(audience applauding) - Okay everyone, we have to stay on track, so let's go ahead and get started. Before we get into Dr. Jim Dolley's session though, just want to mention that all of the slides that you're seeing today, and really any slides that you'll see during the course of this conference, will be available on the Bogle Center's website.

The URL is boglecenter.net, and so you'll just go to the conference page, go to the agenda, and you'll see a spot to download the slides. So no need to feverishly take notes, we got you covered with the presentations. And we see that we've got a lot of questions coming in, which is fabulous.

So Dr. Jim Dolley has been leading the sessions next door. Jim has been absolutely fabulous to us at Bogleheads. He's been such a wonderful member of our community for so many years. I think he's one of the most prolific posters on bogleheads.org. And he has his own empire over at White Coat Investor, which is a website, podcast, book series, conference, geared toward healthcare professionals.

So Jim has written several books under the White Coat Investor name. He's got the White Coat Investor podcast. He runs a fabulous conference every year, and I will say that we have gotten a little bit of a twofer with Jim, which is that Jim's wife Katie helps put on their amazing conference, and Katie has been here every step of the way helping us make this conference run smoothly.

So we are so grateful to them for being part of our Bogleheads community. Jim is going to talk about asset allocation. He's going to expand on what I talked about in my session, but he'll share some specific examples. Please join me in welcoming Jim Dolley. (audience applauding) - All right, it's great to be with you.

I'm sorry, I've missed all the other sessions in here. (audience member speaking faintly) Okay, all right, so Christine's talk dealt with a lot of theory and a lot of how-tos on your asset allocation. In this talk, we're gonna try to get a little bit more into the nuts and bolts, which means I gotta actually share opinions, and bear in mind that my opinions are not gospel.

Some other people's opinions disagree with my opinions, and that's okay, but I think it's helpful to hear opinions. And so we'll be going over a bunch of portfolios as part of this and talking about my opinions. All right, before we get into that, a few disclosures and disclaimers. I am not a financial advisor.

I'm not an accountant, I'm not an attorney. I'm not licensed to do anything in this state. So this is all for entertainment and information only. I do have a conflict of interest. I own a company called the White Coat Investor. I have dozens or hundreds of advertisers there with whom I have financial conflicts of interest.

I'm not gonna mention any of those. The only company I'm gonna mention today is Vanguard, and I'm still trying to talk them into advertising with me. So even there, I have no conflict of interest. We're gonna talk about these three things. We're gonna talk about some principles to consider when building your portfolio, and then we're gonna go through a long list of portfolios that I consider reasonable, and then through a list of portfolios that are extreme and not reasonable.

And I think this is a helpful exercise for people who haven't done this before. Okay, this is me sleeping on the side of Half Dome a month ago. After climbing for 24 hours, I managed to get 45 minutes of sleep there before continuing the climb. If I look like I'm hallucinating, I probably am, but that is not reasonable, okay?

Like many of the portfolios we'll discuss today. All right. Your goal is to avoid extreme portfolios. You know, extreme sports might be fun. Extreme portfolios are not. You want a portfolio that's likely to do well in a wide range of potential future economic scenarios. You cannot know the perfect portfolio in advance.

You cannot know it. Quit trying to find it. The efficient frontier is defined retrospectively. You want to find a good enough portfolio and then stick with it. That is what you want, a good enough portfolio. This would be static, meaning it has set percentages that you can regularly rebalance to.

It's broadly diversified and has low costs, okay? So instead of trying to come up with the most reasonable portfolio, you can just pick one. That's okay. If you'll stick with it, it'll be fine. Every asset class in it will have its day in the sun. A reasonable portfolio, okay?

If there is a slide to remember, if there's a slide to take a picture of, it's this one, okay? We'll have at least 50% of the assets in it in stocks, bonds, and real estate, okay? Not wacky stuff, okay? Stocks, bonds, real estate should be the majority of your portfolio.

25% or more needs to be in risky assets. If not, it's unlikely to keep up with inflation. It's unlikely to reach your goals. It turns out if you only invest in safe stuff, you gotta save a lot of money, like 50% of your gross income for 30 years in order to retire comfortably.

It's a lot. You want to have 20% or less, 0% is fine, in speculative investments. You want to have at least 20 individual securities. I mean, if you buy total stock market index, you're getting 4,000 securities in 30 seconds. Have at least 20 in your portfolio, please. And no individual security or property, if you're a real estate investor, should really be more than 5% of your portfolio.

You want to have at least three asset classes as well as a general rule. Okay, what really matters in investing? If you want to get rich, if you want to be financially independent, if you want to reach your financial goals, if you want to be comfortable in retirement, here's what matters.

Fund it adequately. It's less important what's in the account than how much you put in the account. That's what really matters. The younger you are, the more it matters. Your savings rate matters. After that, a reasonable portfolio and sticking with it. All right, here is my son and my wife who gave you all your badges down there on the Grand Teton in August.

Again, not something that's reasonable to do, but a lot of fun. They're gonna teach us a little bit about reasonable portfolios. Okay, here's the first reasonable portfolio I'll throw up there. Putting all your money into the S&P 500 Index Fund, or putting it all into the Total Stock Market Index Fund.

The pros of that portfolio are that it's very, very simple. You only gotta remember one thing, and that fund is gonna be available in every retirement account you have. There's hundreds or thousands even of individual securities. It's got a great track record. It's very easy to know your performance.

It's put on the TV every night. The downside, it's not so diversified. It's really only one asset class, large U.S. stocks. It's only one country, and there's no factor investing. And if you end up with a lost decade, like the 2000s, you may not be super happy with your returns.

Next one, this one's very popular on the Bogleheads Forum. This is what we call the three-fund portfolio. It's money in the Total Stock Market Index, the Total International Stock Market Index, and the Total Bond Index. The benefit, well, if you do poorly, you're gonna have a lot of friends that are doing just as poorly.

You'll have a lot of camaraderie. A lot of people love this portfolio. Taylor Laramore may be the most profound advocate for it, but there's plenty of others. You do get three separate asset classes like that. Downsides, there's no tips. There's no international bonds. There's no muni bonds. There's no factors to tilt to.

There's no alternatives in it. It does have downsides, but it's certainly reasonable. Number four, this is the four-fund portfolio, popularized by Rick Ferry, okay? You take the three-fund and you add a REIT fund to it in some sort of percentage. You get an extra asset class for that because real estate is often not, you know, included in publicly traded stocks.

It's maybe a little bit closer to what the real economy is like. Still, there's no tips, no international bonds, no muni bonds, no factors, no alternatives. And it's a pretty decent bet on real estate outperformance. Okay, five, six, and seven, I like these. These are all available at Vanguard.

And they're one-fund solutions. You got the Total World Stock Market Fund, which is basically the US stocks and international stocks. You got the Balanced Index Fund, which is US stocks and US bonds. You've got the Tax Managed Balance Fund, which is the same thing, run a little bit differently to try to decrease the tax hit on you.

The benefits of these are they're very simple. It's one fund, it automatically rebalances. The downside is with each of these, you're really only getting two asset classes. And it might be cheaper to roll your own than to let Vanguard combine them for you. And of course, none of these are really available very commonly in employer retirement plans.

These ones are very popular as well. In fact, you have already heard today, or you will soon hear from a very serious advocate of this investing method. The Life Strategy Funds at Vanguard are very cool. They're basically the three-fund portfolio, except you don't have to remember to buy all three funds.

You only gotta buy one. They will automatically rebalance for you. And you will have the same return if you invest in the Moderate Growth Fund. You'll have the same return as Mike Piper, which is a wonderful thing to have. That's what he invests in. That's his entire portfolio. Downside, not available in all employer plans.

There's no factors, there's no alternatives. It doesn't adjust automatically as you age. And it's probably not that great if you have a significant portion of your assets in a taxable account. Okay, similarly to that, we have the Target Retirement Funds, okay? And there's a whole bunch of them. There's a dozen or more.

They go from 2060 to the Income Fund. And the benefit, you only gotta buy one fund. It automatically rebalances. It automatically becomes less risky as you approach that retirement date. And it's available in lots of retirement accounts. If the Vanguard ones aren't, there's some from several other companies which are almost as good that you can use.

Do not invest in this in a taxable account. You will regret it. Couple of years ago, Vanguard distributed some pretty hefty capital gains to people that they were not expecting, who were invested in these funds in a taxable account. Okay, how about this one? This one is known as the Coffeehouse Portfolio.

And it's got six asset classes, stock asset classes at 10% each, and then it's got 40% of your money in a bond fund. So what's the benefits of that? Well, you're getting tilts now. You're overweighting these factors that are supposed to maybe do better in the long run, small in value.

You've got a relatively low international allocation in it, though, and you've certainly stepped up the complexity compared to those other investing options we talked about. There's still no TIPS or MUNIs or international bonds, and I'm not a real big fan of the 500 index fund over a total stock market fund.

Granted, the differences are trivial, but I figure, hey, why have 500 stocks when you can have 4,000? All right, here's one. This one's actually my portfolio. Okay, it's 25% in the total stock market index, 15% in small cap value, 15% in the total international stock market, 5% in small international, 10% in TIPS, 10% in nominal bonds, 20% in real estate, and it's divided between some public and some private real estate.

So what are the pros of this portfolio? Well, there's some tilts to real estate and to factors, if you believe in that sort of stuff. There's some cons, though. It's a moderately complex portfolio. It's a very complex portfolio if you use private real estate to do it, and it's a pretty big bet on small value, which, if you want to know the truth, since I started investing in 2004, has not paid off.

They're talking about that next door right now. Paul Merriman's advocating for this sort of a portfolio. Rick Ferrier's arguing against it. I still think it's gonna pay off during my investing horizon, but there's no guarantee. Welcome to factor investing. Okay, here's one, and the type just got smaller. I apologize to those of you in the back, but this is what happens when Paul Merriman puts together a portfolio, okay?

This is the ultimate buy-and-hold portfolio. It's 6% into each of 10 different stock asset classes, and then 40% into a bond fund. What's the pros? Well, there's lots of tilts. If you believe in these factors, if you believe they're gonna pay off, you've got 'em, okay? Downside, well, this is pretty highly complex.

It still uses the 500 index over a total stock market, and I think it's really weird to have 10 stock asset classes, 10 funds in the stocks, and one in the bonds. That just seems really odd to me, so. If you're gonna slice and dice, why wouldn't you slice and dice the bonds, too?

I don't know. All right, this one here comes from one of Bill Bernstein's books. This is the Sheltered Sam 60/40 portfolio, and you can see it's got all kinds of different numbers up there. It's got 12% in the 500 index, 15% in the value index, 3% in the small-cap index, 9% in the small-cap value index, 6% in REITs, 1.8% in precious metals, 3% in each of the Europe, Pacific, and emerging markets sectors of the international stocks, 4.2% in the International Value Fund, and then it's got the bonds split between the short-term corporate bonds, and 16% in TIPS.

See what I mean about how there's a gazillion different ways you can do this? Is this reasonable? Yes. There's lots of tilts in factor investing. Again, if you believe in that and want to do that and want to deal with that complexity in hopes of higher long-term returns, this portfolio has that.

Maybe it captures a bit of a rebalancing bonus by splitting up your total international stock fund into those three components, but you're adding a lot of complexity to get that, and again, it uses the 500 index over TSM. Honestly, I don't know that there's really any point to putting anything in your portfolio.

If you don't believe in it enough to put at least 5% into it, maybe you shouldn't have it at all. It's my thoughts on it. Don't tell Bill, he's in the next room. All right, here's another one. 30% US stocks, 20% international stocks, 10% TIPS, 10% US, 10% international, 10% real estate, 5% in gold, and 5% in Bitcoin.

What are the pros? Well, if you want to have a little bit of your money and some speculative assets, this portfolio has that, and yet it doesn't bet the farm on them, so I'm okay with that sort of portfolio. I think that's reasonable. Downsides? It doesn't happen to have any factor investing.

All right. Okay, this is the Pit of Despair. It's found in southern Utah, and if you ever find yourself there, may you be prepared to cross and get out of it. It is not a reasonable place to be, but it's incredibly beautiful. Okay, here's unreasonable portfolio number one. 1/3 in vacant land, 1/3 in gold, 1/3 in fine art.

Okay, what's the problem here? Well, I can't really think of any pros. Outside of a very apocalyptic worldview, I don't know why anybody would hold this portfolio. It's 100% speculative. You're getting no earnings, dividends, interest, rents. Nothing is coming out of this portfolio, other than you're hoping somebody else will pay you more for the assets than you paid for them.

Okay, here's another one, and this one seems very specific, I admit, and that's because somebody actually emailed me in and asked what I thought about this portfolio. 1% in gold mining stocks, using an actively managed mutual fund with an expense ratio of 1.5%, 44% in gold, bullion in this case, and 55% in treasury bills.

Well, this one might do okay in a massive downturn, but it's gonna have low volatility with all that money in cash, but it's unlikely to keep up with inflation. It's extremely speculative. Why in the world would you pay 1.5% for anything, you know? So, not a reasonable portfolio. Okay, this one also somebody sent in to me.

Okay, 7.5% in commodities, same in gold mining stocks and emerging market stocks. Then they had 15% of the portfolio in something I couldn't even figure out what it was, rare physical assets. Is that Beanie Babies? What is that? 5% was their hobby trading account, which I don't have a problem with.

If it's only 5% of your portfolio in something weird, that's okay. 5% in tips and then 52% in money market. Well, you know, the perma bears are every now and then they're right. But for most of the time, you don't wanna be investing in this sort of weird stuff.

It's unlikely to keep up with inflation. It's very speculative. And frankly, 100% of your stocks are in emerging markets? Really? That seems like an incredible bet on emerging markets. So, not a reasonable portfolio. How about this one? Apple, Bitcoin, cash, and your brother-in-law's small business. I guess it could be worse.

Maybe it's all in your brother-in-law's small business. But this portfolio takes on uncompensated risk. It's got way too much speculation in crypto. And don't invest significant amounts with your family and friends. You're gonna ruin the relationship. You'll probably lose your money too, but you'll definitely ruin the relationship. Not reasonable.

Okay, how about this one? This is the permanent portfolio. Stocks, cash, gold, long-term bonds, all split 25% apiece. Now, you're probably likely to do better than most portfolios if the Great Depression happens again. I will admit that. But the problem is that there are bets in this portfolio on less likely scenarios.

And the truth about investing is that it should be titled the triumph of the optimists. Because over the long run, the optimists have been very much been right when it comes to investing. And you're taking a lot of your portfolio and saying, I think there's a high chance bad things are gonna happen.

And that's the problem I have with the permanent portfolio. Okay, this one, I meet lots of people that are into real estate investing. Now, I don't have a problem with real estate investing. As you saw, I invest in real estate myself. But I think putting it all in real estate's a mistake.

It's just too easy to invest in the most profitable corporations in the history of the world. In 30 seconds, you can buy them all. And not even think about them ever again. I think it's silly not to have 20 or 25% of your money in stocks, even if you love real estate investing.

It's just one asset class and avoids all those stocks. And of course, there's massive impact on a real estate downturn or interest rate changes. All right, how about this one? 40% in QQQ, 10% in Tesla, 10% in Apple, 20% in the Vanguard large growth stock index, and 20% in cash.

Well, the problem here is this person thinks they're diversified, but each of their holdings is actually owning the same stocks so it's false diversification. And of course, uncompensated risk with the individual companies. Not reasonable. Okay, how about this one? 25% cash, 25% bonds, 25% gold, 25% whole life insurance.

Is it diversified? Sure. Is it gonna have low volatility? Absolutely. What's the problem? The problem is you need to save 50% of your gross income for 30 years to get as much as you need. It's not gonna reach your financial goals. These are all very low returning asset classes.

You're not taking enough risk. Not reasonable. Okay, again, reasonable portfolio characteristics. At least 50% in stocks, bonds, and real estate instead of weird stuff. 25% at least in risky assets. 20% or less in speculative stuff. 20 plus individual securities. No individual security or property more than 5% of the portfolio and at least three asset classes.

What matters? Funded adequately. Reasonable portfolio. Stick with it. That's what matters in investing. Stay the course. I think that's my last slide, yes. Thank you for your attention. (audience applauding) (audience cheering) (audience applauding)