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!
I need to clarify a few things. I am a student of investing and the markets. I play around with a lot of “What if” scenarios out of curiosity and I enjoy sharing the results with other like-minded individuals. I have never advocated investing in a particular manner as a result of sharing the information. All I have said is that this is what happened in the past. If you want to criticize my portfolio, you need to know how I am actually invested in the real world.
I invest 100% in Vanguard index funds. I use a declining glide path strategy and decrease my equity position by 1% and increase my fixed income position by 1% each year. I am currently 55 years old and my current portfolio is 63% equity and 37% fixed income. My current allocation consists of:
10.5% Vanguard Growth Index
10.5% Vanguard Value Index
10.5% Vanguard Mid-Cap Growth Index
10.5% Vanguard Mid-Cap Value Index
10.5% Vanguard Small Growth Index
10.5% Vanguard Small Value Index
6.17% Vanguard Long-Term Corporate Bond Index
6.17% Vanguard Long-Term Treasury Bond Index
6.17% Vanguard Intermediate-Term Corporate Bond Index
6.17% Vanguard Intermediate-Term Treasury Bond Index
6.17% Vanguard Short-Term Corporate Bond Index
6.17% Vanguard Short-Term Treasury Bond Index
So please don’t say that I advocate investing solely in a Health Care fund just because I said that it has been the best performer since 1982. I hope that clears this up once and for all.
That’s a lot of complexity and slight additional cost for very little actual tilting away from the total market portfolios. I bet a portfolio composed solely of Total Stock Market, Small Cap Index, and Total Bond Market could have very similar returns and holdings.
The Total Bond Market does not let me take advantage of targeted interest rate swings. For example, Long-Term Corporate was up over 7% while Short Term Treasury was up just .16 % for April 2020. So when I rebalance out of the equity funds, more proceeds will be going into ST Treasury. So as interest rates go up, more cash goes into long-term bonds and as they go down, more goes to short term bonds. I haven’t tested yet whether that is beneficial or not. I just like the targeted approach better. Same with owning TSM and SC stock. I may just move money from small growth to large value rather than just sell off both growth and value small stocks to buy both growth and value large stocks.
And to reply to your email, I am not disappointed that so few actively managed funds did not beat the S&P 500. Since I am analytical by nature I prefer the order of index funds. I like understanding what I am investing in.
It’s like the whole “buy TISM or buy Europe, Pacific and Emerging separately” argument. If there is an advantage, it is likely small.
It just comes down to personal preferences. Consistency is the most important factor in my opinion.
Agreed.
I read an article that made the case that small value stocks have been underperforming since we came out of the 2008 recession due to the extremely low interest rates that favor growth stocks. It went on to say that value would continue to underperform until rates went back up. What are your thoughts?
I have no idea. My crystal ball is cloudy. Seems like a reasonable explanation except for the fact that small value has outperformed large growth stocks in times of low interest rates in the past. Look at 2001-2004. They were also low in 2010, 2013, and 2016 when smaller stocks outperformed larger stocks.
Hoping for some thoughts on this with 20+ year horizon:
70% VBIAX (Vanguard Balanced Index Fund)
15% FDGRX (Fidelity Growth Fund)
15% RYT (Invesco S&P 500 Equal Weight Technology ETF)
Thinking about starting at 80-10-10 to start then shift toward 70-15-15 or a little beyond upon market dips.
VBIAX: ~60/40 and has performed similarly to VFORX, 2040 target date fund, but with less risk
FDGRX: High Alpha and reasonable Beta but providing some real portfolio upside over time
RYT: Another high Alpha and acceptable Beta fund providing portfolio upside over time. It look like it holds equal weight within the top 68 tech companies which feels a lot safer than holding 37% in MSFT and AAPL.
The portforliovisualizer monte carlo analysis seems pretty positive on this compared to a simple 100% VFORX or 100% VBIAX (though this was my first time using it and there are a lot of options in the tool). Though the tool says I should just do 100% FDGRX, but that seems crazy.
Thanks for any thoughts!
Feels like you’re just choosing funds with good recent performance, i.e. performance chasing,
I’m a 30 year old guy and this is for my 401K portfolio. Looking for suggestions or thoughts on this one. Spent too much time but I am not 100% there yet I feel.
Domestic
FXAIX – FIDELITY 500 INDEX FUND 25.00%
FSMDX – FIDELITY MID CAP INDEX FUND 12.50%
FSSNX – FIDELITY SMALL CAP INDEX FUND 12.50%
Bonds
FIPDX – FIDELITY INFLAT-PROT BD INDEX FUND 10.00%
FUAMX – FID INTERMEDIATE TREASURY BOND INDEX FUND 10.00%
International
FPADX – FIDELITY EMERGING MARKETS INDEX FUND 10.00%
FSPSX – FIDELITY INTERNATL INDEX FUND 10.00%
REIT
FSRNX – FIDELITY REAL ESTATE INDEX FUND 5.00%
I don’t want to go 10% for REITs so I just did 5% for now so I added this to make up the 5%
FSPGX – FIDELITY LARGE CAP GROWTH INDEX FUND 5.00%
Idea for now is to rebalance based on the market and put back the 5% to REIT or change the large cap growth to something else but I am not sure what to pick here now.
So this for a fidelity 401K portfolio so I don’t have access to TSP funds and things like those.
What do you think?
Thanks for the post I accidentally found this and I am little sad that I haven’t found this sooner when I was starting to look for asset allocation ideas.
Looks reasonable, but why not just add that 5% to the 500 index fund instead of the growth fund? And maybe use a TSM fund instead of a 500 fund (and then use less of the mid/small caps if needed).
So you saying maybe change the 25% 500 index fund to a 30% total market fund like the Fidelity zero FZROX, and I can then lower the mid cap and small cap to 10% each. What do you suggest for the remaining 5%? Add it to a bond or international?
Also what do you think of changing the two international fund to a one fidelity zero international FZILX?
Maybe 30%, 12.5%, 12.5%?
If you don’t want to overweight EM, then that would be fine. (Double check that fund includes EM.)
Thanks for your replies, I’ve finally setup automatic deposits in my fidelity BrokerageLink
Vang Health Care Fund has a 16% average return over 35yrs-its active
Good example of the fact that index funds don’t beat ALL actively managed funds, even over long time periods. But it’s still the way to bet.
Great site and great advice ideas. Thank you! With a +20 yr horizon, I am personally uncomfortable w/ the TSM size % holdings.
Looking at Schwab SWTSX:
41% Giant
30% Large
20% Mid
09% Small/Micro
I prefer heavier weight on mid and small and so I did a “Reverse TSM” in my 401K. Every year I reduce the mid/small a little and add it to the large. See below. Not an exact reverse % but close enough. Taking into account my max + ER match my allocation is…
34% Vanguard Small Cap Index
34% Vanguard Mid-cap Index
16% Vanguard S&P 500
16% Invesco Nasdaq 100
Has anyone done a similar allocation? Any changes or comments are greatly appreciated. TYIA!
Pretty big small tilt. You’ve got a lot of money in a relatively small percentage of the market. I can’t really criticize too much though. I’ve got 1/4 of my overall stock allocation in just 3% of just the US market (small value).
I find your tech tilt more interesting honestly. That smacks of performance chasing to me.
Thank you for the response and I understand the tech tilt comment. My intention was not to purposely go heavy in tech. I was trying to find another large cap besides the S&P 500. I agree though, the tech tilt is a concern and risk.
Possible changes could be:
a) reduce Nasdaq to 5% and increase S&P 500 to 27%
b) reduce Nasdaq to 5% and add and introduce some Vanguard Int’l or Emerging
Or
c) reduce Nasdaq to 5% and add a Vanguard Target Date 2050 fund
I like both a and b better than c and what you currently have, but the most important thing isn’t what you pick. It’s whether or not you stick with it over the long run.
White Coat Investor, I didn’t mention in my 1st post, I’ve forwarded this site’s link to several family/friends/co-workers over the years. Any time I get the “allocation” or “what should I invest in” question I send this link and tell them to pick the one you’re comfortable with and stick with it. Again, great site and great advice! Thank you!
Thanks for your kind words.
I didn’t read all 500+ comments to see if this is mentioned, but I am a big fan of the recently-published “Ultimate KI$$ Portfolio” (Keep Investing Simple, Stupid). The foundation of KI$$ is an aggressive, all-stocks, four-fund portfolio (ideally with Vanguard) that tilts small and mid for increased growth potential, with a taste of REIT for diversification into some less correlated assets:
30% S&P500 (VFIAX)
30% Mid Cap (VIMSX)
30% Small Cap Value (VISVX)
10% REIT (VGSIX)
The architect of the Ultimate KI$$ Portfolio – a US military service member stationed overseas – arrived at this recommendation by doing an exhaustive backtesting analysis which he documented in an 11-part blog series entitled “Beating VTSAX” that demonstrates much better rolling returns (1-2%) over 21- and 48-year periods than the “VTSAX and chill” approach:
https://keepinvestingsimplestupid.com/how-to-build-a-portfolio-better-than-vtsax-part-1/
More recently, he developed a variation which includes a fifth fund for more international exposure if you like, so you end up with something like 20%LC / 20%MC / 20%SCV / 30%SCInt’l / 10%REIT.
For sure KI$$ will underperform VTSAX when the S&P500 goes bonkers like it did this past decade (2011-2020), but it is one of those portfolios where the backtested long-range rolling returns are 150-200bp better from capturing the value premium and from holding less correlated assets through bear markets like the two in the prior decade (2001-2010). Of course, as with any backtesting exercise, the caveat that “historical performance does not guarantee future results” needs repeating about 1000 times.
KI$$ may be of particular interest to younger/middle-aged folks from the FIRE crowd who are in the high savings rate accumulation phase (like me) and are looking for a very aggressive, all-stock portfolio that seems MOST LIKELY to require the SHORTEST POSSIBLE time of making continuous contributions before achieving a specific target amount. People in this position should be more willing to accept high risk and endure dips since the only consequence of underperforming would be having to keep working and accumulating for another few months or years before early retirement (and then shifting to a more conservative, wealth-preserving allocation). In the case of the KI$$ allocation vs VTSAX alone, like any hedging strategy, you’d be sacrificing a little of the top potential yields of the very best years of an all-VTSAX portfolio in order to get much better projected average overall returns, with lower drawdowns through 1-2 bear markets, over a random 7-15 year time horizon.
I’m interested to hear responses as I’ve designed something similar for myself (rather than going all VTSAX, which the “Mustachians” adhere to religiously) while I’m smack in the middle of my high-savings accumulation phase on the way to (hopefully) early retirement.
Something I have not taken into account is my wife’s retirement accounts. After further review I made a change going forward in order to avoid overlap investments. For example, her portfolios are heavy small-caps. I was heavy tilted on small and mid.
My new allocation was re-balanced last week and will continue to be maxed out going forward.
80% TSM
15% Target 2045 (this gets me Int’l exposure + some bonds)
05% Nasdaq-100
So tempted to add 5% REIT but not now.
Each year I may reduce TSM by 1-2% and add to the 2045 target.
Thanks as usual!
I’d look at all your accounts designated for retirement as one big account (hers and yours) with one asset allocation. If more of her is in small cap and more of yours in large cap, that’s fine as long as the overall mix is right.
WCI help!
We’re trying to decide whether to include a REIT fund in our portfolio, as our home is worth about $1.5M in a reasonably “hot” market (Denver CO). Our non-home assets are ~$3M, so if we put some of this in a REIT fund would we be way too concentrated in real estate?
I get that REIT funds are probably more volatile than our home, but this house could easily be worth either $1M or $3M in fifteen years (in 2021 dollars). Are we missing something?
I wouldn’t include your home in your portfolio.
REITs invest in very different assets than a typical single family home anyway. So if you want REITs in your portfolio, I wouldn’t let owning a $1.5M home stop you.
Hi, can someone a lot smarter than me help with a portfolio construction? I am trying to replicate the TSM with Vanguard S&P 500; Vanguard Mid-cap and Vanguard Small-cap. I’ve read the Boglehead forum topic on this but the portfolio analyzer I am using is off when I compare to the TSM style box. Currently I am 82/18 (S&P and Small). TIA.
First I’d recommend you avoid trying to do this if you can. Just buy TSM. If you’re trying to do it in a 401k that has the three funds but not TSM, then just buy 500 index. The correlation with TSM is 0.99. No big deal. It’s only if you’re trying to overweight mid and small caps that you need to do this.
If I still didn’t talk you out of doing this, then at least look for an extended market index. That includes both mid and small cap stocks and “completes” a 500 index fund.
If that’s not an option then you can simply figure out how much of TSM is already in 500 index. 82% sounds about right to me. But let’s run the numbers.
According to Morningstar Instant X-ray of VTSAX: https://www.tdameritrade.com/education/tools-and-calculators/morningstar-instant-xray.page
TSM is 72% Large Cap, 20% Mid Cap, and 8% small cap,
Pivoting back to this. I agree and I appreciate your response and time. S&P 500 @ .99 is good enough in 401K.
My Roth IRA qualification days are dwindling here. Currently I am following the 2 funds for life methodology.
65% target date 2045
35% small cap value vanguard etf
This is the business plan on paper. No changes until age 60s.
What are you talking about Roth IRA qualification days? You do know about the Backdoor Roth IRA, right?
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
No, I was not aware. Thank you. This will be my weekend reading/research!
Thank you very much. Appreciated! I’ll digest it.
Need advise for investing 400k extra cash on hand (currently sitting in money market account). We are financially independent two physician couple with 15 years to retirement. We have EF set up, have maxed out on all retirement accounts including back door Roth and have 529 plan for kids. What will be the best tax efficient way to invest this cash? Buy rental property or invest in taxable brokerage link account? For taxable brokerage link account what stock-bond composition will be most tax efficient?
You say you are financially independent. What investment asset allocation have you used thus far?
What does your written plan say? Do that.
No written plan? Get one before you do a thing with this $400K.
https://www.whitecoatinvestor.com/investing/you-need-an-investing-plan/
These are so awesome.
I am having a bit trouble making asset allocation/diversification decisons on my retirement (403b/457/Roth) and my taxable account. I understand what is more tax efficient vs less and that more efficient should go in taxable accounts.
With all these different portfolios, are there funds (or even portfolio #’s from above) that you would recommend in taxable and tax-deferred accounts?
Thank you!
That’s the point of the article, all are fine. Just pick one and stick with it. Or roll your own. Lots of people like the 3 fund portfolio for instance.
What a post!
I’ve fully funded my 401k for 10yrs+ and stuck with:
Vanguard Targeted 2040 VIRSX
American Funds American Balanced Fund RLBGX
It’s been relatively conservative but set it and forget it.
I’m at crossroads is my taxable account where I take much more risk.. I’ve basically done really well in the past 10 yrs with a tech/FANG heavy account and want to diversify this soon, these growth stocks are cooling and I feel my luck is gonna run out.. but there will be a ton of capital gains to pay if I rebalance… any recommendations?
https://www.whitecoatinvestor.com/legacy-holdings-in-taxable-account-podcast-86/
Only thing worse than paying taxes on capital gains is not having capital gains to pay taxes on.
Question about Portfolio 39-48: The Couch Potato Portfolio.
My 401k company offers Only VIPIX (Vanguard’s institutional TIPS shares) and NO other bond options.
I do have an option to get a brokerage account thorough Charles Schwab but that makes things messy from logistics standpoint. Also hidden fees are a burden. I have to transfer money back and forth as apposed to automatic rebalancing done by the 401 k company.
I am at 70/30 ratio, but is it wise to keep 30% in TIPS? The couch potato portfolio suggests it. I have about 30 years of work ahead, definitely in my accumulation phase.
30% TIPS is a pretty severe tilt IMHO. Weird 401k options. Do you have other accounts to balance that 401(k) out? That’s the first thing I’d consider.
Well, yes and no. I do have rIRAs (one each for my wife and I) but in early phase. We have roughly 400k in our 401ks but only 20k in rIRA – nowhere near enough to balance things out. I do have another 20k in HSA, but at most that will be about 10%.
I thought going the Brokerage route will be a great option but if there is a transaction fee when purchasing non-Schwab funds (aka vanguard funds) which is 40 bucks per transaction. Since I am on biweekly paycheck and I want to split stocks/bonds (Vtsax and Vbtlx) in three different accounts: 240 bucks per pay period. Yikes! Definitely not doing that.
I could transfer just the bonds portion, once a year and that will be about 120 bucks a year but rebalancing will be tricky. Not terrible but will require hands on.
Another option is to keep the large TIPS and convert everything into Vanguard funds once a year. That will be 240bucks total for the year. The large TIPS proportion will be only for those 12 months before conversion.
Also an option, is transferring everything once a year into Schwab’s equivalent to total stock and total bond fund. There is no fee for that service and I can set it up so that it happens automatically every paycheck. The problem with that is I know knowing about their finds or they company.
I did backtrack VIPIX’s performance using the portfolio visualizer and it has done about the same (slightly better) than VBTLX (vanguard’s total bond market) over the last 20 years when inflation has been relatively low. For all that’s worth. I know the past is not indicator of how things will be in the future.
You can buy ETFs to lower the fees. Keep in mind bond ETFS, particularly corporate bond ETFs, could have liquidity issues in a downturn.
You could also limit your transactions somehow. Buy quarterly. Buy just one fund at a time etc.
Hi Jim,
Greatly appreciate the construction and maintenance of these threads. In regards to diversification, at what point in your career/age/timeline/etc did you feel like it was the right time to start venturing out into the real estate investing world? I am about 5 years into my career now and have been a 100% VTI investor for simplicity sake…I like the idea of “setting it and forgetting it.” I think it would be wise to maybe venture out into other things at some point but can’t come up with an indicator as to when it is time to funnel funds into another direction.
Any input is appreciated. Thank you!
Once you decide on our long term plan, then put it in place. But don’t try to time it.
Quite a good read. Of all the portfolios, I feel like portfolio 26 is the best fit for me. It’s got quite a bit of diversity, without all the insane complications.
I would like to try New White Coat Investor portfolio on my Roth 401k. I noticed that some of the Vanguard funds listed offer it as ETF, admiral or investor shares. What would be the main difference and which one would be better to use?
Best to look at all of your retirement accounts as one big portfolio as discussed here:
https://www.whitecoatinvestor.com/investing/you-need-an-investing-plan/
You can’t really buy investor shares anymore at Vanguard, so it’s either admiral shares of the traditional mutual fund or the ETF share class of that same fund. More info here:
https://www.whitecoatinvestor.com/mutual-funds-versus-etfs/
Why did you change from separate 5% Vanguard Value Index Fund and 5% Vanguard Small Value Index Fund to the combined 15% Vanguard Small Cap Value Index Fund? Did it save a few basis points or just make things less complicated?
Also, what are your thoughts on someone keeping a 5% stake in the NASDAQ index? If they wanted a bigger share of the big tech companies.
Thanks
Less complicated.
I think it’s not a great idea but you can do whatever you want with 5% and should be fine. If I were going to add a tech tilt, I probably wouldn’t use a NASDAQ fund to do it. I’d probably use a Vanguard Tech ETF.
Keep in mind that the overall market is already a lot of tech.
I see. I will keep that in mind. Thanks for the advice.
I don’t invest in speculative investments (gold, empty land, cryptocurrencies, NFTs etc) but if you choose to I recommend you limit them (the total amount, not each one) to 5% or less of your portfolio.
The fun thing about investing is that you don’t have to try everything
Dear WCI,
Thank you for all of the helpful info. I am about to turn 50. I currently have my AA as 70/30, all index funds under tax sheltered space. I am about to be debt-free (a building that I bought and then rent it out to my practice, currently not factored in the AA) and will start to have taxable investment this year once the building is paid for. For AA, I wonder if I should factor the building into AA? I did not include in the kids’ 529 in the AA.
Sounds more part of your business. I think I’d probably leave it out. Same with the 529s.
Hi Jim,
This is a great post, and my main takeaway is that there really isn’t a right or wrong way to invest. However, I would love your opinion on what I’m thinking about doing with my portfolio. After listening to your podcast and reading your book (along with others), I am about ready to move on from my financial advisor, so can you please offer your insights on my proposed portfolio below.
BTW – I am 45 yo with about $2M in a combination of 401k/IRA/taxable:
VOO: 25%
VO: 20%
VB: 10%
VEA: 10%
VWO: 5%
AVDV 5% (international small value)
VNQ: 10%
Bonds: 15% – I am not sure of exactly how to invest this portion of my portfolio. I currently have about $40k in I-bonds. I was thinking VTEB for it’s tax benefits, along with BND, and possibly even LQDI (I-shares inflation hedged corporate bonds)
Thanks for all that you do,
-Paul
Seems reasonable, although definitely on the complex side. I think it’s easy to argue you need at least 3 asset classes and there are real benefits going to 7. Fewer benefits going to 10, but perhaps it’s justifiable for someone who doesn’t mind the complexity or doesn’t have too many accounts. Beyond 10, you’re just playing with your money. You’ve listed 10.
Thankful for this imperative information through your site.