Bogleheads Four Funds Portfolio: ETF allocation and returns (2024)

FAQs

Bogleheads Four Funds Portfolio: ETF allocation and returns? ›

It is suitable for investors with a high risk tolerance who are seeking substantial returns and can withstand large drawdowns. It's exposed for 80% on the Stock Market. In the last 30 Years, the Bogleheads Four Funds Portfolio obtained a 8.05% compound annual return, with a 12.46% standard deviation.

"You can get broad-based diversification with one ETF, commonly referred to as diversified ETFs, or you can build a portfolio of five to 10 ETFs that would offer good diversification," he says. The choice you make on the above depends on your investment goals and risk appetite, like any investment.

The common rule of asset allocation by age is that you should hold a percentage of stocks that is equal to 100 minus your age. So if you're 40, you should hold 60% of your portfolio in stocks. Since life expectancy is growing, changing that rule to 110 minus your age or 120 minus your age may be more appropriate.

The Four Fund Combo is built on four index funds (or exchange-traded funds) that include the most basic U.S. equity asset classes: large-cap blend stocks (the S&P 500 SPX, +0.27%, in other words), large-cap value stocks, small-cap blend stocks, and small-cap value stocks.

Fixed income

Over the long term, high-quality bond funds have tended to offer better diversification against stock volatility and higher yield potential than cash. While replacing bonds with cash may work in the short term, investors need to consider more than just yield if they want to design an all-weather portfolio.

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification. But the number of ETFs is not what you should be looking at.

Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.

The 120-age investment rule states that a healthy investing approach means subtracting your age from 120 and using the result as the percentage of your investment dollars in stocks and other equity investments.

At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).

As you reach your 50s, consider allocating 60% of your portfolio to stocks and 40% to bonds. Adjust those numbers according to your risk tolerance. If risk makes you nervous, decrease the stock percentage and increase the bond percentage.

What is a lazy portfolio? ›

A Lazy Portfolio is a collection of investments that requires very little maintenance. It's the typical passive investing strategy, for long-term investors, with time horizons of more than 10 years. Choose your investment style (Classic or Alternative?), pick your Lazy Portfolios and implement them with ETFs.

The Bogleheads Four Funds Portfolio can be implemented with 4 ETFs. This portfolio has a very high risk, meaning it can experience significant fluctuations in value. It is suitable for investors with a high risk tolerance who are seeking substantial returns and can withstand large drawdowns.

These are People, Philosophy, Process, and Performance. When evaluating a wealth manager, these are the key areas to think about. The 4P's can be dissected further, but for the purpose of this introduction, we'll focus on these high-level categories.

Build a fully diversified portfolio with just 4 ETFs

This level of diversification can help reduce your overall investment risk while making it easier to manage your portfolio.

The ideal scenario is to have a mix of investments across different asset classes such as stocks, bonds and commodities that each display different risk and return characteristics with little correlation to each other.

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.

SPY, VOO and IVV are among the most popular S&P 500 ETFs. These three S&P 500 ETFs are quite similar, but may sometimes diverge in terms of costs or daily returns. Investors generally only need one S&P 500 ETF.

Under the Investment Company Act, private investment funds (e.g. hedge funds) are generally prohibited from acquiring more than 3% of an ETF's shares (the 3% Limit).