By Dr. James M. Dahle, WCI Founder
[Update for 2020: This post originally ran in January 2014. Since then it has been one of the most popular posts on the blog (2nd actually, just behind The Backdoor Roth IRA Tutorial and ahead of a Whole Life Insurance Post). There were really two points to writing the post:
- To help new investors realize there is no perfect portfolio and that the best one can only be known in retrospect. Therefore they should pick something reasonable and stick with it.
- As a bit of a rebuke to three-fund portfolio fanatics. Since that time the three-fund portfolio has only become even more popular, thanks in part to Taylor Larimore's book and in part to outperformance since 2009 of the large growth stocks that make up a large part of a total market index fund.
For this 2020 update, I went back and added a few comments to the various portfolios and added another 50. I'll leave the title the same (since lots of people search for “150 portfolios” to find the post, but now it is 200 Portfolios Better Than Yours! It is still just as relevant today as it was 6 years ago.]
Designing the Perfect Investment Portfolio
As investors move from their investment childhood through the teenage years, many of them seem to almost become fixated on designing the perfect investment portfolio. They've learned the importance of buy and hold, the importance of keeping costs low, and the importance of using passive investments over active ones. They learn about the efficient frontier and seek to get themselves onto it, not realizing it can only be defined in retrospect.
They start learning about various portfolios, and their pluses and minuses, and seem to be eternally seeking a better one. Even some investment advisors fall into this trap, designing their own portfolios, borrowing someone else's, or even paying to use someone else's models. Occasionally, I even see investment advisors try to keep their model portfolios secret, as though theirs are somehow magically better than anyone else's.
The truth is that no one knows which portfolio is going to outperform in the future. You can change all the factors you want — more or less diversification, additional risks/factors, lower costs vs additional risk or diversification, more of this and less of that. Does it matter? Absolutely. Take a look at Madsinger's Monthly Report some time, where a Bogleheads poster has been tracking the returns of a dozen balanced portfolios for the last decade. But it doesn't matter that much. No diversified portfolio in that report has done better than 1-2% per year more than a similarly risky portfolio over the last 15 years. Now 1-2% does matter, especially over long periods of time, but keep in mind the edge that a very complex portfolio might provide over a very simple one can easily be eaten up by advisory fees, behavioral errors, and poor tax management.
Pick a Portfolio and Stick with It
I suggest you pick a portfolio you like and think you can stick with for a few decades, and then do so. Eventually, any given investment portfolio will have its day in the sun. Just don't continually change your portfolio in response to changes in the investment winds. This is the equivalent of driving while looking through the rearview mirror, or, as Dr. Bernstein likes to phrase it, skating to where the puck was.
Now don't get me wrong, I went through the process like everyone else. I designed my own portfolio (see Portfolios 150 and 200) to fit my own need, ability, and desire to take risk. I added some asset classes and left out others because I thought doing so would give me a higher long-term, risk-adjusted return. But I'm not cocky enough to think I've got the best portfolio out there. In fact, I'm positive mine isn't the very best one. Neither I nor anyone else knows what the very best portfolio is.
Investment Portfolio Examples
In that spirit, let's talk about some of the investment portfolios you can use (or modify for your own needs.) These portfolios will often use Vanguard funds as my usual default, but similar low-cost portfolios can generally be made using Fidelity, Schwab, or iShares index mutual funds or ETFs.
Portfolio 1: The S&P 500 Portfolio
100% Vanguard S&P 500 Index Fund
Don't laugh. I know a very successful two-physician couple who invest in nothing but this, are 7 years out of residency, and have a net worth in the $1-2 Million range. [6 years later, I'm sure this couple is now financially independent as their plan has worked out spectacularly over those years.] Their investment plan is working fine. Every investment dollar, whether in a retirement account or a taxable account, goes into this single fund. It is simple, very low cost, diversified among 500 different companies, and has a long track record of exceptional returns.
Portfolio 2: Total Stock Market Portfolio
100% Vanguard Total Stock Market Index Fund
Perhaps one step up on the S&P 500 portfolio, for about the same cost you get another 5000+ stocks in the portfolio.
Portfolio 3: Total World Stock Market Portfolio
100% Vanguard Total World Index Fund
This 100% stock portfolio has the advantage of not only holding all the US Stocks like the Total Stock Market Portfolio but also holding all of the stocks in pretty much all the other countries in the world that matter. It is a little more expensive (and in fact, it is actually cheaper to build this fund yourself from its components), but it still weighs in at just 10 basis points.
Portfolios 4 and 5: Balanced Index Fund
100% Vanguard Balanced Index Fund
Prefer to diversify out of stocks? Actually want some bonds in the portfolio? How about this one? For 7 basis points you get all the stocks in the US and all the bonds in the US in a 60/40 balance. Still just one fund. If you're in a high tax bracket, you may prefer the Tax-Managed Balanced Fund, a 50/50 blend of US Stocks and Municipal bonds, all for just 9 basis points.
Portfolios 6-9: Life Strategy Moderate Growth Portfolio
100% Vanguard Life Strategy Moderate Growth Fund
There are tons of options out there, many of which are good. Pick a good one and stick with it.
For just 13 basis points, you get all the US (32%) and international (18%) stocks and all the US (42%) and international (8%) bonds wrapped up in a handy, fixed asset allocation. Want to be a little more (or a little less) aggressive? Then check out the “aggressive growth” (80/20), “conservative growth” (41/59) or “income” (30/70) version with a slightly different allocation of the same asset classes. Think it's silly to have a portfolio composed of just one fund of funds? Mike Piper doesn't.
Portfolios 10-21: Target Retirement 2030 Fund
100% Vanguard Target Retirement 2030 Fund
Don't like a static asset allocation? Don't want to have to make the decision of when to change from one Life Strategy Fund to the next? Consider a Target Retirement Fund where Vanguard makes that decision for you. For a cost of just 14 basis points, the 2030 Fund uses the same 4 funds that the Life Strategy funds use (in a 69/31 allocation) but gradually makes the asset allocation less aggressive as the years go by. The portfolios range from 90/10 (2045 and higher) to 30/70 (Income). 2020 and newer add a short-term TIPS fund to the mix.
Portfolios 22-25: The Two-Fund Portfolio
50% Vanguard Total Stock Market Fund
50% Vanguard Total Bond Market Fund
Perhaps you like the concept of a balanced index fund but would like to shave off a few basis points, or just be in control of the stock to bond ratio. For 4.5 basis points, you can build your own balanced index fund. Want all the stocks, not just US ones? For 7.5 basis points, you can substitute in Total World Index for Total Stock Market Index. For 13 basis points you could use Total World plus Intermediate-term tax-exempt fund, or if you want to stay domestic in a taxable account, TSM plus the muni fund for about 10.5 basis points. Paul Merriman has a simple “two funds for life” approach that offsets a conservative target-date fund with an all-equity fund. Lots of combinations.
Portfolio 26: The Three-Fund Portfolio
1/3 Vanguard Total Stock Market Fund
1/3 Vanguard Total International Stock Market Fund
1/3 Vanguard Total Bond Market Fund
A favorite among the Bogleheads, the Three Fund portfolio gives you Total World plus Total Bond for 0.03% less per year! Despite its popularity, you can see there is really nothing particularly special about this portfolio compared to the other 25 above it. It is broadly diversified and low-cost, although is heavily weighted in large-cap stocks, just like the overall US market.
Portfolio 27-35: Three-Fund Plus One
30% Vanguard Total Stock Market Fund
30% Vanguard Total International Stock Market Fund
10% Vanguard REIT Index Fund
30% Vanguard Total Bond Market Fund
Another popular portfolio for those who want “just a little tilt.” An investor convinced of the benefit of additional diversification (or less diversification, depending on how you look at it) can add a fund to the ever-popular Three Fund Portfolio. Some add the Vanguard REIT index fund for their intermittently low correlation with the overall stock market. Others add Vanguard Small Value Index Fund to try to capture the benefits of the Fama/French Small and Value factors. Still, others add a TIPS fund, an international bond fund, or a high-yield fund since these bonds aren't included in the Total Bond Market Fund. Other options include a microcap fund, a precious metal equities fund, a precious metals fund, or even a commodities futures fund. The possibilities are endless, especially once you start considering adding 2, 3, or even more of these asset classes to the portfolio. What will do best in the future? Nobody knows, we can only tell you what did well in the past.
Portfolio 36-37: Four Corners Portfolio
25% Vanguard Growth Index Fund
25% Vanguard Value Index Fund
25% Vanguard Small Growth Index Fund
25% Vanguard Small Value Index Fund
One of the first of the “slice and dice” type portfolios, this portfolio tried to capture some benefit from the fact that sometimes growth stocks outperform value stocks, and vice versa. Its detractors argued that you were just recreating TSM at higher cost (6 basis points versus 4). Another variation is to use Total Stock Market instead of Growth Index and Small Cap Index Fund instead of Small Growth Index. This allowed you to “tilt” to the Fama-French factors, while keeping costs down a bit (5 basis points). Obviously, you could mix this in with some international stock funds and bond funds until you get to something you like.
Portfolio 38: The Coffee House Portfolio
10% Vanguard 500 Index
10% Vanguard Value Index
10% Vanguard Small Cap Index
10% Vanguard Small Cap Value Index
10% Vanguard REIT Index
10% Vanguard Total International Index
40% Vanguard Total Bond Market Index
Popularized by investment author and financial advisor Bill Schultheis in The Coffeehouse Investor, this version of slice and dice is heavy on the REITs, is light on international stocks, and lacks diversity on the fixed income side. But it does weigh in at well under 10 basis points. You want someone to tell you what to do? Bill will do it. Follow his instructions and you'll be fine.
Portfolio 39-48: The Couch Potato Portfolio
50% Vanguard Total Stock Market Index Fund
50% Vanguard Inflation-Protected Securities Fund (TIPS)
Guess who else will tell you what do? Scott Burns will. He offers 9 portfolios, ranging from 2 funds to 10 funds. You just have to choose how much complexity you're willing to deal with for some additional diversification. If there are 5 funds, each fund makes up 1/5 of the portfolio and so forth. He likes TIPS, international bonds, and energy stocks. Given the returns of energy stocks over the last decade (1.6% a year as of January 2020), that idea hasn't aged well.
Portfolio 49-58: The Ultimate Buy and Hold Portfolio
6% Vanguard 500 Index Fund
6% Vanguard Value Index Fund
6% Vanguard Small Value Index Fund
6% Vanguard REIT Index Fund
6% Total International Stock Market Index Fund
6% Vanguard International Value Fund
6% Vanguard International Small Cap Index Fund
6% An International Small Cap Value Fund
6% Bridgeway Ultra-Small Market Fund
6% Vanguard Emerging Markets Index Fund
40% Vanguard Short (or intermediate) Term Bond Index Fund
Paul Merriman will also tell you what to do. 10 equity asset classes and 1 fixed income asset class. Will it work? Sure. Will it be a pain to rebalance and allocate across all your accounts? Absolutely. Will it beat some of the simpler options above over your investment horizon? No one knows. In case you don't like the “Ultimate” portfolio, Paul has three others that are equally complicated, ranging from 100% stocks in 9 assets classes to 40% stock in 12 asset classes.
Portfolio 59: The Talmud Portfolio
1/3 Vanguard Total Stock Market Index Fund
1/3 Vanguard REIT Index Fund
1/3 Vanguard Total Bond Market Index Fund
Apparently, the Talmud, a central text of Rabbinic Judaism, had some portfolio advice, “Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” This is one author's low-cost vision of that ancient portfolio. A little REIT-heavy for my taste.
Portfolio 60: The Permanent Portfolio
25% Vanguard Total Stock Market Index Fund
25% Vanguard Long-term Treasury Fund
25% Gold ETF (GLD) or, better yet, gold bullion
25% Vanguard Prime Money Market Fund
Here's another popular portfolio, this one from Harry Browne. He felt you wanted a portfolio that would do well in prosperity (stocks), deflation (long treasuries), inflation (gold), and “tight money or recession” (cash). There are lots of variations. There is even a one-stop-shop mutual fund for 84 basis points that's been around since 1982 with 15-year average returns of a little over 6%. Not only did it lose money in 2008, it managed to do so in 2013 as well. Poor performance (4.8%) over the last decade while the US stock market has been roaring demonstrates its severe tracking error.
Portfolios 61-84: FPL Portfolios
12% US Large
12% US Value
12% US Targeted Value Stocks
6% International Value Stocks
6% Global REITs
3% International Small Value
3% International Small Stocks
1.8% Emerging Market Stocks
1.8% Emerging Markets Value Stocks
2.4% Emerging Market Small Stocks
10% One Year Government Fixed Income
10% Short Term Government Fixed Income
10% Two Year Global Fixed Income
10% Five Year Global Fixed Income
FPL, one of the sponsors of this blog, has a whole bunch of model portfolios, made up mostly of DFA funds. This one is 60% stock but there are 9 more ranging from 10% stocks to 100% stock. There are also other folios including 3 fixed income ones (made up from funds of DFA, PIMCO, and various ETFs), a low beta portfolio, and 10 equity portfolios (made up from funds of DFA, Wisdom Tree, and Vanguard). Many other DFA-authorized asset management firms have similar portfolios, many of which they consider proprietary because they're so awesome. A common theme among them is complexity and factor tilts.
Portfolios 85-108: The Sensible IRA Portfolio #4
33% US Stocks
15% International Stocks
6% Emerging Markets Stocks
6% REITs
40% Fixed Income
Darrell Armuth at Sensible Portfolios, who used to advertise with me, runs a financial advisory firm that uses DFA funds. He offers 6 portfolios suitable for IRAs, this is one of them. He also offers 6 more suitable for a taxable account, 6 environmentally friendly portfolios, and 6 “express portfolios” designed for smaller accounts for just $500 a year. Unfortunately, when I went to update this post, I found that these portfolios were no longer listed on the website. I guess you have to hire him now to get the secret sauce.
Portfolios 109-131: Sheltered Sam 60/40 Portfolio
12% Vanguard 500 Index Fund
15% Vanguard Value Index Fund
3% Vanguard Small Cap Index Fund
9% Vanguard Small Cap Value Index Fund
6% Vanguard REIT Index Fund
1.8% Vanguard Precious Metals Fund
3% Vanguard European Stock Index Fund
3% Vanguard Pacific Stock Index Fund
3% Vanguard Emerging Markets Index Fund
4.2% Vanguard International Value Fund
24% Vanguard Short-term Corporate Bond Fund
16% TIPS (he recommends you buy the 2032 ones yielding 3.375% real, good luck with that)
William Bernstein, MD, in his classic The Four Pillars of Investing, had four investors, Sheltered Sam, whose assets were all in IRAs and 401Ks, Taxable Ted, whose assets were not, In-Between Ida who was partially sheltered, and Young Yvonne who didn't have much at all. He listed out 11 portfolios for Ted and 11 for Sam, ranging from 0% stocks to 100% stock. He listed one more for Ida, and then showed how Yvonne could gradually grow into Sam's portfolio. I've just listed one of them. If you want to see the other 22, buy the book or check it out at the library.
Portfolio 132: The Aronson Family Taxable Portfolio
5% Vanguard Total Stock Market Index Fund
15% Vanguard 500 Index Fund
10% Vanguard Extended Market Index Fund
5% Vanguard Small Cap Growth Index Fund
5% Vanguard Small Cap Value Index Fund
5% Vanguard European Stock Index Fund
15% Vanguard Pacific Stock Index Fund
10% Vanguard Emerging Markets Index Fund
15% Vanguard Inflation-Protected Securities Fund (TIPS)
10% Vanguard Long-Term Treasury Fund
5% Vanguard High Yield Bond Fund
This is apparently how Ted Aronson (who manages $25 Billion) invests his family's taxable money. I'm not sure I understand the logic behind some of its components. That said, even it is held for a long period of time, I'm sure it will work just fine. As of January 2o20, it has 10-year returns of around 8.3%, which is 1.4% worse than Balanced Index fund (see portfolio 4.)
Portfolio 133: The Warren Buffett Portfolio
100% Berkshire Hathaway Stock
Warren Buffett is admired by all as a great investor. You can have him manage your money if you'd like, and all you have to do is buy a single stock. 15-year returns are about 9.5% per year according to Morningstar. It's a simple solution, and you get a free ticket to the coveted annual meeting.
Portfolio 134: The Unconventional Success Portfolio
30% Vanguard Total Stock Market Index Fund
20% Vanguard REIT Index Fund
15% Vanguard Developed Markets Index Fund
5% Vanguard Emerging Markets Index Fund
15% Vanguard Intermediate Treasury Bond Fund
15% Vanguard Inflation-Protected Securities Fund (TIPS)
This is an example of an implementation of the portfolio put forth by David Swensen, the Yale investment guru, in his classic Unconventional Success. It's fine, like the other 133 portfolios before it. Its main criticism is that it is awfully REIT heavy.
Portfolio 135-137: The Wellesley Portfolio
100% Vanguard Wellesley Income Fund
This actively-managed Vanguard fund has been around since 1970, and despite only being 35% stock, has averaged almost 10% a year, while charging just 16 basis points. The main knock against it, aside from being actively managed, is that it isn't particularly diversified. It holds just 68 stocks, mostly large value stocks, and 1131 bonds. Don't expect 10%, or even 7%, a year out of this bond heavy fund going forward at today's low interest rates.
That said, it's hard to argue with success. Other actively managed funds that could be considered a reasonable portfolio all by themselves include the Wellington Fund (established 1929, 63/37, 10-year returns of 9.9%, ER 0.17%) and Dodge and Cox Balanced Fund (established 1931, 68/32, 10-year returns of 10.33%, ER 0.53%). There are probably more. I'm not a big fan of active management, but it's hard to nitpick funds that survived The Great Depression. Clearly, they're doing something right.
Portfolio 138-146: The Advanced Second Grader Aggressive Portfolio
54% Vanguard Total Stock Market Index Fund
27% Vanguard Total International Stock Index Fund
6% Vanguard REIT Index Fund
3% Precious Metals
10% Total Bond Market Index Fund
Allan Roth, in his excellent How A Second Grader Beats Wall Street, lists a conservative, a moderate, and an aggressive allocation for a second grader portfolio (3 Funds), an advanced Second Grader Portfolio (4-5 funds), and an alternative advanced Second Grader Portfolio (uses CDs instead of the Total Bond Market Fund). That's 9 more portfolios you could use without having to come up with your own!
Portfolios 147-150: The Dan Wiener Income Portfolio
Dan Wiener sells a newsletter to Vanguard investors. For just $100 a year he'll reveal his super-secret portfolios composed of various Vanguard funds. I can't tell you what the portfolios currently hold (there are quite a few actively-managed funds and the allocations change from time to time), but I can tell you the performance hasn't been terrible.
The Growth version has returns of 9.61% since 1999, almost 3.5% a year better than the 3 fund portfolio and about 2% better than a typical slice and dice portfolio like the Sheltered Sam portfolio, although you do expect higher returns due to significantly higher stock allocation. The less-aggressive “Income” version has returns of 5.52% a year. There is also a “Conservative Growth” and an “Index Fund Growth” portfolio whose returns are similar to slice and dice type portfolios.
While I'm certain there is a survivor bias effect here, it's still a pretty decent long-term record of actively-managed mutual fund picking. It helps that he mostly limits himself to low-cost Vanguard funds, of course.
Portfolio 151: The Larry Portfolio
32% DFA Small Value Fund
68% DFA One Year Treasury Fund
Larry Swedroe is smarter than me I'm sure. He is a huge fan of taking your risk on the equity side. He is a true believer in the small and value factors of Fama and French, and carries the idea behind a slice and dice portfolio to the extreme. He holds no fear of tracking error or the lack of traditional diversification, the primary downsides of investing like this. It is more important to him to diversify among “factors” like small, value, and momentum. It's not my cup of tea, but at least he puts his money where his mouth is. [Update: I'm told that Larry actually splits his equities between US Small Value, Developed Markets Small Value, and Emerging Markets Value, but you get the point- a very heavy small value tilt.]
Portfolios 152-165: The Rick Ferri Multi-Asset Class Pre-Retiree Portfolio
23% Vanguard Total Stock Market Index Fund
5% IShares S&P 600 Barra Value (IJS)
2% Bridgeway Ultra Small Company Market (BRSIX)
5% Vanguard REIT Index Fund
3% Vanguard Pacific Stock Index Fund
3% Vanguard European Stock Index Fund
2% Vanguard International Explorer Fund (he'd probably use the Vanguard International Small Index Fund now)
2% DFA Emerging Markets Fund
10% IShares Lehman Aggregate Bond Fund (AGG)
13% Vanguard Investment Grade Short Term Bond Fund
10% Vanguard High Yield Corporate Bond Fund
10% Vanguard Inflation-Protected Securities Fund (TIPS)
5% Payden Emerging Markets Bond Fund (PYEMX)
2% Vanguard Prime Money Market Fund
In another classic book, All About Asset Allocation, Rick Ferri suggests a Basic and a Multi-Asset Class investment portfolio for early savers, mid-life accumulators, pre-retirees/active retirees, and mature retirees, for a total of 8 portfolios. Rick isn't afraid to look for the “best of class” fund for any given asset class. Lots of great portfolio ideas here. See Portfolios 170-173 for more portfolios from Rick Ferri.
Portfolio 166: Frank Armstrong's Ideal Index Portfolio
7% Vanguard Total Stock Market Index Fund
9% Vanguard Value Index Fund
6% Vanguard Small Cap Index Fund
9% Vanguard Small Value Index Fund
31% Vanguard Total International Stock Market Index Fund
8% Vanguard REIT Index Fund
30% Vanguard Short Term Bond Index Fund
You can read more about this one in Armstrong's The Informed Investor. A nice heavy small/value tilt, but only domestically.
Portfolio 167: The 7/12 Portfolio
1/12 Vanguard 500 Index Fund
1/12 Vanguard Mid-Cap Index Fund
1/12 Vanguard Small Cap Index Fund
1/12 Vanguard Developed Markets Index Fund
1/12 Vanguard Emerging Markets Index Fund
1/12 Vanguard REIT Index Fund
1/12 Natural Resources
1/12 Commodities
1/12 Vanguard Total Bond Market Index Fund
1/12Vanguard Inflation-Protected Securities Fund (TIPS)
1/12 Vanguard International Bond Index Fund
1/12 Vanguard Prime Money Market Fund
7 major asset classes, 12 funds, 8.33% a piece. Clever, huh. Craig Israelsen, a professor at prestigious Brigham Young University, advocates for this approach in his book 7 Twelve. He wants you to send him $75 to tell you how to use Vanguard Funds (or those of any other company) to implement the portfolio. Send me $50 and I'll tell you how to do it. If you've read this far, you know more about portfolio design than 95% of “financial advisors” out there.
Portfolio 168: My Parent's Portfolio
30% Vanguard Total Stock Market Fund
10% Vanguard Total International Stock Market Fund
5% Vanguard Small Value Index Fund
5% Vanguard REIT Index Fund
20% Vanguard Intermediate-Term Bond Index Fund
20% Vanguard Inflation-Protected Securities Fund
5% Vanguard Short Term Corporate Index Fund
5% Vanguard Prime Money Market Fund
I help my parents manage their nest egg. I'm twice as smart and 2.5% per year cheaper than the last guy. This 50/50 portfolio is a good balance between keeping it simple and understandable, but still getting the benefit of a multi-asset class portfolio. It lost 18% in 2008, and more than gained it back in 2009. Returns are about 7% over the last 15 years, including the 2008 debacle.
Portfolio 169: The 2014 White Coat Investor Portfolio
17.5% Vanguard Total Stock Market Index Fund
10% TSP S Fund
5% Vanguard Value Index Fund
5% Vanguard Small Value Index Fund
7.5% Vanguard REIT Index Fund
5% Bridgeway Ultra-Small Company Market Fund (BRSIX)
15% Vanguard Total International Stock Market Fund/TSP I Fund
5% Vanguard Emerging Markets Index Fund
5% Vanguard International Small Index Fund
10% Schwab TIPS ETF
10% TSP G Fund
5% Peer 2 Peer Lending Securities (mostly Lending Club)
I'm more than willing to admit that it is unlikely that this portfolio will be the best of the 150 portfolios listed here over my investment horizon. However, since my crystal ball is cloudy, and since I'm convinced that sticking with any good portfolio matters far more than which good portfolio you pick, I'm going to stick with it (and have with minimal changes in the last decade, leading me to an annualized after-tax, after-expense return of around 9.5% [as of 1/11/2013]). See Portfolio 200 for my updated portfolio.
Portfolios 170-173: Rick Ferri's Core-4
48% Vanguard Total Stock Market Fund
24% Vanguard Total International Stock Market Fund
8% Vanguard REIT Index Fund
20% Vanguard Total Bond Market Fund
All four of these portfolios are really just a play off of Portfolio # 26, and range from 80/20 to 20/80. It's basically just three-fund plus a little REIT. It's too much REIT for some, too little real estate for others, but for a precious few, it's just right.
Portfolio 174: The Golden Butterfly
- 20% Vanguard Total Stock Market Index Fund
- 20% Vanguard Small Cap Value Index Fund
- 20% Vanguard Long Term Bond Index Fund
- 20% Vanguard Short Term Bond Index Fund
- 20% SPDR Gold Shares ETF (GLD)
This new-fangled portfolio from Tyler at Portfolio Charts claims to “match the high return of the Total Stock Market [Portfolio # 2] with the low volatility of the Permanent Portfolio [Portfolio # 60]”. I don't think it actually does that given its heavy emphasis on bonds and gold. Since TSM has outperformed all of those other assets classes over the last decade, there is no way this portfolio has matched its return in that time period. But I'm sure it has been less volatile.
Portfolio 175: The All Weather Portfolio
- 30% Vanguard Total Stock Market Index Fund
- 40% Vanguard Long Term Bond Index Fund
- 15% Vanguard Intermediate Term Bond Index Fund
- 7.5% Commodities
- 7.5% SPDR Gold Shares ETF (GLD)
A Ray Dalio creation, this one is also an attempt at improving the returns of the Permanent Portfolio while still improving bear market performance. The idea is that Growth can be up or down and inflation can be up or down, so you should pick something that does well in all four combinations of those factors. Of course, he seems to think Gold will do well in 3 of those 4 situations, but it makes for pretty fancy charts. If you really can get similar performance with lower volatility, that would allow you a higher withdrawal rate in retirement.
Portfolios 176-178: Kiplinger Portfolios
- 20% Dodge & Cox Stock Fund
- 20% Primecap Odyssey Growth
- 15% DoubleLine Total Return Bond
- 15% Parnassus Mid Cap
- 10% Fidelity International Growth
- 10% Oakmark International
- 10% T. Rowe Price QM U.S. Small-Cap Growth Equity Fund
Kiplinger published 3 portfolios for various time horizons. This one is the long-term (11+ years) one but they are all composed of actively managed funds, so I don't really like any of them. I included them because they're a good example of what you get from the financial media and many crummy 401(k)s. There's usually lots of back-testing involved and as a rule, these types of portfolios had great performance in the years prior to them being published.
Portfolios 179-183: Fidelity Index Focused Models
- 35% Fidelity 500 Index Fund
- 3% Fidelity Mid Cap Index Fund
- 4% Fidelity Small Cap Index Fund
- 18% Fidelity Ex-US Global Index Fund
- 35% Fidelity US Bond Index Fund
- 3% Fidelity Conservative US Bond Fund
- 2% Fidelity Core Money Market Fund
Fidelity has published lots of portfolio models, including 5 using index funds from 20/80 to 80/20. The one above is the 60/40 one. I think it's overly complicated. Not only are there four asset classes with less than 5% of the portfolio in them, but it uses a less diversified 500 index fund instead of a total stock market fund. In reality, this is just a fancied-up three fund portfolio. That said, it's low-cost, broadly-diversified and better than the vast majority of portfolios I've seen.
Portfolios 184-188: Betterment Portfolios
- 15% Vanguard US Total Stock Market Index Fund
- 15% Vanguard Value Index Fund
- 15% Vanguard Developed Markets Index Fund
- 6% Vanguard Emerging Markets Index Fund
- 5% Vanguard Mid Cap Index Fund
- 4% Vanguard Small Cap Value Index Fund
- 20% Vanguard Inflation-Protected Securities Fund
- 20% Vanguard Short Term Treasury Index Fund
This one comes from Betterment, at least back in 2012. They don't list their portfolios out now on their website, but they're basically variations of the above with different stock:bond ratios. You'll notice the heavy value tilts, a significant small tilt, and previously focus on safety on the bond side. It looks like they also include junk bonds and international bonds now in their portfolios.
Portfolios 189-197: SoFi Portfolios
- 28% Vanguard US Total Stock Market Index Fund
- 24% Vanguard Total International Stock Market Index Fund
- 8% Vanguard Emerging Markets Index Fund
- 20% Vanguard Total Bond Market Index Fund
- 10% Vanguard Short Term Bond Index Fund
- 5% SPDR Short-Term High-Yield Bond ETF
- 5% Vanguard Emerging Markets Government Bond Index Fund
SoFi also runs a roboadvisor like service that offers 9 portfolios from conservative to aggressive, for retirement and taxable accounts. This is the moderate one for retirement accounts. I'm not sure exactly what funds they use, so I added appropriate funds for each listed asset class. It's a little odd to have EM bonds without developed markets bonds.
Portfolio 198: The Physician on FIRE Portfolio
- 60% US Stocks (with a tilt to small and value)
- 22.5% International Stocks (50 / 50 developed and emerging markets)
- 7.5% REIT (Real Estate Investment Trust)
- 10% Bond & Cash (mostly bond plus cash emergency fund)
Very aggressive, especially for a retiree. Low allocation to real estate too, although I keep hearing he may be increasing this a bit.
Portfolio 199: The Physician Philosopher Portfolio
- 45% Vanguard Institutional Index Fund
- 20% Vanguard Mid Cap Index Fund
- 20% Vanguard Small Cap Index Fund
- 15% International Stocks
This is what he had in his 403b a couple of years ago. More info on this portfolio here. Aggressive, but otherwise pretty Plain Jane aside from a small tilt.
Portfolio 200: The New White Coat Investor Portfolio
- 25% Vanguard Total Stock Market Fund
- 15% Vanguard Small Cap Value Index Fund
- 15% Vanguard Total International Stock Market Fund
- 5% Vanguard FTSE Ex-US Small Index Fund
- 10% Vanguard Inflation-Protected Securities Fund
- 10% TSP G Fund
- 5% Vanguard REIT Index Fund
- 5% Debt Real Estate (primarily private hard money lending funds)
- 10% Equity Real Estate (primarily private funds and syndications)
I simplified our asset allocation about three years ago. Aside from consolidating asset classes, the major change was swapping out peer to peer loans for hard money lending and adding a bit more real estate. But basically it's 60% stock (2/3s of which is US, 1/3 International), 20% bonds, and 20% real estate.
A good investment portfolio is broadly diversified, low-cost, mostly or completely passively managed, regularly rebalanced, and consistent with its owner's need, ability, and desire to take risk. Every portfolio (except the Kiplinger ones) in this post meets those qualifications. Pick one you like, or design your own. Just don't go looking for the best one. As Prussian General Karl Von Clausewitz said, “The enemy of a good plan is the dream of a perfect plan.”
What do you think about all these portfolios? Do you use one of these, or have you designed your own? Comment below!
I will begin contributing to my company’s 401k this year. I have zero retirement, age 40. Solid salary over 400k ( Anesthesia). I’m told we have great mutual funds to select from.
My breakdown – 90% stock, 10% Bonds.
30% vanguard large cap
30% vanguard mid cap
10% vanguard small cap
10% vanguard international
(All vanguard have fees from 0.05-.12)
10% TRP health fund (0.77)
I’m day 1 of accumulation stage. Should I consider an 80/20 breakdown?
I have additional options of real estate securities, euro markets, and higher risk mutual funds but all carrying much higher expenses. I just selected vanguard primarily b/c of low fees and belief of indexing and passive earnings that I’ve learned for the WCI and Jack Bogle.
Although a 10x fold knowledge improvement over the past year by reading the website I know I have much to learn and welcome feedback as I just reread this discussion.
I maxed out my HSA, backdoor Roths and started 529s this past fall too.
Thanks in advance
Bailey
I think you’re doing awesome. Great job saving. Great job using tax protected accounts. The asset allocation is reasonable and personalized with the health fund.
One word of caution- I usually recommend people be less aggressive with their AA until they’ve gone through their first bear market. 90/10 might be fine for you this early in your career. I have no idea. Unfortunately, you probably don’t either. The question is whether or not you’ll sell your stock funds after they lose half their value. Academically, you think you won’t. But when a year’s worth of work disappears over the matter of a few weeks, it isn’t just a mental exercise. So you might scale back to 60/40, 75/25, or 80/20 until that first bear market. Then if that felt okay, go ahead and increase it (incidentally, the bottom of a bear market is a great time to increase it.) You won’t lose much in that approach because right now your savings rate matters so much more than your return, but it might prevent an investing disaster that scars you for the rest of your investing career.
Thanks for the quick reply. I’m not sure how you do it!!
I honestly am not that aggressive but colleagues have told me at this point I have zero to lose and starting off aggressive for 1-5 yrs isn’t crazy. I could also follow the bogle recommended 60/40 mix and over 20-30 yrs isn’t a bad plan. I foresee myself transitioning to 70/30 or 60/40 at some point anyway.
You make a great point and I hope we don’t have a similar 2008 crash in the next few years. I saw in The newsletter that 2015 returns were not great. Maybe starting off conservatively now makes more sense things aren’t booming (bull market).
See, here’s the problem. You hope we don’t have a 2008 crash. That’s totally wrong. You should get down on your knees and pray for another 2008 given how early you are in the process.
Being aggressive for a few years isn’t crazy. Being overly aggressive is. Overly aggressive means you sell out in a bear market because you can’t sleep at night.
White Coat- A few questions for you in regards to a managed portfolio. I have been approached by Chase and Northwestern Mutual. I met with NWM and was not a fan of the whole life (I read your article, Thanks!) I currently have 100k in investments through Fidelity. Low expense mutual funds and they’ve been with Fidelity for a few years.
The NWM rep wants me to have him manage his portfolio at a 1% management fee.. He says in the next 30 years he can average a 7-8% return and he would take care of it all. What are your thoughts on this?
NML is one of my least favorite financial companies. I detest their business model. My mantra with financial advice is good advice at a fair price. Financial advice IS expensive. But it doesn’t have to cost 1% of your assets eternally. Chances of getting the best advice from a “NWM rep” seem very low to me. Good enough advice to meet your goals eventually? Perhaps.
I’m also not a big fan of getting financial advice from a bank representative. I’m also not a big fan of getting financial advice from someone who approaches you. As a general rule, good financial advice is bought, not sold.
https://www.whitecoatinvestor.com/the-10-worst-places-to-get-investing-advice/
The cheapest advisor is yourself. Whether that’s good advice or not is up to you. Once you get beyond that, the price goes way up and the quality may go up (or down) in a highly variable manner.
I had a retired dentist in my neighborhood who had a visit from the FBI this week. It seems his financial advisor took everything and he’s now going to lose his house too. At least you know you’re not going to rip yourself off, even if you make some mistakes along the way. You can make an awful lot of mistakes in my view and still come in better than paying 1% of AUM eternally.
out of the plans above, what would you recommend for a 29 year old? I have 100k in fidelity with mutual funds and kind of want a hands off approach for the next 20 years.
Do you just want someone to tell you what to invest in? Really? You don’t want any input into the decision whatsoever?
All 150 of those portfolios are fine. Mine is there too. That’s what I use. What’s right for you is impossible for me to say.
I can throw a dart at that chart just as well as you can. It doesn’t matter which one you pick. What matters is that you fund it adequately, and stay with it through thick and thin.
I pick…… # 71.
Well I can’t really say I know much in this area. Have read so many different things, want to pick a portfolio and stay with it for the next 30 years.
I have about 100k in mutual funds through fidelity with all different categories and sectors.
How about Vanguard Life Strategy Moderate? That’s a good one-stop, know-nothing portfolio. Low cost, highly diversified.
I have about 100k sitting around in cash and looking to do something with it rather than sit in my savings accounts. I max out my 401k and have iras for my wife and I. About 200k left on mortgage, and that is the only debt. Any suggestions? Should I put it into a few mutual funds?
Do you have a written investing plan? I’d start with that. If your retirement goal requires you to save more than what you can fit into your 401(k) and IRAs, then you’re going to have to start investing in taxable for retirement. But I would look at all of it-401(k), IRAs, and taxable as one portfolio. You’re trying to skip to step # 3 like the poster above. Picking investments like that is a recipe for investment disaster. But yes, “putting it into a few mutual funds” is likely what you’ll end up doing, but the process of getting to that point matters. If you want to skip all that process, then at least pick a broadly diversified fund of funds, like a Vanguard Life Strategy Moderate Fund, until you have time to go back and do the process.
Have a good amount of money sitting around.. I am thinking about getting into the Fidelity Biotech.. FBIOX. It is way down right now, I feel that it will be going up big time in the next few years… thoughts?
What does your written investment plan say? I have no idea what FBIOX will do relative to other asset classes, the overall stock market, or even other biotech funds or other sectors in coming years. You makes your bets and you takes your chances.
Can you critique my portfolio in my 403b/457 plan? My hospital only had 16 funds to choose from.
60% VG large cap
10% VG total international
10% VG small and mid cap
10% VG inflation protected securities fund
10% VG total bonds
Remember to look at your entire portfolio as one big portfolio, including all retirement accounts and your taxable account designated for retirement.
Your posted asset allocation is reasonable and ought to work if you can managed to hold it for the long term, although 88% US and 12% international is a fairly severe home country bias in my view. I like to see that number between 20 and 40%. Are you sure you’re not being affected by recency bias? 60% of your portfolio in any one asset class is also a pretty big slice.
Good point. I wasn’t intentionally lowering the portion of international stocks based on recent events, but I guess my portfolio reflects that coincidentally. But I think you are right and I should probably increase the international stock to 20%, will decrease the large cap (S&P 500) to 50%, 10% mid and small caps, 10% emerging market, and 10% bonds (I’m 30 y/o currently so I can take a bit more risk).
Also, I know you are not a proponent of whole life policies. But there are a few articles that favor them:
-New York Times: In a Volatile Market, Some Turn to Insurance Instead of Bonds
-Build Retirement Wealth and Reduce Taxes with Tax Diversification
-Kiplinger, a very well known retirement magaine: Life Insurance After 50 (I know you’re not 50 but you will be one day. The older you get, the more expensive cash value life insurance is. Here are some highlights:
Permanent life insurance also appeals to risk-averse people who don’t have time to recover investment losses in the event of another financial crash.
Cash-value life insurance can also be a good portfolio diversifier. That’s because a whole life policy is unconnected to the securities markets. You can think of it as the cash or bond allocation in your overall investment mix that allows you to be more aggressive with stocks, commodities or real estate in your IRA, 401(k), or taxable brokerage accounts.
-Medical Economics, The Case for Investing in Life Insurance. Excerpt:
Permanent life insurance and annuities are savings systems. A major problem today in financial planning is that 401(k) and mutual fund marketers have successfully blurred the difference between “saving” and “investing.” When one saves, money is safe and liquid. When one invests, 100 percent of your money is at risk 100 percent of the time.
-Bank Rate, Convert term life insurance before it expires
Do you think their arguments are flawed?
Please don’t bring a whole life discussion to this post. There are dozens of them all over the site. If you have serious questions about using whole life as an investment, I’d start here:https://www.whitecoatinvestor.com/forums/topic/best-of-the-website-insurance/
BTW- I see a huge disconnect in someone who feels comfortable with a 90/10 portfolio being interested in whole life because they are risk averse. And I found the timing of that Medical Economics article hilarious- July 2009. No, that wasn’t the time to be buying whole life insurance. Stocks bought at that time have had an incredible return in the last 7 years. Real estate has done just as well.
Excellent post WCI. I have been reading your blog recently and have been learning quite a bit in matters of investment. I was planning on hiring a financial advisor but after reading the blogs and forum discussions I am convinced that I can do it myself with a little help. I currently have my taxable account mainly in the Vanguard international ETF (VT) and tax advantaged in both VT and VTSAX. I am wondering what books and blogs do I need to read to build up a portfolio like yours (#150) or any other ones listed in your post. I am in my upper 30s and willing to take a lot of risk for stocks and other investments. How would I know the specific funds(and for that matter their ticker symbols) and whether to put them in tax advantaged or taxable accounts?
Here are some recommended books:
http://astore.amazon.com/whicoainv-20?_encoding=UTF8&node=70
My default choice for any given asset class is a Vanguard index fund. If that’s not an option for a certain asset class, or due to limitations in your 401(k), then sometimes you have to look around a bit. Plenty of help available if you want to DIY though.
Dear WCI,
First of all, I would like to thank you for your numerous educational posts! I have been following your blog for 15 months now; I have learned a lot, and there is still a lot to be learned and covered.
I have been out of residency for almost 2 years now and I am relatively new to the investment world. I started buying index funds last year; made maximum contributions to my 401k and backdoor Roth for 2015. Currently, I have around 110k distributed in taxable and retirement accounts at Vanguard: 500 index fund; small cap index; international total stock; REIT; and total stock. After reading your post on crowdfunding websites in Oct, I also invested around 30k in the real estate crowdfunding.
Over the last few months, I realized that I have been focused on only saving and just buying this or that index fund without actually calculating what percentage I should do of each fund. So it is time for me to set some goals as far as my portfolio distribution and asset target percentage go. There are several spreadsheets I found on the google for rebalancing. However, I was wondering whether you might have recommendations or share a spreadsheet you utilize for different accounts, different funds per account, and overall current and target percentage. I would greatly appreciate your assistance with that!!
Thank you once again for all your educational and practical posts!
Showing you my current spreadsheet would just stress you out. It almost stresses me out! You just need to come up with a reasonable asset allocation. And of course, no sense in owning 500 index and total stock market index.
Why not something simple like this:
25% TSM
25% International
25% Small
25% Real estate (REITS + Syndicated real estate)
Perhaps in a few years you might want to make it less aggressive like this:
20% TSM
20% International
20% Small
20% Real Estate
20% Bonds
It really doesn’t have to be any more complicated than that.
Thank you, WCI!
So, after several weeks postponing to do the percentages and the spreadsheet, it turned out there is some serious rebalancing to be done this year! I didn’t realize you count REIT + Syndicated real estate in one category and I didn’t realize I don’t really need 500 index + small cap index when I already have the TSM. The 500 index and the small cap are in the 401k and Roth IRA.
Here is my current percentage for the taxable and the 2 retirement accounts:
11% TSM
21% 500 index
6% Small
21% Real estate (REITS + Syndicated real estate)
13% International
28% Cash
I also have 457 and a state retirement plan invested in 3 institutions and 10 funds. I haven’t looked at those yet since the amounts are small and I should probably try to consolidate to 2-3 funds max…
I’d look at it all together. I think you have too much in cash and not enough in international and of course there is little reason to own both TSM and 500 index.
I know this is an old post, but it is one of the most educational and useful investing posts I’ve ever read. I love how you give so many actionable ideas instead of the usual vague tips I see on other sites. Thanks for giving me something to think about.
Glad you liked it. It’s definitely a classic.
An evidence of a great post: active comments and questions for 2 years after the original post.
My Question: I understand the essence of the advice here, but what are your suggestions for which retirement accounts to put which funds in?
For example here are my retirement fund sources
401k
Roth IRA
HSA
Profit Sharing (overall allocations somewhat out of my control- managed by the company)
After tax investments
Can you give any advice for which accounts to use for various portions of the overall portfolio? Or is it best to keep the same mix in each separate account?
I’d take advantage of your best options in each account. I need more info to give you really good advice, but as a general rule, between Roth and 401(k) it doesn’t matter if you tax adjust the asset allocation. If you don’t, then by putting higher return assets in the Roth, you take more risk in return for a probable higher return. As far as tax-protected accounts vs taxable, that can be tricky. Clearly high returning tax-inefficient assets (like REITs) go in tax-protected. Clearly low returning tax-efficient assets (like munis) go in taxable. Beyond that it’s surprisingly complicated and actually hard to go that wrong. A lot depends on whether you’ll die with assets or give any to charity.
An HSA, assuming you’re using it for retirement, should be treated as a tax-deferred account. If you’re using it for health care, then it’s more Roth-like but probably shouldn’t be in the retirement kitty. I keep mine separate.
Profit-sharing is generally under your control. Maybe you have a defined benefit plan or something that you can’t control directly. Just look at what they’re holding and build around it with the rest of your portfolio.
Hope that general advice helps. Can’t give more specific advice without more specific info. Considering posting in the forum to get detailed info.
As a general rule of thumb, you should put income producing assets in tax deferred or tax free accounts because they are taxed at your highest income level. You can also have equities in these accounts, especially the Roth. Equities and qualified dividends that get treated like long term capital gains go in taxable accounts. You can control taxation and even do tax loss planning in taxable accounts.
When you retire and will start withdrawing, you may want to balance the allocation in taxable and non taxable accounts so you can withdraw from the asset class that isn’t down at the time. For example, if all your equities are in taxable accounts but the market is down a good amount, it’s not the time to sell them. If you have some bonds there as well, you can withdraw from them instead. When it’s time to take your RMD from tax deferred accounts, the same holds true. You want to liquidate the assets that aren’t depressed at that time. Mixing the assets in each account gives you that flexibility.
Steve-
You’re ignoring an important effect when it comes to asset location- both tax-efficiency and expected return matter. You have to consider the benefit of a larger tax-protected account. More details here:
https://www.whitecoatinvestor.com/asset-location-bonds-go-in-taxable/
Good point. I didn’t ignore your point. I also said to put equities in these accounts, especially the Roth.
What’s nice about equities in taxable accounts, especially index funds or ETFs, is you can control the taxes by not trading much. Yes, you will pay the 15% when you realize the gain, but maybe you’ll be in a lower tax bracket and have no tax, or have realized losses accumulated to offset losses.
Meant to say have losses to offset gains.?
Dear WCI
This is a great post and gives me lots to think about.
I noticed recently a lot of chatter on Bogleheads and elsewhere about the “Golden Butterfly” portfolio (http://portfoliocharts.com/2015/09/22/catching-a-golden-butterfly/).
Its an attempt to create a portfolio that “matches the superior historical returns of the Total Stock Market but the volatility of the lowest standard deviation portfolios”. According to the charts on that website it seems to have met that goal.
Very interested in your thoughts.
Thanks so much for all the informative and helpful articles and posts.
Remember that’s all backtested data. So the historical return with lower volatility assumes the future resembles the past.
For example, that portfolio relies heavily on long treasuries, which have done very well over the last 30 years due to falling rates. You won’t have that tailwind going forward.
Ok, I’m starting to design my own portfolio and need a little help with figuring out how to allocate my money to specific funds available within my 401k in conjunction with my Roth IRA to keep everything together as one portfolio and stay on track with my asset allocation. What I currently have in my 401K is about $83,000 allocated over 9 different stock funds (designed by a “Goalmaker” program available in our 401K that looks at age, desired risk, etc.). The average expense ratios are about 0.6% and most of them look like they are not index funds. No bonds allocated whatsoever in that account right now. I looked through the funds available and think I have some good options there (listed below). I am planning to reallocate my current holdings to these funds and will contribute $15k/year to this account going forward. I also currently have about $8k in my Roth IRA at Northwestern Mutual and I honestly can’t even tell you what it’s invested in. I want to move all of that money into a Roth IRA at Vanguard, so will have that plus $5500/yr going into that fund. My husband is just starting out and will start a Roth at Vanguard contributing $5500/yr. We want to consider our accounts all as one portfolio (I’m 32 and and he’s 28- he will finish school in about 2 years and will then be able to hopefully also have a tax deferred account through his job).
Here are what I see as promising funds available in my 401K:
-Vanguard Developed Markets Index Institutional shares (VTMNX): 0.07% ER international blend tilted slightly toward large value
-Vanguard Institutional Index Fund institutional shares (VINIX): 0.04% ER US large blend growth/value
-Vanguard Mid Cap Index admiral shares (VIMAX): 0.09% ER US mid cap growth
-Vanguard International Value Fund investor shares (VTRIX): 0.46% ER international large value
-Vanguard Inflation Protected Securities admiral shares (VAIPX): 0.1% ER, 70% TIPS and 30% treasury
My goal asset allocation is:
80% stocks
-60% US (70% large cap, 30% mid/small)
-30% international
-10% REIT
20% bonds
Here’s my stab at allocating these across all accounts. I would love any feedback/advice before implementing the changes!
My 401K
-VTMNX: 24%
-VIMAX: 14%
-VINIX: 34%
-VAIPX: 10%
My Roth IRA
-Vanguard REIT Index Fund (VGSIX): 8%
Husband’s Roth IRA
-Vanguard Total Bond Market Index Fund (VBMFX): 10%
One question I do also have with implementing this is that rolling over my Roth IRA into the REIT fund will put it about exactly right as far as the 8% allocation, but my husband’s bond fund would only have $3k to start so would be well below the 10%. Should I just start with this and adjust when we rebalance, or should I compensate for that by having a relatively higher amount in the VAIPX fund within my 401k for the first year or two? Thanks in advance for any suggestions.
Looks to me like a perfectly fine asset allocation- broadly diversified, takes advantage of what is available in the various accounts, low cost etc.
Yes, just adjust as you go and focus on your savings rate at this point.
Great! Thanks so much.
Dear WCI
I need some help with my investing
my employer 401 k is with fidelity. So far i have been investing my 401 k and 457 in the Fidelity Freedom 2045 fund which is the default option based on my age. The exp ratio is 0.64%
They also have some vanguard funds as options among others. I have listed all the funds and their expense ratios below. I am in my mid to late 30’s. My asset allocation for my other vanguard accounts (non employer) is 90% stocks and 10% bonds which is being managed by the vanguard personal advisory services (they charge a fee of 0.3%)
I was hoping you can take a look at the fund choices and suggest if i should switch to the lower cost vanguard funds ? Which vanguard funds should i choose and the percentages?
I greatly appreciate your help
ABF LG CAP VAL INST (AADEX) 0.59%
FID CONTRAFUND K (FCNKX) 0.61%
VANG FTSE SOC IDX IS (VFTNX) 0.15%
VANG INST INDEX PLUS (VIIIX) 0.02%
VANG EXT MKT IDX ISP (VEMPX) 0.06%
ALZGI NFJ SMCPVL IS (PSVIX) Small Cap 0.87%
FID SMALL CAP GROWTH (FCPGX) small Cap 0.92% Short term trading fees of 1.5% for fee eligible shares held less than 90 days.
AF EUROPAC GRTH R4 (REREX)Stock Investments International 0.84%
VANG DEV MKT IDX IS (VTMNX) stock investments International 0.07%
PIM TOTAL RT INST (PTTRX) Bond Investments 0.46%
VANG TOT BD MKT INST (VBTIX) Bond Investments Income 0.06%
PIF DVRSD REAL AST I (PDRDX) Bond Investments 0.88%
FIMM GOVT PORT INST (FRGXX) Short-Term Investments 0.18%
Hi WCI
I mentioned the investment choices in my 401k in the comment above.
Like i mentioned i am currently investing in the Fidelity Freedom 2045 fund with expense ratio of 0.64.
However after reading some of your articles, i was thinking about may be considering some of the vanguard funds.
I was thinking about the following mix
Vanguard Institutional Index Fund Institutional Plus (VIIIX) 65% (exp ratio 0.02)
Vanguard Developed Markets Index Fund Institutional Shares( VTMNX) 25% (exp ratio 0.07)
Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) 10% (exp ratio 0.06)
what do you think about this selection from available funds? or should i stay with the fidelity freedom 2045 fund?
There are no international bond funds available however the Vanguard Total Bond Market index has about 9% foreign bonds in its composition.
There are also some small cap (AllianzGI NFJ Small-Cap Value Fund Institutional Class PSVIX, exp ratio 0.87,Fidelity Small Cap Growth Fund FCPGX, exp ratio 0.92) and mid cap funds (Vanguard Extended Market Index Fund Institutional Plus VEMPX, exp ratio 0.06) available but i wasnt sure how to use them in my portfolio.
I would really appreciate your input
Thanks a lot
I like your three fund mix. Simple and low cost. If you want to get a little crazy consider adding the Vanguard extended market fund.
Thanks for your reply
What percentage would you consider for the Vanguard extended market fund considering my current portfolio is 90% stocks and 10% bonds.
I was reading on the boglehead forum and someone suggested ~81% Large cap (an S&P 500 fund)
~6% Mid cap and~13% Small cap to mirror the Total stock market index fund.
I dont have access to any vanguard small cap fund in my 401 k.
secondly the vanguard developed market index fund (available in my 401k) does not provide any exposure to the emerging markets like the total international stock market fund (not available in my 401k).
how big a deal is this lack of exposure to the emerging markets?
I was talking to the fidelity rep and his comment was that my portfolio will be less diversified if switch from Fidelity to the Vanguard funds. ?
Is this diversification worth the much higher expense ratios of 0.64?
To include the small and mid cap i was thinking about the following mix
Vanguard Institutional Index Fund Institutional Plus (VIIIX) 51% (exp ratio 0.02)
Vanguard Extended Market Index Fund Institutional Plus Shares 12% (exp ratio 0.06)
Vanguard Developed Markets Index Fund Institutional Shares( VTMNX) 27% (exp ratio 0.07)
Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) 10% (exp ratio 0.06)
basically i did 90% stocks and 10% bonds.
Among the stocks i did 30% international and 70% US which came out to 27% and 63% respectively
Among the US stocks i then did 81% for large cap with VIIIX (comes to 51%) and 19% for mid/small cap which comes to be 12%.
Is this a decent selection from the funds available
I dont have any option of emerging markets fund in my 401 k. Is that a big deal?
any suggestions?
Thanks a lot
I like including EM. Maybe you can put it in your Roth or taxable account if you have one.
I have total international stock market index fund in my roth account.
It has some exposure to the emerging markets. I can consider adding a separate emerging market fund as well
what did you think of the other asset allocation and distributions?
Thanks a lot for your advice
just finished your book and have been recommending it to friends
I’m totally lost as to what you’re doing. In general, consider your 401(k) and Roth and all other money aimed at retirement as a single account. So if you don’t have a good fund for an asset class you want in your 401(k), put it in your Roth. So if you had developed markets in the 401(k), maybe put EM in the Roth. Your AA seems reasonable to me.
Dear WCI,
I’m new to this site and bogleheads.org and I’m loving the free financial education you both provide. I’m active duty military, late career-switch to medicine, early 30s, about to start residency and will likely retire from the military with 22+ years. I have several questions that you hopefully have the time to answer.
Q1) What are your thoughts on my plan to have a 3 fund Vanguard portfolio with tilting to specific US individual securities in down markets:
60% Vanguard Total Stock Market Index (0-15% in individual comp in bear markets)
20% Vanguard Total International Stock Index
20% Vanguard Total Bond Market Index
In severe bear markets (like 08), I would not only rebalance my allocations but I would like to reallocate some of my 60% holdings in TSM into a specific company (in my case, Apple) to take advantage of a more profitable recovery in the years following the bear market. I would still keep 60% of my total holdings in the domestic stock market, it just wouldn’t be as diversified (would probably be 45% TSM and 15% APPL). The problem with this is that it involves market timing which I’m terrible with. The only real situations where I’d reallocate TSM to a specific company would be if AAPL was trading at 30-50% of its 52wk high.
Q2) Given that I’ll retire with a military pension, I feel that the guaranteed income I’ll have for the rest of my life enables me to have a more aggressive allocation in my portfolio, even as I enter into old age. Perhaps even maintaining a 90/10 stock/bond ratio for my entire life. Your thoughts?
Q3) Right now I have all my accounts (my roth, my wife’s roth, our joint) at TD Ameritrade. I’m curious as to which brokerage/firm you keep your investments with? If I was purely doing a Vanguard 3 portfolio, it makes sense to have all my accounts with Vanguard. But if I plan to do infrequent trading with an individual company, I read that Vanguard is lacking in the online trade platform department when it comes to buying/selling individual non-Vanguard securities.
Q4) Do you prefer the Vanguard ETFs or mutual funds? Any particular reasons or insights?
Thank you for all you do.
You’re welcome.
Q1. That sounds dumb. Why take on uncompensated risk? There are precious few reasons to invest in individual stocks and that isn’t one of them. https://www.whitecoatinvestor.com/uncompensated-risk/
Q2. I agree, assuming your temperament can handle it. If you haven’t yet invested through a big bear market like 2008, you really don’t know, so err on the side of being overly conservative until you have. 80/20 is pretty darn aggressive by Boglehead standards. 90/10 even more so. You’re making a pretty big bet on equities there.
Q3. I have brokerage accounts at TD Ameritrade (HSA), Schwab (401(k), Fidelity (a credit card), and Vanguard (Roths, taxable, and individual 401(k)s. They’re all fine. I certainly wouldn’t shy away from Vanguard if you only plan to buy an individual stock every now and then. It works just as well as Schwab or TD Ameritrade for my purposes.
Q4. I use both depending on which is cheaper in any given set-up. In my Schwab 401(k) and taxable account I’m using ETFs. In my Roth IRAs and individual 401(k) I’m using funds. With Vanguard, they’re really two share classes of the same fund. So if the ER + associated fees are less than the commissions + associated fees, I would use the fund. Otherwise, I would use the ETF. I chose to use ETFs in taxable to facilitate tax-loss harvesting a bit more, but it’s a tiny, tiny advantage and potentially even a disadvantage in my view. https://www.whitecoatinvestor.com/mutual-funds-versus-etfs/
Thanks for the prompt response WCI (I can’t say the same for my own). I’ll do some more reading and respond back if I have any remaining questions after reading the links you posted and using my google-fu skills.
Hi WCI,
I finally had some time between clinics and projects to properly follow-up.
Q1) I really enjoyed your article on uncompensated risk, especially the example of buying all your real estate in a single geographic area. I want to pick your brain further on this issue. Considering the financial strength of a company like AAPL and the significant increased return one would have gained investing in APPL in 2008 compared to the S&P500 (16.53% CAGR vs 6.47% CAGR, respectively), do you still consider this uncompensated risk? The increased risk of investing in a single company instead of thousands of companies through an index is obvious, but it seems like the increased return of 16.53% over 6.47% is the “compensated” part. I also would only consider deviating from the Vanguard TSM for Apple, not for any other company.
Q2) Check, good advice.
Q3) Have you checked out Merrill Edge by chance? You would certainly be eligible for their 100 free trades per month, in addition to the other credit card bonuses and ATM perks. I’m seriously considering changing my long-time banking association with USAA to ME.
Q4) Thanks for the insight, I liked your article and posted a question on that page.
Q5) This is a question that probably belongs on a different page, but I would love to hear some of your tips on being a power user. I consider myself pretty time efficient with time between being a father, husband, med student, research/business projects … but you seem to be in a league of your own. How do you manage being an EM attending while being so responsive on this blog on top of your other projects?
Q1) just wanted to clarify that I would only consider deviating from TSM into APPL after serious bear markets.
Q6) What are your thoughts on Buffet’s famous asset allocation of 90% S&P500 and 10% short-term bonds for his beneficiaries after he has passed? This portfolio allocation is very similar to portfolio #1 (100% in an S&P500 index). I’m puzzled why Buffet wouldn’t opt for a broader index than just the S&P500.
1) Still dumb in my view.
2) It’s reasonable, although pretty aggressive. I’m not sure if Buffet actually thinks a 500 Index fund is superior to a TSM fund, doesn’t know about TSM funds, or simply thinks that it doesn’t matter. Not an issue. Remember that’s his recommendation for a “know-nothing” investor badgering him for an asset allocation recommendation. My recommendation is Vanguard Life Strategy Moderate. Both are fine and far better than the vast majority of portfolios people out there hold, like all their money in Apple stock.
1) Yes. It’s uncompensated because you can diversify it away. Substitute Enron or Worldcom or Pets.com for Apple and it might make more sense. Apple is not magic. It is not guaranteed to go up. I’m not sure why you consider it to be any more special than any other company on the planet.
3) What the heck would I do with 100 free trades a month? I can barely get in one a month to invest my 401(k). The only time I ever do a handful of trades is when tax loss harvesting, and that only occurs every few years. Bank wherever seems good to you, but that’s not a benefit I need. I’m not sure what ATM perks they’re offering, but I pay no fees with USAA. Is there another perk out there I’m not aware of? I have separate credit cards.
5) I gave up a lot of hobbies and I have an incredible spouse.
1) I like the example of Enron. You’re right, APPL isn’t magic, it’s just the only company that seems to be different than the masses out there. Thanks for expanding the conversation on this.
3) the ATM perk ME/BoA is offering is unlimited ATM withdrawals, but you’re already getting 15 for free from USAA (and I come no where close to 15 ATM withdrawals a month). As someone with a meager showing of assets, going to ME for free trades (it would only be 3-4 a month into the Vanguard ETFs) is more significant to me than it would be for you. Just wanted to point out ME since it’s a free way to have all the Vanguard ETFs for free outside of investing with Vanguard.
5) I gave up my hobbies as well after my first was born. Thought you might have had some secret time-efficiency secret.
I think Wells Fargo gives tons of free trades too. I think I trade Vanguard ETFs at TD Ameritrade in my HSA commission free too.
I don’t know that I have any secrets. Minimize your commute. Don’t waste time. Automate your life. Just the usual stuff. It helps to type fast.
Thank you for taking the time with the site, the info you share and your feedback. It’s given me the confidence to drop our vanguard advisor & save 0.3% to manage it on my own with a proposed much simpler portfolio that I’d like your feedback on. Interestingly, the advisor had proposed we be in a 90/10 mix, which I personally found would be too aggressive to tolerate in the next bear market.
Target Allocation 70/30
40% VTSAX – Total Stock Market Index Fund Admiral (ER 0.05%)
20% VTIAX – Total Int’l Market Stock Index Fund Admiral
5% VGSLX – Vanguard REIT Index Fund Admiral
5% VSIAX Small Value Index
30% VBTLX – Total Bond Index Admiral
Vanguard Money Market Fund (Emergency Fund)
Some background; my wife & I are both in our late 30s, both docs, own a clinic. We’e been focussing on paying down student, practice, building, and equipment debt. We’ve taken advantage of back door Roths and 401k profit sharing & are now looking to shift more resources to investing for retirement.
I’ve recently set up my 401k similar to you except 50% S&P (I’m not sure if theres a huge difference in 500 vs TSM), 10% small tilt, 30% International (Boglehead/Vanguard recommend 20-50%) and 10% Bonds.
I’m 25 years out and ‘think’ I can ride out the next Bear market but do wonder if a higher % bonds would be wise. My vanguard target plan would have me at 90:10 if I used it and most of my partners (sitting on huge 401ks ~ 2-3 million) think that there’s no need for any higher than 10% and some even say 100% stocks at this point.
Not that 10% is significantly more but is 5% small value really worth wasting your time on?
Nice portfolio.
Bailey
5% is my cutoff for wasting my time. So I try to make that minimum for any asset class I hold. I prefer TSM to 500 for many well documented reasons, but it’s a very minor difference.
As far as AA, I would caution you to err on the conservative side until you go through your first bear market. I’m at 75/25, have been there for years, am very comfortable with it, and still found 2008 pretty painful. Losing 78% of my initial investment in REITs was particularly painful. Describing how painful watching your life’s savings evaporate in a bad bear market is a bit like trying to explain sex to a virgin. There are some things that words and pictures cannot help you understand. You simply have to experience it personally to really know how it will feel to you. The good news is there is little difference in how much you end up with if you spend your first 5-10 years at 60/40 instead of 100/0. Right now it’s all about your savings rate.
I do not have access to the TSM within my 401k so I tried to create it with my available options of Vanguard Mid and Small Cap Index funds along with the Vanguard 500 Lg cap.
Tried to research it on bogle heads but could only find this:
https://www.bogleheads.org/wiki/Approximating_total_stock_market
Currently, I’m 35% Lg Cap, 10% Mid Cap, 15% Small cap as an AA to create a Pseudo TSM. Thoughts?
Bailey
Too small cap heavy to be Pseudo TSM. I don’t have a problem with the allocation just be aware it isn’t TSM. If you play with Morningstar’s x-ray tool, you could get exact percentages, but something like 75% LC, 15% mid cap, and 10% small cap would probably be about right. So in your case since your totals add up to 60%, maybe 45, 10, 5 would get you close enough.
Thank you Bailey & WC for the replies.
I wanted to keep 5 or less holdings for simplicity & also like the 5% rule. I will shift to a 75/25 stock/bond mix with the bonds entirely in tax advantaged 401k & roth IRA accounts.
Once we’re spilling over into taxable accounts I plan to put some of each of the 4 other funds (TSM, TISM, REIT & SMALL CAP) for tax loss harvesting opportunities. Do you utilize specific share identification for this?
As for our savings rate, aside from the Roth conversions & 401k we’ve primarily increased our net wealth (previously negative) by focussing on paying down (& renegotiating) practice, student, commercial building loans with rates over 4.5%. So many loans! It’s shocking & inspiring to calculate a reduction of $1.9M in principal so far. Now that we’re down to the ones 1.5-4.25% we want to start shifting more resources to retirement investing.
Ryan
I’d put REITs into tax-advantaged preferentially over bonds. Yes, I use specific share identification if necessary.
For the rookie: hold taxable bond funds in tax deferred accounts, or using muni bond funds to avoid paying taxes on your fixed income. I have done pretty well with the Vanguard Intermediate Muni fund.
For the rookie investor: taxable bond funds in the tax free accounts, muni funds in the taxable side. I liked VG Intermediate Term Muni Fund while I was in the accumulation phase.
If anyone is interested in a ranking of Lazy portfolios and their historical returns check out..
http://portfoliocrunch.com/
Thanks so much! Great article WCI. We have accumulated a huge sum in our solo 401k over the last five years. Husband is always waiting to time the market and has left 90% in cash. I can’t wait to share this article with him. I have one quick question: I liked few portfolios here, but is there a reason you invest in mutual funds as opposed to ETFs? If I do have ETF equivalents, can I do so without jeopardizing anything?
Look forward to hearing from you!
Low cost, broadly diversified index funds and low cost, broadly diversified ETFs are both fine.
Timing the market is akin to taming the market — good luck with that!
I meant I liked a few portfolios (not few;)
Another question: with the cash I have, should I dollar cost average or take a plunge? And once that cash is depleted and I have my yearly/ monthly contributions going in to the account, do I dollar cost average. Please reply! Thanks for your time
https://www.whitecoatinvestor.com/dollar-cost-averaging-is-for-wimps/
Dollar cost averaging means mostly that — average!
Thank you for your post and the book , I ask learning a lot from this website .
I do have a financial advisor for the last 4 years who is managing multiple accounts and I decided to learn it myself , so I opened vanguard account and started to buy stocks and ETFS , now if my goal is withdrew money from the vanguard in 5 years to buy a real estate or a business ( part of diversification ) since personally I be worried if all my saving are in the stock market . What would be the a good portfolio , I got the vanguard growth s&p 500 vanguard index s&p 500 and vanguard and vanguard international stock index along with individual stock Microsoft where it doubled in the last 3 years , Starbucks and Johnson and Johnson .
I am learning my way day by day and making changes , any advise ?
https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/
I think this discussion will help.
What orient are you in?