Topic: Nine most popular investment portfolio strategies
Key Principles:
Buy and hold
Keep costs low
Use passive investments over active ones
Perfect Portfolio: No such thing as a perfect investment portfolio; must be well-diversified.
Strategy 1: One Fund Strategy
Fund: 100% in S&P 500 Index Fund or Total Stock Market Index Fund
Example: Vanguard S&P 500 Index Fund (VFIAX) or Vanguard Total Stock Market Index Fund (VTSAX)
Pros: Simple, low-cost, diversified
Cons: High volatility, not ideal near retirement
Strategy 2: Two Fund Strategy
Funds: Combination of stocks and bonds
Example: VTSAX and Vanguard Total Bond Market Index Fund (VBTLX)
Stock-Bond Ratio: Adjust based on age and risk tolerance
Pros: Slightly less risky than one fund strategy
Strategy 3: Three Fund Portfolio
Funds: Adds international stocks to the mix
Example: VTSAX, VBTLX, Vanguard Total International Stock Index Fund (VTIAX)
Pros: International diversification
Cons: Debated effectiveness of international diversification
Strategy 4: Three Fund Plus One Portfolio
Additional Fund: Real Estate Investment Trust (REIT) Fund
Example: Vanguard Real Estate Index Fund (VGSLX)
Pros: Additional diversification
Cons: Preference may vary between REITs and actual property investment
Strategy 5: Dave Ramsey's Four Fund Strategy
Funds: Growth and Income, Growth, Aggressive Growth, International
Example: VFIAX, Vanguard Mid-Cap Index Fund (VIMAX), Vanguard Small-Cap Index Fund (VSMAX), VTIAX
Cons: No bond fund, preference for actively managed funds which are costlier
Strategy 6: Bill Bernstein’s No-Brainer Portfolio
Funds: Equal allocation across four funds
Example: VBTLX, Vanguard European Stock Index Fund (VEUSX), VSMAX, VFIAX
Pros: Simple, diverse, includes bonds
Strategy 7: Ivy League Endowment Strategy
Funds: Mimics asset allocation of Ivy League endowments
Example: VTSAX, VBTLX, VTIAX, Vanguard Commodity Strategy Fund (VCMDX), VGSLX
Cons: Commodities fund has high expense ratio and high minimum investment
Strategy 8: Coffeehouse Portfolio
Funds: Diverse mix, heavy on bonds
Example: VFIAX, Vanguard Value Index Fund (VVIAX), VSMAX, VGSLX, VTIAX, VBTLX
Cons: Complexity in rebalancing
Strategy 9: The Ultimate Buy and Hold Portfolio
Funds: 11 different funds
Example: VFIAX, VVIAX, VSMSX, VGSLX, VTIAX, VTRIX, VFSAX, Vanguard Emerging Market Stock Index Fund (VEMAX), Vanguard Short-Term Bond Index Fund (VBIRX)
Cons: Highly complex, difficult to maintain
Conclusion
No Perfect Portfolio: Choose a strategy that works for you and stick with it long-term.
Consistency: Avoid frequently changing portfolio in response to market changes.