Diversification, Asset Allocation, and Rebalancing

Let’s try it on the three-fund portfolio.

John Rekenthaler 20 September, 2018 | 11:08
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Speaking Hypothetically
How would investors have fared had they implemented the three-fund portfolio 20 years ago?

Easy to answer, particularly with Morningstar Direct’s handy-dandy hypotheticals tool. But, without context, not very instructive. Comparisons make the statistics relevant. Which investment decisions were favorable, and which were not? Can we draw lessons from the experience?

More Than One
The starting point is diversification. Taylor Larimore's recommended portfolio holds three Vanguard index funds: Vanguard Total Stock Market Index (VTSAX; available in the U.S.), Vanguard Total International Stock Index (VTIAX; available in the U.S.), and Vanguard Total Bond Market Index (VBTLX; available in the U.S.). What were the results for each fund, and how do they compare with those of the collective? The answer will provide specifics for the general praise that is given to diversification.

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About Author

John Rekenthaler  is vice president of research for Morningstar.

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