By Dr. Jim Dahle, WCI Founder[AUTHOR'S NOTE: This post originally ran in January 2014. Since then it has been one of the most popular posts on the blog (it's second actually, just behind the Backdoor Roth IRA Tutorial). There were 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 become even more popular, thanks in part to Taylor Larimore's book and in part to the outperformance since 2009 of the large growth stocks that make up a large part of a total market index fund.
I returned to this post in 2020, made a few comments to the various portfolios, and added another 50. Now, in 2025, we're republishing this piece once again after updating a few things here and there. 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 more than a decade ago.]
Designing the Perfect Investment Portfolio
As investors move from their investment childhood through their teenage years, many of them seem to 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 they 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 a 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, and more of this and less of that. Does it matter? Absolutely. Take a look at Madsinger's Monthly Report sometime, where a Bogleheads poster tracked the returns of a dozen balanced portfolios from 2010-2020. 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 that time span. 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.
More information here:
The 1 Portfolio Better Than Yours
The 15 Questions You Need to Answer to Build Your Investment Portfolio
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. William Bernstein likes to phrase it, skating to where the puck was.
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 needs, 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. In fact, I'm positive mine isn't the very best one. Neither I nor anyone else knows what the very best portfolio is going forward.
More information here:
The 90/10 Warren Buffett Portfolio?
Let’s Celebrate Taylor Larimore’s 100th Birthday by Asking Him 4 Questions About Money
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
When I originally wrote this in 2024, I said: “Don't laugh. I know a very successful two-physician couple who are seven years out of residency and who invest in nothing but this. They have a net worth in the $1 million-$2 million range.” After outsized US large growth performance in the last few years, now everybody loves this portfolio, and all kinds of people are adopting it. While it feels like performance-chasing to swap into it now, if you hold on to it for decades, it'll probably work out fine.
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 3,500 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 holding all the US stocks, like the Total Stock Market Portfolio, while also holding all of the stocks in pretty much all the other countries in the world that matter. Originally a little more expensive than building it from its component parts, its expense ratio is now down to just 6 basis points, basically free like any other Vanguard index fund portfolio.
Portfolios 4-5: Balanced Index Fund
100% Vanguard Balanced Index Fund
Prefer to diversify out of stocks? Want some bonds in the portfolio? How about this one? For seven basis points, you get all the stocks and bonds in the US in a 60/40 balance. It's still just one fund. If you're in a high tax bracket, you may prefer the Tax-Managed Balanced Fund (VTMFX), 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
For just 13 basis points, you get all the US (37.4%) and international (23.4%) stocks and all the US (27.2%) and international (12%) bonds wrapped up in a handy fixed asset allocation. In the past five years, this index fund has tilted slightly more to equities and slightly away from bonds. Want to be a little more (or a little less) aggressive? Then check out the “growth” (80/20), “conservative growth” (40/60), or “income” (20/80) versions 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 2040 Fund
100% Vanguard Target Retirement 2040 Fund
Don't like a static asset allocation? Don't want to have to decide 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 eight basis points, the 2040 Fund uses the same four funds that the Life Strategy funds use in a 76/34 allocation but gradually makes the asset allocation less aggressive as the years go by. The portfolios range from 90/10 (2050 and higher) to 20/80 (Income). If you want to add a short-term TIPS fund to the mix, go with 2025 or Income.
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 just four basis points, you can build your own balanced index fund. Want all the stocks, not just US ones? For a few extra basis points, you can substitute in Total World Index for Total Stock Market Index. For a few more basis points, you could use Total World plus Intermediate Term Tax-Exempt Fund (VWITX), or if you want to stay domestic in a taxable account, TSM plus the muni fund for about 6.5 basis points. Paul Merriman has a simple “two funds for life” approach that offsets a conservative Target Date Fund with an all-equity fund. There are lots of combinations.
Portfolio 26: The Three-Fund Portfolio
33.3% Vanguard Total Stock Market Fund
33.3% Vanguard Total International Stock Market Fund
33.3% Vanguard Total Bond Market Fund
A favorite among the Bogleheads, the three-fund portfolio gives you all the stocks and US bonds. Despite its popularity, you can see there is nothing particularly special about this portfolio compared to the other 25 above it. It is broadly diversified and low-cost, although it 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 (like Rick Ferri with his trademarked “Core-4” portfolio) add the Vanguard REIT index fund for its intermittently low correlation with the overall stock market. Others add the 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. Nowadays, maybe people just add a 5% slice of Bitcoin.
The possibilities are endless, especially once you start considering adding two, three, 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 a slightly higher cost. 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. You could also 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 and light on international stocks, and it 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 to do? Scott Burns will. He offers nine portfolios, ranging from two 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 five funds, each fund makes up 1/5 of the portfolio and so forth. He likes TIPS, international bonds, and energy stocks. Considering energy stocks have underperformed for most of the past decade (though it's been a little better the past few years), 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. That's 10 equity asset classes and one 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 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 nine asset classes to 40% stock in 12 asset classes.
Portfolio 59: The Talmud Portfolio
33.3% Vanguard Total Stock Market Index Fund
33.3% Vanguard REIT Index Fund
33.3% Vanguard Total Bond Market Index Fund
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. It's 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 82 basis points that's been around since 1982 with 15-year average returns of a little over 7%. Not only did it lose money in 2008, it managed to do so in 2013, 2015, and 2022 as well. From 2010-2020, it did rather poorly when compared to the roaring stock market, demonstrating its severe tracking error, but in five of the past six years, it's gained over 10% per year.
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 Capital Management, one of the sponsors of this blog, has a whole bunch of model portfolios, made up mostly of DFA funds. This one is 60% stocks but there are nine more ranging from 10% stocks to 100% stocks. There are also other folios, including three fixed-income ones (made up of funds of DFA, PIMCO, and various ETFs), a low-beta portfolio, and 10 equity portfolios (made up of 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 WCI, runs a financial advisory firm that uses DFA funds. He offers six portfolios suitable for IRAs; this is one of them. He also offers six more suitable for a taxable account, six environmentally friendly portfolios, and six “express portfolios” designed for smaller accounts. Unfortunately, when I went to update this post a few years ago, 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)
Dr. William Bernstein had four investors in his classic The Four Pillars of Investing: Sheltered Sam, whose assets were all in IRAs and 401(k)s; 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 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 $28 billion) invests his family's taxable money. I'm not sure I understand the logic behind some of its components. That said, if it is held for a long period of time, I'm sure it will work just fine. As of January 2025, it has 10-year returns of around 6.55%, which is 1.92% 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. It's a simple solution, and you get a free ticket to the coveted annual meeting. Note that he has told the trustee of the trust supporting his wife after his death to put 90% of it into the S&P 500 and 10% into Treasury bills.
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 37% stock, has averaged 9.1% a year, while charging 16 basis points. The main knock against it, aside from being actively managed, is that it isn't particularly diversified. It holds just 75 stocks, mostly large value stocks, and 1,280 bonds. Don't expect 10% a year out of this bond-heavy fund going forward.
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, 66/34, 10-year returns of 8.75%, expense ratio of 0.26%) and Dodge & Cox Balanced Fund (established 1931, 64/36, 10-year returns of 7.95%, expense ratio of 0.52%). 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 (three 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 nine more portfolios you could use without having to come up with your own!
Portfolios 147-150: The Dan Wiener Income Portfolio
The now semi-retired Dan Wiener used to sell a newsletter to Vanguard investors where he revealed his super-secret portfolios composed of various Vanguard funds. I can't tell you what the portfolios held (there were quite a few actively managed funds and the allocations changed from time to time), but I can tell you the performance wasn't terrible.
From 1999-2020, the growth version had returns of 9.61%, almost 3.5% a year better than the three-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 had returns of 5.52% a year. There was also a “conservative growth” and an “index fund growth” portfolio whose returns were 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 limited himself to low-cost Vanguard funds.
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 he 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. [AUTHOR'S NOTE: Update from 2020: 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—it's 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 multi-asset class investment portfolio for early savers, mid-life accumulators, pre-retirees/active retirees, and mature retirees—for a total of eight portfolios. Rick isn't afraid to look for the “best of class” fund for any given asset class. There are 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
8.33% Vanguard 500 Index Fund
8.33% Vanguard Mid-Cap Index Fund
8.33% Vanguard Small Cap Index Fund
8.33% Vanguard Developed Markets Index Fund
8.33% Vanguard Emerging Markets Index Fund
8.33% Vanguard REIT Index Fund
8.33% Natural Resources
8.33% Commodities
8.33% Vanguard Total Bond Market Index Fund
8.33% Vanguard Inflation-Protected Securities Fund (TIPS)
8.33% Vanguard International Bond Index Fund
8.33% Vanguard Prime Money Market Fund
Seven major asset classes, 12 funds, 8.33% a piece. Clever, huh? Craig Israelsen, a professor at the prestigious Brigham Young University, advocates for this approach in his book 7 Twelve. He wants you to send him $150 to tell you how to use Vanguard funds (or those of any other company) to implement the portfolio. Send me $100, and I'll tell you how to do it, too. 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 they used. This 50/50 portfolio is a good balance between keeping it simple and understandable, but it's 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% per year over the last 20 years, including the 2008 debacle, the COVID meltdown in 2020, and the worst year ever for bonds in 2022.
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 I have with minimal changes in the last decade). 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 they range from 80/20 to 20/80. It's basically just a three fund plus a little REIT. It's too much REIT for some and 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 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 asset 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 three of those four 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 three portfolios for various time horizons. This one is the long-term one (11+ years) 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 plenty of portfolio models, including five using index funds from 20/80 to 80/20. The one above is the 60/40 one—or at least what it looked like the last time we updated this piece in 2020. 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 how it looked back in 2012. You'll notice the heavy value tilts, a significant small tilt, and a previous focus on safety on the bond side. It looks like Betterment also includes 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 robo advisor-like service that offers nine portfolios—from conservative to aggressive—for retirement and taxable accounts. This was the moderate one for retirement accounts from a few years ago. I'm not sure exactly what funds it used, so I added appropriate funds for each listed asset class. It's a little odd to have emerging market bonds without developed market bonds.
Portfolio 198: The Leif Dahleen Portfolio
60% US stocks (with a tilt to small and value)
22.5% International stocks (50/50 developed and emerging markets)
7.5% REIT
10% Bond and cash (mostly bond plus cash emergency fund)
This is very aggressive, especially for a retiree. The last time we published this article, it also had low allocation to real estate, although he might have increased that asset class since.
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 403(b) a couple of years ago. It's aggressive, but otherwise, it's pretty plain, aside from a small tilt.
Portfolio 200: The Current White Coat Investor Portfolio
25% US Stocks (VTI and ITOT)
15% Small Value (AVUV and DFSV)
15% International Stocks (VXUS and IXUS)
5% International Small Value Stocks (AVDV and DISV)
10% Inflation protected bonds (TIPS and I bonds)
10% Nominal bonds (TSP G Fund, VWIUX and VTEAX)
5% Vanguard REIT Index Fund
5% Debt Real Estate (Private debt funds)
10% Equity Real Estate (Private debt funds with a syndication or two)
I simplified our asset allocation in 2017. 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 (2/3 of which is US, 1/3 of which is international), 20% bonds, and 20% real estate. Note that there are two holdings for most asset classes. That's simply a reflection of the fact that most of the portfolio is in taxable and we need tax-loss harvesting partners. Long-term returns of just over 20 years as of the beginning of 2024 were 11.03%. Not too bad considering only 25% of it is in the US large cap stocks that have dominated the last few years.
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 Carl Von Clausewitz said, “The enemy of a good plan is the dream of a perfect plan.”
Want to talk about designing a portfolio? Join the discussion on the WCI Forum or Facebook Group!
What do you think about all these portfolios? Do you use one of these, or have you designed your own?
[This updated post was originally published in 2014.]
There are so many good options here to pick from. Here is mine. It has been formulated over many decades. The stock allocation below can be created with any bond allocation that is comfortable for each investor based on situation, emotional makeup, time horizon, taxes, income needs, etc. Vanguard index funds are used in this example. Fidelity and Schwab can certainly do the trick as well. The key is sticking with it. More information can be seen here: https://www.crazymanpinkwig.com/investing-retirement/asset-allocation-basics.
50% Total Stock Market Index (VTSAX)
10% Emerging Markets Index (VEMAX)
10% Developed Markets Index (VTMGX)
10% Small International Stock Index (VFSAX)
10% Real Estate Index (VGSLX)
10% Small-Cap Value Index (VSIAX)
Certainly qualifies as reasonable. Pretty aggressive as an all stock portfolio, but reasonable.
How come none of these portfolios include Healthcare sector funds/ETFs? Do you recommend including them as part of a portfolio?
Health care stocks? Yes. They’re included in the Total Stock Market and other broad index funds.
Narrow sector funds such as Health Care? No.
If you want to add a tilt to a sector like Health Care, I’d recommend limiting it to 5% of your portfolio, despite solid past returns.
As you can tell from reading this article, there are far more than 150 reasonable portfolios and some of them could include a health care tilt. Pick something reasonable and stick with it.
Thanks for the feedback James. I’ve owned Vanguard’s Healthcare fund for more than 20 years and it’s performed well over the years despite a recent manager change. Now that we’re closer to retirement we have to be a bit more careful so I appreciate the perspective.
I am struggling to figure out 2 things:
1. How does our current rental play in to my AA. Do we take the equity, the mortgage, or the value it would sell at when considering AA? If we take the value we will quickly be over 50% in real estate. There are various opinions online and wanted to get your opinion,
2. I have a cash balance account that gives 7% of my salary every year. It pays an interest payment that is based on the 30-Year U.S. Treasury Securities rate. In your opinion, would this take place of any bonds? It is currently worth 18% of my portfolio (not including my rental).
For reference I am 35. I appreciate the insight!
1. That’s such a hard question. People do different things. Some include the entire value of the property. Some include just the equity in the property. Others leave it out of their AA entirely and just look at it as something separate, kind of the way I look at WCI and my investments in POF and PIMD. I don’t know why anyone would take the mortgage as the value though. That doesn’t make any sense.
If I were big into direct real estate investing, I think I’d probably use the equity, even though you really do own the entire property and will enjoy the benefits/suffer the consequences of that.
2. I ignore my cash balance account for asset allocation purposes. It is negligible in my case. If I were going to use it, I’d just use the AA it is invested in. In my case, that’s about 60% stocks and 40% bonds. In your case, it sounds like maybe it’s 100% bonds that it is invested in? So I think it would be fine to include it as the “bond” portion of your portfolio, especially since it makes up such a big chunk of yours. But it’s obviously going to be impossible to rebalance into or out of it. If you need to rebalance, you’ll also need bonds elsewhere to buy/sell as needed. This also assumes you want at least 18% of your portfolio in bonds!
2.
Thanks for the reply! All of our literature on the cash balance plan states the return is based on the 30-Year U.S. Treasury Securities rate. Like you stated, it acts more or less like bonds (although last year it performed much better). They gave us an option a couple of years ago to switch from the cash balance plan and instead they would put an additional 6% into our 401k. I decided to stick with the cash balance because I also max out the mega back door and it would have limited this opportunity.
I’ve been leaning towards using the equity for the AA and going from there. You helped confirm my thinking. Thanks again!
Thanks for sharing this!
Awesome post. My wife and I are a 2 doctor couple who started practicing in our mid-30’s after we switched careers. I’ve read every post on your blog. It’s an understatement to say that I’ve learned a lot.
Credibility wise, you’re on top in my book. Thanks for your work. You’re helping a lot of people.
Thanks for your kind words. It’s our pleasure.
Asset allocation is by far the most difficult aspect. I expect to likely make at least 400-500 between my wife and I. I am only 33, but I enjoy my work so far, and anticipate I wouldn’t retire until 65 (hopefully). I should be able to fund my retirement well with at least 80K through 401Ks (spouse and mine, plus profit sharing), Backdoor Roth IRAs, and HSA. I will likely eventually place money into a taxable account and that amount will depend on my needs and market returns earlier on. Is it reasonable to have an 80:20 stock:bonds ratio in my 30’s and 40’s, so more risk initially, but possibly less risk in the long run as these stocks have longer to appreciate, as the market in general is efficient? Then going to 70:30 Stock:Bond in 50’s and to 60:40 stock:bond in 60’s? This would likely require buying a very large allocation of bonds in 50’s and 60’s to get to those ratios. In general, would this be less effective over the long term to where I should just stay more evenly distributed to 70:30 until mid 50’s then go to 60:40? I have never been through a bear market as an investor; however, I consider myself data driven, and likely would not be phased by a large decrease in assets early on, as I know in the long term it will “likely all be just fine” with the general trajectory of the market. I have considered being more aggressive and only going to the minimum of 70:30 ratio, but know in the long run I would likely be perfectly fine for a retirement with a moderately risky ratio, so why chance it.
Yes, that’s reasonable.
Hi Dr Dahle
Thank you for all the help with this. I’ve been listening to your WCI podcast for a while now. I’m trying to mirror your allocations. No sense of reinventing a wheel. Trying to make sure I have the correct index funds. So I have several questions.
-Would you please make sure I have selected correct funds below?
-Some of the EFT index funds have lower expense ratio compared to Admiral Shares, would you suggest using such ETFs instead?
-I was unable to locate Vanguard REIT Index Fund, would Vanguard Real Estate Index Fund Admiral Shares (VGSLX) or Vanguard Real Estate ETF (VNQ) be a reasonable alternative?
-I only recently finished residency and now paying back my DOD commitment. So I don’t have the capital needed to invest into Debt Real Estate or Equity Real Estate. What other alternatives would you suggest?
-Both Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX) and Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX) are actively managed funds. Plus VAIPX requires 50k min investment, while the alternative has higher expense ratio. The Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX) and Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) are index funds that are less expensive. Would either of these be an acceptable or suggested alternatives?
-Would these be an acceptable alternative to TSP G fund?
–Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX)
–Vanguard Tax-Exempt Bond ETF (VTEB)
–Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)
–Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
25% Vanguard Total Stock Market Fund
-Vanguard Total Stock Market Index Fund Admiral Shares – VTSAX
-Vanguard Total Stock Market ETF – VTI
15% Vanguard Small Cap Value Index Fund
-Vanguard Small-Cap Value Index Fund Admiral Shares – VSIAX
-Vanguard Small-Cap Value ETF – VBR
15% Vanguard Total International Stock Market Fund
-Vanguard Total International Stock Index Fund Admiral Shares – VTIAX
-Vanguard Total International Stock ETF – VXUS
5% Vanguard FTSE Ex-US Small Index Fund
-Vanguard FTSE All-World ex-US Small-Cap Index Fund Admiral Shares – VFSAX
-Vanguard FTSE All-World ex-US Small-Cap ETF – VSS
10% Vanguard Inflation-Protected Securities Fund
-Vanguard Inflation-Protected Securities Fund Admiral Shares – VAIPX
-Vanguard Inflation-Protected Securities Fund Investor Shares – VIPSX
-Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares – VTAPX
-Vanguard Short-Term Inflation-Protected Securities ETF – VTIP
10% TSP G Fund
-Will need to figure out military TSP to place money here
5% Vanguard REIT Index Fund
-Vanguard Real Estate Index Fund Admiral Shares (VGSLX)
-Vanguard Real Estate ETF (VNQ)
5% Debt Real Estate (primarily private hard money lending funds)
10% Equity Real Estate (primarily private funds and syndications)
Thank you for all of your help. Appreciate you taking your time to help.
Nothing special about my allocation and you may not be able to exactly mirror my portfolio but I’ll answer your questions as best I can:
1. Doesn’t matter much. More discussion here: https://www.whitecoatinvestor.com/mutual-funds-versus-etfs/
2. That’s the fund. VGSIX/VNQ.
3. Sounds like trying to mirror my allocation is a bad idea for you unless you want to dump 20% of your portfolio into VNQ and REM.
4. Sure. You could buy individual TIPS too if you wanted.
5. None of those are really like the G fund. I’d go with the Federal MMF at Vanguard for the most similar thing.
6.
Hi Dr Dahle
Thank you for answering above. Few more questions.
Is there much difference b/w Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX) and Vanguard Tax-Exempt Bond ETF (VTEB) vs Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) and Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)? Which would you recommend using for the bond portion of the portfolio?
Thank you for all the help.
This is a very minor point. There isn’t much difference.
You can’t really buy VWITX any more, you just buy VWIUX. VTEB and VTEAX are also the same thing, just a matter of whether you want the fund or the ETF. You can see the difference if you look at the fund information.
The main difference is VWITX has a duration that is a year shorter than VTEAX They’re pretty equivalent and can be used as tax loss harvesting partners. I mostly use VWIUX but have used both.
I was wonder on the ultimate buy and hold portfolio. You comment that this strategy is hard to rebalance. Then I noticed out of many other portfolios including yours. They also have at least 8 or more funds. Wouldn’t all of those have the same difficulty of rebalancing ? Kindest Regards, Jason
Yes.
I do not have access to a total stock market index fund in my TIAA 403b. I do have access to S&P 500 index funds (VFIAX and TISPX). What should I add to mimic a total stock market fund. My options include:
VSCIX – Vanguard small-cap index
VMCIX – Vanguard mid-cap index
SWISX- Schwab international index fund Traditional
CXXRX- Columbia small Cap Index fund
Thank you very much.
I’d just use the S&P 500 fund. It’ll perform very similarly to a TSM fund. If you want to tilt small, then go ahead and add VSCIX. If you really want to recreate TSM, add a bit of VMCIX and VSCIX.Exact percentages vary over time, but something like 75% VFIAX, 15% VMCIX and 10% VSCIX would get close enough. But I wouldn’t bother. I’d just use VFIAX. Correlation between 500 and TSM is like 0.99.
Thank you
This blog is a treasure trove of investment wisdom! The comprehensive list of 150 investment portfolios goes above and beyond, providing a diverse range of options for all types of investors. The detailed breakdown and analysis of each portfolio make it an invaluable resource for both beginners and seasoned investors. I appreciate the effort in highlighting portfolios that may outperform conventional ones, encouraging readers to think outside the box. It’s a one-stop-shop for anyone looking to optimize their investment strategy and discover portfolios that align with their financial goals. Kudos to the author for sharing such valuable insights!
AI that you?
Hi Jim,
Thanks so much for all your help.
I would like some help with my asset allocation. I am 41y/o radiologist and all my accounts are with fidelity. The money from my 2 retirement accounts go to a target day fund (FIOFX). My retirement accounts are maxed out and as of now, I was investing the money from my taxable account on Fidelity 500 index fund (FXAIX) after funding my daughter’s 529. I know this is a very aggressive asset allocation and that’s why I want to add more diversification.
My overall asset allocation taking into account both my taxable and retirement accounts are currently 72% domestic stocks, 22% foreign stock, 7% bonds and 1% short term. (extremely aggressive, I know).
I am thinking of setting my assets as follows:
50% US domestic stocks
20% Foreign stocks
20% Bonds
5% TIPs
5% REIT
Since my accounts are Fidelity, I was looking into the following funds:
50% Fidelity 500 index fund (FXAIX) – I know most people recommend total US marked fund but I already have a big chunk of money in this fund
20% Fidelity Total International Index Fund (FTIHX)
20% Fidelity US Bond Index Fund (FXNAX)
5% Fidelity TIPS (FIPDX)5% Fidelity REIT( FSNRX)
I would like to know your opinion about this asset allocation and these specific funds.
I understand that bonds should be placed in tax protected accounts, so I am planning to fund both my bond fund and my target day fund with my retirement accounts. Is this correct?
Also, regarding rebalancing in the future- I am thinking about rebalancing my portfolio just by buying more of whatever asset is lagging behind instead of making buying/selling transactions. It’s sounds way easier to me. Am I missing something?
Thanks so much for your time.
Kind of weird to use TR funds and other funds. It’s usually TR for everything or roll your own, but you’re right that they’re lousy in a taxable account. Time to roll your own.
I also prefer TSM to 500 index. It’s okay to just leave the 500 index if you have big gains, but new money can go into TSM.
The asset allocation is fine. Yes, most rebalancing for the first half of your career or so is just done with new money being invested. I’ve rarely had to sell something to rebalance and never in a taxable account.
As far as asset location, can’t help because you haven’t told me how much is in each account. But with 50% in US stocks, surely the only thing in the taxable account right now is going to 500/TSM. The TISM, TBM, TIPS, and REITs are all going to be completely in retirement accounts. You don’t have to use fidelity funds if you don’t want. You can just buy Vanguard ETFs.
Hope that helps.
Jim,
Thanks so much for your input! I am actually planning to keep funding my target day fund account because of how easy it is. The reason why I want to buy other funds now is because I have about 500k in my taxable account which is all invested in the 500 index fund and I need more diversification.
I have 450 k in my retirement accounts.
I guess REITs should also go to a retirement account due to tax reasons, correct?
I thought buying vanguard ETFs through fidelity would have a higher cost. I will look into it.
Thanks so much!
Yes, you’re much better off with something like 500 Index in taxable than REITs.
I think you’re missing my point to look at all of your accounts together as one big portfolio though.
Yes, I understand.
I guess I am bit confused on what to do since I have half of my money on a TDF and half on stocks. I am looking at all my accounts as 1 big portfolio though. I looked into the asset allocation of my TDF and I am taking that into account in my calculation so all my accounts combined reach my goal of 70% stocks/ 20 % Bonds/ 5% TIPs and 5% REITs.
For example, my TDF has a 13% allocation in bonds which represent about 7% of my entire portfolio. So I am planning to fund a bond index fund to increase my overall bond investment to 20%.
Does this make sense or am I missing something?
Thanks so much for your input.
You can do it that way, but it’s weird. I’d just roll your own. Why do you feel so attached to the TDF?
I love the simplicity of it and the fact that I am not the one rebalancing it. But I guess if now I am going to rebalance my portfolio to meet my less aggressive goals, it doesn’t make sense anymore. What would you do? Stop making contributions to the TDF? I am also afraid of not maximizing the compounding effect by not funding an account that already has some amount of money in it. Does this concern make sense?
You should still fund the account. You can still have an allocation similar to the TDF just by using the same underlying funds.
Thanks so much for your input. I really appreciated it!
Fernanda
Hello,
I would like to invest in one of Vanguard’s Life Strategy funds, and was hoping that there would be a fund with a 100% equity allocation. Instead of purchasing two separate funds (total US stock and total international stock) and rebalancing from time to time, would purchasing the total world stock index fund (VTWAX) accomplish the same thing? Is there something that I’m not seeing or should consider?
Thanks,
Ilya
Yes. Sounds perfect for what you’re looking for.
Thanks so much! I appreciate the prompt feedback.
There is also AVGE which is an ETF of ETFs (note: .23 ER vs the .10 of VTWAX).
For better or worse, this is about half as top heavy in the mega-cap stocks.
Sounds like they add a bit of a small/value tilt for a slightly higher fee then. That’s a separate discussion and in my experience, people looking for very simple investing solutions like Lifestrategy funds or VT/VTWAX aren’t interested in tilts.
I like this post very much- given the fact that I have to invest under European law. That makes the Nr 133 very interesting for me- at least as long as Mr. Buffet continues not to pay Dividends…
In Germany and Austria so called “investment funds”- practically all ETFs and mutual funds are part of this category- are taxed by the government regarding their “inner value progress”. That means that internally reinvested money like dividends in accumulating products have to be taxed on individual basis.
This process is quite complicated and it makes investments in low cost, market broad ETF a little nightmare. The only exception is to have these funds within an insurance mantle, so the lobby of insurance companies has done a fine job….
The simple solution for me is BH- no dividends, it is just a buy and hold share in my depot.
Greetings to the land of the free!
Medicus
I agree it might seem overly complex, but since I work in real estate crowdfunding and syndication, the deals I invest in are usually right in front of me with minimal effort—no extensive due diligence required. I rarely rebalance my stocks or pay much attention; I rely on pre-set criteria to remove emotion from my decisions.
Hearing that you don’t think my asset allocation is too far off actually reassures me, as I value your opinion. I often worry that I’m being naïve, especially since most respected experts advocate for a different approach. However, I’m young and confident that I can recover if things don’t go as planned. Only time will tell.
Every time I consider a change to my asset allocation, I re-read this post. It immediately dispels my fear that I’ve somehow missed a key element of the “perfect plan” for my own portfolio. This information is so expertly condensed and lightly but helpfully editorialized, it’s hard to overstate the value. Thank you Dr. Dahle!
Now if I could just find a way to tidy up while avoiding capital gains taxes on those Vanguard factor funds sitting in my taxable brokerage since my earliest days of investing 🙂 Probably they will sit until I’m ready to give them away, I suppose.
Our pleasure.
Legacy investments are so fun aren’t they?
Mark Hulbert wrote a recent column (MarketWatch, Updated 11/23/2024) titled , “Why no more than 60% of your retirement money belongs in stocks” ….”(E)ven if you plan to be working for another 30 or 40 years….a glide path strategy (starting at 90% in equities) more often than not falls short of the simple, constant 60% stock/40% bond portfolio allocation…. On a risk-adjusted basis, a 60/40 allocation beats the glide path 98% of the time.”
I find the details in his article persuasive and I respect his commentaries, as I do yours, which is why I am very interested in your response.
Thanks,
Matt
Well, I guess I’m convinced since 60% of my retirement money is in stocks. Of course, 20% is in real estate so only 20% is in bonds. Works for me.
I don’t think there’s anything magical about the classic 60/40 portfolio, but I do think it’s an acceptable portfolio before or in retirement.
Hello,
I’m very new to buying index funds/ETF/mutual funds. Currently, here is what I’m thinking:
50% Vanguard Total Stock Market ETF
25% Vanguard Total International Stock ETF
5% Vanguard Small-Cap ETF
10% Vanguard FTSE Emerging Markets ETF
10% Vanguard Mid-Cap Growth ETF
Is this Portfolio reasonable? Any overlaps or other ETF that I should be incorporating here?
We are also thinking about investing in bonds and gold as well to diversify.
Thank you for your advice.
Matt
Yes, it qualifies as reasonable. Interesting choices on the tilts, but if that’s what you want, it’s your call. Most tilters use small value funds for academic reasons. Obviously the US funds overlap with TSM and the EM fund overlaps with TISM.
Limit gold to something like 5% if you must have it. As far as bonds, I’d set your AA as less aggressive than you think you can handle until you go through your first bear. If you think you can handle 100% stocks, maybe go 80/20 or 90/10 until you prove to yourself that you can.
Thank you so much for the advice. We are thinking about buying physical bonds for a small part of our AA to protect against inflation. I’m just wondering what’s the benefit of buying bond index/mutual funds as most of them have dropped pretty significantly in the past 5 years or so?
What do you mean “physical” bonds? Is there some benefit to having a physical certificate or something I’m not aware of? Or do you mean individual bonds?
2022 was the worst year for bond performance in history because rates went up 4% in just a few months. So any time period that includes that year looks bad. But I don’t think very many expect rates to go up another 4% anytime soon. Individual bonds vs bond funds is discussed here:
https://www.whitecoatinvestor.com/high-quality-individual-treasuries-versus-alternatives/
https://www.whitecoatinvestor.com/individual-municipal-bonds-versus-bond-fund/
I’ve owned both individual TIPS and TIPS funds/etfs and am pretty agnostic about it. Both have pluses and minuses. If you worry a lot about that stuff, just buy the individual treasuries.
Yes, I meant individual bonds/treasuries. That makes so much sense. Thank you!
For context only, I am 48 and retired last year. I am currently 95% stocks (a mix of VTI/VOO with little bit of VEU on the side) and 5% MMF. This may seem overly aggressive to most, but my reasoning is that 65 percent of my net worth is in income producing residential real estate that cash flows more than my living expenses (current mortgage rates for all my properties range from 2.75% to 2.9%, 30 year fixed with 26 years remaining on the loans). Therefore, I feel more comfortable riding the stock market aggressively. Does the WCI community think I should take some risk off the table and pay off a property or two or does my investment plan seem reasonable? Thanks!
So 65% real estate, 33% stocks and 2% cash. Seems a little light on the cash for a retiree to me. But your bigger risk is your leverage risk. Not sure how much leverage you have, but I’d recommend reading this post:
https://www.whitecoatinvestor.com/how-to-think-about-debt/
and make sure it’s a reasonable amount. I think the case for 15-35% of your total assets in debt can be made, but I’ve met many real estate investors with far more than that.
I currently have 1.5M in mortgage debt (the only debt I carry). That is equivalent to 25% of my total assets. I would like to lower that percentage but the mortgage rates I have are historically low, so I haven’t been able to talk myself into paying down that debt. At times, I consider using my brokerage account to pay off two of my rental properties which would decrease my debt by half and increase cash flow, but that would empty the stock holdings in the brokerage account. I wholeheartedly agree with you on my cash percentage. I think I would sleep better at night and pay less attention to the stock market gyrations if my cash holdings were higher. Therefore, my plan for the next year or two, is to allocate the excess passive income into the MMF to build up the cash reserves. It’s either that or I get a part time job to speed up that process (yikes!). Please feel free to poke holes in my thinking!
25% is within the recommended range so I don’t think you HAVE to decrease leverage risk, but I don’t carry any debt at all and don’t plan to take any out. I don’t need leverage risk to reach my goals though. Do you? Certainly there are worse things than carrying around a 2-4% debt on cash flowing properties for a few years. I wouldn’t take another job or lose sleep at night because I had that. Nor would I completely liquidate my taxable account and realize a bunch of capital gains to pay that debt off.
Thank you for sharing your thoughts. Much appreciated!
Could someone take the average allocation to each asset class among all 150 portfolios? I realize that the result wouldn’t add up to 100% but I would find it informative…
Sounds like you might be the perfect person to do all that calculating since you care about the answer more than anyone else seems to! Let us know!
Planning my first 401(k) Account with my residency who does a 2.5% match should I put away 5% myself (I will be doing so every year starting with this intern year). Here is my current plan that follows some Boglehead-like patterns.
– Vanguard Total Bond Market Index Institutional Fund 31%
– Vanguard Institutional Index Institutional Fund 32%
– Vanguard Extended Market Index Inst Fund 6%
– Vanguard Total International Stock Index Institutional Fund 31%
Is this reasonable considering TIPS and REITs are not available as options in my 401(k)?
Yes. Most would say 31% bonds is a lot for a starting investor. But better to err on a little more bonds. You can always ramp up the risk later.
Thank you for the vote of confidence. I want something safer while I turn my attention to learning as a resident and all the things life as an intern throws at me
Can you explain why people would want REITs? I feel like you get none of what people want from real estate – tax advantages, appreciated property, and passive income and when I compare their performance to S&P 500 they seem to correlate a lot with market fluctuations but s&p 500 has way better returns. I’m sure I’m missing something since so many people use them I just haven’t been able to figure out why since it doesn’t seem to diversify.
You get appreciated property, tax advantages, and passive income. The appreciation shows up in increase in share price of the REIT. The tax advantages show up as “return of principal” distributions (depreciation being passed on to you) and the 199A deduction on your dividends, and the passive income comes through as ROP distributions and dividends.
Real estate has had lower returns than stocks for the last 5-10 years so comparing it to the S&P 500 over any time period that includes those years may not look that good. Public REITs has higher correlation with stocks than private real estate does, but it’s not 1 so there is still some diversification benefit. For example, in 2024 stocks were up 24% and REITs were up just 5%. In 2021 REITs were up 41% and stocks were up just 26%.
All that said, it’s optional. A separate REIT fund is far from required for investment success.
Thanks for your response, I guess I do not understand REITs well. You get all those advantages in something like VNQ? I never knew that. I assume with all that income being spun out you would never want it in a taxable account?
I agree it should be put in taxable after many other asset classes. It’s one of the few things we still have in tax protected accounts. I prefer getting the depreciation directly (rather than ROP payments) so that’s one reason we have private real estate investments.
Just took over my Frankenstein account that was unfortunately crated by my financial advisor. Would be interested in folks thoughts. About 20 years from retirement. 90-10 equities to fixed income. Equities are split into SCHB 60%, SCHF 30%, AVUV 10%.
Aggressive but reasonable.
https://www.whitecoatinvestor.com/100-stock-portfolio/