Think for a moment about your favorite vacation that you’ve taken in the last 10 years.

• Where did you go (i.e., what city or general geographical area)?
• Where did you stay (i.e., what did you select for hotel/lodging)?
• Where did you eat?
• What activities did you do?

This was a vacation that you truly enjoyed. But how likely is it that the vacation you ended up taking was the very best vacation possible for you? Even if you enjoyed it immensely, given how many possible destinations there are, and how many different places to stay, places to eat, and activities to do at any given destination, it’s almost certain that there’s some other possible vacation that you would have enjoyed more. An almost infinite number of better vacations, probably.

And yet, you still had a great vacation. A vacation that you’ll remember for the rest of your life.

Those can both be true. It was an amazing vacation. And there were many thousands of other vacations you could have taken instead, which you would have enjoyed even more.

But here’s the critical point: while you’re actually on vacation, if you spend the whole time thinking about some other vacation you could be on instead, that is not helpful. It’s much better to just enjoy the vacation you’re on.

In the context of vacations, most of us know that intuitively. But the same principle applies to your portfolio and investment policy statement (i.e., asset allocation, rebalancing plan, and fund selection).

No matter what you pick, there’s going to be countless other options that would have been better. There’s no avoiding that. That’s just how it works, given how many options there are. But as long as your original decision was reasonably well informed, it’s not helpful to spend a bunch of time looking at other allocations, other mutual funds, or other individual stocks that you could have selected instead. Looking at all the ways you “missed out” is very likely to lead to regret, and it may lead to performance chasing or other poor decisions.

There are only a handful of questions to ask:

• Is your portfolio reasonably diversified?
• Is the risk level reasonably appropriate for your needs?
• Is it reasonably low cost?
• Is it tax-efficient?
• Is it simple enough to manage?

If those boxes are checked off, you’re all set. Go enjoy your vacation.

We can use the latest and greatest financial planning software.

We can have encyclopedic knowledge of all of the relevant tax and Social Security rules.

We can know all the details of exactly how all the available financial products work.

We can have access to detailed historical data of 100+ years of investment returns.

We can have a thorough understanding of all the pros and cons of each option.

But in the end, even with all of the above, almost every major personal finance decision will still be a judgment call.

I often see people on personal finance forums who seem to be operating on the assumption that they can follow a path of math -> research -> math -> research -> certainty. If they haven’t yet arrived at certainty, well then they probably just need to do a little bit more math (or research!). Perhaps a new piece of software will get them there.

I don’t mean to disparage math, research, or financial planning software. After all, I’m a CPA who spends much of my time looking at Excel, the Internal Revenue Code, and financial planning software. These things are helpful!

But there’s always uncertainty. We don’t know how long you’ll live. We don’t know what investment returns you’ll get over any particular period. We don’t know the details of future tax legislation or when such legislation will be passed. We don’t know exactly when you’ll have to replace your car, replace your roof, pay for a surgery, or stop working because you just can’t handle it while you’re going through chemotherapy.

Life has uncertainty. Lots of it.

The point of financial planning isn’t to remove the uncertainty. That’s not possible. The point of financial planning is to help us recognize and accept the uncertainty and make informed decisions in light of that uncertainty.

I’ve often written that there’s no perfect portfolio, but there are countless “perfectly fine” portfolios. A similar concept applies to most financial planning decisions.

For instance, if you’re recently retired, there’s a given level of spending that’s pretty clearly too high, and another level of spending that’s pretty clearly lower than is necessary from any risk-reduction standpoint. But there’s still usually going to be a big range of spending levels in between that could be reasonable. And what level to select will ultimately be a judgement call depending on various things such as how you feel about leaving a large bequest and how you feel about cutting spending significantly a few years into the future if that becomes necessary.

The same thing is typically true for things like Roth conversion planning. We can often say something like “Conversions through the 32% or higher brackets wouldn’t be a good idea. But it could be reasonable to stop at the top of the 22% bracket or top of the 24% bracket.”

There’s always going to be uncertainty, and so there are usually going to be multiple approaches to any given question that are reasonable.

At some point, we just have to decide.

The Uniform Prudent Investor Act is a model law that outlines the principles a trustee has to follow when investing the trust’s money. The Act, or something similar, has been adopted in all 50 states. So, roughly speaking, the rules set forth in the Act are the rules you have to follow if you’re managing money on somebody else’s behalf.

And as it turns out, it’s actually a great set of guidelines for managing one’s own money.

The Act begins with various wording about its applicability. And then we get into the nitty gritty with the following opening instruction: “A trustee’s investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.”

The key takeaways here?

• Decisions should not be made looking at one piece of the portfolio in isolation. Instead you must take an overall portfolio approach.
• You must consider the purpose of the money and the circumstances of the investor — and craft the portfolio to suit those.
• The relationship between risk and return is the fundamental point of interest when making investment decisions.

And then the Act provides us with the following list of things to consider when making decisions:

“Among circumstances that a trustee shall consider in investing and managing trust assets are such of the following as are relevant to the trust or its beneficiaries:

1. general economic conditions;
2. the possible effect of inflation or deflation;
3. the expected tax consequences of investment decisions or strategies;
4. the role that each investment or course of action plays within the overall trust portfolio, which may include financial assets, interests in closely held enterprises, tangible and intangible personal property, and real property;
5. the expected total return from income and the appreciation of capital;
6. other resources of the beneficiaries;
7. needs for liquidity, regularity of income, and preservation or appreciation of capital; and
8. an asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.”

Key takeaways:

• We’re concerned with real returns (i.e., after inflation).
• We’re concerned with after-tax returns (i.e., tax-efficiency is important).
• We’re concerned with total return. (In other words, even if the beneficiary is spending from the portfolio, the focus must be on total return, rather than income/yield.)
• And again, one individual asset should not be considered in isolation. It’s about the portfolio as a whole. And you have to consider the investor’s individual needs and circumstances.

The concept of diversification is sufficiently important that it gets its own (brief) section: “A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.”

Investment costs get their own section as well: “In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the trust, and the skills of the trustee.” And the following comment is provided: “Wasting beneficiaries’ money is imprudent. In devising and implementing strategies for the investment and management of trust assets, trustees are obliged to minimize costs.”

Diversifying and minimizing costs are not just suggested; they’re required.

The Act then concludes by making various important points about conflicts of interest and the trustee’s duty to put the beneficiaries’ interests before the trustee’s own interests, but those are not really relevant to our purpose here.

So, if you were a trustee for somebody else, you would be legally obligated to manage their money pursuant to the above principles. Are you treating your own money as well as you would treat somebody else’s?

Roughly 10 years ago (December 2011), we switched our retirement savings portfolio from a combination of individual index funds to a single fund: Vanguard LifeStrategy Growth.

I wrote a couple of articles about it at the time:

• What’s in My Portfolio, Updated
• More on Switching to Vanguard’s LifeStrategy Growth Fund.

And I gave an update about 18 months later:

• Are We Still Using the LifeStrategy Growth Fund?

I haven’t written too much about it since then, but people still ask regularly: are we still using the LifeStrategy fund? Are we still happy with it?

Yes, we’re still using it. Yes, we’re still happy with it.

I like it because it’s easy to understand. It owns “total market” funds for both stocks and bonds, US and international. And that’s it.

I like it because it’s reasonably low-cost (expense ratio 0.14%, as of this writing). Using individual ETFs or index funds would be slightly cheaper, but I am willing to pay the extra cost for the convenience.

I like it because it’s hands-off. I never have to rebalance. It makes it easy to ignore what the market is doing from one day to the next, which is the whole idea of the Oblivious Investor blog to begin with. (That said, if you use an “all-in-one” fund, you do still have to pay some attention, at least occasionally, because the fund company can make changes to the underlying allocation. And you want to know about such in order to check whether or not the fund is still a good fit for you.)

As an all-in-one fund, it is not particularly tax-efficient. But for our household, that doesn’t matter, because basically all of our savings are in retirement accounts.

It is not, frankly, the exact asset allocation that I would select if I were creating a DIY portfolio of individual index funds/ETFs. (I would probably exclude international bonds, I might use just Treasury bonds rather than a US “total bond” fund, and I would probably use a higher international stock allocation.)

But as I’ve written before, I’m really not that optimistic about the value to be gained from various modest changes to asset allocation. For any given investor, there’s an unlimited number of asset allocations that would be “good enough.”

We treat the fund roughly like a savings account — not in the sense that it’s low risk, because with an 80%-stock allocation it most definitely is not — but in the sense that it occupies a similar level of mental space (i.e., almost none). We just dump money into it, and we’re confident that it will grow over time.

An all-in-one fund is about as boring as it gets, which is what I want. And it also checks the boxes of being diversified and reasonably low-cost. For us, that’s (still) a good fit.

Full disclosure: our portfolio is not strictly one-fund anymore, because the 401(k) at my wife’s place of employment uses non-Vanguard funds. But she uses a target-date fund in that 401(k) for all the same reasons discussed above: it’s simple, it’s diversified, it’s low-cost, and it’s low-maintenance.

A reader writes in, asking:

“What metric(s) do you track with respect to your portfolio? Net worth I assume? Anything else?”

Yes, my personal finance tracking spreadsheet does calculate our net worth. It also calculates another asset-related number that I find more useful: our funded ratio.

But the number I pay most attention to is not a measure of our assets. The number I pay most attention to is our annual retirement account contributions.

To explain, allow me to share a brief bit of personal history. From age 17-21, I worked in a sales position in which the compensation was purely commission. In that position, some days were good, and others were not so good — and it often had nothing to do with how hard I worked or how smartly I worked. It was just luck.

The first year or two in the job felt like a rollercoaster. Some days were crushingly bad. Other days I was riding high. Eventually, I learned that it all averaged out over time, as long as I did the necessary amount of work. And so I shouldn’t be too sad or worried about a particularly bad day.

Because the short-term results were significantly out of my control, it was helpful to judge my performance based on effort rather than the results. Doing so allowed me to stay sane. In addition, focusing on the effort (i.e., making sure I worked enough) was in fact the best way to improve results.

With regard to investing, the stock market has been shooting upward over the last several years. So of course our stock-heavy, index fund portfolio has been growing rapidly. But that’s not because of anything brilliant we did. Similarly, our portfolio fell by nearly half from late 2008 to early 2009. But that wasn’t because of any mistake we made.

We have no control over how the market performs over any particular period. But we do have control over how much we save each year (for the most part, anyway).

Sometimes the trajectory of your net worth will be good. Sometimes it will be bad. But focusing on such results a) makes you crazy and b) sometimes leads to faulty conclusions. By focusing on what you have control over, it’s easier to stay level-headed and stay motivated.

To be clear, my point here isn’t that the results don’t matter. Results do matter, of course. But improving the inputs that you control is the best way to improve results. And you’ll be mentally healthier along the way.

A reader writes in, asking:

“Investing includes an emotional and psychological component for many individuals. One can suggest a portfolio with proper allocation, but to maintain it, especially with major changes in the stock or bond market may be a difficult matter to actually implement. Would some or most investors be better off with a fund such as a Vanguard Life Strategy Fund with an appropriate allocation rather than the individual components, given that those all in one funds appear to avoid both the euphoric highs, as well as the depressing lows of individual funds?”

If we’re assuming there’s no difference in original allocation (i.e., the person would start off holding either the LifeStrategy fund or an identical allocation via individual index funds), then the upside of an all-in-one fund is that it’s easier to stick with the allocation plan. That has certainly been my personal experience since switching to a LifeStrategy fund 6 years ago, and I have heard from many people over the last several years who have had similar experiences. Conversely, to date I have never heard from anybody who switched to an all-in-one fund and found it harder to stay the course afterward.

Part of this is due to what the reader above mentioned — the fact that an all-in-one fund somewhat camouflages the volatility of the higher-risk holdings by combining them with lower-risk holdings.

Part of it is also due to the simple fact that, with an all-in-one fund, you know everything is taken care of, so you don’t sign in to your account as often. And if you aren’t signed in to your account, you’re obviously not making any changes.

I have also heard a few people say that they found it easier to stick with an all-in-one fund because they knew that the allocation had been designed by a professional. (Though presumably such a benefit would also accrue to people using live advisors or robo-advisors.)

In other words, I’m very confident that many people have an easier time sticking with their portfolio when it consists of an all-in-one fund rather than a DIY selection of funds. And Morningstar’s data on “investor returns” seems to indicate that such ease of implementation does in fact lead to better results, on average. (See this recent study or this article from 2015, for example.)

Of course, all-in-one funds do have some downsides relative to an identical allocation via individual funds. Specifically:

1. They have slightly higher expense ratios than individual index funds, and
2. They can cause inefficiencies to arise when other accounts are involved.

For example, all-in-one funds are tax-inefficient if the portfolio includes a taxable brokerage account. Or, if one of the accounts involved is a 401(k) in which there’s only one asset class with a low-cost fund, it may be possible to significantly reduce overall costs by picking that one fund and filling in the rest of the desired allocation elsewhere. Such a plan would be disrupted by the use of an all-in-one fund.

But if we change the original question slightly and we remove the assumption that the DIY investor uses the same underlying initial asset allocation, then I think it’s very clear that most people are better served by an all-in-one fund than by a self-created, self-managed portfolio. Many people who build their own portfolios end up with a mess — overlapping funds, dangerously high allocations to a single stock, funds selected purely on 5-year performance figures, etc.

Most all-in-one funds are going to be quite a bit better than that.