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Three fund portfolios for taxable accounts

The Taylor Larimore three-fund portfolio is a portfolio design consisting of three “total” market index funds covering the US stock market, the international stock market, and the US taxable investment grade bond market. However, investors with large taxable accounts and

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Portfolio Diversification: REITs and International/Emerging Bonds

Vanguard and others have put a lot of emphasis on bonds diversification using international bonds in recent years, while the Bogleheads community mostly shrugged. This article studies the effect of such diversification through backtesting techniques, looking at both regular International bonds and Emerging Market bonds. We’ll take a close look by studying monthly returns to better analyze the volatility and correlation properties of various portfolios. Then we’ll perform a similar study about diversification of equities with domestic, global or international real estate funds.

Posted in Asset allocation, Bonds, international stocks, Market history, Market statistics, Portfolios, REITS

Investing in the World – Part 3

This article is the third part of a study looking at global and domestic investing from the perspective of local investors.

In Part 1 and Part 2, we took the position of a local investor in one of 16 countries of interest, and we explored somewhat extreme positions of either investing 100% global or 100% domestic. It is now time to try a more balanced view of things, and study portfolios mixing global and domestic investments. We will notably look at the mitigation this could bring to the countries having fared the worst, but also consequences for countries having fared better. Of course, it is easy to look at such numbers in hindsight and draw hasty conclusions, so let’s keep in mind that nobody could have predicted winners and losers ahead of time.

Posted in Asset allocation, international stocks, Investing, Market history, Market statistics, Portfolios

Investing in the World – Part 2

Many North American investors tend to look carefully at historical returns in the US and in Canada, and draw various conclusions. Occasionally, some references are made to Japan and the UK, and few people look any further. The world changes though. The UK was undoubtedly the world economic leader at the end of the 19th Century, while the US clearly dominates nowadays. Japan was on a roll, had a bigger market capitalization than the US in the 80s, and yet badly faltered since then. The world changes in ways we cannot predict, and it would be naive to assume that several decades from now, the situation will be similar to today’s environment. One thing we can do to get some perspective, is to try to draw some analogies with what happened in a larger sample of countries.

This article focuses on the historical returns from 16 developed countries, looking from the perspective of a local investor, and assuming a strong home country bias to begin with (i.e. solely using domestic stocks and domestic bonds). We will look at more diversified portfolios mixing domestic and global investments in Part 3.

Posted in Asset allocation, international stocks, Investing, Market history, Market statistics, Portfolios

Investing in the World – Part 1

True Bogleheads know the power of diversification. And yet, many such investors (including John Bogle himself!) are reluctant to diversify beyond domestic investments. Japanese investors could have perceived the same thing, with a remarkable run in the 80s in terms of market capitalization (nearly half of the world, higher than the US at some point) and in terms of stock returns. Unfortunately for Japan, as discussed in a previous blog article, this impressive success was followed by the worst equity crisis in modern history. This study about Japan also showed how some level of international diversification would have helped a local investor to mitigate this extremely painful crisis.

This raised an interesting question. Could one simply invest in the world, using global stocks and global bonds? And if this proves unsatisfying, is there a proper middle ground between domestic and global allocations?

Posted in Asset allocation, international stocks, Investing, John Bogle, Market history, Market statistics, Portfolios

A short study of the recent Japanese crisis

Based on public data sources providing Japanese stock returns and bond interest rates, this article provides a quantitative analysis of the trajectory a Japanese passive investor could have experienced with his portfolio during the 1980-2016 time period. Japan suffered from what was probably the most severe stock crisis in modern history, starting by the end of 1989, taking nearly two decades to finally somewhat recover, and then being slammed again by the financial crisis of 2008. There is no equivalent in U.S. history of such long lasting crisis, and as such, it is a sobering example of what could happen.

Posted in Asset allocation, international stocks, Market history, Portfolios, Value premium

Harry Browne’s Permanent Portfolio 2016 update

“For the money you need to take care of you for the rest of your life, set up a simple, balanced, diversified portfolio. I call this a “Permanent Portfolio” because once you set it up, you never need to rearrange

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Lazy Portfolios in 2016

The following table lists 2016 total returns for various examples of “lazy portfolios”. Some of the portfolios (Coffeehouse and Coward’s) are designed as  60/40 stock/bond portfolios. Other portfolios (Armstrong Ideal and Swensen) are designed as 70/30 stock/bond portfolios.  The two-fund,

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David Swensen’s portfolio (from Unconventional Success) 2016 Update

David Swensen, investment manager of the Yale University Endowment Fund, has addressed how investors should set up and manage their investments in his book, Unconventional Success: A Fundamental Approach to Personal Investment. The Swensen portfolio consists of six core asset

Posted in Market statistics, Portfolios

Frank Armstrong’s Ideal Index portfolio 2016 update

Frank Armstrong III, investment advisor and author, offers the following seven fund “Ideal Indexed” portfolio in his book, The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio (published December 16, 2003). The portfolio employs a 70% equity

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