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 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)
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
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)
You can learn more about the exact investments here. 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
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!
My take on your parent’s portfolio exhibits a glitch by including a money market fund. Why did you include this? It adds nothing to an otherwise good set-up. The only other thing I observe is whether you’d allow yourself to shelter this portfolio from its current heavy bond exposure during a time of great fixed income risk. Some well read and respected academics are beginning to see rotation OUT of bonds and into stocks.
Thanks for your concerns. People have been worried about “great fixed income risk” for the last 6-7 years. Yet the right answer so far is “stay the course.”
The purpose of the cash is to provide 2-3 years of RMDs in a down stock and bond market. They’re comfortable with it and so am I.
Hi! I am just getting into investing and opening a Roth IRA. I am a resident, age 27. I was thinking of the following breakdown…
30% Vanguard S&P 500
30% Vanguard total bond market fund
10% Dividend stocks (Apple/Walmart/Kraft-Heinz)
20% Vanguard Prime Money Market
10% Vanguard International Stock
I do not plan to touch any of this money for at least 20 years. Does this portfolio sound reasonable? Thanks!
Or is it better to have no money market investment if I have an emergency fund elsewhere? Appreciate your thoughts!
That’s what I’d do.
Yes. Pretty cash heavy though for 20 years in my opinion, but it certainly falls into the reasonable category. Keep in mind you already own Apple/Wal-mart etc with the S&P 500 fund.
I would like this site to explain how this individual got my email address? They emailed with this question in mind. They did not respond to my initial (and brief) response.
Don’t be paranoid. You subscribed to this thread, so all replies to this thread get emailed to you. Just unsubscribe if you don’t want them.
Do readers here have access to my email address? If so, why wasn’t I informed of this possibility. Your credence is at stake regarding this issue. ALL physicians I know are far too busy than to have time dwelling on a web site such as this.
I’ve got Creedence.
Some folks are born silver spoon in hand
Lord, don’t they help themselves, oh
But when the taxman comes to the door
Lord, the house looks like a rummage sale, yes
It ain’t me, it ain’t me, I ain’t no millionaire’s son, no
It ain’t me, it ain’t me; I ain’t no fortunate one, no
I don’t have your email. Just commented on this post… ??? Relax.
Testing
[Ad hominem attack removed.]
There are discrepancies involved with the manner in which this site conducts itself. Within two days of visiting this site I had someone with unauthorized access to my email address contact me indicating they were female and a “resident”. Give me a break! I deeply resent that — whoever it is who runs this site! You have lost credence, big time! The so called emergency physician seemed available to immediately answer my comments — unlikely in the real world of physicians. His answers mimicked the smug! NO MORE!
Dude, you’re crazy. You do get that once you comment on the thread, you will get an email anytime someone else comments, right? I also got the email with Nicole’s question because I had commented on the thread (long in the past)…it’s not coming directly to YOU, it’s posted on the site and you’re getting an email notification that there is a new comment. And as an emergency veterinarian who is currently at work, it took me all of 30 seconds to click on the link and reply to you in between typing up records, so don’t see how it’s so crazy to get a rapid reply to your questions. Most people would appreciate that.
This is getting comical now. You’re cracking me up. It’s like you’ve never left a comment on a blog before today. The so called emergency physician was busy speaking to a group of so called emergency physicians at ACEP tonight so he couldn’t be immediately available to answer your comments.
Ok, I get it!
Most here appear to be busy people. Doing it alone visiting a site such as this could spell disaster for many who haven’t a clue about investing and the totality of what’s involved. This stuff takes time — getting a read on our economy takes a long read. Have you got even the stamina?
I think I’ve got the stamina to take a long read on our economy. But I don’t think that’s a critical aspect of developing a solid investment plan.
OK so to repost my question…
Hi! I am just getting into investing and opening a Roth IRA. I am a resident, age 27, with time to post since I on my vacation (in case you were wondering). I was thinking of the following breakdown…
30% Vanguard S&P 500
30% Vanguard total bond market fund
10% Dividend stocks (Apple/Walmart/Kraft-Heinz)
20% Vanguard Prime Money Market
10% Vanguard International Stock
I do not plan to touch any of this money for at least 20 years. Does this portfolio sound reasonable? Or is it better to have no money market investment if I have an emergency fund elsewhere? Appreciate your thoughts (other than Jason)!
Other than Jason! Jason could be helpful. Rather than load up on resentment, relax! Jason is a pen name I use.
Stepping back, I blundered. Humiliated, tortured, embarrassed, I’m in all practicality sorry for my seemingly paranoid behavior. At least there were no delusions of grandeur. My apologies go out to the White Coat, Nicole, Julie and anyone else who read my ravings.
Greetings
Thank you again for the blog. I will choose portfolio 150. I am wondering if I just go with vanguard equivalent funds since I have an account or just open multiple accounts to invest the exact funds. Some advantage of choosing exact account is a lower fee compared to vanguard
any suggestions ?
Not sure you have the accounts (like the TSP) available to you to perfectly replicate it. If I were you I’d probably just reproduce at Vanguard.
There is so much information out there it’s hard to know what to do. My husband (32) is switching jobs, it’s the first time I really look at his 401k information. I was told we didn’t need to roll it over right away, I know we definitely will not be cashing it out. How or should I reallocate or rebalance, currently it says 100%
Permanent Portfolio Permanent IPRPFX which I am learning is pretty conservative.
Pick a reasonable portfolio and allocate to that. This post lists dozens of reasonable portfolios.
I no longer traverse this site. But I continue to get (email) notifications. ALL of the questions I observe being put forth at this site indicate people being in the dark regarding their investments. You WILL NOT get an intelligent answer here by submitting ridiculously few words regarding the extent of your entire financial situation including household budget, your aversion to risk, when you may need tied up (invested) funds, and other very important considerations.
What I can suggest to you, as a seasoned investor, is that your wringing your hands over any one of thousands of asset allocation mixes, your most perplexing problem is once you have selected a mix, will you have the gut fortitude to leave it alone? That’s the rub! Good luck!
I like the Portfolio 2: Total Stock Market Portfolio using Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX. It’s easy to understand, easy to hold long term, has a very low expense ratio of 0.05%, and also has a yearly dividend of 1.95%. I currently have my 401K, Roth IRA, and wife’s Roth IRA in this.
Do your parents withdraw from the prime money market account and if so do you have dividends from other funds put into that account to keep it at a certain amount? I am helping my parents out and I decided to not include their cash account (now Federal Money market fund with Vanguard) in the asset allocation percentage. I simply put enough cash in for a year of withdrawals. The rest is allocated at a 50/50 split and the dividends go in the the money market for them to withdraw. The reason why I do this is because 5% cash may or may not be the the amount they need to withdraw for the year. It seems easier to set a dollar amount for withdrawals rather than a %. Are you thinking the same when managing your parents account? Look forward to hearing your insight on this. Thanks.
Joseph
I think that’s a very reasonable way to do it. My parents do withdraw from the prime MMF, then rebalance once a year. Sometimes those two things take place at the same time, other years at different times.
one more question regarding international funds and correlation.
I currently own Total International fund and I am considering separating it into what Rick suggests, Emerging, Pacific, EM, and maybe Small Value (international). The reason why is mainly because of correlation between the regions seems to be more negative. So if we take the current market, EM are up, while Europe is down. I would rather be buying in just with Europe right now rather than EM. And I plan to keep this within a set asset allocation. What do you think of this? Will this give me a slight edge on returns over the long run? About 2 years ago I got out of a Target fund and bought bonds and stock separately which has given me this opportunity to chose when I buy what asset class. Does this actually Trump (wow!, can’t believe it) vanguard’s automatic rebalancing in balanced funds? Thanks again.
I wouldn’t make long-term asset allocation decisions based on what you think of current market conditions. While it is possible you will gain some sort of rebalancing bonus by separating out the various parts of the world, you are also adding expenses and complexity. Only you can judge if it is worth it. I run a pretty complex portfolio, but I anticipate simplifying it soon. It just isn’t a big factor in our financial success. What really matters is making a lot, saving a big chunk of it, taking a reasonable amount of overall risk, and minimizing taxes and other investment costs.
Thank you! That is really helpful.
My last question, number 95 is a different question. Thanks!
I’m 33, newly minted doc trying to setup my retirement plans. My company offers a 401k through securian, unfortunately without a match. Here’s what I’ve allocated.
Bond
10% Dodge & Cox Income
US Stock
12% Advantus S&P 500 Citigroup Growth
12% Advantus S&P 500 Index
12% DFA US Large Cap Value
22% Vanguard Extended Market Idx Adm
International
22% Vanguard Total Int’l Stock Index Admiral
REIT
10% Vanguard REIT Index Adm
Any input is appreciated. Are the Advantus + DFA allocations somewhat redundant? Do I need to increase the international allocation? Also, should my strategy differ significantly for my planned Vanguard taxable account, as it will hold more than twice what I’m maxing out in my 401k? HSA and backdoor roth are essentially set. Thanks!
You need to look at your entire portfolio, at least the portion allocated to retirement, as one portfolio. So your 401(k) and your taxable account are one big portfolio.
The portfolio you outline is a reasonable one, but I think I’d probably work it out so you’ve got your REITs and DFA and Vanguard funds there in the 401(k) and move bonds to taxable (munis) along with your large blend and large growth allocations. If you need to, probably TISM to taxable next.
Thanks for pointing that out. I hadn’t considered tax efficient fund placement yet. I’ll need to work that out. If you don’t mind, I’d like to post a follow up in the forums once I have an update.
Greetings
my portfolio currently consists of…..
Vanguard 500 Index Fund 20%
Vanguard Dividend Growth Fund 20%
Vanguard Total Bond Market Index Fund 20%
Vanguard REIT Index Fund 20%
Vanguard Health Care Fund 20%
what are your thoughts……. p.s. really enjoy the website and your time
I think it needs work for several reasons.
# 1- I think 40% into actively managed funds is too much.
# 2- I think not having any international stocks is a mistake.
# 3- I think you have way too much large cap and not enough small cap.
# 4- I think 20% is a big bet on REITs, too big for my taste and probably at the very upper limit of reasonable.
I like that it is only 5 asset classes with the exact same amount in each asset class. Love the simplicity aspect of it, but I think it’s making some bets that are probably not wise and it seems like there is a lot of recency bias built into it. Are you sure you’re not just looking at what has performed well in the past, especially the recent past, and building a portfolio out of those blocks? That said, if you can adequately fund it and stick with it in the long run, it’ll probably work fine.
if i re-balanced and added a small cap and a mid cap it could look like this…..
Vanguard 500 Index Fund 14%
Vanguard Dividend Growth Fund 14%
Vanguard Total Bond Market Index Fund 14%
Vanguard REIT Index Fund 14%
Vanguard Health Care Fund 14%
Vanguard Small-Cap Value Index 14%
Vanguard Mid-Cap Index Fund 14%
i like that a little better…how about you?
This portfolio addresses some of the issues I brought up earlier, so yes, I like it better than the original. But there is still no international and it is even more aggressive than the very aggressive portfolio you had earlier. Plus, it still includes the dividend growth and health care funds in equal chunks to other more diversified funds.
hello WCI,
would you mind taking a look and tell me what your thoughts are….thanks
FUSEX Fidelity® 500 Index Fund Investor Class 10%
FSGDX Fidelity® Global ex U.S. Index Fund Premium Class 15%
FCNTX Fidelity® Contrafund® Fund 5%
FSCKX Fidelity® Mid Cap Index Fund Premium Class 15%
FBIOX Fidelity® Select Biotechnology Portfolio 5%
FSPHX Fidelity® Select Health Care Portfolio 5%
FSTVX Fidelity® Total Market Index Fund Premium Class 30%
FSITX Fidelity® U.S. Bond Index Fund Premium Class 15%
i’ll also be adding another 5500 to the funds shortly….i don’t want any more funds so i’ll be adding the money to 1 or more of these…..any suggestions
thanx so much
My thoughts are that it looks fine. I think I’d drop Contrafund. I also wouldn’t hold both a total stock market fund and a 500 index fund. One or the other (I prefer TSM.) I think the international is a little light for such an aggressive portfolio. Recency bias?
What fund should you add money to? Which one is most out of balance? Probably the bond fund I bet.
thanks for the comments
also i bought some Raytheon stock 25 yrs ago. I’ve never done anything with it. I bought it at 22 and now its at 150. its worth about 100k now…i’m 55 yrs old.
what would you do with it? its become about 17% of my portfolio
i know thats a lot to own in 1 stock but it just keeps going up
i’ve asked 5 people and i’ve gotten 5 different suggestions
thanks again
I’ve posted before but my company 401k recently changed so I adjusted my allocation a bit. I welcome thoughts and suggestions. I think I can live with this longterm and sadly 20-25 years out from retirement.
Vanguard S&P 500 Index (0.05) – 35%
Vanguard International Index (0.14) – 30%
Vanguard US Bond Index (0.06) – 15%
Vanguard Small Cap Index (0.10) – 12%
Vanguard REIT Index (0.12) – 8%
Thanks!!!
CJ
Aggressive, but reasonable.
I’m considering a simple portfolio (fighting off the desire to make things overly complex by including mid cap, small cap, REITs, precious metals, emerging markets, ect which is my nature). I recently read the “Elements of Investing,” which suggests equal contributions to International and US Equity. I’m in my mid thirties and in a high income specialty.
I was thinking
45% US Total Stock Market Index
45% Total International Stock Market Index
10% Vanguard Total Bone Market Index
I have a lump sum to invest in both taxable and non-taxable accounts. I considering averaging in this sum over 12 months. Last time I lump summed was right before the last financial collapse. I know we are always hitting new market peaks, but just doesn’t feel right to lump sum at record highs. I imagine, I could create a less aggressive portfolio to assuage my fears; however, given 20-30 years prior to retirement, I feel I should not be too bond heavy.
I often wonder same thing!!!! Portfolio 1 – just S&P 500 sounds better and better. Talk about cheap and easy!!!! My 401k S&P 500 index has an ER of 0.03!!!! I like your 3 fund portfolio. Easy, cheap, easy to track and rebalance and likely to do just fine over 30 years!
By using TSM vs S&P you’ll get midcap and small cap exposure….so you’re good there.
I add international just because it sounds like most (WCI, Bogleheads) recommend at least 30-50% although I’m a firm believer in the US economy. I may be incorrect but I know the S&P added a real estate sector (REIT exposure) and I’m guessing TSM too. A question I wonder is the newly added real estate sector enough to dump an individual REIT fund? Maybe the WCI can answer. I often wonder the same thing about adding an individual healthcare fund like Vanguards healthcare index when that’s covered some with the S&P 500 and TSM.
I personally don’t mess with emerging markets (that have been ’emerging’ for that 20 yrs) nor precious metals. Whether you add a percentage to REITs is up to you and there’s great pro/con debates on the Internet/bogleheads site.
Goodluck!!!
CJ
It’s fine to use REIT. Also fine to go without. Both reasonable. I don’t see a healthcare stock as a fundamentally different thing than a REIT though. I think tilting to healthcare is mostly chasing performance. But if you want it in a small slice and are willing to stick with it for the long term, it isn’t unreasonable, which is what this post is all about.
actually, many healthcare stocks and funds have not been good for at least 18 months now
You and I have a different view of recent. I was thinking last decade or two. 🙂 But you’re right, not so hot in the last year or so.
That’s why I’m considering them now vs 2013-14 when they were at high value. Most healthcare funds are down this year.
No guarantee that they’ll go up because they went down lately or that they’ll go down because they went up lately of course.
Since 1929, technology, healthcare, and consumer staples, have had the biggest returns in comparison to ask others with health and consumer staples having a higher sharpe ratio.
You can look at rolling 5,10, and 20 year returns and healthcare is probably the best sector for 90 years.
A contrarian would look at healthcare as a great buy now.
Crystal ball so cloudy….
You makes your bets and you takes your chances. A slice of health care is a bet. If you really believed in that bet, you’d just put all your equity in health care.