An Investment Portfolio Using Only Three Index Funds

MSN money lists a sample portfolio using only three index funds. Their recommendations:

For the sake of single-fund-family investing, here's how I'd build an all-index portfolio of Vanguard funds:

• 55%: Vanguard Total Stock Market (VTSMX), expenses of 0.15%. This fund owns more than 3,500 U.S. stocks -- the whole market from blue chips to microcaps.

• 35%: Vanguard Total International Stock (VGTSX), expenses of 0.27%. That expense ratio includes underlying funds, because this is a fund of three funds: Vanguard European Stock Index (VEURX), Vanguard Pacific Stock Index (VPACX) and Vanguard Emerging Markets Stock Index (VEIEX).

• 10%: Vanguard Total Bond Market Index (VBMFX), expenses of 0.19%. There are good reasons this investment-grade bond fund is home to more than $60 billion in assets. It has low expenses combined with sturdy index-portfolio management, which comes with its own set of traps in the bond sector.

Investors could easily build a similar portfolio of all Fidelity funds but with the caveat that the Fidelity Spartan International Index (FSIIX) fund doesn't include stocks from emerging markets.

I'm working towards this sort of simplified, index fund-laden portfolio. I just have a ton of funds I bought years ago (15 years in some cases) that have large capital gains associated with them. I'm giving them away piece by piece in an effort to manage fewer and fewer funds. It's just going to take me some time. ;-)

Comments

[Yair]

IIRC, this sounds very similar to Vanguard's Total Retirement funds

[Jim]

Looks like the same idea as the 'lazy portfolios':
http://www.marketwatch.com/news/story/lazy-portfolios-sparkle-07-new/story.aspx?guid=%7B73F4BC3A%2DD0EF%2D4BFA%2D9698%2D01D8DA27C91A%7D

They have a 3 fund portfolio named 'Margaritaville Portfolio'. Its made of 33% each of Vanguard Inflation-Protected Securities, Vanguard Total International Stock Index VGTSX and Vanguard Total Stock Market Index.

Jim

[BC]

If you sub the VG total international stock for the Vanguard FTSE index you also get exposure to Canada and can take advantage of the foreign tax credit.

[Amy]

Question - I am new to investing and plan to start slowly accumulating a next egg to put into index funds (this is our next level of savings now that we max out the 401ks). I just looked into Vanguard funds and it seems that all of their index funds require $3000 min. investment to get started. Meaning that I would need to have at least $9000 initially to buy into the 3 funds above, adn even more to get to that portfolio ratio. Am I correct on this? Is there a way to buy into index funds (preferabily vanguard) with small amounts, i.e. a few hundred $$?

[Nation]

those three only really hit 5 asset categories, and it is mostly large, not enough small.

You need more small for good asset diversification.

[Thomas]

Amy,

While I've read that T Rowe Price (and a few others) have lower minimums if you set up regular purchases, I would still go with Vanguard. I would suggest opening an account containing the Total Int'l Stock Index, then add the other funds when you are able to. If I could only have one mutual fund, this would be it, I started a few of my friends with this one fund and it has worked well for them.

[John]

@Nation

I believe the Total Stock Market and Total International Stock funds contain a mix of small, medium and large companies.

[Stein]

Amy -
Try FFNOX.

[Matt H]

Amy,

As I understand it, if you don't meet the minumums, you usually just pay a small annual fee ($10 per fund).

[DG]

Amy,

Another option is buying the ETF versions of these funds, which have no minimums.

VTI - Vanguard Total Stock Market
VEU - Vanguard FTSE All-World ex-US
BND - Vanguard Total Bond Market

There will be brokerage fees on these, as if you were trading a stock. So you would have to weigh that vs. fees for not meeting the minimum on the mutual funds.

[Matt Jabs]

Is this still the diversification ratio you maintain for your fund investments? Are these still the funds you are investing in?

[FMF]

Matt --

I'm in the process of rebalancing my funds, but this is pretty close to what I'm using. For even more details, check out this post:

http://www.freemoneyfinance.com/2008/11/how-i-easily-improved-my-investment-returns-using-vanguard-admiral-shares.html

[Limoman]

be far better off just owning..
VWELX for Growth
VWINX for Conservative & Post Retirement

Main reason to Use Bal funds? They take the #1 worse enemy & dummy running the port out of the equation..
This is the #1 cause for Portfolio's to fail..