Scope Of This Post
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| Hubert Featherbottom |
This post is mostly a series of hypothetical conversations between fictional characters. Fictional people ask the fictional Hubert Featherbottom about what sort of portfolio might make sense for them, and they want the simplest responses possible, disregarding all nuance, caveats, and even sanity. By "portfolio", I mean "collection of financial assets (stocks, bonds, bank deposits, etc) someone owns in order to save up for particular needs and goals".
If you see a fictional person who asks questions similar to things you're wondering, you might find their conversation useful. If you just want to save for the long-term in the simplest way, please look at the 401k section and Conversation 1. If you're interested in mutual funds instead of ETFs, see Appendix B.
If you want a huge walls of text about saving/investing, see Starting Point For Saving And Investing. If you want a click-by-click of how to buy an ETF, see Steps To Buy An ETF At Fidelity. If you want a slightly more in-depth article about simple portfolios, see Boglehead Wiki article on Three-Fund Portfolio.
If you want a huge walls of text about saving/investing, see Starting Point For Saving And Investing. If you want a click-by-click of how to buy an ETF, see Steps To Buy An ETF At Fidelity. If you want a slightly more in-depth article about simple portfolios, see Boglehead Wiki article on Three-Fund Portfolio.
If you'd like the tables updated to include a particular broker or line of ETFs, tell me, and I'll see what I can do.
A Brief Word On 401k Fund Choices
If you want to keep it very simple and low-hassle, consider a target date fund. For the target year, consider a year close to when you might be retiring. Hopefully your 401k offers low-fee target date funds (less than 0.25% annual expense ratio); if it doesn't, hopefully it offers a low-fee US equity fund or global equity fund. I can't be more specific than that because it depends on your 401k.Conversation 1: Super Simple For Feisty Young People
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| Dr. Alice Phoenixfire |
Hubert: Hi, Alice. I have a lot of questions to ask, and I can give you a lot of information/perspectives to help you decide on a portfolio that makes se--
Alice: No. Just tell me a portfolio, RIGHT NOW.
Hubert: Well, especially if you have an account with someone who does no transaction fees on ETFs (Fidelity, Vanguard, Charles Schwab), you could consider going 100% VTI. To expla--
Alice: What if I don't have an account with those guys? Why does that matter?
Hubert: VTI is a very low-fee ETF that covers more than 99% of the entire US stock market, and I've been very pleased with Fidelity. Last I looked, at Fidelity, there were no fees for buying or selling VTI. My thought process is to implement this possible portfolio as inexpensively as practi--
Alice: Oh golly, I'm getting paged right now for an emergency surgery, just gimme some info in case I don't go with Fidelity.
Hubert: Take this piece of paper...
| Scenario: Risk-Tolerant Young Person Saving For Retirement | |
| Possible Approach: 100% Total US Stock Market | |
| Brokerage | US Stock Fund |
|---|---|
| Vanguard, Fidelity, E-Trade, Charles Schwab | VTI |
| TD Ameritrade | SPTM |
Conversation 2: Globally Diversified For Feisty Young People
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| Bertrand Spinachleaf |
Hubert: Okay, how can I he--
Bertrand: But I want to be more diversified than the entire US stock market. I want to go at least somewhat international.
Hubert: I have some ideas, but to come up with a mix that might fit yo--
Bertrand: Wow, dude, just give me a portfolio already.
Hubert: Sur--
Bertrand: For multiple brokerages, because I don't know who I'm going to go with.
Hubert: Please take this piece of paper...
| Scenario: Risk-Tolerant Young Person Saving For Retirement, Some International | ||
| Possible Approach: 75% Total US Stock Market, 25% Total Non-US Stock Market | ||
| Brokerage | US Stock (75%) | Non-US Stocks (25%) |
|---|---|---|
| Vanguard, Fidelity, E-Trade, Charles Schwab | VTI | VXUS |
| TD Ameritrade | SPTM | SPDW |
Bertrand: Do I need to worry about rebalancing? What if the US stock market does way better than the rest of the world and after one year, I'm at 80/20 instead of 75/25?
Hubert: It's reasonable to go for maximum simplicity; just always contribute 75/25 and not even try to rebalance. Or, you can have your contributions go to whichever fund is below your desired proportion. Just so you know, th--
Bertrand: No, that's great. Great stuff. What you've already said is fine.
Conversation 3: Globally Diversified For Nonfeisty People
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| Clara Hornswaggle |
Clara Hornswaggle: I'm the internationally beloved country music singer, Clara Hornswaggle. And I don't impatiently interrupt people like Bertrand.
Hubert: I am utterly--
Clara: Except when it's really important.
Hubert: --mystified as to why you thought you had to disguise yourself.
Clara: It doesn't matter what you think. Also, what do you recommend if I can't stomach the horrible ups and downs of a 100% stocks portfolio. How about something less volatile?
Hubert: One thing to consider would be adding bonds or CDs to your portfolio. You could use Fidelity to buy some of the BND ETF as a possi--
Clara: Come on, Hubert, you know what I really want.
Hubert: I fervently hope this piece of paper satisfies you...
| Scenario: More Conservative Young Person Saving For Retirement | |||
| Possible Approach: 55% US Stock Market, 20% Non-US Stock Market, 25% US Bonds | |||
| Brokerage | US Stocks (55%) | Non-US Stocks (20%) | US Bonds (25%) |
|---|---|---|---|
| Vanguard, Fidelity, E-Trade, Charles Schwab | VTI | VXUS | BND |
| TD Ameritrade | SPTM | SPDW | SPAB |
Clara: Are you sure about these percentages?
Hubert: No. How could I be? I don't know you, and even if I did, we can only make very, very rough guesses about the future of--
Conversation 4: Smooth Saving For A House
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| Judith Bobudith |
Judith Bobudith: I'm hoping to save for a down payment on a house, and I think I can do it in roughly 5 years. I really don't want a stock market crash to possibly ruin my plan.
Hubert: First of all, how many masks are you wearing right now?
Judith: Zero.
Hubert: Then you could consider a safe and flexible option, such as a saving account with a competitive online bank, like Ally bank. Right now, Ally's savings account is offering 1.6% APY. If you're already at Fidelity, loose cash in your brokerage account can earn 1.33% APY.
Judith: How about I just stay with my physical bank, Comerica?
Hubert: They're only paying 0.01% APY. It's your money, and if you don't want to move your money out of Comerica, I'm certainly not going to try to--
Judith: Alright, I see.
[Note: quoted interest rates were current on 2018-05-28.]
Appendix A: Lists of ETFs
- Boglehead wiki's mentioned ETFs for three-fund portfolios.
- All iShares ETFs.
- Vanguard ETFs.
- Charles Schwab Market-Cap Index ETFs.
- TD Ameritrade No-Transaction-Fee ETFs.
- State Street Low Cost Core ETFs.
Related ETFs if you're doing tax loss harvesting (selling something at a loss to decrease your tax bill and then buying a similar something that doesn't trigger wash sale rules):
- US equity: VTI or ITOT.
- Foreign equity: VXUS or IXUS
- Bonds: BND or AGG.
Appendix B: Mutual Fund Table
| Mutual funds for various minimum investments | |||
| Brokerage (Minimum Investment) |
US Stocks | Non-US Stocks | US Bonds |
|---|---|---|---|
| Fidelity ($0) | FSTVX | FTIPX | FSITX |
| Fidelity ($0), Newer & Better |
FZROX | FZILX | |
| Vanguard ($3K) | VTSAX | VTIAX | VBTLX |
| Charles Schwab, E-Trade ($0) | SWTSX | SWISX | SWAGX |
That was funny!
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