.14% 21.09% 16.04% 10.96%
2008 -30.32% -21.46% -12.63% -3.79%
2007 6.43% 6.55% 6.67% 6.80%
2006 17.50% 14.19% 10.88% 7.58%
2005 8.04% 6.63% 5.22% 3.81%
2004 14.32% 11.80% 9.28% 6.76%
2003 28.36% 22.27% 16.17% 10.07%
2002 -11.73% -6.73% -1.73% 3.26%
2001 -7.43% -3.46% 0.50% 4.47%
2000 -4.43% -0.48% 3.48% 7.43%
1999 18.13% 13.41% 8.69% 3.96%
Compound returns

The tables below provide 3-year, 5-year, 10-year, and 15 year compound returns and volatility statistics for each Rick Ferri Core Four allocation.

80/20 allocation

3-year 5-year 10-year 15-year
CAGR 8.76% 10.79% 6.26% 5.87%
STDev 10.02% 8.98% 15.82% 15.48%

60/40 allocation

3-year 5-year 10-year 15-year
CAGR 6.95% 9.26% 6.06% 5.91%
STDev 7.22% 6.32% 11.79% 11.34%

40/60 allocation

3-year 5-year 10-year 15-year
CAGR 5.10% 7.67% 5.46% 5.09%
STDev 4.69% 3.96% 7.73% 7.22%

20/80 allocation

3-year 5-year 10-year 15-year
CAGR 3.18% 6.02% 5.09% 5.32%
STDev 3.20% 2.77% 4.31% 3.83%

Return figures are calculated using Rick Ferri’s Core Four portfolio google drive spreadsheet.

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog

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