8 Simple Portfolios

I recently came across an interesting question on the Boglehead forum:

If you could only own one fund, what would you own?

That question got me thinking about one aspect of investing that doesn’t often get discussed: desire for simplicity. While some investors don’t mind managing a portfolio of ten different funds, other investors would never consider anything so complex.

Generally speaking, the more asset classes you include in your portfolio, the better diversification you’ll achieve, but it begins to require more work to manage the portfolio. Also, the additional diversification derived from adding each asset class is less than the diversification gained by adding the prior asset class.

I thought it would be fun (and perhaps helpful to investors reworking their portfolios) to put together a list of portfolios sorted by complexity. The following are my recommended one-fund portfolio, two-fund portfolio, and so on (followed by some additional thoughts). Please feel free to share your own suggestions. 🙂

For each fund, the first ticker is the open-end version of the fund, and the second ticker is the ETF version of the fund.

[Update: Some readers requested that I put together a similar list of portfolios using Fidelity funds rather than Vanguard. You can find that list here.]

One-Fund Portfolio

• 100% Vanguard Target Retirement or LifeStrategy fund of your choice.

Two-Fund Portfolio

• 70% Vanguard Total World Stock Index (VTWSX, VT)
• 30% Vanguard Total Bond Market Index (VBMFX, BND)

Three-Fund Portfolio

• 35% Vanguard Total Stock Market Index (VTSMX, VTI)
• 35% Vanguard Total International Stock Index (VGTSX, VXUS)
• 30% Vanguard Total Bond Market Index (VBMFX, BND)

Four-Fund Portfolio

• 30% Vanguard Total Stock Market Index (VTSMX, VTI)
• 10% Vanguard REIT Index Fund (VGSIX, VNQ)
• 30% Vanguard Total International Stock Index (VGTSX, VXUS)
• 30% Vanguard Total Bond Market Index (VBMFX, BND)

Five-Fund Portfolio

• 30% Vanguard Total Stock Market Index (VTSMX, VTI)
• 10% Vanguard REIT Index Fund (VGSIX, VNQ)
• 30% Vanguard Total International Stock Index (VGTSX, VXUS)
• 15% Vanguard Total Bond Market Index (VBMFX, BND)
• 15% Vanguard Inflation-Protected Securities Fund (VIPSX, TIP*)

Six-Fund Portfolio

• 20% Vanguard 500 Index (VFINX, VOO)
• 10% Vanguard Small-Cap Value Index (VISVX, VBR)
• 10% Vanguard REIT Index (VGSIX, VNQ)
• 30% Vanguard Total International Stock Index (VGTSX, VXUS)
• 15% Vanguard Total Bond Market Index (VBMFX, BND)
• 15% Vanguard Inflation-Protected Securities Fund (VIPSX, TIP*)

Seven-Fund Portfolio

• 20% Vanguard 500 Index (VFINX, VOO)
• 10% Vanguard Small-Cap Value Index (VISVX, VBR)
• 10% Vanguard REIT Index (VGSIX, VNQ)
• 20% Vanguard Total International Stock Index (VGTSX, VXUS)
• 10% Vanguard FTSE All-World Ex-US Small-Cap Index (VFSVX, VSS)
• 15% Vanguard Total Bond Market Index (VBMFX, BND)
• 15% Vanguard Inflation-Protected Securities Fund (VIPSX, TIP*)

Eight-Fund Portfolio

• 20% Vanguard 500 Index (VFINX, VOO)
• 10% Vanguard Small-Cap Value Index (VISVX, VBR)
• 10% Vanguard REIT Index (VGSIX, VNQ)
• 10% Vanguard Total International Stock Index (VGTSX, VXUS)
• 10% Vanguard FTSE All-World Ex-US Small-Cap Index (VFSVX, VSS)
• 10% Vanguard International Value (VTRIX, n/a)
• 15% Vanguard Total Bond Market Index (VBMFX, BND)
• 15% Vanguard Inflation-Protected Securities Fund (VIPSX, TIP*)

*Vanguard’s TIPS fund does not have an ETF version. As such, I’ve included iShares Barclays TIPS Bond Fund (TIP) as the comparable ETF.

Regarding Stock/Bond Allocations

In order to make comparisons easy, each of the above portfolios is built using a 70/30 stock/bond allocation. There’s no particular reason that a 70/30 split was chosen over any other stock/bond split.

Any of the above portfolios can be adjusted to fit your ideal stock/bond allocation. Simply increase (or decrease) the allocation to the bond fund(s) and decrease (or increase) the allocation to each stock fund in proportion to its original allocation.

Regarding U.S. vs. International Allocations

Each of the above portfolios is built using roughly a 50/50 split between U.S. and international stocks. Many investors and investment professionals would view this as too heavy an international allocation. You can see my reasoning here and decide for yourself whether to adjust the international allocations downward.

ETFs or Index Funds?

These portfolios could be implemented at Vanguard via traditional open-end index funds or at an online brokerage of your choice using ETFs. If you do opt to use ETFs, you have an additional motivation to keep things simple: Fewer funds means less commissions paid. (Unless you’re using a brokerage firm that offers commission-free trades, that is.)