By Dr. Jim 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 Million-$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!
Vanguard actually recommended this portfolio based on my questionaire:
60% Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
40% Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
If it doesn’t feel right to lump sum, your portfolio is too aggressive for you. It feels perfectly fine to me to lump sum into my asset allocation. I do it every month.
https://www.whitecoatinvestor.com/dollar-cost-averaging-is-for-wimps/
So given that, I’d go with the less aggressive (90/10) portfolio over the 100/0 portfolio. In fact, you might even cut it back to 75/25 until you go through your first bear market (I’m sure it’ll be along at some point in the next 5-10 years) and see how you react.
Those questionnaires are garbage in/garbage out. If you tell it you want an aggressive portfolio, it’ll give you an aggressive portfolio. All of us think we can handle an aggressive portfolio until we get punched in the face by a bear market.
I’ve spent most of a cold rainy football Sunday reading your blog and this thread in particular and I have a few comments:
#1 you are a saint.
#2 this post has 150 different balanced portfolio choices. People, pick an appropriate option for you and go with it. Stop pestering WCI for personal advice!
#3 you are a saint!
All kidding not aside, what do you think of my portfolio of 50% svxy and 50%upro? I’m up about 70% this year, which is nice. Sure, it’s volatile……January scared me a bit but it’s been all roses since then. 😉
Thanks for bringing investment advice to us unwashed masses! I feel fairly financially literate and still managed to learn a lot today.
I’m pretty sure you’re kidding, but just in case anyone else isn’t, neither of those funds is a good long term holding so putting them together makes for an unreasonable portfolio. More details about leveraged ETFs here:
https://www.whitecoatinvestor.com/leveraged-index-funds-friday-qa-series/
True. And one more post to read! Your site is great.
Oops, forgot to add I wasn’t kidding about #1 and #3 above. 🙂
Why invest in those two? They are positively correlated (0.84) with a drawdown of almost 50% (Aug 2015-Feb 2016.
The combo has a 44% return over past 5 years.
A combo of TMF and UPRO/TQQQ are negatively correlated. You’ll get a lower return (30%) but with a much smaller max drawdown and will survive better through 2007 like event.
You can choose a different leveraged bond fund since long term bonds going too get hit. Recommend find negatively correlated funds and rebalance annually.
Thanks Kevin!
You are of course correct.
My hope is that people realize that this particular combination of recency bias, luck, and a horribly non diversified portfolio can be profitable, but in reality is a very bad idea.
Your insight and analysis in this thread has been very valuable to me and (I hope) to many others. Thanks!
My first stab at designing my own asset allocation. Curious what others think. I want to keep it simple and cheap.
80/20 Stocks/Bonds (I’m 34 y/o)
24% VTI
24% VOO
32% VXUS
14% BND
6% BNDx
Of the stock portion, its 60/40 between domestic and international. Of the domestic portion, 1/2 is total stock market and 1/2 is S&P 500. Seems like VOO has higher returns over the long haul? So, I thought this was a way to be more aggressive?
Also, I’m undecided on ETFs vs Mutual Funds. Plus, since some of this money in my wife’s fidelity account, I don’t have access to the vanguard funds and will have to choose funds similar to the ones above from the choices they give us (and her choices suck currently, I’m trying to get her employer to consider changing them).
Please repost with fund names. Ticker-speak puts your work on the shoulders of your readers.
Sorry about that, here are the names of each fund…
24% VTI (Vanguard Total Stock Market, ETF)
24% VOO (Vanguard S&P 500 Index, ETF)
32% VXUS (Vanguard Total International Stock Market, ETF)
14% BND (Vanguard Total Bond Market, ETF)
6% BNDx (Vanguard Total International Bond Market, ETF)
I see no reason to have VOO in there. I think that’s a mistake. Either move it all into VTI, add another fund, or split it among the others. You’re aware you can buy a target retirement or life strategy fund and get almost the same thing, right?
Maybe add REIT?
I’m in similar boat and thinking of adding 10% REIT to a similar asset allocation.
I am in a similar boat and thinking of adding 10% REIT to similar portfolio. Not sure whether it makes a difference, but maybe just a lil more diversification.
Borrowing some ideas from the white coat investor’s portfolio, I’m thinking of designing something a little more diverse than the 4 fund portfolio I posted above…Not sure on percentages yet, but these are the funds I’m thinking of using
VTI – Vanguard Total Stock
VXUS- Vanguard Total International Stock
BND – Vanguard Total Bond
BNDx – Vanguard Total International Bond
VGSIX – Vanguard REIT
NMSAX – Columbia Small Cap (one of the few low cost options available through my wife’s 401k)
NEIAX – Columbia Large Cap (same story at my wife’s 401K)
VIMAX – Vanguard Mid Cap
SCHP – Schwab US TIPS
I’ve also ordered a couple of the recommended books from your site, so I’m not planning on making any changes until I’ve read them, but wanted to start getting a rough idea of others thoughts on these.
I think you’ve got lots of great building blocks there. But that list isn’t an asset allocation!
VTSMX Vanguard Total Stock Market Index Fund 30.00%
VGTSX Vanguard Total International Stock Index Fund 10.00%
VBMFX Vanguard Total Bond Market Index Fd 10.00%
BRUSX Bridgeway Fund Ultra-Small Company 10.00%
NEIAX Columbia Fds Srs Tr, Large Cap Index Fund Class A 10.00%
NMSAX Columbia Fds Srs Tr, Columbia SmallCap Index Fund Class A 10.00%
VIMSX Vanguard Mid-Cap Index Fund 10.00%
VGSIX Vanguard REIT Index Fund 10.00%
Backtesting this against the S&P 500 using portfolio visualizer shows it would have outperformed the S&P 500 since 1998 (that’s as far back as the vanguard mid cap goes). I know that’s not a guarantee of future performance.
Its pretty aggressive with only 10% bonds. Wondering if I should get rid of either the mid cap or ultra small in favor of more bonds? Maybe 20% bonds instead? Or add 10% TIPS? I’m 34 y/o.
How about asking yourself why you want bonds in the first place? That should help you answer the question. You’re 34, probably a physician… What is your tolerance of Volatlity? long term goal? How do you want to get there? Try running the same portfolio with no bonds 10% bonds 20% bonds xxx% bonds and see if any of those options feel more right to you. Good luck and great that you are having these thoughts while you are young!
Thanks! I am a physician. My goal is to have the option to retire in my 50s. We don’t live an extravagant lifestyle so I don’t expect to need even 50% of my income at retirement. I plan on paying off my mortgage early, so my expenses will be quite low once I accomplish that. I’m in the process of putting together an official IPS with my wife, so I’ll more clearly define those goals soon.
Since I’m still relatively young and plan on working as long as I can stand it, I realize that I need to be ok with volatility. My plan is to depend on communities like this and bogleheads to help me stay the course through the inevitable downturns we’ll see in the markets over the next 20-30 years.
It appears that by adding more bonds the end point is pretty similar in terms of returns, but what changes is the degree of volatility.
I don’t know how I’ll actually feel when I see my portfolio drop drastically because I’ve never had money in the stock market during a downturn. From what people say on bogleheads, its harder to swallow then you might predict ahead of time. SO, I’m leaning towards more bonds to hopefully ease the pain during these times.
Nobody really knows which portfolio will do the best. You have a reasonable portfolio, although I think you’re giving backtesting way too much credit. If you made your proposed changes, that would also be reasonable.
Personally, for a 90% equity portfolio I think only 10% in international is pretty light and smells of recency bias- exactly what you’d expect from a portfolio designed from a backtest.
If your goal is to retire in your 50s, your savings rate is going to matter a heck of a lot more than whether you go 10% or 20% bonds or use microcaps or use TIPS or whatever.
The fact that you’re not sure how you’ll react in a downturn argues for more bonds in my opinion.
I just got this email after figuring out my own final asset allocation just a few minutes ago.
I decided upon 80/20 Split (60% US and 40% International) with 10% equity tilt towards REIT. Trying to keep it simple as possible for rebalancing and asset allocation.
Vanguard Total Stock Market Index 43%
Vanguard Total International Index 29%
Vanguard REIT 8%
Vanguard Total Bond Market Index 20%
After reading many books, blogs and obsessing over the subject, I have come back to the idea of doing things as simple as possible. I only added the REIT after I saw it recommended over and over on Bogleheads as well as by Rick Ferri). I decided against the small value tilt for simplicity sake.
Small cap and mid cap already in the Vanguard total market index. If there are no low cost total market index funds in 401k, I would compose something similar to Vanguard total market index, which is 70% large cap and 30% small/mid cap. Maybe keep asset allocation in each separate retirement fund similar so you can just rebalance each without having to compare them to ensure you stick with your planned asset allocation, if that makes sense.
For bonds, I decided to go simplest route and just do total bond market index. With global nature of economy, I figure I have enough international bond exposure with just that fund. In addition, Total Vanguard Bond Fund has lower expense ratio than international bond fund.
As Einstein Said, “Everything Should Be Made as Simple as Possible, But Not Simpler”
Diversification is so important in retaining long-term income for years and years to come. I am still working on this myself.
Great stuff on WCI. Thank you.
Can you please post an update on your portfolio and annual rate of return?
I will have a post on my portfolio in the next few months, but the rate of return is easy to get off my spreadsheet. As of year end I had a 10.72% return in 2016 and my all-time annualized return (2004-present) is 7.66% per year.
Is there a link to your spreadsheet?
No.
White Coat: I have greatly enjoyed reading your book, and many articles and I like the portfolio options discussed here. I tend to keep it simple using the Bridgeway 35 Blue Chip Index 30%, and the Vanguard Small Cap Value Index 35%, along with the Vanguard Intermediate Treasury Index 35%. It has done very well in multiple market environments. The only change I am considering is splitting up the bond position between regular Treasury bonds and TIPS. I would also love to substitute in DFA Funds and the Bridgeway Omni Small Cap Value Fund but refuse to pay for a financial advisor to get access to them. Thanks again for the article, and for all you do.
You’re welcome. Sounds like a reasonable portfolio to me.
Jonathan: There is no doubt this is a reasonable portfolio. However given your desire to attain more “DFA like” returns, it can be improved. The factor weightings in the Vanguard Small Cap Value index are not as small or “valuey” as the S&P 500/400/600 value indexes (all available from vanguard if you want to stay within that fund family), which provide more exposure to the factors that academic research has proven should enhance a portfolios return over the long run. While these indexes do not enhance the portfolio by weighting towards the other factors academic research has proven will likely lead to long term out performance the same way DFA does, it will enhance what you currently have in place. Using the Bridgeway Blue Chip 35 as the core fund combined with weightings to the S&P 500/400/600 value indexes in accordance with your risk tolerance may be a good alternative to consider. I wish you the best in investing!
The 150 portfolios are great, but how about listing 3, 5, and 10-year returns for each?
I think you’d appreciate this:
https://www.bogleheads.org/forum/viewtopic.php?t=207130
If you go to firecalc and put in a 100% S&P 500 portfolio the results are impressive.
Why BRSIX (.84% ER) instead of VTMSX (.11% ER) for micro-cap exposure?
Smaller stocks. Obviously you have to weigh that against the higher expenses.
Hello everyone:
I have $200K ready for investment. Recently started investing at vanguard– $50K in vanguard total stock(VTSAX). I would like to invest 100% in US stock for now. I have already max out my Roth IRA contribution –90% in vanguard total stock(VTSAX) and 10% vanguard small cap value (VISVX). To invest the remaining $150K, I’m thinking the following portfolio:
Increase the $50K in VTSAX to $170K
And invest the $30k in the following funds:
Vanguard Value Index Fund ($10K)
Vanguard Small Value Index Fund($10K)
Vanguard small Cap Index fund($10K)
And may be add Vanguard REIT Index Fund later—I may add this to my IRA
What do you think? Do you think $100% in VTSAX is better than adding the other funds? May be risky to invest only in one fund?
My goal is to diversify it and minimize the risk to some degree. Do you recommend any better fund besides VTSAX?
For your info: I still have about $200K at my bank in CD (2% APY). I will use that as a bond equivalent for now (I will lose too much if I close it now, so, I must wait until it matures).
I will post this at Bogleheads too to get more feedback
Thank you in advance for your kind advice.
I’m not seeing a bad fund there, but start with your goals, then your asset allocation, THEN choose funds.
I like VTSAX (Total Stock Market). It is my favorite mutual fund.
Thank you so much White Coat. I don’t need this money for now, I just want to invest it in a reliable mutual fund for long- term, add more money to it monthly and make it grow. Total stock Market has excellent reputation, and I think it is a better mutual fund to invest in for a beginner like me. May be I will start 100% in VTSAX(Total Stock Market) for now and add the other funds later. Or add Vanguard Small Value Index Fund now same as my IRA.
Thank you again.
Dear WCI,
Thanks for all your efforts. Have been spending an unhealthy amount of time purveying your work for the last few months. I’m an attending in my early 30’s and am building a retirement portfolio for the first time and wanted to ask your input. Putting away 28% of my total earnings in tax-deferred accounts with the goal of being able to retire in my early 50’s (hopefully with retirement assets in the range of 1.6 – 2mil). I am risk averse since I have never had the pleasure of experiencing a bear market (which is why my stock/bond ratio is conservative at 50/50). My plan is to change this ratio to 75/25 in the next couple of years (without changing the ratios of the underlying assets) once my comfort level grows or I see my first bear market (whichever comes first). Will rebalance to that regularly until I am getting close to retirement.
% of Portfolio ER
Stocks – 50%
TILIX (Large Cap Growth Index) 4.0% 0.16
DCP Equity Fund (Large Cap Blend – Actively Managed) 11.0% 0.11
DCP Small Cap Equity Fund (Blend – Actively Managed) 15.0% 0.11
TCIEX (International Large Blend Index) 20.0% 0.16
Bonds – 50%
TBIIX (Intermediate/High Quality Bond Index) 25% 0.22
DCP Stable Value Fund (Actively Managed) 25% 0.485 (although this will obviously never lose value; biggest realistic risk is that it just won’t appreciate)
So two questions:
a) Does this look reasonably diversified? My company’s other investment options are more expensive (the real estate fund’s ER is around 0.89, and the TIPS fund is 0.28).
b) How heavily should I weight low ER’s vs a preference towards passive investing? I have access to a few other large & small cap index funds that are slightly more expensive at ER’s of 0.16. Guess it would be a no brainer if the actively managed funds weren’t so cheap.
I assume those are the best investments you’ve got available to you in those accounts since you haven’t listed all available investments. I’ll just comment on the asset allocation:
6 asset classes seems fine. I’d probably just go 15% Large Blend and not bother with Growth. But it’s not wrong to do that. It’s a pretty safe asset allocation given your age. I like your plan to wait for a bear market and see how it goes with the intention of possibly adding risk at that point. I think that’s wise, but I wouldn’t have blinked if you’d said 60% or 75% equity.
a) I’d use the TIPS fund at least and probably the real estate fund too. Bummer about the expenses but you get what you get. Whether that will help you or not requires a crystal ball.
b) The main reason passive beats active is low costs. If you focus on low costs, chances are the equity funds are “closet indexers” anyway. But when you’re talking about 7 basis points….focus on something else. Either option is probably fine.
I know a few MDs and Pharmacists who are both financially well-off and who are not well-off despite high incomes. Seeing this website was a very welcome site – this is the first time I’m visiting and it seems to have some very useful information.
The problem with people in medicine (and you see this with engineers as well), is that you have incredibly smart and intelligent people who think they can apply their smarts to investing without realizing the overall stochastic nature of the finical markets. Stocks and the financial markets are not physics and are not even biology – those are far more deterministic and predictable while the financial markets are more like the weather lattes in the short-term.
Most people would clearly be better off investing in a passive strategy and having the discipline to leave their money alone as you’ve pointed out in your article.
Hey WCI,
I’m 24 and will be starting medical school this fall. I’ve been working in the tech industry in the 2 years since I graduated from college and have managed to invest around $50,000. $35,000 is in a taxable account with Vanguard (Target Retirement 2060), and the other $15,000 is in a Roth 401k from my current company. When I leave my job, I’m planning to roll over the Roth 401k to a Roth IRA with Vanguard. Would you recommend doing the roll over? Also, is there anything wrong with putting the Roth IRA in the Target fund as well?
I figure I can reallocate things if need be and figure out a new plan after I complete residency, but want to be smart with what I currently have over the next 10 years or so. (I am extremely fortunate in that I will not need to take out any loans, by the way — so there’s no need to use any of this for tuition.)
Thanks for all the advice!
Yes. No, there is nothing wrong with a target retirement fund for the Roth IRA. But if the taxable money is also retirement money you’ll want to include that in your retirement asset allocation too.
Do you have a fund(s) recommendation for HSA investment account in TD Ameritrade? The number of choices is overwhelming!
I don’t plan to use the money until retirement and I’d like to be aggressive with the funds.
There are lots of good options. If you are using your HSA as part of your retirement money, just use one of the asset classes in your regular retirement asset allocation in the HSA. If you view it as a separate pot of money, then decide on what asset allocation you want for your HSA, then select a fund or funds to give you that.
If, like many, your HSA is tiny in comparison to your retirement money, you can just keep it simple like I do. I just put it all in the Vanguard Total Stock Market Index Fund. If 100% stock isn’t aggressive enough for you, there are some commission-free options to spice it up a bit if you like and an unlimited number of commissioned ETFs or mutual funds out there. If 100% stock is too aggressive for you, then you can use the equivalent of a target retirement fund commission free at TD Ameritrade. They are ishares ETFs with ticker symbols AOA, AOR, or AOM listed from most aggressive to least aggressive. Note the ERs are higher for those than the Vanguard funds, but they are one-stop shop type funds.
Does it really matter which company you open your Roth IRA with? I am 26 and I am a second year resident. I have been shopping around for which company offers the best deal for Roth IRAs. This has been narrowed down to CS, Vanguard, and Scottrade. From what I’ve seen, all these companies offer the same deals relatively, for my portfolio ideas….with the main difference I’ve seen being Mutual fund fees and account minimums. I dont plan to touch this money till retirement. My idea for my portfolio is as follows:
30% Vanguard Total Stock Market Fund ETF
20% Vanguard Total International Stock Market Fund ETF
10% Vanguard REIT Index Fund ETF
30% Vanguard Total Bond Market Fund EFT
10% stocks in individual companies.
Thanks in advance.
If your portfolio is going to use Vanguard ETFs, I’d probably just open it at Vanguard. Then your ETF trades are commission free. But you could have this portfolio anywhere for relatively low cost. My Roth IRAs are at Vanguard.
for REIT index fund, is it better to place it in a roth IRA vs 401 k ?
I am planning to add REITs to my portfolio and have the option to buy the vanguard REIT index fund in my roth IRA at Vanguard vs using the Fidelity REIT index fund in my 401 k at fidelity through brokerage link
If you tax adjust your AA, it doesn’t matter. If you don’t, put whatever you expect a higher return out of into the Roth but realize what you’re really doing is taking on more risk on an after-tax basis.
Hi
I would love to get your feedback on my portfolio and the location of the assets
so far i have been using the fidelity freedom funds 2045 fund (FFKGX) (ER 0.64) in my 401k and 457 at fidelity.
I also have roth IRA account for myself and my wife, plus a taxable account at Vanguard. I use the Vanguard personal advisory service for the vanguard accounts (they charge 0.3%). Unfortunately they dont help much with the non-vanguard accounts.
I want to take the money out of the Fidelity freedom funds and use the low cost Vanguard funds in the 401k and 457
Age: 40
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 33% of total stocks
I would like the following allocation
REIT Vanguard REIT index fund 10%
Remaining 65% of stocks are divided as follows
US stocks 43% of total portfolio
33% Vanguard total stock market index fund
10% Fidelity equivalent of Vanguard small value index fund
22% international stocks will be invested in Vanguard Total international stock market index fund
For 25% Bonds I would like to divide it between an index bond fund and TIPS.
12.5% Vanguard total Bond market index fund (available in 401k) or some other bond fund (I am open to suggestions)
12.5% in TIPS
Now regarding the location of the different funds in different accounts, here is what I am thinking
REIT index fund goes in the ROTH IRAs
Extra REIT amount which did not fit into ROTH IRA goes into 401K ( I can use fidelity brokerage link to access fidelity REIT index fund)
401 K and 457 will also hold the following funds
– Fidelity equivalent of Vanguard Small Value index fund (suggestions welcome)
– Vanguard total Bond market index fund (available in 401k)
– TIPS (suggestions welcome for a fidelity fund)
Taxable Account
-Vanguard Total Stock Market index fund
-Vanguard Total International stock market index Fund
I would really appreciate any feedback . I am open to suggestions if you think there is a better way to locate these funds or if there any suggestions to improve the portfolio.
Additional layer of complexity is added by the fact that my 401k/457 has vanguard s & p 500 index fund, vanguard extended market index fund and vanguard total bond market index fund but does not have any of the other vanguard funds mentioned above. However I can use any fidelity funds through brokerage link for no additional fees. Unfortunately for using vanguard funds through the brokerage link I will have to pay additional transaction fees which I would like to avoid
Thanks a lot
I think your projected AA looks fine as is your plan to implement it. Given that your 401(k)/457 is at Fidelity, I would probably just use the equivalent Fidelity Spartan index funds. But if they let you buy anything there, you could always just buy Vanguard ETFs, no? The commissions on that should be 1/10 what it would be to buy the traditional mutual fund shares.
thanks for your reply
Do you have any suggestions for Fidelity equivalents of the Vanguard Small Value index fund.
also can you suggest what to use at Fidelity for the TIPS?
They have a small value fund, but it’s an expensive actively managed fund. Perhaps just their small cap index fund.
Fidelity has a TIPS fund. The ER is twice what Vanguard’s is, but that’s still less than 0.5%. Unfortunately, it’s closed to new investors.
https://fundresearch.fidelity.com/mutual-funds/summary/316146604
I would suggest you look into what else you can buy inexpensively at Fidelity. For example, iShares has lots of great, low-cost ETFs and they’re usually commission free at Fidelity. iShares has a small value ETF (IJS) and a TIPS ETF (TIP). Can you get those commission free?
Thanks for your blog. I have a question regarding “Portfolio 149: My Parent’s Portfolio”. Is a 50% allocation to equities not too high for someone in their 70s, as I presume your parents are? How did you arrive at the 50% equity allocation for your parents’ portfolio? Thanks for your response.
They were 90/10 before I got to them! At any rate, 50/50 at 70 is probably fine if 100% of your living expenses come from your pension and SS.
When you write “if 100% of your living expenses come from your pension and SS.”, are you implying that the investment portfolio is not being tapped at all for living expenses? Thanks.
Certainly not mandatory ones. This year it’s buying a cruise for the entire extended family for example.
Hello all,
Big, broad question. Apologies in advance.
Just opened my ETrade solo 401k. Will be placing $1,500 a month in the account. Any thoughts on something of a pre-fixe investing menu? Obviously lots written here already, but I’m interested in starting with a couple funds, and diversifying to 4 or 5 funds over time. Would like to keep them low cost, and potentially transaction free, although if the funds are worth it, I’m willing to pay. Have other investments with Fidelity Funds, and Betterment which partners with Vanguard, so at this point, I’m considering branching out.
Appreciate the advice!
Wouldn’t that be nice if a question like that could be answered in isolation? Unfortunately, it can’t. The good news is that it probably doesn’t matter much what you do with $1500 a month for a few years, so you have some time to figure out your desired asset allocation. You might be interested in today’s post though:
https://www.whitecoatinvestor.com/in-defense-of-the-easy-way/
Thanks for the quick reply! The article is great. For now, I’m going to pick one fund, and only begin to diversify once I hit 20k. Seems like gettting bogged down in the details is less important than simply saving as much as possible.
You’ve got it. If you have a <$20K portfolio your savings rate matters much, much more than your asset allocation.
For what it’s worth, I think I’ll start with Fidelity FSTMX.
That said, the only small hesitation is the market seems over inflated. Wondering if just accumulating cash for a while makes more sense than buying into the market right before a correction?
I know people say you can’t time the market, but is now really a great time to be buying broad index funds?
I can’t answer that question without a working crystal ball. Is this early 1996 or early 2000? Hard to say. But I can tell you this. I’ve always invested when I had the money and I’ve never regretted doing so in the long run. That includes money I invested in early 2008.