[Q] 3-4 funds vs 2 funds portfolio compound interest returns

[jess1975]

Hi,

I read Bogle's book "the little common sense book of investing" and I have been reading bogleheads wiki and forums and there's something I can't understand

So basically there's are proponents of simple portfolio asset allocation of stocks and bonds and there are people encouraging 3 or 4 funds portfolio (US stocks, intl stocks, US and intl bonds).

My question is: Isn't a simple two funds portfolio is better from the angle of compound interest? each asset allocation will compound faster over time compared to the same investment spread over 3 or 4 funds.

Am I missing something here?

Looking forward to your valuable comments

 

[marissavchon61]

@jess1975 Simple math: (a+b)*x = a*x + b*x

In terms of compounding it doesn’t matter how much your investments are split into several funds.

 

[jess1975]

@marissavchon61 I shouldn't have skipped the math classes lol. Thanks a lot mate

 

[themadbaron]

@jess1975 10% of 2000€ is the same as 10% of 2x 1000€
200€ and 100 + 100 = 200€

In the next year you will receive 10% on 2200€ = 220€ vs 2x 110€ = 220€.

If the underlying appreciation of the Assets is the Same it does not matter on how many funds you spread it.

 

[jess1975]

@themadbaron This is makes total sense now that you put it this way. Much appreciated mate

 

[jsis]

@themadbaron Well if you account for trading costs then it starts to matter

 

[themadbaron]

@jsis Trading cost was not part of his equation and would only matter if you have staggered fees or fixed fees. As long as it is a flat% of the order it also does not matter. Additionally, with the rise of zero commission broker there are also ppl that don't pay any trading cost when the order for > 500€