early retirement for doctors[Editor's Comment: Today we have a republished post from Physician on FIRE, a member of The White Coat Investor Network. This post is all about a good friend of mine, Battle of Bastogne Vet Taylor Larimore. He's in his mid-90s and provides a lifeline of wisdom in the foundering seas of what constitutes investment information these days. His book on the three fund portfolio will be out soon. Many of his reading selections are also found on my list of best financial books for doctors and I recommend everyone read at least one financial book a year. The original post ran here, but if you missed it the first time, it’s new to you! ]

I was browsing the Bogleheads forum recently, when an “old” post from 2014 was brought to the top of the page by a new comment. The thread was started by Taylor Larimore, revered Boglehead Emeritus. In the post, Mr. Larimore states, “Nearly everything I know about investing I learned from experience (the hard way) and reading books.”

He goes on to list the investing books he has read. Mr. Larimore has read more investing books than I have read Dr. Seuss, Eric Carle, and Little Golden Books combined. Color me impressed.

What’s even more impressive than the number of pages he has digested is the fact that after reading a veritable library of investing books, his investing philosophy is incredibly simple. He is a staunch believer in the decidedly uncomplicated Three Fund Portfolio.

Who is Taylor Larimore?

Mr. Larimore is a 93-year old gentleman who may be best known for co-authoring the two published Bogleheads books, The Bogleheads’ Guide to Investing and The Bogleheads’ Guide to Retirement Planning. He is very active on the forum, with 26,684 posts and counting.

In addition to being a prolific reader and writer, Mr. Larimore is also a military hero. He was a paratrooper in the 101st Airborne Division who fought in Bastogne, Belgium in World War II’s famed Battle of the Bulge. He later helped capture Berchestgarden, the home of Adolf Hitler’s mountain retreat, and eventually marched in the Victory Parade on New York City’s Fifth Avenue.

Professionally, he worked as an insurance underwriter, IRS revenue officer, and held positions in the Small Business Administration and Housing Finance Authority in south Florida. Living near the water, he is an accomplished sailor and has been named the American Sailing Association’s “Instructor of the Year.”

I gawked at the lengthy list of books he has read, and marveled at the fact that all that information could be distilled into such a simple recommendation. I knew I wanted to write about it, but I wasn’t about to copy and paste his extensive list without permission.

One of the wonderful things about a community like the Bogleheads is that everyone who frequents the site is easily accessible. I sent Mr. Larimore a message introducing myself. I told him I had an idea for a post and I’d love to borrow his list. He replied within a matter of hours.

Not only did he kindly agree to allow me to use his list of books for this post, he also visited this site, and gave me the following endorsement and the permission to publish it here.
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“I found your website to be interesting, informative, and filled with solid investment advice. I especially enjoy reading your “Sunday Best” articles.” -Taylor Larimore

Thank you, kind sir!

What is the Three Fund Portfolio?

The three fund portfolio is a simple portfolio of three passive index mutual funds.

  • a total US stock market fund
  • a total international stock market fund
  • a total bond fund

That’s it. Mr. Larimore has done the hard work, so you don’t have to. I’m not saying you shouldn’t read any of the books that he has read, or any that I might recommend, but you can do a lot worse than buying and holding three funds.

How do you set up a Three Fund Portfolio?

It’s simple but you do have a few decisions to make. You need to decide on a fund family or do your best to replicate the three fund portfolio based on the funds available in your retirement accounts. Vanguard is an obvious choice (although no longer the lowest cost), but the Bogleheads wiki gives you options to create a three fund portfolio with nine other fund families, using mutual funds or exchange traded funds (ETFs).You also need to decide on an asset allocation in terms of percentages. These will be based on your age, risk tolerance, and feelings towards international equities. Allocating one third of your portfolio to each of the three funds is one way, but you can set it up any way you want. For example, you could have 50% US total stock market, 30% total international stock market, and 20% total bond market, or any variation as long as the total is 100%.

What are some alternatives to the Three Fund Portfolio?

Some investors will add an asset class and set up a four fund portfolio. REIT (real estate investment trust) is a popular fourth asset class, and one that I hold in my portfolio.

There are a number of additional “lazy portfolios” detailed in the Bogleheads wiki, which are variations of the three fund portfolio, sharing the common theme of investing in passive index funds holding many stocks and bonds. Some hold two funds, others have as many as nine.

What books has Mr. Larimore read?

This list is a couple years old already, and he has undoubtedly read more in the interim. Nevertheless, he steadfastly stands by his recommendation for a three fund portfolio.

It was a lot of work to link all those books. I can’t imagine how long it would take to read all those books. Based on the dates of some of them, I can say that the answer in Mr. Larimore’s case is several decades.

I may have many decades of retirement ahead of me, but right now, I don’t have the time to read dozens of books, let alone hundreds. I will gladly take the advice of a well-respected and well-read individual, and keep my portfolio simple.

Do I have a Three Fund Portfolio?

Not exactly. I have chosen to add REIT as an asset class for diversification, and my US stock allocation has a bit of a tilt to small and value stocks. Also, my funds are held in different account types, and holding identical funds in the taxable and tax-advantaged accounts could interfere with my ability to tax loss harvest without triggering a wash sale.

That being said, my portfolio is rather simple compared to most, and will likely become simpler when I graduate from my medical career and begin the early retirement phase of my life.

For further reading on the three fund portfolio, check these out:

What’s your opinion of a three fund portfolio, or similar “lazy” portfolio? Do you like the simplicity, or do you see pitfalls? Let us know your thoughts below.