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THERE ARE CERTAIN things I did right during my financial journey, notably saving like crazy, tilting heavily toward stocks and favoring index funds. But if only all my doing had stopped there.
Looking back over almost four decades of investing, what I see is far too much tinkering. At various times, I’ve owned funds devoted to precious metals, global real estate, commodities, emerging market bonds and more. I know this tinkering devoured precious time—and I strongly suspect it hurt my investment results. To be sure, there was pleasure in the tinkering or, at least, I used to think so. I enjoyed pondering my portfolio and I liked the “fresh start” that came with buying new investments.
Some of the tinkering was also necessary because the universe of investment options has changed so much over the past four decades. When I moved to the New York area from London in 1986, Vanguard Group’s S&P 500-index fund was its only index offering. Today, my largest fund holding is Vanguard Total World Stock Index Fund, which wasn’t even launched until 2008.
How can we avoid tinkering too much? A few years ago, I would have suggested purchasing a target-date retirement index fund, which means buying one of those offered by Charles Schwab, Fidelity Investments or Vanguard Group. And I still like these funds for younger investors looking for a sensible one-fund investment for their retirement account.
But my enthusiasm for target-date funds has waned. Even if we ignore the 2021 tax debacle triggered by Vanguard’s move to allow investors to shift into a lower-cost share class of its target funds, these funds can generate significant tax bills each year. The reason: Target-date funds own bonds, and they may need to do some selling to rebalance or cash out departing shareholders. That means the funds can make large income and capital gains distributions, and hence they aren’t suitable for a taxable account.
But forget the question of tax efficiency. Of greater concern to me is how conservative these funds become as they approach and pass their target retirement date. Check out the so-called glide paths for the target funds offered by Fidelity, Schwab and Vanguard. In all three cases, the funds are at roughly 50% stocks as of their target retirement date—Schwab is notably conservative at just 44%—and retirees eventually end up with some 20% to 30% in stocks.
I get it. Many investors are much more jittery than me, and fund companies have an incentive to err on the side of caution, so investors are less likely to complain during down markets. Still, with the threat from inflation and the prospect of living 30 years or more in retirement, such a conservative portfolio strikes me as far from prudent.
So, how can you minimize the sort of dangerous tinkering that can harm your portfolio’s performance? If you’re looking for a one-fund solution for your retirement account, I’d consider one of Vanguard’s four LifeStrategy funds, each of which holds a static mix of stocks and bonds. I’d lean toward either the growth fund with its fixed 80% stock allocation or the moderate growth fund with its fixed 60% stock weighting. Alternatively, you might buy Fidelity Multi-Asset Index Fund (symbol: FFNOX), which has some 85% in stocks. Sound too aggressive? You could twin the Fidelity fund with a bond fund if you favor a more conservative asset allocation.
But my favored strategy for retirement account investors is to buy Vanguard Total World Stock Index Fund, which is available as both a mutual fund (VTWAX) and an exchange-traded fund (VT), and then combine it with short-term government bonds to get the risk profile you want. Vanguard Total World offers the broadest possible stock market diversification. Whatever part of the global stock market is shining, the fund’s shareholders will get a piece of the action.
What if you’re investing through a regular taxable account? Vanguard Total World Stock Index Fund, like target-date and other multi-asset funds, wouldn’t be quite as good a choice—again for tax reasons. If a fund has less than half its portfolio in foreign securities, which is currently the case with Vanguard Total World Stock, shareholders can’t claim the foreign tax credit.
What to do? When investing through a taxable account, it’s important to pick wisely from the get-go—because you’ll soon be locked in by capital gains and, if you sell, you’ll lose the impressive tax benefits that come with buying and holding stock index funds in a taxable account over a decade and preferably far longer. With that in mind, I’d favor purchasing two total market index funds, one focused on U.S. stocks and the other on international shares.
Other than the need to raise cash, there shouldn’t ever be a reason to sell these funds, though that may reflect a failure of imagination on my part. Will Wall Street come up with an even better way to index, similar to the way exchange-traded index funds have edged out index-mutual funds? It could happen. Still, even if today’s total market index funds turn out to be a less-than-ideal choice down the road, I suspect you could do a whole lot worse—and the benefits of switching funds wouldn’t be justified by the tax bill involved.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
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I am getting close to retirement. I have been selling etfs that invest in individual countries in my IRA. I have been investing the proceeds to Vanguard Target Date 2070. My retirement date is not 2070, but I like the 90% stocks allocation. I also like the rock bottom fee of 0.08%
Another great article.
I’ve been considering some tinkering to simplify our portfolio, mostly moving from actively managed to index funds in IRAs. One thing that has been holding me back is that my active US funds generally don’t hold the tech stocks that have been taking the market higher, so if I consolidated them into a total market index fund now, it feels like I’d not only be buying those high, but selling more reasonably valued assets to do so.
Great article. Advice you have been giving us for a long time to simplify and use total market funds.
I noted with interest your point on losing the Foreign Tax Credit (FTC) deduction if holding a fund similar to Vanguard Total World Stock in a taxable account. For tax year 2022 the FTC for Vanguard International Index was approximately $28 for $10,000 of assets (28 basis points).
But what is the cost of taxes paid when realizing gains due to moving funds between the domestic and international index to maintain the target allocation? My back of the envelope analysis for the past 15 years is diverting dividend and capital gain distributions from domestic to international was not sufficient to maintain the target allocation, it was necessary to sell some of the holdings to maintain the target allocation.
Obviously if one is investing sufficient new money every year the new investments could be invested to the lower performing fund to maintain the target allocation assuming sufficient discipline by the investor.
In my case I was tight on money to pay taxes on realized gains, busy raising kids, etc. as the domestic markets outperformed international. We did not keep up with rebalancing every year. We now have holdings in Vanguard Total Stock and Total International that do not align with planned allocation with a large tax bill due if they are realigned. (But we did direct funds to 401K and other retirement accounts).
I do not claim to know the right answer but it is another point to consider for taxable accounts. Buying one ‘global’ fund loses out on FTC but the investor does not have to actively rebalance between domestic and international.
Thanks for the comment. If your goal is to mimic the world’s stock market weighting between U.S. and foreign — and hence replicate the holdings of Vanguard Total World Stock — there would never be a need to rebalance. If, say, U.S. stocks outpaced foreign, the U.S. weighting in Vanguard World Stock would rise. Similarly, if you owned total U.S. and total international funds, your total U.S. fund would grow to be a larger part of your portfolio — and, if your goal is to stay aligned with the world’s stock market weightings, there would be no need to do any buying and selling.
While the Vanguard World Stock Index is tempting from a simplicity standpoint, holding that percentage in foreign stocks just makes me a little queasy. 20% is my level of comfort, hence the classic 3 fund portfolio.
And there may be an often overlooked advantage of Vanguard Total World in a taxable account. If you need to raise cash for a down payment or tuition, you can make a single withdrawal and still maintain the original domestic/international allocation. But if you are separately diversified, you will be “lopsided” after withdrawal from either one and need to make an offsetting transaction in the other to restore the old home/foreign balance. This fast and fancy footwork may require more complex tax considerations and in certain instances prove daunting to a harried heir seeking simple solutions.
I like that approach. I have used my aggregate taxable and non taxable positions but rebalanced in the non taxable account.
So far I have been able to rebalance entirely in tax sheltered accounts. Eventually RMDs will make this difficult but I’m not worrying about it yet.
I can’t tell you how gratifying it is to read these words, Jonathan. First, as a voracious reader of your columns for the past 30 years, it confirms my own observations. So it turns out I’m not crazy after all for puzzling over your pointed dismissal of some assets that, as I recall, you formerly owned or recommended — albeit maybe 30 years ago.
Second and more importantly, it confirms your intellectual honesty.
Starting with your advice, and continuing with the wisdom imparted among Bogleheads over the past couple decades, I’ve gotten really, really good at not tinkering with my portfolio — probably better than many of the professional and academic authors I read. The portfolio is not exactly slice-and-dice, but it’s got a lot of moving parts that could easily temp me to tinker. But I’m no longer tempted.
Unfortunately, when I compare my carefully tracked performance against appropriate external benchmarks, I’m not outperforming them, and sometimes underperform them by a little bit. Such is the risk of tilting in various directions. I strongly suspect that Jonathan’s performance has similarly exceeded my own, in spite of all the tinkering.
Embracing a passive investing approach, however, leads to a peaceful acceptance of whatever the market delivers. At least I can be certain that I’m not making any glaring, fatal investing errors.
Thanks for all your wise words over the years, and for making this important acknowledgement.
Thanks for the comment and kind words. If you have a portfolio with, as you put it, “a lot of moving parts,” it’s hard to benchmark the entire portfolio. But if those moving parts are all index funds, at least you know you’re capturing whatever the underlying markets are delivering, minus some slither for expenses. Much of my tinkering — emerging market debt, precious metals, commodities, etc. — involved fairly small positions, which — in retrospect — makes all the effort involved seem even more ridiculous. The only major position I’ve abandoned is my allocation to U.S. and foreign REITs. Those positions had done fine for me, but I wasn’t sure a separate real estate allocation was intellectually justifiable — you already have exposure through broad market index funds — plus I viewed it as another step in simplifying my portfolio.
Thanks for your reply!
Yes, my portfolio has lots of moving parts, but also yes, they’re all index funds (or fixed income for which there are no index funds). So essentially, the best benchmark is simply the asset allocation. That benchmark I track closely. So I can capture what the markets deliver — just as long as I don’t start messing around.
For comparison to an “untilted” portfolio, I typically look at the Vanguard lifecycle or target retirement fund with a comparable overall equity allocation. One of those funds is a real world proxy for a three fund passive portfolio without risk factor or other tilts.
I also wanted to follow up to acknowledge that I, too, had done my share of tweaking before building up immunity from the temptation. The last substantive change I made was 12.5 years ago to split my real estate allocation 50-50 into US and foreign funds when Vanguard came out with its ex-US real estate fund. At the same time, I dropped the unhedged international bond fund position Jonathan’s columns had persuaded me to consider (a long time ago), and that allowed me to hold my foreign exposure steady. The ex-US real estate fund has been a performance drag, and the unhedged foreign bond fund served no meaningful purpose given the token stake in it I held.
For better or worse, that’s where things ended up. Now I’m committed to holding on for the duration.
My first real girlfriend, many years later, theorized that we tend to marry whoever we’re with when we’re ready for the commitment of marriage. I’m not sure how accurate that is, having never married, but I suppose the personal finance corollary would be that we end up with the portfolio we happen to be holding when we’re finally ready to become truly passive investors. At least that’s the way it worked with me.
Thanks for the additional comment. You wrote, “I dropped the unhedged international bond fund position Jonathan’s columns had persuaded me to consider.” My memory isn’t perfect, but I’m pretty sure it wasn’t me who made that recommendation — and that you may have me confused with another financial writer. I’ve long argued foreign bonds weren’t necessary.
Oh no! Back down the rabbit hole…
Actually, Jonathan you were fairly persistent in beating the foreign bond drum for a bit. In your last few years at the WSJ, I had taken to saving digital copies of your columns, and five minutes of browsing my records turned up maybe half a dozen recommendations of varying strengths. I could probably double that number with some more browsing. Would providing dates and quotes help?
I’m certainly not trying to attack your credibility or embarrass you. This could actually be a very illuminating moment!
Before I had learned more, I had modeled my own portfolio after yours, in 2004/2005. So there’s really nowhere else I would have gotten the notion to include unhedged foreign bonds. As I learned more, I noticed striking similarities between your recommendations and model portfolios from both Malkiel and Swensen — minus the foreign bonds. So that made it easier to stick with the basic outlines of a passive portfolio that is rightfully traced back to you.
Then again, I have been talking to myself more than usual lately. 😉
I did a little searching myself and found WSJ stories where I mentioned foreign bonds as a possible investment and where I mentioned that experts sometimes recommend them. But I didn’t see any stories where I explicitly said that I would buy them. But as I said before, my memory isn’t perfect. Feel free to correct me!
Oh my, is there a space limitation on these comments?!
Just searching the folder holding whatever articles I happened to save with the key words “foreign bonds” turned up at least 19 columns in which you made various forms of recommendations to hold foreign bonds. Many were explicit — complete with an accompanying illustrative graphic identifying specific funds to consider. Others were more incidental, including foreign bonds in lists of recommended assets. But even many of those were explicit enough to include an example percentage allocation to foreign bonds. A few went into much more detail on the diversification benefits of foreign bonds.
I should also note here that it took me a few years to fully realize how amazingly succinct your writing is: you don’t include any ‘throw-away” lines. Indeed, there aren’t even any throw-away words.
In an 11/26/2003 article, Why Investors Should Put up to 30% Of Their Portfolio in Foreign Funds, you wrote, “And yet the case for investing abroad is stronger than ever, thanks to a burgeoning array of foreign funds that promises to reduce a portfolio’s risk and possibly boost its return. Indeed, I believe investors should earmark as much as 30% of their stock portfolio and 15% of their bond-market money for foreign funds.” To reinforce that recommendation, you offered this specific: “Meanwhile, for bond exposure, you might try Baltimore’s T. Rowe Price Associates. Among its offerings are an emerging-market debt fund that levies 1.1% a year and an international-bond fund that charges 0.92%.”
A year later, you reiterated that recommendation in a 12/1/2004 article, The Right (and Wrong) Way To Protect Yourself Against The Falling Dollar: “I typically suggest that investors stash up to 30% of their stocks and up to 15% of their bonds in foreign funds. Which funds should you buy? There are five major categories to consider.”
Then you elaborated in the last few paragraphs, and inserted a chart with three foreign bond fund suggestions.
The latest example in my records is from a 3/9/2008 article, The Joy of Building Your Own Portfolio.
And there were plenty of other examples between 2003 and 2008.
Now, to be fair, I don’t think I came across an explicit disclosure that you personally owned foreign bonds. But that was clearly the impression I got. If you were to check your records, is it possible you might have actually owned foreign bonds in the 2003 – 2004 time frame?
Thanks for all the details. Clearly, my recollection was incorrect! But I’m going to cut myself a little slack, given that you’re citing articles from 15 to 20 years ago and the foreign allocation was just 15% of the bond portfolio. I’ve never owned an international bond fund, except an emerging-market debt fund, which I viewed as more of an equity play, in the same way you might view junk bonds as an equity play.
I’ll cut you all the slack in the world!
Seriously, I didn’t undertake this documentation to prove you wrong, nit pick or criticize. It’s just one more example of how amazingly malleable our memories are, and how flawed our perceptions can become over time.
It’s tough, this being human thing!
(I’m just relieved that having my head examined might not be warranted just yet… )
I’ve been playing around with an article tentatively entitled “Changing My Mind.” It hadn’t even occurred to me to include foreign bonds! In my 2016 book, How to Think About Money, I wrote, “Our holdings should mesh with our future spending. When we retire and start drawing down our nest egg, we will spend most of our savings on U.S. goods and services, so it seems wise to keep the bulk of our portfolio in dollar-denominated investments.” I go on to say that, while I have a large percentage of my stock portfolio invested abroad, my bond percentage is almost 100% U.S. I thought that had long been my position, but I guess not.
Well, 85% is almost 100% in my book. 😉
At the risk of overstaying my welcome, I’d just like to note here that my interest in personal finance was sparked to a large extent by your outstanding columns, Jonathan. How lucky is was for me that as I searched endlessly — and in vain — for my first house in 1993 using the Hartford Courant’s Sunday real estate section, the paper was also publishing your weekly column, Getting Going, in the same section. It was there that I stumbled upon your advice, purely by chance.
Then that spark of interest was fanned into a flame by your clear and easily digestible 2003 book, You’ve Lost It, Now What? That work led, in turn, to the Vanguard Diehards forum, the precursor to the Bogleheads forum. And that opened up a whole new world.
You’ve also been extremely gracious in replying to several specific questions I’ve posed directly to you over the years, typically with lightening speed. For example, it was one of your email responses that finally pounded into my thick skull the true nature of the tax break offered in tax-deferred accounts. Until reading your clear and concise illustration, I just couldn’t wrap my head around it.
So it is no exaggeration to say that the level of success I feel I’ve achieved in my personal finances is clearly attributable, directly or indirectly, to you.
My sincere thanks for all you’ve done to help me and thousands of small investors like me attain some semblance of financial security.
Thanks for the kind words, but this I can’t resist saying — which is I guess I’m not the only one with a faulty memory! My WSJ column didn’t start until 1994 and my articles didn’t appear regularly in the Hartford Courant until 1999, when Wall Street Journal Sunday was launched, though there’s a chance the Courant picked up an occasional column of mine prior to that.
Ha, ha! I absolutely love it! Serves me right, doesn’t it, proving my point at my own expense.
Okay, so this is the best I can do:
The house search continued well into 1994. So if it’s possible that the Courant only published your articles occasionally that early, then that’s one explanation. I still remember the round oak dining table where I would read the real estate section over Sunday breakfast, and my mind associates your column with that experience.
Another possible scenario is that I happened upon your writing in the way I described, but it was during another extended house search in 1998, and it was with articles published only occasionally. (It’s possible, because back then the Courant was a truly outstanding local publication, so thoughtful editing would not be out of place there.)
Either way, I’m fairly certain — and now we know how much that’s worth! — that I had become familiar with your work well before moving into my house in late 1998.
I actually still have your 2006 email kindly demystifying in a few short sentences the primary tax benefit of tax deferral, so at least there’s some objective documentation of your help with that.
The appreciation still applies!
I made a similar step by folding my emerging markets VWO into total international VXUS.
I spent my working career in the investment business, telling clients how terrific we are/would be at investing their money. It took years to realize that our investment results were only mediocre at best, and even worse when fees were factored in. I am sorry to say that my own evolution as an investor followed a similar path, and only improved when I finally swore off all individual stocks in favor of ETF’s and mutual funds. And, like you, the number of funds I use has decreased over time, which has simplified the asset allocation process and reduced my trading volume. On balance, my returns have been much better in recent years than during the early years of my investing efforts. I’m sure there are investors who learned some of these lessons earlier than I did, but think far too many investors continue to search for some magical combination of stock/fund/manager that will yield consistent above market returns.
In 2000 if you had 1M in equities and an SWR of 4%, after 20yrs you lost 2/3 of your portfolio!!!
I would guess that no one reading Jonathan’s good article has kept their hands off their investments or investment mix for several decades. Even Warren Buffett has modified his holding period from “forever” to moving things around in the stock portfolio at Berkshire. (He’s stayed with the wholly owned companies.) As Charlie Munger said, “The big money is not in the buying and the selling, but in the waiting.” It looks like any portfolio you construct will go out of favor at some point. But then back into favor, if you made good choices going in.
Just another thought. Much of the miraculous effect of compounding occurs late in the accumulation phase. By underweighting funds through retirement, you forfeit much of this benefit. You just have to be careful not to be ambushed by an unlucky sequence of returns.
Since SORR is entirely out of my control, how do you suggest avoiding such an ambush?
According to William Bernstein in the second edition of The Four Pillars of Investing, page 111:
Determine your “residual living expenses” (RLE), the amount of annual income you’ll need beyond Social Security and any pension benefits you receive. Multiply that RLE by the number of years in your retirement horizon. This is the size of your “liability matching portfolio” (LMP) of safe assets.
Once you have accumulated your LMP, you can invest the rest of your nest egg in equities and not fear being bitten by sequence-of-returns risk.
In total agreement with Kevin. His response is more comprehensive than I could have given you.
The only reasonable strategy I’ve seen is coping with the risk, not avoiding it. Coping mechanisms include holding 2-3 years worth of expenses/withdrawals in cash or short term fixed income. Another coping mechanism is reducing expenses/withdrawals during down markets. Finally, holding assets that generate cash flow (dividend stocks, rental property, etc.) can reduce your dependence on assets sales. A blend of these tailored to your individual situation is the best I have seen.
For those who like the simplicity of target date funds, I’d highly recommend Chris Pederson’s book (from the Paul Merriman Foundation), Two Funds for life. The thesis is that a target date fund coupled with a small cap value fund delivers the benefits of both simplicity and a better return profile.
A free copy of the book is available at https://paulmerriman.com/wp-content/uploads/2023/01/2-Funds-for-Life-Final.pdf
Similar to your title Don’t Mess Around, I just finished reading again The Elements of Investing by Charles Ellis and Burton Malkiel, and they quote on page 90: We urge you not to engage in “gin rummy” behavior. Don’t jump from stock to stock or mutual fund to fund as if you were selecting and discarding cards in a gin rummy game…
I’m retired and have been managing my own investments for 22 years. Hindsight always gives rise to some regret, because no matter what investment choices we make inevitably some could have been better.
The plethora of investment choices available today makes what should be relatively easy into something harder for people without some knowledge. Things like target date funds were created to take the work of annual re-balancing and make planing for retirement easier for the busy and the ignorant. As long as these funds are in tax deferred accounts, their results should be similar to what one would get by buying the components in an IRA.
22 years ago, ETFs were just beginning, and no total world funds were available. I am fortunate, because in my ignorance I under-weighted international equities. Most of my international funds are flat or losers. Having less international has really increased my portfolio value. Today at age 77, I have a 50% allocation to equities including international. A significant portion of my bond portfolio is in TIPS. 22 years ago, I bought the actual TIPs, while today this is mostly in TIP and short term domestic bond ETF funds. Having a mix of taxable, tax deferred, and non-taxable accounts is essential because if you have only a taxable account, re-balancing can create higher taxes. (Non-taxable =ROTH)
Being retired without a pension means having a larger allocation to cash, enough for 4-5 years of expenses, in order to ride out equity market volatility.
Finally, for all those who manage their own retirement and investment funds, keeping good records is mandatory. What did you buy, when did you buy it, and what did you pay for it? If you cannot answer these questions, at some point your life will become very difficult financially. I use Quicken and have 25 years of data.
A note of caution from William Bernstein in the second edition of The Four Pillars of Investing, p. 294:
Do not own municipal or corporate bonds in an ETF.
During a severe market downturn, these ETFs can suffer a “liquidity mismatch” between the low trading volume of many municipal and corporate bonds and the high trading volume of the ETFs that own them. This mismatch can expand ETF bid-ask spreads and impose additional costs on investors needing to raise cash.
Because Treasuries are highly liquid, its okay to own them in an ETF since they’re not likely subject to a liquidity mismatch.
Bernstein also frowns upon bond index funds since about a third of their holdings consist of corporates and other bonds lacking a government guarantee.
He is a fan of keeping fixed income assets in safe, government-guaranteed Treasuries and FDIC-insured CDs below the deposit maximum. He is willing to accept a lower yield to have the liquidity needed during market panics.
Vanguard provides all that information regarding purchase dates, quantities and price paid, and I suppose all other firms do as well. Keeping good records is required if you bought at other firms and transferred to a new one.
Few workers today will have 30 years of employment at one firm. Many get RSUs and ISOs, which require using a brokerage other than Vanguard. With each change of employment, you have another 401k held by another firm. Additionally, you may be gifted or inherit shares via another brokerage account. Finally, brokerage firms are not perfect. I think it better to have your own information rather than be totally dependent on any company.
I’ve been influenced by the holdings of the DFA target-date funds which seem to focus on avoiding sequence of returns risk in retirement thru lowering the percentage of stock. Their 2025 target date fund is 70% bonds (https://www.dimensional.com/us-en/funds/driux/dimensional-2025-target-date-retirement-income-fund) and their 2020 for those recently retired is 75% bonds (https://www.dimensional.com/us-en/funds/drirx/dimensional-2020-target-date-retirement-income-fund). For bonds they hold primarily TIPS.
I read into it a philosophy I agree with. By retirement you should have accumulated enough assets and now you’re in drawdown phase. A little stock exposure is good for a modest potential of growth but primarily you want to avoid having your real income fall due to inflation.
Nice article, Jonathan. I am 100% equity for my 403B and IRA with a couple low-cost index funds, as I still have 20+ years before the typical retirement age.
Nice article, my portfolio could probably use a little simplifying. I doubt the 2% or so each in junk bonds and REITs is making much difference. I’ve never been tempted by target date funds, but I do have chunk of my bond allocation in my IRA in TIPS. Any opinion on that?
I’m a fan of inflation-indexed Treasurys. In fact, my bond allocation is split between a short-term conventional government bond fund and a short-term TIPS fund.
Thanks. I’m holding VAIPX, which is intermediate, although my bond holdings overall are split between short and intermediate (and government and corporate). Maybe I need to revisit that now I’m finally going to start drawing on my portfolio.
I think we’d better take a fresh look at our target date funds. We have four, two in IRAs and two in 401K/403Bs. Three of the four are 2025 target dates, two with Vanguard and one with Fidelity. The Vanguard ones are currently at 60% stocks, two years before the target date. Our fourth fund has a 2060 target date.
We don’t plan to rely primarily on these accounts in retirement, but we still want to be smart about them. Thanks for the input here.
I will add-Read Simple Wealth Inevitable Wealth by Nick Murray-It will affect your investment career in a very very positive way.
I say its a MUST READ
Perhaps I need to read his book again as I had a different opinion.
KISS-the simple 2-3-4 fund boglehead like portfolio is ideal for most
Too many reasons to keep it simple as one day someone will have to take over the reins. For those starting out, 100% US Total Stock Index Fund
For high income families, mix in some muni bond funds if you wish.
The accumulation phase is the simple stuff. Upon FRA, the game changes as you have to plan to avoid a big downturn upon retirement as in 2000.
At retirement, can you afford a 50% equity losss and maintain lifestyle?’Learn SORR pre retirement; it can change your life faster than you might think
Excellent advice Jonathan. My wife and I ran into a woman yesterday, a waitress in one of our favorite cafes. She is in her fifties, with a new graddaughter She was lamenting that she has no idea what her financial situation is. My wife told her about HumbleDollar and the articles i’ve written. She seemed interested and listened politely as I explained the site’s purpose. Just before we left she came out with a pad and pen and asked the website’s name. I’m hoping she will join the HD community and get her family on the road to financial independence.
I think many of us can relate to over-tinkering. For myself, I had a portion (10-20%) of my investments that I managed in a taxable account mostly holding individual stocks that I selected. The rest of my portfolio was in stock funds, mostly in my 401K. I enjoyed what I did and I learned a lot along the way, but if I had it to do again I would have selected fewer stocks and held my winners rather than selling to take gains. I’ve also never been a fan of target-date funds for the reasons you cite.
Your suggestion regarding FFNOX is pretty close to where I have evolved. Bought into FFNOX in both my taxable and retirement accounts way back in the early 2000s, and have added bond funds (initially, just more FXNAX US Bond Index fund to the 15% allocation the earlier version of the fund held) to adjust the risk profile/asset allocation. More recently I have added brokered—via Fidelity—US Treasuries and CDs.
You’re right about making the right choice from the get go in taxable accounts. It would be very difficult for me to sell FFNOX there due to the capital gains I have accrued.
Thanks for the comment. When I was at The Wall Street Journal, reporters and editors often asked how they should invest their 401(k). You’d be amazed how ignorant most folks in the newsroom were when it came to investing — and that included those who wrote about the financial markets. Fidelity was the 401(k) plan’s administrator. My standard advice was to buy FFNOX and mix in bonds as desired.
Excellent and sensible as always, Jonathan!
Theoretically, one could also take the same philosophy of the worldwide diversification of VT (VTWAX) and apply it to bonds as well in the form of something like BNDW. (Total world bond ETF)
I don’t currently use it, but others here might find it interesting to look at.