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.

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).

[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.]

[Update #2: Looking back at this article more than a decade later, I honestly can’t come up with a good reason to use the more complicated portfolios here. Seriously, three or four funds is plenty.]

One-Fund Portfolio

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

Two-Fund Portfolio

• 70% Vanguard Total World Stock ETF (VT)
• 30% Vanguard Total Bond Market ETF (BND)

Three-Fund Portfolio

• 35% Vanguard Total Stock Market ETF (VTI)
• 35% Vanguard Total International Stock ETF (VXUS)
• 30% Vanguard Total Bond Market ETF (BND)

Four-Fund Portfolio

• 30% Vanguard Total Stock Market ETF (VTI)
• 10% Vanguard Real Estate ETF (VNQ)
• 30% Vanguard Total International Stock ETF (VXUS)
• 30% Vanguard Total Bond Market ETF (BND)

Five-Fund Portfolio

• 30% Vanguard Total Stock Market ETF (VTI)
• 10% Vanguard Real Estate ETF (VNQ)
• 30% Vanguard Total International Stock ETF (VXUS)
• 15% Vanguard Total Bond Market ETF (BND)
• 15% Vanguard Inflation-Protected Securities Fund (VIPSX)

Six-Fund Portfolio

• 20% Vanguard S&P 500 ETF (VOO)
• 10% Vanguard Small-Cap Value ETF (VBR)
• 10% Vanguard Real Estate ETF (VNQ)
• 30% Vanguard Total International Stock ETF (VXUS)
• 15% Vanguard Total Bond Market ETF (BND)
• 15% Vanguard Inflation-Protected Securities Fund (VIPSX)

Seven-Fund Portfolio

• 20% Vanguard S&P 500 ETF (VOO)
• 10% Vanguard Small-Cap Value ETF (VBR)
• 10% Vanguard Real Estate ETF (VNQ)
• 20% Vanguard Total International Stock ETF (VXUS)
• 10% Vanguard FTSE All-World Ex-US Small-Cap ETF (VSS)
• 15% Vanguard Total Bond Market ETF (BND)
• 15% Vanguard Inflation-Protected Securities Fund (VIPSX)

Eight-Fund Portfolio

• 20% Vanguard S&P 500 ETF (VOO)
• 10% Vanguard Small-Cap Value ETF (VBR)
• 10% Vanguard Real Estate ETF (VNQ)
• 10% Vanguard Total International Stock ETF (VXUS)
• 10% Vanguard FTSE All-World Ex-US Small-Cap ETF (VSS)
• 10% Vanguard International Value (VTRIX)
• 15% Vanguard Total Bond Market ETF (BND)
• 15% Vanguard Inflation-Protected Securities Fund (VIPSX)

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?

While I have shown the ETF versions of most of the funds above (so that they could be purchased at any brokerage firm), the traditional open-end index fund version of any of the funds would also be fine.