Gordon Robinson from NC posted over 9 years ago:

I think the Level 3 Passive Portfolio is excellent. Ignores small caps and international but includes real estate. Probably good decisions for the rest of this decade.

Nick Hollingshad from SC posted over 9 years ago:

You state that the portfolio is diversified, but there seems to be a large cap bias. Can you please explain, and if possible provide some numbers?

Jay Nearnberg from NJ posted over 9 years ago:

Great start- would ove to see Emerging Markets and International ETFs in the mix

Ray Robison from VA posted over 9 years ago:

This portfolio appeals to me,especially since I prefer ETF's and am not interested in foreign stocks at this time. I hope this system proves effective in the long run.

Sam Ribani from IL posted over 9 years ago:

The absence of a small cap stock fund in the new Passive Portfolio is very glaring. Can you please clarify why you have excluded small cap asset class?

M Zorn from IL posted over 9 years ago:

May be a title to conservative for me!

Kenneth Seidman from CA posted over 9 years ago:

Based on past performance it isn't at all obvious to me why this portfolio is preferred over VFINX. While its first few years performance was better Table 2 indicates worse performance than VFINX for the last 6.5 years out of the last 7.5 years. In addition, I see no evidence of "tempering of portfolio downturns" The 2008 neg returns were not much different and the low return years 2011 and 2015 were worse for Level3 portfolio vs. VFINX. Volatility, as measured by the 3 year standard deviation is also higher for the Level3 portfolio.

Michael Farrell from CA posted over 9 years ago:

No International. No Emerging Markets. Are you kidding me? Diversified. Not.

William Sanders from WA posted over 9 years ago:

For much lower expense ratios and internal turnover costs, you can get a similar effect of equal-weighting by mixing a large cap capitalization weighted index with a mid-cap index.

John Horan from NJ posted over 9 years ago:

Looking at a 13-year performance record, there is no practical difference between this portfolio and the one Vanguard 500 index fund. Why go through all that work for no extra return?

Jean Henrich from IL posted over 9 years ago:

Kenneth and John, Table 2 with performance over 13 years is reporting on the Model Fund Portfolio, not the new Level3 Passive Portfolio. One-month performance for the Level3 Passive Portfolio is given in Table 3, since it has only been in existence a short time. See Jim Cloonan's book "Investing at Level3" for more detailed explanation on the choices for the new Level3 Passive Portfolio and it expected return over the long term. Thanks for your interest. -Jean Henrich, AAII

John Simore from IL posted over 9 years ago:

For years, money management gurus and educators including AAII have almost unanimously advised us to not chase performance and stay diversified. Yet, by getting rid of under-performing small cap and international stock ETFs and putting all the money in over-performing large cap, midcap and REIT stock ETFs, the new Passive Portfolio seem to be doing just that and embarking on an exercise in disregarding diversification and concentrating in areas with momentum. Mr. Cloonan, do you see the under-performance of small cap and international stocks continuing into the foreseeable future and do you plan to get back into them if the trend changes? The followers of the current all-ETF portfolio deserve some explanation as to why they should sell small cap and international stock ETFs and buy more of the more richly valued large cap, mid cap and REIT stock ETFs.

Wayne Thorp from IL posted over 9 years ago:

Here is a statement from AAII's founder, Jim Cloonan, that addresses several of the questions readers have posed: There have been numerous questions and comments about the changes in the model ETF and mutual fund portfolios. Here is an overview that should answer many of the questions. The next mutual fund “Matter of Opinion” in November will expand further on the rationale. Most importantly the Level3 Passive Portfolio is for investors who wish to be almost completely passive at least for most of their portfolio. It is an alternative for those who would follow the advice that investors should simply buy a fund of the S&P500 cap-weighted index, get the average market return, and not worry about the market. We feel the Level3 Passive Portfolio will provide the same benefits but produce a higher return and less real risk than that approach. We are not abandoning the other ETFs. They are still in the main portfolio although they may be changed through time. A number of comments question the absence of small-cap and foreign stocks. There is, to my mind, a difference between a favored category of stocks and mutual funds investing in that category. I believe in the importance of micro- and small-cap stocks for individual investors. I question the ability of mutual funds to invest in them successfully. The cost of investing significant funds and the difficult behavior during fast markets hinders fund managers and the few funds that manage to overcome these problems stay small and are closed. Over the long run foreign stocks as a group provide lower returns and for the long term investor, I feel there is no significant reduction in real risk. In all active or passive approaches to investing, I have been guided by a very long term perspective. While I may ignore stock behavior during the great depression because I feel there are fundamental changes in the economy and governmental involvement, I like to go back far enough to include the two major collapses of my investing lifetime—1973 and 2008. I hope this helps explains the changes in the fund portfolios. The funds that were in the ETF portfolio are still in the main portfolio and investors should invest in them as they see fit, but the Level3 Passive Portfolio is for investors that don’t wish to be involved on a frequent basis.

Wilton Stiegmann from FL posted over 9 years ago:

Can I take a similar passive ETF index approach with only Vanguard index funds, with similar results, i.e. beat the s&p 500? What are they?

Dave Gilmer from WA posted over 9 years ago:

I do think the new passive portfolio is a positive step in the right direction. That being said I think you should realize the failure of the model portfolio and the money that was lost by anyone who invested in it from about 2004 to the present, and still has their money in there today. As most experts, came to realize, unless you invest in "the market" you will most likely some day become disappointed, as any model fund investor should be right now.

Tony Hausner from MD posted over 9 years ago:

I thought I posted earlier, but trying again. I appreciate this new proposed Level 3 portfolio. I do agree with other comments as to why a small cap fund is not included as it outperforms most of the other funds in level 3. I would have liked to see a 10 year performance profile of the funs in level 3, so I collected my own data. Some of the data is in one of the articles' table. Others I looked up. Fund Weight 10 Year Performance Guggeheim S+P Equal Wt. 40% 8.1 Russell 1000 20% 6.7 Vanguard Mid Cap 20 9.3 Vanguard REIT 20 7.6 Total 8.0 Vanguard 500 7.3 Vanguard Small Cap 9.4 So the total performance of Cloonan's Level 3 over last 10 years is 8.0 which outperforms the S+P 500 by 0.7% which is a worthwhile gain. However, if he added Small Cap, he would improve his performance.

Tony Hausner from MD posted over 9 years ago:

Since the above table maybe hard to read. You can also see it at http://bit.ly/2bn4myF If small cap was added to the Level 3 portfolio, the return would increase to 8.2 or a 2.5% increase.

Ed Lipe from NC posted over 9 years ago:

In the explanation for how the Level3 portfolio was constructed, it stated that S&P 500 equal weighting provides higher returns than cap weighting, that mid-cap stocks historically have higher returns than large caps, that mid-cap value funds have higher returns than both large stocks or mid-cap growth stocks, and that REITs have exceeded the return of the S&P "over the long run". But no details or references are provided to support these claims. Are these claims common knowledge in the investing community? Is there data to substantiate them? Where might I find it? (Preferably data on both returns and volatility, including returns from dividends and appreciation.)

Richard Alger from NY posted over 9 years ago:

The Level 3 approach is definitely appealing on a conceptual level. However, it is very challenging to implement for an investor who has followed a different approach for many years and has accumulated large unrealized gains in his or her taxable portfolio. How can one migrate to a Level 3 portfolio without incurring significant capital gains taxes? Of course, this is always an issue in adopting any major changes to a portfolio. I would appreciate James Cloonan's thoughts on this, and whether he has personally run into this problem with his own portfolio.

Richard Roberts from MI posted over 9 years ago:

When can I expect to receive James cloonan's new bk

Richard Roberts from MI posted over 9 years ago:

I ordered James Clooney's bk 2 mo ago,still haven't got it

Steven Sears from IA posted over 9 years ago:

I have been shopping for a Mid Cap ETF to adapt my portfolio going forward and find this article interesting. I have noticed that in the Mid Caps, capitalization weighted funds have outperformed equal weighted ones in the recent past. Perhaps an anomaly. I wish you good luck and will enjoy reading your future articles.

Ja Dolben from MA posted over 9 years ago:

I'm a fan of Level3 and am in the withdrawal mode. So I'm trying to figure out how to best set up a rainy day fund. One thing that I can't seem to find is how to use dividends in this case. It seems like an easy rule, in the event of a market downturn, to use dividends to meet cash flow needs with the balance coming from "safe investments". I'm thinking this approach could make a significant size reduction in the the safe investment allocation. Does the fact one isn't reinvesting cash dividends defeat the purpose?