For a young investor say in his mid-20s with about $50K to invest, which portfolio construction strategy makes more sense? Assuming emergency funds .etc are covered for already.

Hi there,

You didn’t share what your planned investment horizon is, or what your investment goals are, but generally, my recommendation would be to construct your portfolio such that it best meets your investment goals while keeping within your appetite for risk.

This involves determining your investment objectives and constraints and determining your asset allocation. I’ll share my views on All-Weather and Bogle’s 3 Fund Portfolio below, but in general, you should determine your target asset allocation based on your risk tolerance, time horizon, liquidity needs and investment goals.

The 2 portfolios you mentioned are manifestations of the investment philosophies of 2 of the great gurus in the investment arena of modern times.

(1) Ray Dalio runs one of the largest and most successful hedge funds and his All Weather Portfolio strategy focuses on portfolio diversification along risk lines. Over time, this has been a largely successful investment strategy.

(2) Bogle’s 3 Fund Portfolio is the simplest implementation of the late John Bogle’s Global Market Portfolio utilizing 3 index funds. The focus here is on index (a.k.a. passive) investing at the lowest cost. Implicit in this strategy is somewhere the wisdom of crowds, i.e. the market is efficient and correctly priced.

At Syfe, we use our proprietary Automated Risk-Managed Investments (ARI) methodology - a combination of the two strategies above - which you might find of interest.

Key principles behind the Bogle Model are simplicity, flexibility and low cost.

The original idea for Bogle model is that it invest 40% in the local stock market, 20% in international stock market and 40% in the local bond market. Since Singapore market is way too small for any meaningful returns relative to the US market, a Singaporean's Bogle model could look something like this :

1. Vanguard Total World Stock ETF -- 50% (Equity)
2. iShares Core MSCI China Index ETF -- 20% (Equity)
3. Vanguard Total World Bond ETF -- 30% (Fixed Income)
   The above is 100% passive and total all in cost should come in at less than 15 basis points.

Since you only have 3 portfolios, you can focus on deciding what is your desired asset allocation (Equity vs Fixed Income).

Empirical studies have shown that the bulk of the source of return comes from asset allocation rather than selection of underlying securities, or in this case, index funds/ETFs/mutual funds/UTs.