5 Portfolios You Can Count On

In part 1 of this post I talked about the “rule of thumb” I follow when I design a portfolio. Here are some portfolio suggestions that I believe are easy to follow if you are managing your own retirement investments.

Two fund portfolio:

  • Vanguard total stock market fund 50%
  • Vanguard total bonds fund 50%

Since our goal is to minimize the time we spend tweaking our portfolio, why make the portfolio any more complicated than that? It has two passively managed funds and the critical components of diversification.

If I had to do it over, this is the portfolio I’d chose in my 20s but at a 90/10 split. Heck, I’d probably even chose Small Value Fund + Total bond fund at 90/10 split to maximize my yield by exposing to high risks. I had little money to put aside for retirement in my 20s but a long time for the market to recover losses before my retirement.

Four Fund Portfolio:

  • Vanguard total stock Market Fund 30%
  • Vanguard Small Value Fund 10%
  • Vanguard total international market fund 30%
  • Total Bonds 30%

I have two major types of investment assets: stocks and bonds. I further divide stocks into US and international. This was the portfolio I started with when I first decided on passive investing. I consider this portfolio as a direct extension of “Two Fund Portfolio” listed above. It adds an international stock market fund, which is usually sheltered from the movements of the US market but is often not spared in major US market crashes. It also adds small value tilt which makes this portfolio slightly more aggressive in its pursuit of yield. Four fund portfolio is simple to manage.

Four Fund Portfolio #2:

  • Vanguard total stock Market Fund 30%
  • REIT 10%
  • Vanguard total international market fund 30%
  • Total Bonds 30%

A variable to the previous portfolio. It uses real estate as an additional diversification. You can further diversify this four fund portfolio by adding TIPS fund, precious metal fund, etc. Of course, you can manipulate this portfolio by substituting REIT with precious metal (or even commodity if you prefer). You can also add diversification making it five or six fund portfolio.

Lazy man’s portfolios:

#1: 100% Berkshire Hathaway Stock

I love Warren Buffett. If you want Warren Buffett to manage your wealth, all you have to do is buy his company stock. Morningstar says that it returns 8.87% per year in the last 15 years.

#2: 100% Retirement target funds

These are retirement funds with various blend of assets designed for various targeted retirement date. For instance, if you are in your 20s and want to retire in 2050s, simply buy the target retirement fund 2050 of your brokerage. Vanguard has Vanguard Target Retirement 2050 Fund (VFIFX) with expense ratio of 0.16%. Fidelity has Fidelity Freedom 2050 (FFFHX) with expense ratio of 0.76%. Yes, I’d choose Vanguard to minimize the fund cost but you can choose whichever fund and brokerage that is convenient for you. These funds will adjust their asset allocation to reduce risk exposure as you approach your retirement which is a simple answer for your portfolio design.

Can’t Relax Portfolio:

  • Vanguard total stock (10%)
  • Vanguard S&P500 (10%)
  • Vanguard Small cap value (10%)
  • Vanguard Mid cap value (10%)
  • Vanguard Total international (10%)
  • Vanguard Developed Market (10%)
  • Vanguard Emerging market (10%)
  • Vanguard total bonds (20%)
  • Precious metal or REIT (10%)

This is the portfolio I use. It is a portfolio for people who like to tweak things around to “maximize” profit. It is a little more complicated than previously portfolio choices which means it will take a little more time to manage. It may also mean you will pay a tiny bit more: Vanguard S&P 500 Admiral has ER of 0.04% whereas Vanguard Emerging Market Admiral has ER of 0.14%. OK, it’s nothing compare to your financial advisor fee of 2%, but I am cheap and don’t want to waste money if unnecessary.

In this portfolio setup, I think it’s worth the “splurge”. It allows me to tilt my domestic stock portion to value stocks. It allows me to diversify my portfolio to essentially 70/30 split between stocks and bonds/precious metal. It also gives me advantages in asset location planning.

You can obviously play with the portfolio more to tilt it however you like. You can have more value tilt or growth tilt if that’s your preference.

Ultimately, the key to successful passive investment is to buy and hold, to diversify sensibly and to re-balance yearly.

If you are looking for more sample portfolios to adjust according to your own financial situation, I recommend Dr. William Bernstein’s book Four Pillars Investing: Lesson For Building a Winning Portfolio. He published 22 portfolio designs in his book, and you should consider putting it on your Amazon wish list.

What do you think? Any other portfolios you like? Comment below to let me know what you think.

Want to read more on personal finances? click here.



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