Anyone doing a three fund portfolio?

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Forums › Finance and wealth management › Anyone doing a three fund portfolio?

CokemonZ

1051 posts

Uber Geek

#311856 21-Feb-2024 11:46

I'm looking at doing this through Investnow.

Three-fund portfolio - Bogleheads

Essentially invest in the total us market (or nz I guess if you're nuts), total international and total bond.

I'd look at doing:

Foundation Series US 500 Fund (~45%) - There doesn't seem to be an obvious total US market one.

Foundation Series Total World Fund (~35%)

And I guess this: Smartshares Global Bond ETF (~20%)

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396 posts

Ultimate Geek

#3198246 21-Feb-2024 12:19

1. What is the overlap between fund 1 & 2 and are you OK with that?

2. If interest rates reduce in 2024 as predicted, what will this do to your fund 3?

common sense is not very common

CokemonZ

1051 posts

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#3198296 21-Feb-2024 12:38

1 is a good catch: 65% invested in US equities.

Glad I came to the forums first.

The bond part of the three fund strategy is to be counter cyclical - interest rates rise, sharemarket growth slows or stops (normally) bonds do well.

eracode

Smpl Mnmlst
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#3198316 21-Feb-2024 13:01

Without having heard of any of the entities you mention, many years ago I set up exactly the same sort of three-fund investment portfolios for me and Mrs Code - except ours are all equities. I used similar weightings to you, did it through Sharesies and invested in:

- iShares ETF that tracks the US S&P500 index

- iShares ETF that tracks the MSCI world market (excluding N America) index

- NZX Smartshares NZ Top 50 ETF

Works really well and depending on the amount invested, Sharesies can look after the US and NZ tax for you. Just be aware that if you get to a total investment in foreign currency of NZ$50,000 (cost price, per person) you will come under different tax rules with IRD and Sharesies cannot look after the tax for you then. Your portfolio service may well be the same.

Sometimes I just sit and think. Other times I just sit.

CokemonZ

1051 posts

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#3198318 21-Feb-2024 13:06

So - rethinking......

Just do the total world fund,

maybe 10 - 15% in the NZ one: Smartshares S&P/NZX 50 ETF

And keep a small portion ~5% in a term deposit/90 day rolling PIE account.

International bond funds seem to be pretty bad in NZ.

SumnerBoy

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#3198320 21-Feb-2024 13:08

I am looking at doing something similar. I have a chunk in SmartShares NZ ETFs (which haven't performed very well in recent times) but am struggling to justify why I should hold these, when the NZX is such a small part of the global market. I think it is down to local bias, which is not a good investment strategy!

Those foundation series funds certainly have very attractive fees.

One thing to consider is that the S&P500 is at all-time-highs at the moment. Over the long term this shouldn't be a problem, but there is a chance there will be a (significant?) correction in the near term, so I am holding off moving everything across yet. But then again, it is all crystal ball gazing...

Related question: anyone know the difference between AGG vs GBF (global aggregate bonds vs global bonds)?

CokemonZ

1051 posts

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#3198324 21-Feb-2024 13:14

agreed about the S&P being pretty high. That being said time in the market beats timing the market. Could dollar cost average it over a year or two if you want to.

Me - I'm a set it and forget it kinda guy.

Finding a couple of threads on reddit, international bond funds in nz underperform because they are typically income generating and therefore subject to income/pie tax.

eracode

Smpl Mnmlst
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#3198327 21-Feb-2024 13:17

CokemonZ:

So - rethinking......

Just do the total world fund,

maybe 10 - 15% in the NZ one: Smartshares S&P/NZX 50 ETF

And keep a small portion ~5% in a term deposit/90 day rolling PIE account.

International bond funds seem to be pretty bad in NZ.

Sounds OK. I liked the idea of having about 1/3 exposure to the US equities market because it’s the largest - and 1/3 exposure to rest-of-world markets (MSCI index specifically excludes N America). Then 1/3 to NZ equities via index-tracking ETF (but we also have direct exposure to a small number of NZ shares).

Probably important to mention that all these equity investments total only about 20% of our total investments. The other 80% is in Term Deposits - because we’re retired, have a very conservative risk profile and need the TD income. Younger people can certainly/usually have a much more aggressive profile.

Sometimes I just sit and think. Other times I just sit.

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ascroft

396 posts

Ultimate Geek

#3198330 21-Feb-2024 13:23

Re NZ - Top 50 would include all kinds of cellar dwellers!

I would target specific companies only in NZ.

common sense is not very common

eracode

Smpl Mnmlst
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#3198332 21-Feb-2024 13:34

ascroft:

Re NZ - Top 50 would include all kinds of cellar dwellers!

I would target specific companies only in NZ.

Fair point but I still like the idea of 50. Your approach requires trying to pick winners and many people don’t have that knowledge. NZX Smartshares does have a NZ Top 10 ETF if you want to keep out the riff-raff.

Sometimes I just sit and think. Other times I just sit.

eracode

Smpl Mnmlst
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#3198334 21-Feb-2024 13:45

SumnerBoy:

Snip

One thing to consider is that the S&P500 is at all-time-highs at the moment. Over the long term this shouldn't be a problem, but there is a chance there will be a (significant?) correction in the near term, so I am holding off moving everything across yet. But then again, it is all crystal ball gazing..

There’s an old but true saying: It’s not the timing of markets (i.e. entry and exit) that counts - it’s the time spent in the markets.

Buy and hold - through several business cycles if possible.

(Edit: Sorry @CokemonZ missed your post on the same point).

Sometimes I just sit and think. Other times I just sit.

afe66

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#3198362 21-Feb-2024 14:21

I've got smartshares in top 50 (fonz), mid cap australia, Pacific, and two US ones picked to reduce overlap.

Regular savings plans within Pie structure and dividends just folded back in. The nz and au shares have been going for probably 20yrs and the others since they were offered. Their dividends produces more share units than my regular plans so I am thinking of putting the regular savings into the USA shares as their growth isn't linked as much to dividends.

I am annoyed that link statements just show current value and not like previous versions which showed current and last statement values.

Other than occasionally looking at statements I ignore them.

Handle9

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#3198439 21-Feb-2024 16:46

We have run a 3 fund strategy based on the Australian market for some time. We view Australia as our most likely retirement destination so base our investment location on that.

We are not New Zealand tax residents so have different tax implications to consider. I am considering moving the investment to Ireland domiciled ETFs as they are more tax efficient but then that introduces more currency risk.

50% IWLD
25% VAS
25% VGB

Handle9

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#3198441 21-Feb-2024 16:51

CokemonZ:
agreed about the S&P being pretty high. That being said time in the market beats timing the market. Could dollar cost average it over a year or two if you want to.

Me - I'm a set it and forget it kinda guy.

Finding a couple of threads on reddit, international bond funds in nz underperform because they are typically income generating and therefore subject to income/pie tax.

Yip. We make our monthly buy and ignore the price we pay. We rebalance annually.

The whole point of this strategy is to ride the market over the long term and get compounding benefits, not to pick winners over a couple of years.

Edit: the other key feature of the strategy is to invest in low fee index funds so your returns are not converted into new luxury cars for your fund manager.

Handle9

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#3198442 21-Feb-2024 16:54

ascroft:
Re NZ - Top 50 would include all kinds of cellar dwellers!

I would target specific companies only in NZ.

Then you are not following a boglehead strategy and you are actively managing your portfolio. It’s a valid strategy but probably won’t perform as well over the long term unless you have a lot of time to put into it.

CokemonZ

1051 posts

Uber Geek

#3198445 21-Feb-2024 16:59

So quite an interesting conversation.

I think after a bit more reading, that the plan of 80 - 90 in total world, 10 - 15 in NZ shares, and 5-10 in a pie style bank account seems to be the closest to boglehead I'll get.

Be fun to compare in a couple of years.

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