Core Four portfolios- 2017 update

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

The 2017 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 19.50% 15.41% 11.32% 7.23%
Rick Ferri 17.76% 14.18% 10.61% 7.03%

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 3600 stocks,
    2. Vanguard Total International Stock Index Fund, holding approximately 6200 stocks,
    3. Vanguard Total Bond Market Index Fund, holding approximately 8400 bonds,
    4. Vanguard Total International Bond Index Fund, holding approximately 4600 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 0.14% 0.04% 0.04%
Total International Stock 0.17% 0.11% 0.11%
Total Bond 0.15% 0.05% 0.05%
Total International Bond 0.13% 0.11% 0.11%
Historical returns

The portfolio has a four-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.

Vanguard Four Fund portfolio returns

 

Portfolio 80/20 60/40 40/60 20/80
2017 19.50% 15.41% 11.32% 7.23%
2016 8.13% 6.89% 5.64% 4.40%
2015 -1.15% -0.74% -0.32% 0.10%
2014 6.04% 6.13% 6.31% 6.50%
Compound returns

The table below provides 3-year compound returns and volatility statistics for the Vanguard core four allocation.

Portfolio 80/20 60/40 40/60 20/80
CAGR 8.50% 6.99% 5.44% 3.87%
STdev 10.35% 8.08% 8.82% 3.59%
Sharpe ratio 0.82 0.85 0.89 0.99

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):

About

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

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January 2018
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