Now to the four-fund approach. The ticker symbols and names of the funds are:
VBTLX Vanguard Total Bond Market Index Fund (admiral shares)
VTABX Vanguard Total International Bond Index Fund (admiral shares)
VTSAX Vanguard Total Stock Market Index Fund (admiral shares)
VFWAX Vanguard FTSE All-World ex-US Index Fund (admiral shares)
In each case, the shares are of the “admiral” class which provide the same gross returns but with lower fees as “investor class” shares of the same fund. At the time the chapter was written in 2015. the minimum investment for admiral shares in each of the funds was $10,000. However, this has fallen as the funds have attracted more assets. As of this post in 2019, one can obtain admiral shares for any one of these funds for an investment of $3,000 or more.
The first and third funds invest in securities of United States companies, while the second and fourth hold only securities of companies based in other countries. In the mutual fund industry the term “international” generally means “non-U.S.” but I prefer to use the latter term for clarity. Funds that hold securities of U.S. and non-U.S. Companies are generally called “Global” – a convention that I will follow.
A fund's expense ratio indicates the proportion of one's investment that is deducted to cover the expenses of fund management. Is is generally expressed as an annual percent of value. Over the course of potentially many years in retirement such expenses, if high, can significantly effect one's standard of living. Here is a table from chapter 7 of the ebook showing the funds and their expense ratios in 2015:
- U.S.Non-U.S.BondsVBTLX: 0.06% per yearVTABX: 0.14% per yearStocksVTSAX: 0.05% per yearVFWAX: 0.13% per year
And here are the expense ratios today:
- U.S.Non-U.S.BondsVBTLX: 0.05% per yearVTABX: 0.11% per yearStocksVTSAX: 0.04% per yearVFWAX: 0.11% per year
Happily, all the expense ratios have decreased, presumably due to increased assets under management allowing fixed costs to be spread over larger pools of money.
In the ebook I suggested that the world bond/stock fund be proxied by a combination of these four funds, using the relative market values of the underlying securities in each of the four component sectors. But where to find such values? Ideally, for each fund we would find the market capitalization at some recent date of the index being tracked, then adjust the holdings of the four funds so that their relative values would have equaled those of the corresponding indices at that date.
Here are the indices tracked by the funds in 2015:
Barclays U.S. Aggregate Float Adjusted Index
Barclays Global Aggregate ex-USD Float Adjusted Regulated Investment Company Index Currency Hedged
The Center for Research in Security Prices U.S. Total Stock Market Index
FTSE All-World ex U.S. Index
In 2019, the funds tracked were similar, although the name of the indices tracked by VBTLX and VTABX had been changed to reflect their acquisition by Bloomberg. Moreover, small changes had been made in their composition. The current names are:
Bloomberg Barclays U.S. Aggregate Float Adjusted Index
Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).
At the time the book was written, Barclays bond index values were not available to the public at large, so I proposed using capitalization values from relatively similar funds provided by Citibank:
Citibank U.S. Broad Investment Grade Bond Index (USBIG)
Citibank World Investment Grade Bond Index (WorldBIG) minus the value of the USBIG Index.
Fact sheets for the Bloomberg Barclays bond indices are still not publicly available. The Citibank indices are now provided by FTSE, which does make fact sheets with capitalization values available to the general public.
Search for: FTSE USBIG fact sheet
Search for: FTSE WorldBIG fact sheet
Search for: CRSP U.S. market fact sheet
Search for: FTSE all world ex US fact sheet
Once you have index market capitalizations for the end of the most recent quarter you can update the desired values for the four funds using the approach given in the ebook for estimating current market values or, if you have access to the MATLAB language, the program given in chapter 7.
But instead you might want to use the two-fund approach. For this, see the next post.