By Dr. James M. Dahle, WCI Founder
[Update for 2020: This post originally ran in January 2014. Since then it has been one of the most popular posts on the blog (2nd actually, just behind The Backdoor Roth IRA Tutorial and ahead of a Whole Life Insurance Post). There were really two points to writing the post:
- To help new investors realize there is no perfect portfolio and that the best one can only be known in retrospect. Therefore they should pick something reasonable and stick with it.
- As a bit of a rebuke to three-fund portfolio fanatics. Since that time the three-fund portfolio has only become even more popular, thanks in part to Taylor Larimore's book and in part to outperformance since 2009 of the large growth stocks that make up a large part of a total market index fund.
For this 2020 update, I went back and added a few comments to the various portfolios and added another 50. I'll leave the title the same (since lots of people search for “150 portfolios” to find the post, but now it is 200 Portfolios Better Than Yours! It is still just as relevant today as it was 6 years ago.]
Designing the Perfect Investment Portfolio
As investors move from their investment childhood through the teenage years, many of them seem to almost become fixated on designing the perfect investment portfolio. They've learned the importance of buy and hold, the importance of keeping costs low, and the importance of using passive investments over active ones. They learn about the efficient frontier and seek to get themselves onto it, not realizing it can only be defined in retrospect.
They start learning about various portfolios, and their pluses and minuses, and seem to be eternally seeking a better one. Even some investment advisors fall into this trap, designing their own portfolios, borrowing someone else's, or even paying to use someone else's models. Occasionally, I even see investment advisors try to keep their model portfolios secret, as though theirs are somehow magically better than anyone else's.
The truth is that no one knows which portfolio is going to outperform in the future. You can change all the factors you want — more or less diversification, additional risks/factors, lower costs vs additional risk or diversification, more of this and less of that. Does it matter? Absolutely. Take a look at Madsinger's Monthly Report some time, where a Bogleheads poster has been tracking the returns of a dozen balanced portfolios for the last decade. But it doesn't matter that much. No diversified portfolio in that report has done better than 1-2% per year more than a similarly risky portfolio over the last 15 years. Now 1-2% does matter, especially over long periods of time, but keep in mind the edge that a very complex portfolio might provide over a very simple one can easily be eaten up by advisory fees, behavioral errors, and poor tax management.
Pick a Portfolio and Stick with It
I suggest you pick a portfolio you like and think you can stick with for a few decades, and then do so. Eventually, any given investment portfolio will have its day in the sun. Just don't continually change your portfolio in response to changes in the investment winds. This is the equivalent of driving while looking through the rearview mirror, or, as Dr. Bernstein likes to phrase it, skating to where the puck was.
Now don't get me wrong, I went through the process like everyone else. I designed my own portfolio (see Portfolios 150 and 200) to fit my own need, ability, and desire to take risk. I added some asset classes and left out others because I thought doing so would give me a higher long-term, risk-adjusted return. But I'm not cocky enough to think I've got the best portfolio out there. In fact, I'm positive mine isn't the very best one. Neither I nor anyone else knows what the very best portfolio is.
Investment Portfolio Examples
In that spirit, let's talk about some of the investment portfolios you can use (or modify for your own needs.) These portfolios will often use Vanguard funds as my usual default, but similar low-cost portfolios can generally be made using Fidelity, Schwab, or iShares index mutual funds or ETFs.
Portfolio 1: The S&P 500 Portfolio
100% Vanguard S&P 500 Index Fund
Don't laugh. I know a very successful two-physician couple who invest in nothing but this, are 7 years out of residency, and have a net worth in the $1-2 Million range. [6 years later, I'm sure this couple is now financially independent as their plan has worked out spectacularly over those years.] Their investment plan is working fine. Every investment dollar, whether in a retirement account or a taxable account, goes into this single fund. It is simple, very low cost, diversified among 500 different companies, and has a long track record of exceptional returns.
Portfolio 2: Total Stock Market Portfolio
100% Vanguard Total Stock Market Index Fund
Perhaps one step up on the S&P 500 portfolio, for about the same cost you get another 5000+ stocks in the portfolio.
Portfolio 3: Total World Stock Market Portfolio
100% Vanguard Total World Index Fund
This 100% stock portfolio has the advantage of not only holding all the US Stocks like the Total Stock Market Portfolio but also holding all of the stocks in pretty much all the other countries in the world that matter. It is a little more expensive (and in fact, it is actually cheaper to build this fund yourself from its components), but it still weighs in at just 10 basis points.
Portfolios 4 and 5: Balanced Index Fund
100% Vanguard Balanced Index Fund
Prefer to diversify out of stocks? Actually want some bonds in the portfolio? How about this one? For 7 basis points you get all the stocks in the US and all the bonds in the US in a 60/40 balance. Still just one fund. If you're in a high tax bracket, you may prefer the Tax-Managed Balanced Fund, a 50/50 blend of US Stocks and Municipal bonds, all for just 9 basis points.
Portfolios 6-9: Life Strategy Moderate Growth Portfolio
100% Vanguard Life Strategy Moderate Growth Fund
There are tons of options out there, many of which are good. Pick a good one and stick with it.
For just 13 basis points, you get all the US (32%) and international (18%) stocks and all the US (42%) and international (8%) bonds wrapped up in a handy, fixed asset allocation. Want to be a little more (or a little less) aggressive? Then check out the “aggressive growth” (80/20), “conservative growth” (41/59) or “income” (30/70) version with a slightly different allocation of the same asset classes. Think it's silly to have a portfolio composed of just one fund of funds? Mike Piper doesn't.
Portfolios 10-21: Target Retirement 2030 Fund
100% Vanguard Target Retirement 2030 Fund
Don't like a static asset allocation? Don't want to have to make the decision of when to change from one Life Strategy Fund to the next? Consider a Target Retirement Fund where Vanguard makes that decision for you. For a cost of just 14 basis points, the 2030 Fund uses the same 4 funds that the Life Strategy funds use (in a 69/31 allocation) but gradually makes the asset allocation less aggressive as the years go by. The portfolios range from 90/10 (2045 and higher) to 30/70 (Income). 2020 and newer add a short-term TIPS fund to the mix.
Portfolios 22-25: The Two-Fund Portfolio
50% Vanguard Total Stock Market Fund
50% Vanguard Total Bond Market Fund
Perhaps you like the concept of a balanced index fund but would like to shave off a few basis points, or just be in control of the stock to bond ratio. For 4.5 basis points, you can build your own balanced index fund. Want all the stocks, not just US ones? For 7.5 basis points, you can substitute in Total World Index for Total Stock Market Index. For 13 basis points you could use Total World plus Intermediate-term tax-exempt fund, or if you want to stay domestic in a taxable account, TSM plus the muni fund for about 10.5 basis points. Paul Merriman has a simple “two funds for life” approach that offsets a conservative target-date fund with an all-equity fund. Lots of combinations.
Portfolio 26: The Three-Fund Portfolio
1/3 Vanguard Total Stock Market Fund
1/3 Vanguard Total International Stock Market Fund
1/3 Vanguard Total Bond Market Fund
A favorite among the Bogleheads, the Three Fund portfolio gives you Total World plus Total Bond for 0.03% less per year! Despite its popularity, you can see there is really nothing particularly special about this portfolio compared to the other 25 above it. It is broadly diversified and low-cost, although is heavily weighted in large-cap stocks, just like the overall US market.
Portfolio 27-35: Three-Fund Plus One
30% Vanguard Total Stock Market Fund
30% Vanguard Total International Stock Market Fund
10% Vanguard REIT Index Fund
30% Vanguard Total Bond Market Fund
Another popular portfolio for those who want “just a little tilt.” An investor convinced of the benefit of additional diversification (or less diversification, depending on how you look at it) can add a fund to the ever-popular Three Fund Portfolio. Some add the Vanguard REIT index fund for their intermittently low correlation with the overall stock market. Others add Vanguard Small Value Index Fund to try to capture the benefits of the Fama/French Small and Value factors. Still, others add a TIPS fund, an international bond fund, or a high-yield fund since these bonds aren't included in the Total Bond Market Fund. Other options include a microcap fund, a precious metal equities fund, a precious metals fund, or even a commodities futures fund. The possibilities are endless, especially once you start considering adding 2, 3, or even more of these asset classes to the portfolio. What will do best in the future? Nobody knows, we can only tell you what did well in the past.
Portfolio 36-37: Four Corners Portfolio
25% Vanguard Growth Index Fund
25% Vanguard Value Index Fund
25% Vanguard Small Growth Index Fund
25% Vanguard Small Value Index Fund
One of the first of the “slice and dice” type portfolios, this portfolio tried to capture some benefit from the fact that sometimes growth stocks outperform value stocks, and vice versa. Its detractors argued that you were just recreating TSM at higher cost (6 basis points versus 4). Another variation is to use Total Stock Market instead of Growth Index and Small Cap Index Fund instead of Small Growth Index. This allowed you to “tilt” to the Fama-French factors, while keeping costs down a bit (5 basis points). Obviously, you could mix this in with some international stock funds and bond funds until you get to something you like.
Portfolio 38: The Coffee House Portfolio
10% Vanguard 500 Index
10% Vanguard Value Index
10% Vanguard Small Cap Index
10% Vanguard Small Cap Value Index
10% Vanguard REIT Index
10% Vanguard Total International Index
40% Vanguard Total Bond Market Index
Popularized by investment author and financial advisor Bill Schultheis in The Coffeehouse Investor, this version of slice and dice is heavy on the REITs, is light on international stocks, and lacks diversity on the fixed income side. But it does weigh in at well under 10 basis points. You want someone to tell you what to do? Bill will do it. Follow his instructions and you'll be fine.
Portfolio 39-48: The Couch Potato Portfolio
50% Vanguard Total Stock Market Index Fund
50% Vanguard Inflation-Protected Securities Fund (TIPS)
Guess who else will tell you what do? Scott Burns will. He offers 9 portfolios, ranging from 2 funds to 10 funds. You just have to choose how much complexity you're willing to deal with for some additional diversification. If there are 5 funds, each fund makes up 1/5 of the portfolio and so forth. He likes TIPS, international bonds, and energy stocks. Given the returns of energy stocks over the last decade (1.6% a year as of January 2020), that idea hasn't aged well.
Portfolio 49-58: The Ultimate Buy and Hold Portfolio
6% Vanguard 500 Index Fund
6% Vanguard Value Index Fund
6% Vanguard Small Value Index Fund
6% Vanguard REIT Index Fund
6% Total International Stock Market Index Fund
6% Vanguard International Value Fund
6% Vanguard International Small Cap Index Fund
6% An International Small Cap Value Fund
6% Bridgeway Ultra-Small Market Fund
6% Vanguard Emerging Markets Index Fund
40% Vanguard Short (or intermediate) Term Bond Index Fund
Paul Merriman will also tell you what to do. 10 equity asset classes and 1 fixed income asset class. Will it work? Sure. Will it be a pain to rebalance and allocate across all your accounts? Absolutely. Will it beat some of the simpler options above over your investment horizon? No one knows. In case you don't like the “Ultimate” portfolio, Paul has three others that are equally complicated, ranging from 100% stocks in 9 assets classes to 40% stock in 12 asset classes.
Portfolio 59: The Talmud Portfolio
1/3 Vanguard Total Stock Market Index Fund
1/3 Vanguard REIT Index Fund
1/3 Vanguard Total Bond Market Index Fund
Apparently, the Talmud, a central text of Rabbinic Judaism, had some portfolio advice, “Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” This is one author's low-cost vision of that ancient portfolio. A little REIT-heavy for my taste.
Portfolio 60: The Permanent Portfolio
25% Vanguard Total Stock Market Index Fund
25% Vanguard Long-term Treasury Fund
25% Gold ETF (GLD) or, better yet, gold bullion
25% Vanguard Prime Money Market Fund
Here's another popular portfolio, this one from Harry Browne. He felt you wanted a portfolio that would do well in prosperity (stocks), deflation (long treasuries), inflation (gold), and “tight money or recession” (cash). There are lots of variations. There is even a one-stop-shop mutual fund for 84 basis points that's been around since 1982 with 15-year average returns of a little over 6%. Not only did it lose money in 2008, it managed to do so in 2013 as well. Poor performance (4.8%) over the last decade while the US stock market has been roaring demonstrates its severe tracking error.
Portfolios 61-84: FPL Portfolios
12% US Large
12% US Value
12% US Targeted Value Stocks
6% International Value Stocks
6% Global REITs
3% International Small Value
3% International Small Stocks
1.8% Emerging Market Stocks
1.8% Emerging Markets Value Stocks
2.4% Emerging Market Small Stocks
10% One Year Government Fixed Income
10% Short Term Government Fixed Income
10% Two Year Global Fixed Income
10% Five Year Global Fixed Income
FPL, one of the sponsors of this blog, has a whole bunch of model portfolios, made up mostly of DFA funds. This one is 60% stock but there are 9 more ranging from 10% stocks to 100% stock. There are also other folios including 3 fixed income ones (made up from funds of DFA, PIMCO, and various ETFs), a low beta portfolio, and 10 equity portfolios (made up from funds of DFA, Wisdom Tree, and Vanguard). Many other DFA-authorized asset management firms have similar portfolios, many of which they consider proprietary because they're so awesome. A common theme among them is complexity and factor tilts.
Portfolios 85-108: The Sensible IRA Portfolio #4
33% US Stocks
15% International Stocks
6% Emerging Markets Stocks
6% REITs
40% Fixed Income
Darrell Armuth at Sensible Portfolios, who used to advertise with me, runs a financial advisory firm that uses DFA funds. He offers 6 portfolios suitable for IRAs, this is one of them. He also offers 6 more suitable for a taxable account, 6 environmentally friendly portfolios, and 6 “express portfolios” designed for smaller accounts for just $500 a year. Unfortunately, when I went to update this post, I found that these portfolios were no longer listed on the website. I guess you have to hire him now to get the secret sauce.
Portfolios 109-131: Sheltered Sam 60/40 Portfolio
12% Vanguard 500 Index Fund
15% Vanguard Value Index Fund
3% Vanguard Small Cap Index Fund
9% Vanguard Small Cap Value Index Fund
6% Vanguard REIT Index Fund
1.8% Vanguard Precious Metals Fund
3% Vanguard European Stock Index Fund
3% Vanguard Pacific Stock Index Fund
3% Vanguard Emerging Markets Index Fund
4.2% Vanguard International Value Fund
24% Vanguard Short-term Corporate Bond Fund
16% TIPS (he recommends you buy the 2032 ones yielding 3.375% real, good luck with that)
William Bernstein, MD, in his classic The Four Pillars of Investing, had four investors, Sheltered Sam, whose assets were all in IRAs and 401Ks, Taxable Ted, whose assets were not, In-Between Ida who was partially sheltered, and Young Yvonne who didn't have much at all. He listed out 11 portfolios for Ted and 11 for Sam, ranging from 0% stocks to 100% stock. He listed one more for Ida, and then showed how Yvonne could gradually grow into Sam's portfolio. I've just listed one of them. If you want to see the other 22, buy the book or check it out at the library.
Portfolio 132: The Aronson Family Taxable Portfolio
5% Vanguard Total Stock Market Index Fund
15% Vanguard 500 Index Fund
10% Vanguard Extended Market Index Fund
5% Vanguard Small Cap Growth Index Fund
5% Vanguard Small Cap Value Index Fund
5% Vanguard European Stock Index Fund
15% Vanguard Pacific Stock Index Fund
10% Vanguard Emerging Markets Index Fund
15% Vanguard Inflation-Protected Securities Fund (TIPS)
10% Vanguard Long-Term Treasury Fund
5% Vanguard High Yield Bond Fund
This is apparently how Ted Aronson (who manages $25 Billion) invests his family's taxable money. I'm not sure I understand the logic behind some of its components. That said, even it is held for a long period of time, I'm sure it will work just fine. As of January 2o20, it has 10-year returns of around 8.3%, which is 1.4% worse than Balanced Index fund (see portfolio 4.)
Portfolio 133: The Warren Buffett Portfolio
100% Berkshire Hathaway Stock
Warren Buffett is admired by all as a great investor. You can have him manage your money if you'd like, and all you have to do is buy a single stock. 15-year returns are about 9.5% per year according to Morningstar. It's a simple solution, and you get a free ticket to the coveted annual meeting.
Portfolio 134: The Unconventional Success Portfolio
30% Vanguard Total Stock Market Index Fund
20% Vanguard REIT Index Fund
15% Vanguard Developed Markets Index Fund
5% Vanguard Emerging Markets Index Fund
15% Vanguard Intermediate Treasury Bond Fund
15% Vanguard Inflation-Protected Securities Fund (TIPS)
This is an example of an implementation of the portfolio put forth by David Swensen, the Yale investment guru, in his classic Unconventional Success. It's fine, like the other 133 portfolios before it. Its main criticism is that it is awfully REIT heavy.
Portfolio 135-137: The Wellesley Portfolio
100% Vanguard Wellesley Income Fund
This actively-managed Vanguard fund has been around since 1970, and despite only being 35% stock, has averaged almost 10% a year, while charging just 16 basis points. The main knock against it, aside from being actively managed, is that it isn't particularly diversified. It holds just 68 stocks, mostly large value stocks, and 1131 bonds. Don't expect 10%, or even 7%, a year out of this bond heavy fund going forward at today's low interest rates.
That said, it's hard to argue with success. Other actively managed funds that could be considered a reasonable portfolio all by themselves include the Wellington Fund (established 1929, 63/37, 10-year returns of 9.9%, ER 0.17%) and Dodge and Cox Balanced Fund (established 1931, 68/32, 10-year returns of 10.33%, ER 0.53%). There are probably more. I'm not a big fan of active management, but it's hard to nitpick funds that survived The Great Depression. Clearly, they're doing something right.
Portfolio 138-146: The Advanced Second Grader Aggressive Portfolio
54% Vanguard Total Stock Market Index Fund
27% Vanguard Total International Stock Index Fund
6% Vanguard REIT Index Fund
3% Precious Metals
10% Total Bond Market Index Fund
Allan Roth, in his excellent How A Second Grader Beats Wall Street, lists a conservative, a moderate, and an aggressive allocation for a second grader portfolio (3 Funds), an advanced Second Grader Portfolio (4-5 funds), and an alternative advanced Second Grader Portfolio (uses CDs instead of the Total Bond Market Fund). That's 9 more portfolios you could use without having to come up with your own!
Portfolios 147-150: The Dan Wiener Income Portfolio
Dan Wiener sells a newsletter to Vanguard investors. For just $100 a year he'll reveal his super-secret portfolios composed of various Vanguard funds. I can't tell you what the portfolios currently hold (there are quite a few actively-managed funds and the allocations change from time to time), but I can tell you the performance hasn't been terrible.
The Growth version has returns of 9.61% since 1999, almost 3.5% a year better than the 3 fund portfolio and about 2% better than a typical slice and dice portfolio like the Sheltered Sam portfolio, although you do expect higher returns due to significantly higher stock allocation. The less-aggressive “Income” version has returns of 5.52% a year. There is also a “Conservative Growth” and an “Index Fund Growth” portfolio whose returns are similar to slice and dice type portfolios.
While I'm certain there is a survivor bias effect here, it's still a pretty decent long-term record of actively-managed mutual fund picking. It helps that he mostly limits himself to low-cost Vanguard funds, of course.
Portfolio 151: The Larry Portfolio
32% DFA Small Value Fund
68% DFA One Year Treasury Fund
Larry Swedroe is smarter than me I'm sure. He is a huge fan of taking your risk on the equity side. He is a true believer in the small and value factors of Fama and French, and carries the idea behind a slice and dice portfolio to the extreme. He holds no fear of tracking error or the lack of traditional diversification, the primary downsides of investing like this. It is more important to him to diversify among “factors” like small, value, and momentum. It's not my cup of tea, but at least he puts his money where his mouth is. [Update: I'm told that Larry actually splits his equities between US Small Value, Developed Markets Small Value, and Emerging Markets Value, but you get the point- a very heavy small value tilt.]
Portfolios 152-165: The Rick Ferri Multi-Asset Class Pre-Retiree Portfolio
23% Vanguard Total Stock Market Index Fund
5% IShares S&P 600 Barra Value (IJS)
2% Bridgeway Ultra Small Company Market (BRSIX)
5% Vanguard REIT Index Fund
3% Vanguard Pacific Stock Index Fund
3% Vanguard European Stock Index Fund
2% Vanguard International Explorer Fund (he'd probably use the Vanguard International Small Index Fund now)
2% DFA Emerging Markets Fund
10% IShares Lehman Aggregate Bond Fund (AGG)
13% Vanguard Investment Grade Short Term Bond Fund
10% Vanguard High Yield Corporate Bond Fund
10% Vanguard Inflation-Protected Securities Fund (TIPS)
5% Payden Emerging Markets Bond Fund (PYEMX)
2% Vanguard Prime Money Market Fund
In another classic book, All About Asset Allocation, Rick Ferri suggests a Basic and a Multi-Asset Class investment portfolio for early savers, mid-life accumulators, pre-retirees/active retirees, and mature retirees, for a total of 8 portfolios. Rick isn't afraid to look for the “best of class” fund for any given asset class. Lots of great portfolio ideas here. See Portfolios 170-173 for more portfolios from Rick Ferri.
Portfolio 166: Frank Armstrong's Ideal Index Portfolio
7% Vanguard Total Stock Market Index Fund
9% Vanguard Value Index Fund
6% Vanguard Small Cap Index Fund
9% Vanguard Small Value Index Fund
31% Vanguard Total International Stock Market Index Fund
8% Vanguard REIT Index Fund
30% Vanguard Short Term Bond Index Fund
You can read more about this one in Armstrong's The Informed Investor. A nice heavy small/value tilt, but only domestically.
Portfolio 167: The 7/12 Portfolio
1/12 Vanguard 500 Index Fund
1/12 Vanguard Mid-Cap Index Fund
1/12 Vanguard Small Cap Index Fund
1/12 Vanguard Developed Markets Index Fund
1/12 Vanguard Emerging Markets Index Fund
1/12 Vanguard REIT Index Fund
1/12 Natural Resources
1/12 Commodities
1/12 Vanguard Total Bond Market Index Fund
1/12Vanguard Inflation-Protected Securities Fund (TIPS)
1/12 Vanguard International Bond Index Fund
1/12 Vanguard Prime Money Market Fund
7 major asset classes, 12 funds, 8.33% a piece. Clever, huh. Craig Israelsen, a professor at prestigious Brigham Young University, advocates for this approach in his book 7 Twelve. He wants you to send him $75 to tell you how to use Vanguard Funds (or those of any other company) to implement the portfolio. Send me $50 and I'll tell you how to do it. If you've read this far, you know more about portfolio design than 95% of “financial advisors” out there.
Portfolio 168: My Parent's Portfolio
30% Vanguard Total Stock Market Fund
10% Vanguard Total International Stock Market Fund
5% Vanguard Small Value Index Fund
5% Vanguard REIT Index Fund
20% Vanguard Intermediate-Term Bond Index Fund
20% Vanguard Inflation-Protected Securities Fund
5% Vanguard Short Term Corporate Index Fund
5% Vanguard Prime Money Market Fund
I help my parents manage their nest egg. I'm twice as smart and 2.5% per year cheaper than the last guy. This 50/50 portfolio is a good balance between keeping it simple and understandable, but still getting the benefit of a multi-asset class portfolio. It lost 18% in 2008, and more than gained it back in 2009. Returns are about 7% over the last 15 years, including the 2008 debacle.
Portfolio 169: The 2014 White Coat Investor Portfolio
17.5% Vanguard Total Stock Market Index Fund
10% TSP S Fund
5% Vanguard Value Index Fund
5% Vanguard Small Value Index Fund
7.5% Vanguard REIT Index Fund
5% Bridgeway Ultra-Small Company Market Fund (BRSIX)
15% Vanguard Total International Stock Market Fund/TSP I Fund
5% Vanguard Emerging Markets Index Fund
5% Vanguard International Small Index Fund
10% Schwab TIPS ETF
10% TSP G Fund
5% Peer 2 Peer Lending Securities (mostly Lending Club)
I'm more than willing to admit that it is unlikely that this portfolio will be the best of the 150 portfolios listed here over my investment horizon. However, since my crystal ball is cloudy, and since I'm convinced that sticking with any good portfolio matters far more than which good portfolio you pick, I'm going to stick with it (and have with minimal changes in the last decade, leading me to an annualized after-tax, after-expense return of around 9.5% [as of 1/11/2013]). See Portfolio 200 for my updated portfolio.
Portfolios 170-173: Rick Ferri's Core-4
48% Vanguard Total Stock Market Fund
24% Vanguard Total International Stock Market Fund
8% Vanguard REIT Index Fund
20% Vanguard Total Bond Market Fund
All four of these portfolios are really just a play off of Portfolio # 26, and range from 80/20 to 20/80. It's basically just three-fund plus a little REIT. It's too much REIT for some, too little real estate for others, but for a precious few, it's just right.
Portfolio 174: The Golden Butterfly
- 20% Vanguard Total Stock Market Index Fund
- 20% Vanguard Small Cap Value Index Fund
- 20% Vanguard Long Term Bond Index Fund
- 20% Vanguard Short Term Bond Index Fund
- 20% SPDR Gold Shares ETF (GLD)
This new-fangled portfolio from Tyler at Portfolio Charts claims to “match the high return of the Total Stock Market [Portfolio # 2] with the low volatility of the Permanent Portfolio [Portfolio # 60]”. I don't think it actually does that given its heavy emphasis on bonds and gold. Since TSM has outperformed all of those other assets classes over the last decade, there is no way this portfolio has matched its return in that time period. But I'm sure it has been less volatile.
Portfolio 175: The All Weather Portfolio
- 30% Vanguard Total Stock Market Index Fund
- 40% Vanguard Long Term Bond Index Fund
- 15% Vanguard Intermediate Term Bond Index Fund
- 7.5% Commodities
- 7.5% SPDR Gold Shares ETF (GLD)
A Ray Dalio creation, this one is also an attempt at improving the returns of the Permanent Portfolio while still improving bear market performance. The idea is that Growth can be up or down and inflation can be up or down, so you should pick something that does well in all four combinations of those factors. Of course, he seems to think Gold will do well in 3 of those 4 situations, but it makes for pretty fancy charts. If you really can get similar performance with lower volatility, that would allow you a higher withdrawal rate in retirement.
Portfolios 176-178: Kiplinger Portfolios
- 20% Dodge & Cox Stock Fund
- 20% Primecap Odyssey Growth
- 15% DoubleLine Total Return Bond
- 15% Parnassus Mid Cap
- 10% Fidelity International Growth
- 10% Oakmark International
- 10% T. Rowe Price QM U.S. Small-Cap Growth Equity Fund
Kiplinger published 3 portfolios for various time horizons. This one is the long-term (11+ years) one but they are all composed of actively managed funds, so I don't really like any of them. I included them because they're a good example of what you get from the financial media and many crummy 401(k)s. There's usually lots of back-testing involved and as a rule, these types of portfolios had great performance in the years prior to them being published.
Portfolios 179-183: Fidelity Index Focused Models
- 35% Fidelity 500 Index Fund
- 3% Fidelity Mid Cap Index Fund
- 4% Fidelity Small Cap Index Fund
- 18% Fidelity Ex-US Global Index Fund
- 35% Fidelity US Bond Index Fund
- 3% Fidelity Conservative US Bond Fund
- 2% Fidelity Core Money Market Fund
Fidelity has published lots of portfolio models, including 5 using index funds from 20/80 to 80/20. The one above is the 60/40 one. I think it's overly complicated. Not only are there four asset classes with less than 5% of the portfolio in them, but it uses a less diversified 500 index fund instead of a total stock market fund. In reality, this is just a fancied-up three fund portfolio. That said, it's low-cost, broadly-diversified and better than the vast majority of portfolios I've seen.
Portfolios 184-188: Betterment Portfolios
- 15% Vanguard US Total Stock Market Index Fund
- 15% Vanguard Value Index Fund
- 15% Vanguard Developed Markets Index Fund
- 6% Vanguard Emerging Markets Index Fund
- 5% Vanguard Mid Cap Index Fund
- 4% Vanguard Small Cap Value Index Fund
- 20% Vanguard Inflation-Protected Securities Fund
- 20% Vanguard Short Term Treasury Index Fund
This one comes from Betterment, at least back in 2012. They don't list their portfolios out now on their website, but they're basically variations of the above with different stock:bond ratios. You'll notice the heavy value tilts, a significant small tilt, and previously focus on safety on the bond side. It looks like they also include junk bonds and international bonds now in their portfolios.
Portfolios 189-197: SoFi Portfolios
- 28% Vanguard US Total Stock Market Index Fund
- 24% Vanguard Total International Stock Market Index Fund
- 8% Vanguard Emerging Markets Index Fund
- 20% Vanguard Total Bond Market Index Fund
- 10% Vanguard Short Term Bond Index Fund
- 5% SPDR Short-Term High-Yield Bond ETF
- 5% Vanguard Emerging Markets Government Bond Index Fund
SoFi also runs a roboadvisor like service that offers 9 portfolios from conservative to aggressive, for retirement and taxable accounts. This is the moderate one for retirement accounts. I'm not sure exactly what funds they use, so I added appropriate funds for each listed asset class. It's a little odd to have EM bonds without developed markets bonds.
Portfolio 198: The Physician on FIRE Portfolio
- 60% US Stocks (with a tilt to small and value)
- 22.5% International Stocks (50 / 50 developed and emerging markets)
- 7.5% REIT (Real Estate Investment Trust)
- 10% Bond & Cash (mostly bond plus cash emergency fund)
Very aggressive, especially for a retiree. Low allocation to real estate too, although I keep hearing he may be increasing this a bit.
Portfolio 199: The Physician Philosopher Portfolio
- 45% Vanguard Institutional Index Fund
- 20% Vanguard Mid Cap Index Fund
- 20% Vanguard Small Cap Index Fund
- 15% International Stocks
This is what he had in his 403b a couple of years ago. More info on this portfolio here. Aggressive, but otherwise pretty Plain Jane aside from a small tilt.
Portfolio 200: The New White Coat Investor Portfolio
- 25% Vanguard Total Stock Market Fund
- 15% Vanguard Small Cap Value Index Fund
- 15% Vanguard Total International Stock Market Fund
- 5% Vanguard FTSE Ex-US Small Index Fund
- 10% Vanguard Inflation-Protected Securities Fund
- 10% TSP G Fund
- 5% Vanguard REIT Index Fund
- 5% Debt Real Estate (primarily private hard money lending funds)
- 10% Equity Real Estate (primarily private funds and syndications)
I simplified our asset allocation about three years ago. Aside from consolidating asset classes, the major change was swapping out peer to peer loans for hard money lending and adding a bit more real estate. But basically it's 60% stock (2/3s of which is US, 1/3 International), 20% bonds, and 20% real estate.
A good investment portfolio is broadly diversified, low-cost, mostly or completely passively managed, regularly rebalanced, and consistent with its owner's need, ability, and desire to take risk. Every portfolio (except the Kiplinger ones) in this post meets those qualifications. Pick one you like, or design your own. Just don't go looking for the best one. As Prussian General Karl Von Clausewitz said, “The enemy of a good plan is the dream of a perfect plan.”
What do you think about all these portfolios? Do you use one of these, or have you designed your own? Comment below!
Great topics and enjoyed reading all the posts. Would you have a portfolio suggestion that has a monthly payout for retirees? I am 65 with $1.75M to invest and would like to withdraw approx 5% annually (but want to get it in monthly payouts). I see Vanguard has VPGDX but I haven’t read much praise on this fund. And advice greatly appreciated.
That’s a fairly dangerous way to design a portfolio. You will need an aggressive portfolio or SPIAs to withdraw 5% as that is more than the “standard” 4% safe withdrawal rate. And as a general rule, aggressive portfolios generally have a significant portion of their return coming from capital gains, not yield. In that case, you’d have to sell a little principle every month (which is fine).
Sounds to me like a SPIA should be a major part of your retirement spending strategy to me.
https://www.whitecoatinvestor.com/spia-the-good-annuity/
You can certainly set up a SPIA to pay out monthly.
Hello The White Coat Investor,
Ran into your site and love the article and comments. I’m learning a lot.
My father will be given his pension when he turns 70 1/2 in 2021. He will be receiving over 1.2 million dollars from his pension. He does NOT need it as he is getting income from varies sources (Veteran’s, SS and 401k)
He plans to give it to us, 4 children (ages 43/39/32/30), when he passes away, but in the mean time invest it, split the RMD with all of us and have me to manage the funds.
The GOALS are…
– Moving the funds to Vanguard to a Traditional IRA and invest in the funds below.
– Pick the appropriate funds and AA.
My dad is healthy and planning on living forever lol, however, my dilemma is I want these funds to grow without too much risk, if his unfortunate death happens sooner rather than later. I’m comfortable with a 50/50 to start , then gradually get more conservative as he gets closer to 80 years old. I would love your thoughts.
If your father doesn’t need the money then you should invest the money based on the children’s age, not your father’s. I would do it based on the oldest or you can average the ages.
This would be a good decision for the kids to have because it will give you insight into how everyone will be acting when the money is there to be distributed.
Hello WCI,
I recently came in to a lot of cash due to a huge K-1 payout (for 2 years) of around 800K. In the current market conditions, how would you invest this money considering the following:
1. I dont need to touch this cash for the next 15 years
2. I want to make atleast 3-4% return ( dividends)
3. I am looking for capital appreciation/growth.
I do have a few portfolios in mind after reading this article several times, but not sure if it would be a great idea Now….
Please guide.
Thank you.
You can’t pick an investment with guaranteed returns unless you’re willing to settle for very low returns.
Dividends are only one component of the return. The other component is capital appreciation. You say you want capital appreciation plus a 4% dividend. Does it really matter to you if you get a 2% dividend and 8% appreciation or 6% dividend and 4% appreciation or 4% dividend and 6% appreciation? If so, why?
My crystal ball is cloudy. Not only do I have no idea which of these portfolios will do the best over the next 15 years, I don’t know what the return will be from any of them. You makes your bets and you takes your chances. But if it was money I didn’t need for 15 years, I’d be pretty aggressive with it. Probably at least 60-75% stocks, especially if your goal is a high return.
As far as how to invest at market highs, I’d recommend this podcast:
https://www.whitecoatinvestor.com/how-to-invest-at-all-time-highs-podcast-30/
Really enjoy the WCI blog! I searched this article and comments but didn’t find the “Rebalance IRA” ETF portfolios; the Diversified Growth version of which (80% stocks, a dozen asset classes) is the one we have used for some of our retirement vehicles (Roth IRA, wife’s Solo 401K) since semi-retiring 3 years ago. It features famous Harvard/Princeton board advisers with endowment fund experience, no sweat rebalancing (they do it for you annually or at rare market events), at a cost of 50 basis point advisory fee and about 20 more for trading costs. You do get one 30-minute personal phone call a year so this a financial advisory vehicle, more than just a managed portfolio. However, lately I’m thinking about dispensing with the annual phone session as my portfolio questions have abated and morphed to bigger picture queries about which they don’t seem to be inclined to answer. I am considering going to Wealthfront, which is a similar robo-fund with essentially same portfolio board advisors, tax-loss harvesting, and perhaps younger telephone support workers, at a savings of 15 to 35 basis points. Have used them for a 529 account with good result. The catch is you have to use their own brokerage house which is not a common one. Do you have any preference for, or perhaps a survey of “robo-fund” portfolios? I’m thinking more and more that financial advice should be sourced separately.
That’s not a portfolio, that’s a financial advisor. A roboadvisor to be exact. I’ve written about them before here:
https://www.whitecoatinvestor.com/the-pros-and-cons-of-roboadvisors/
0.143 VTI, US Total
0.150 TSP-C US Large Value
0.055 VOE, US Mid Value
0.078 TSP-S US Small Value
0.202 TSP-I Foreign Total
0.050 VSS Foreign Small
0.157 VWO, Emerging Market
0.065 VNQ US REIT
0.060 VNQI Foreign REIT
0.024 BND US Bond
0.010 BNDX Foreign Bond
0.006 VWOB Emerging Bond
Hardest part is working around my TSP which has ~ 50% of the dollars and gets the max contribution each year
What would be the drawback to just using the vanguard target retirement fund. Would this be a good option for someone who doesn’t want to keep track of rebalancing themselves?
Yes. It’s a great simple option. More details here:
https://www.whitecoatinvestor.com/7-reasons-i-dont-use-target-retirement-funds/
First of all I started listening to you podcast several months ago and it is amazing! I have a question about my wife’s 401k through work. She has access to the Vanguard total stock market index fund at an expense ratio of 0.04%, which is awesome, but all the rest of the funds expense ratios that we are able to choose from are around 0.50% (yuck). She is currently doing the following:
70% into the vangaurd total stock market index fund Admiral VTSAX(expense ratio 0.04%)
20% into American Funds EuroPacific Growth Fund – R6 RERGX (expense ratio of 0.50%)
10% into CREF Inflation-Linked Bond R2 QCILPX (expense ratio of 0.35%)
The reason we are putting some into the international fund is that the vanguard total index fund doesn’t have any international funds or stocks at all. Is it worth paying the higher expense ratio to have a portion of the portfolio in international stocks, or is it better to just give up the international diversification for a much lower expense ratio and put more into the vanguard fund?
It all seems very reasonable to me. Bear in mind you should look at all your retirement accounts as one big account and it may work out that you only have to use the TSM in this account.
Vanguard Index Funds are always ideal, but there is nothing wrong with American Funds R6 shares if there is no other option. They are a solid fund company that has been around since 1930’s. The diversification is important to overall portfolio performance and risk management.
Its seems that a handful of these portfolios include both the Vanguard 500 index and also the Total Stock Market index. This seems redundant, as they both are large cap, blended funds. What am I missing here that warrants holding both?
Nothing I can think of. I use TSM preferentially and only use 500 index when I can’t get TSM or when I am tax loss harvesting.
Which ones have both?
Just Ultimate Buy and Hold and Aronson Family Taxable. Not quite a handful. Thanks for clarifying.
I recant. Ultimate Buy and Hold is Total International. Only Aronson Family Taxable.
When I first started investing at 27 with a six figure income, a “friend” of mine whose a financial advisor (at an insurance company) recommended me to open Annuities (2.5% fees + withdrawal fees), two Variable UVL policies (My wife and I) and a brokerage account where he was getting very high commissions on Vanguard ETFs that I was picking. I didn’t realize at the time what a massive mistake I was making. I’m now 31 and I’m still in the process of moving my money away from the insurance company and taking the hit on a lot of the “investments”.
I want to thank you all the great content you produce and helping teach regular people personal finance. Even though I’m somewhat outrage over all the money I forfeited and the opportunity costs I missed out on, I’m thankful that I found your website and was able to stop the bleeding after 4 years instead of 34 years.
With that said, I’ve spent a lot of time listening to podcasts and reading about how to take care of my own finances and was wondering if you’d like to comment on my IRA portfolio allocation I opened on my own at VG. My brokerage account (at VG) is basically the same allocation but I have essentially replaced the mid-cap/reits with short term bonds. At this time, my longer term plan is not to retire early but I like the thought of having the option to do so.
VFIAX 500 index 9%
VVIAX Large Val 9%
VMGMX Mid Cap 9%
VMVAX Mid Cap Val 9%
VTMSX Small Cap 9%
VSIAX Small Cap Val 9%
VGSLX US Reit 5%
VTMGX Inter. Large 8%
VTRIX Inter. Large Val 8%
VFSVX Inter. Small 15%
VGRLX Inter. Reit 5%
VEMAX Emerg Mrkt 5%
I cannot thank you enough for all that you do.
It’s a reasonable portfolio, probably a little on the complex side. It’s just a lot of asset classes to keep track of. Honestly, after 10, you’re just playing with your money. Does it really look all that different to have 500, LV, MC, MCV, SC, SCV than just TSM + SV? Probably not. Do a Morningstar X-ray and take a look at whether it’s worth all that complexity to you.
Hello WCI,
I have some questions about your parents portfolio #149.
1) Are your parents retired and living on the withdrawals from this portfolio? Do they have any other income sources?
2) Do you plan to reduce the percentage allocated to equities as they get older or maintain the 50% for life?
3) Have you given any thought to moving any of the FI allocation from IT to ST given the rising rate environment we are in? Is the VG TIPS allocation IT or ST?
Thanks,
Dave
1. Yes and partially, Also a pension and SS now.
2. Haven’t reduced it yet. Probably ought to make it more aggressive, but 50/50 still seems right for them.
3. No. IT. Don’t fear rising rates, in the long run they’re good for bond returns. (Long run = any period of time longer than the duration)
First of all I want to thank you for all the hard work you put into this article and your web page. I consistently come here for info and love all of it.
My questions are:
Why are you in so many different things? I count 12 investments and most of the plans I’ve read about have allocation into 4-6 main index funds or investments.
Also how did you land on your personal portfolio as opposed to all the other ones you mentioned.
And finally as a young physician just out of fellowship starting my first retirement account during one of the longest bull runs in history, got any tips? Should I still allocate 70-80% into stocks are put more into bonds (or other safer investments) until the next crash?
As of right now my plan is to do 80% stocks then 20% bonds, REIT’s, TIPS.
Thanks in advance.
Bear in mind this is an older post and there have been some minor changes, primarily simplifying ones, to my portfolio since. An update here:
https://www.whitecoatinvestor.com/the-new-wci-asset-allocation/
How? Lots of different influences and thoughts that averaged out to about where I’m at. Not sure I could list them all. The good news is it doesn’t matter much. A little more small value? A few less TIPS? Doesn’t matter. Pick something reasonable and stick with it.
As a general rule, you want a portfolio as aggressive as you can handle without bailing out in the next bear. Unfortunately, it’s hard to know what that is until the next bear!
Hi,
I love this post. Thank you to WCI for this website. I just changed jobs and my 403(b) plan is through Transamerica with the following fund options:
Short Bonds/Stable/MMkt
Vanguard Federal Money Market Inv
TFLIC Guaranteed Pooled Fund
Interm/Long-Term Bonds
Metropolitan West Total Return Bond Plan
Vanguard Total Bond Market Index Adm
Large-Cap Stocks
Fidelity 500 Index Institutional Prem
MainStay Large Cap Growth R6
Dodge & Cox Stock
Small/Mid-Cap Stocks
Fidelity Extended Market Index InstlPrm
Champlain Mid Cap Institutional
DFA US Small Cap I
Principal Global Real Estate Sec Inst
International Stocks
Fidelity International Discovery
Fidelity International Index InstlPrm
Multi-Asset/Other
Vanguard Institutional Target Retirement Income
Vanguard Institutional Target Retirement 20__
Given these choices, does anyone have any advice with regard to a well-balanced allocation? Thank you so much!
Best,
Steve
Choose the asset allocation, then look at the choices available. There are hundreds of well balanced allocations that can be made using those funds.
Looking through the list, some attractive funds there include the Vanguard Target Retirement Funds for a one stop investing solution or for someone who wants to tinker a bit more, the Fidelity 500 Index Fund, the Vanguard TBM fund, the Fidelity International Index Fund, and perhaps the DFA small cap fund. It doesn’t seem to be a bad 403(b) at all.
I’m thinking to invest in this portfolio for a taxable account.(long term)
VOO 50% Vanguard S&p 500
VXF 15% vanguard Extended Market
VIOV 05% Vanguard Small Cap Value
VXUS 20% vanguard Total International
VTEB 10% vanguard Exempt bonds.
What do you think? I used VOO because I own VTI in another account at Vanguard.
I look at all my accounts as one big account. But the allocation itself looks reasonable. I’d probably just do 65% TSM though to simplify.
Hi,
I have my investment portfolio in fidelity. What ETF / index funds would be comparable to the Vanguard ETFs / index funds that you have typically recommended (i.e., Vanguard total stock market, vanguard 500 fund, vanguard total international stock index, etc).
Or, can my fidelity brokerage account purchase these same vanguard funds?
Thanks!
Hi, any thoughts on this? Thanks!
I am a resident in my first year and I just started a Roth IRA through Fidelity. Just wondering… once my balance is to a point where I can start investing, and I pick a portfolio, for example let’s say I choose the Three Fund portfolio, with 1/3 vanguard total stock market fund, 1/3 vanguard total international stock market fund, and 1/3 vanguard total bond market fund..
when I go to trade/purchase each of these funds, how do I set it up so that 33% of each is allocated in my portfolio? Is is just basic math every time I buy new funds/my Roth IRA balance increases?
Yes. That’s what I do. If you only have one account it’s pretty easy to autopilot it, but most docs have so many accounts it has to be done manually.
How do you set up your asset allocations across multiple accounts, for instance, through my residency my hospital offers 403b and Roth 403b options and currently based off the options of funds they offer, this is my asset allocation for both of my 403bs:
FID 500 INDEX 39%
VANG MDCPGR IDX ADM 12%
VANG SM GR IDX INST 5%
FID INTL INDEX 25%
VAN EM MKT ST IDX IS 10%
VAN REAL EST IDX ADM 9%
However, I also have a Roth IRA through the same company (Fidelity) and would like to start in vesting with it as well. How do I go about choosing investments for my Roth IRA while maintaining my asset allocation across all accounts?
Most use a spreadsheet. Consider all your assets as one large portfolio. Choose your stock:bond ratio. Then figure out what to put where. Have to consider funds available in each account and costs. Google tax efficient fund placement.
Pretty aggressive, but otherwise reasonable portfolio.
https://www.whitecoatinvestor.com/in-defense-of-the-easy-way/
https://www.whitecoatinvestor.com/designing-your-portfolio-part-6-implementing-the-asset-allocation/
https://www.whitecoatinvestor.com/avoid-being-an-investment-collector/
https://www.whitecoatinvestor.com/implementation-of-my-asset-allocation-an-update/
There’s another post that answers this question too, but I can’t seem to recall where it is.
Try posting on the WCI forum in this format too:
https://www.whitecoatinvestor.com/forums/topic/beginners-forum-guidelines-read-before-posting/
Thanks for all the info!
Used this and engineeredportfolio to come up with this allocation. Any thoughts?:
20% US mid-cap value
18% Total market US
15% Emerging Markets Bonds
11% Foreign developed small
11% Emerging markets
7% US Bond index
5% Small Cap
4% US consumer staples
4% REIT
3% Income
2% Artificial Intelligence Fund
(Cumulative .13% expense ratio)
It’s not a crazy portfolio. Low cost and broadly diversified.
Personally, I’d dump everything you’re not willing to hold as a 5% slice in order to simplify and roll those assets into the other asset classes. I mean, what is “income” anyway. What does that mean to you? And I’m not a big fan of large sectors like staples much less tiny ones like “artificial intelligence.”
It’s pretty aggressive with only 22% bonds and it’s a little weird with more in mid caps than large caps, no international large, and a monstrous allocation to EM bonds.
I’m really curious to hear the reasoning behind the inclusion of some asset classes over others and the various weightings.
Thanks for taking a look!
I wanted to start out with total-US-stock-market, then lean it in the following ways:
1. toward mid-cap-value significantly (I found this, through 2016, analysis compelling: https://engineeredportfolio.com/2016/12/12/mid-cap-value-outperformance-consistently-beating-the-sp-500)
2. toward large-value slightly with the consumer staples (https://engineeredportfolio.com/2016/12/17/historical-performance-of-us-equity-sectors)
3. toward small-cap-blend slightly since the total-market is skewed toward large-cap side.
4. toward AI very-slightly because whatever company wins the race to the singularity will likely become far and away the most valuable company in the world (and I want to have a piece).
“Income” was an attempt to just create one more conservative bucket. FAGIX in this case which is about 2/3 bonds and about 20% stocks.
With the value lean, I thought that 22% bonds should be enough on a 20+ year portfolio.
My emerging markets fund (FPADX) is showing as a large-cap blend, so I think it is big companies in emerging economies (I’ve looked into this the least I’ll admit).
EM bonds rationale: Again I found a very compelling analysis of return-to-downside-risk here: https://engineeredportfolio.com/2017/06/25/historical-analysis-of-bond-investment-returns-performance
Quick question on a portfolio allocation. I just started a position after completing fellowship. I am in my young 30s. My employer users T Rowe Price with a few vanguard funds available but also a Schwab self directed brokerage transfer option through this account which has many excellent choices. The other options in the traditional 401k are high cost funds.
This is my plan. I am aiming for long term growth, medium to high aggressiveness at this age, and low maintenance.
401K positions
VTSAX 30%
VBTLX 30%
VTMGX 10%
Self directed brokerage positions
SSGA 10%
SCHM 10%
SWSSX 10%
My contributions are set up as a Roth 401k at this point due to my age and the current tax policy. Employer contributions are pre-tax.
Any comments, critiques, recommendations would be much appreciated. Thank you for your time.
Sorry, correction:
SSGA should be LGLV
I know the first ticker symbol, but that’s it. It’s considered good etiquette to write out the name of the fund so the extra work is on the asker not the answerers.
Sorry about that, long time lurker but have never posted before.
VTSAX 30% Vanguard Total Stock Market Index Fund Admiral Shares
VBTLX 30% Vanguard Total Bond Market Index Fund Admiral Shares
VTMGX 10% Vanguard Developed Markets Index Fund Admiral Shares
LGLV 10% SPDR® SSGA US Large Cap Low Volatility Index ETF
SCHM 10% Schwab U.S. Mid-Cap ETF
SWSSX 10% Schwab Small-Cap Index Fund
Any reason you chose developed markets over total international? Why exclude EM?
Also, are you really sold on low volatility for the long term? Seems an odd factor to choose. Most would pick value before low volatility (and before the small tilt you’ve chosen.)
Hello~ I have been reading through your website for a couple months now and cannot thank you enough for how easy to digest and helpful the content has been. I am in my late twenties in an apartment with no car or student loans and have decided to open a ROTH IRA while I can. I know I am likely missing something (aside from diversification being the obvious bit).. but I am tempted to invest the max in Vanguard’s US Growth. The expense ratio is definitely higher than the others I am considering, but it seems to have such steady performance and suffered relatively little in comparison in the past year – what am I missing? or is this an okay decision for the first bit of money I invest.. or is that .42% expense ratio really going to bite me in the long run? Thank you again~! M
US Growth? Interesting choice, feels like performance chasing given US growth has been the best asset class the last couple of years. It’s actively managed, has a rather high expense ratio so I never really recommend it. 10 year performance slightly trails the similar index fund – Vanguard Growth Index so if you really want a US Growth stock fund I’d probably go with that one.
But what I’d do is just use Vanguard Total Stock Market Index for US stocks. It has similar 15 year performance to US Growth despite the last two years that have favored growth stocks.
Sounds like you need a written investing plan. If you’re looking for an easy, diversified, balanced option to set and forget I’d get a Life Strategy or Target Retirement Fund.
I have been reading a ton but have yet to write out a plan – thank you for the reply and suggestions.
Hello WCI,
Thank you for all the work that you do. I’m compiling an asset allocation and so far have 70% of the money invested. There is another 30% I’m hoping you could give your opinion on. Ideally I’m looking at a 60/40 allocation when all is said and done. That would mean 20% more into stocks and the remaining 10% into Fixed Income/Bonds. The stocks are just at about 1 year and nothing has done so well that I don’t want to take the gain. Could rearrange everything on stock side if need be. But I’m happy with this allocation (i.e. sleeping at night).
Stocks
VTV Vanguard Large Cap Value 11%
SPY S&P Index Large Cap Blend 7%
QQQ Nasdaq Index Large Cap Growth 4%
IWM Small Cap Russell 2000 Index 6%
EFA International Developed Markets 6%
SCHE Schwab Intl Emerging Markets 2%
REET iShares Global Reit 4%.
————————————————————-
Total Stock 40%
Fixed Income/Bonds
US TREASURY BILL 7%
CDs 10%
Muni Bonds 3%
BND – Total Bond Mkt. 3%
VTEB – Vanguard Tax-Exempt Bond 2%
iShares 3 year Corp Bond Ladder 5%
————————————————————-
Total Fixed Income 30%
I think it’s more complex than it needs to be. You can get the same allocation cheaper with fewer funds. 13 funds is overly complex. You’re dealing with more hassle and cost than it is worth. I generally recommend at least 3-7, with no more than 10 even if you really like playing with your money. You can get a similar allocation jus doing this:
Stocks 60%
TSM 20%
LV 15%
Small Cap 10%
TISM 10%
Intl REITs 5%
Bonds 40%
CDs 10%
TBM 20%
Muni Bonds 10%
8 funds to mess with instead of 13. Much better.
Now, the other two things that strike me as funny are a REIT tilt on the international side but not the domestic side. Smells of performance chasing. The other is a dedicated allocation to muni bonds vs total bond market. I would just let your asset location determine that. If you have lots of taxable space and need/want to put some bonds there, then use munis (assuming that’s the right move given your tax bracket.) If you are mostly tax protected, then use taxable bonds with total bond market.
Thank you. The Reit was a little bit of performance chasing, a bit of balance. It contains a near 70% allocation to domestic. I do hear you on the muni vs taxable bonds. I’ll try to get a bit more dialed in using this equation.
(Tax-Exempt Bond Fund Return)/(1-your_marginal_tax_bracket) ?
On one other note, I know that you consider it all one account but I have two annuities that I’ve inherited which account for approx 15% of the overall. I’m switching them over to Vanguard or DFA(Nationwide). My thought is to have annuities composed of Reits and or my bond allocation, TBM or TIBM? Also thought of us some LV to throw off dividends into the tax-deferred vehicle. These annuities, if all goes well, won’t be touched for another 20 years or so. If ever.
That’s interesting that it’s mostly domestic. Didn’t expect that, but that’s why it is always good to look under the hood of a given fund using Morningstar or the annual report of the fund.
Yep. I also like etf.com. Thank you for your help.
Hi – I think my previous post may have been lost in the holiday shuffle:
I have my investment portfolio in a Fidelity account. What Fidelity ETF / index funds would be comparable to the Vanguard ETFs / index funds that you have typically recommended (i.e., Vanguard total stock market, vanguard 500 fund, vanguard total international stock index, etc). From my research, these are ones that seem comparable to me and I was wondering if you had any thoughts:
FXAIX – Fidelity 500 Index Fund
FZROX – Fidelity ZERO Total Market Index Fund
FZIPX – Fidelity ZERO Extended Market Index Fund
FZILX – Fidelity ZERO International Index Fund
Or, should I just purchase the typically recommended Vanguard funds through my Fidelity brokerage account?
Thanks!
Yes. Vanguard total stock market = Fidelity total stock market, Vanguard Total international = Fidelity Total international. Were there any others you were wondering about?
Love the podcasts! I’ve learned a ton and was beginning to feel confident, but now that it’s time to actually invest I’m feeling overwhelmed. Basically I’m 6 months out of training, saving 20%, and need a basic investment plan to start. It honestly feels like I’m just making up numbers and ratios, but does this look reasonable? In general I’d like to be a little more aggressive early on and slowly become more conservative.
50% Total Stock Market Index Fund
20% Total International Stock Index Fund
10% REIT Index Fund
20% Total Bond Market Index Fund
Do I need to add small market index fund? Not sure really what that is or if it would help. Thanks so much!
That’s a reasonable asset allocation.
Do you NEED small market index fund? I don’t think so. I don’t own it. I especially wouldn’t invest in it if you don’t know what it is.
Thanks for your reply! Just wanted to make sure I’m in the right track!
Do you have any general suggestions on which of those should be allocated to different accounts eg 401k, roth, hsa, brokerage?
I wouldn’t put the REITs or the total bond fund in the taxable/non-qualified/brokerage account. What goes in the 401(k) depends on what is available there but you can usually find a halfway decent TSM or 500 index fund in most 401(k) plans.
Can you help me build a 3 or 4 ETFs portfolio from this portfolio of6 ? Voo 40%,viov 10%,vioo 10%,vtv 10%, vwo20%,VEA 10%.
First I have to look up all those tickers. You’ll find it’s easier to get help if you do some of the work.
How about VTI 50%, VXUS 30%, VBR 20%? Not quite as overweighted to emerging markets as your combination but a lot simpler and it preserves the value tilt. If you really want that EM tilt, Go with VTI 50%, VXUS 20%, VWO 10%, and VBR 20%.
I just graduated dental school and I am wanting to start investing 20% of my income. I’m currently 27 and would like to retire at 65. I want to have some risk with my investments. Which of these 150 portfolio’s would you suggest using for someone my age.
Just about any of them. If you can’t decide, why not use a target retirement fund or a life strategy fund?
Just realize that whichever one you pick will not be the best. (That’s my biggest problem).
Determine hour much risk you can tolerate and then add 10% of bonds to that because you won’t know how during you are until you got that first bear.
The truly best approach is what WCI did during the last bear and view everything as being sold at discount. You truly want a bear market early in your career so that you can “buy” more equities and see how strong you are.
Whichever portfolio you decide on, run it through portfolio visualizer. Put 2 million as the starting point and run it from 2005 to 2010 Ignore the returns.
Go to “annual returns” and look at what happens each year. Here’s an example:
Portfolio
1 2 3
$2,150,523 $2,189,891 $2,178,29′
$2,484,946 $2,567,604 $2,416,63:
$2,665,017 $2,702,527 $2,723,42′
$1,917,885 $2,089,336 $2,747,03:
$2,422,600 $2,526,295 $2,961,36:
$2,787,056 $2,911,997 $3,374,761
1: Bernstein brainless
2. Yale endowment
3. Harry Brown
This is not to say which portfolio is better, but just analyze the drawdown of each and imagine your money moving like that.
If u want to know what happens after, here are the numbers in 2019:
5,037,068 $5,546,132 $5,050,706
Excellent point. Thanks for sharing.
The most important thing is to save.
20% of your income is big (totally doable) but make sure your significant other is on board.
I assuming you may change your mind when you are older and may want to retire at 62. Also assuming your average income is $161k/year.
Are you going to have children? If so are you going to have a 529? Don’t mix retirement saving with college savings. So I will give you 5% into 529 and 15% in retirement. So $2087/month into retirement and $695/month for college.
Also going to assume you will want to retire with $115,000 year.
At retirement:
10th percentile worst portfolio will give you $1,847,270.
50th percentile portfolio will give you: $3,284,619
Through retirement:
10th percentile portfolio will give you 50% chance of success
10th percentile of this outcome: money runs out in 16 years
50th percentile of this outcome: $391,000 at the end of 30 years.
The 50th percentile at retirement has 100% chance of success even at the 10th percentile.
The above scenario is with the Yale Portfolio.
The portfolios that are 100% successful when looking at 10% scenarios:
Ray Dalio
Harry Brown
Golden Butterfly
The Talmud portfolio (fails at the 29.8 year mark).
Other failures:
Bernstein No Brainer
Coffehouse
4 fund Boglehead
Ultimate Buy and Holds
Various 100% equity portfolios
Wealthfront 8.5 taxable (might be the worst portfolio as you run out of funds in 6-14 years)
Rick Ferri Core 4
The successful worse case scenario portfolios all have long treasuries and gold (except Talmud). Not many like these portfolios. In taxable accounts, you may want to switch out gold for emerging market bonds.
I am not recommending any portfolio as superior to any other. Do with the info what you like
$695/month for 18 years is going to be a heck of a 529 account. $234K in today’s dollars at 5% real. Hopefully that’ll cover a full-ride for undergraduate at least.
Thank you so much for such an in-depth and lengthy post about portfolios! I can see you put a lot of time and thought into this.
I don’t want to sound like an ingrate, but I think what would be even more interesting and helpful is to see the rate of returns posted for each and every portfolio here and perhaps a simple categorization of risk assessment (low, moderate, high). Especially for those of us who are not experts who turn to your website for advice and may try to “copy” one of them for their personal investments. (I saw you addressed this in some of them). Also I would like to see you circle back to this post, again for a 3rd time, when we hit the inevitable bear market to see how each one fares.
BWD
No one is going to be able to do that for you online. That’s the job of a financial planner.
Also looking for returns isn’t important either because it’s not going to happen again.
Choose any of them and put as much money as you can every month into the account, never look at it until you retire, and you’ll be fine.
I recommend you go to www portfoliovisualizer.com and play around with the monte carlo simulator. Look at the worst case scenario and see if you can tolerate that. If you are, then you’ll be happy with the mean return. Prepare for the worst.
I agree with Carlos. There are limits to what to expect from a free blog post. There are too many assumptions to do this analysis (the time period, which year you start your analysis, etc). Plus, it would miss the point of the post, which is that it’s one thing to look at performance behind you (on statistical average), it’s a whole different thing to try to predict your specific conditions for your specific personal time horizon. What conditions will exist in the *next* 20 years will determine which allocation will be “best.” Unfortunately, none of us knows. Growth can be up or down and inflation can be up or down. Commodities look like dogs until inflation sets in, then you’re a superstar for having some to buffer the hit to equities.
The best you can do is play around with the portfolio visualizer tool mentioned. I put my asset allocation into the Monte Carlo simulator and chose for the ‘sequence of returns risk’ to be worst 4 years first. It gave me some sense of what would happen if the economic storm hits right at the beginning of retirement (which is a type of worst case scenario–kind of like if your retirement started in in 1929 or 2008). I compared to many of the portfolios above and learned a lot by messing around with the dates. I started my investing career in 2009, so I’m in for a dose of reality when the next downturn happens. Being well diversified will mean that you will always have some ‘dogs’ pulling you down in the bull markets, but then they will buffer the sting when the bears arrive.
https://www.portfoliovisualizer.com/monte-carlo-simulation
https://www.portfoliovisualizer.com/backtest-portfolio
Into the truest stress test for your chosen perfoliata would be to run the where’s to 4 years in the 4 years prior to retirement.
Running worst case scenario in your 1st 4 years will create a scenario where all I sets are on sale. After 20 to 30 years that actually is an excellent portfolio. But running a performer Leo that crashes in the last 4 years will show you what you would have to do when you are about to retire.
Also try to run your portfolio at the 1% interval instead of the 10% interval. That will run worse case scenarios and stress your portfolio a little bit more. Look at absolute dollars and Max drawdown.
Most people can’t
handle Max drawdown more than 25% without panicking.
It doesn’t matter what most people can handle. It matters what YOU can handle, and then matching your portfolio to that.
Maybe Carlos misunderstood. All assets “on sale” doesn’t matter if you are not buying anymore (I ran the simulation with worst years 1-4 of *retirement*). The stress test is to see what a 40% decline upfront does to your 30 year withdrawal plan. If you can make it through the first 10 years of your 4% safe withdrawal rate, then you’re pretty much golden.
I did misunderstand. (I read first 4 years if investing, not retiring.)
Apologies.
How often would you like that updated? Yearly, monthly, weekly, daily, or hourly? 🙂
This post is older than the last bear market in December 2018. They fared fine.
I think what you’re looking for is this (and there is a link to it up there in that post):
https://www.bogleheads.org/wiki/Madsinger_monthly_reports
It would obviously be a ton of work to reproduce that, so I’m not going to. While interesting, it’s not as useful as most new investors think it would be since you can’t invest retrospectively.