Help me with a three-fund portfolio

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rich1day
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Help me with a three-fund portfolio

Post by rich1day »

Hello Bogleheads

Note: I started this thread to seek specific details to build a 3-fund/three-fund portfolio to save for retirement. And then, I realized would a three fund portfolio can help me with a short term goal say 5-10 years for a goal like paying for my kid’s college?.

So,
I have edited my original post such that it reflects my mostly current state.

I must be grateful for all the Bogleheads that has provided valuable information in order to help with people’s investment goals. Thanks for that.

Who am I?

Age: 41/37(spouse); kid 13y (5 y to college)
Tax: bracket = 22% Fed
State: GA; 5.75%

Financials
EF = 60K (cash lying around. Exploring options where to keep this for better returns)
Roth IRA = ~14K - try to max out contrib’ limits for both spouse & I
Cash = ~60K laying around in bank accounts. Not earning much returns. I would like to invest this towards college spending in 5 years from now(the time of writing this post)
Any extra cash that I can afford will go towards college spending investments for the next 9 years.
- At this time, I don’t know how much money I will be able to afford after maxing out Roth IRAs in order to fund for retirement, but I can come back here and update once I have the number sorted out.

I don’t have 401K at workplace. May be in future!


Retirement goal (25 y)

Desired AA = 80/20 S/B with 80/20 US/INT mix



College saving goal (5-9 y)

Desired AA = 70/30 S/B ?? Speculating..
(However, I am not quite sure what a recommended AA would be for such a short term goal. Any recommendations please?)

Any useful info that I am missing here, just let me know and I will update my post! Thanks.

I have got several responses that have made me comfortable on my retirement goals.

I have below questions on my college savings goal.

- Would a three-fund portfolio be helpful/appropriate for short term goals like 5-9 years? What funds should I choose?
- should the fund choice be all stocks or a mix of stocks and bonds for such a short term goal? If so what proportions is advised? (Oh is this what you call asset allocation?)
- if not, what kind of investment products would you suggest?
- Should I be concerned with capital gains taxes while investing for such a short term goal?
- I think I can take some benefit from a 529 plan. Apart from that, taxable accounts are what I am left with - saving for college?
- how do I tax efficiently choose funds to invest for my college savings goal

Thanks again!
Last edited by rich1day on Wed Apr 17, 2024 10:28 am, edited 1 time in total.
Tom_T
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Re: Help me with a three-fund portfolio

Post by Tom_T »

Check the Wiki. There are too many posts on this topic to point you to a thread.

https://www.bogleheads.org/wiki/Three-fund_portfolio
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retired@50
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Re: Help me with a three-fund portfolio

Post by retired@50 »

rich1day wrote: Fri Mar 29, 2024 4:25 pm Hello Bogleheads

I have decided to go for a 70/30 asset allocation with 20% international stocks

I want to save for retirement as my primary objective (Age: he is 40 / she is 36)
Here are my contributions
1. Max out His & Her Roth IRA
2. Invest whatever remains

I want to adopt the three fund portfolio & not sure what funds to choose - so, this is where I need help

Kindly recommend
1. which funds to choose
2. where to keep the funds in tax efficient way


Thanks!
Do you have any access to a 401k plan or other workplace plan?

Consider the tax efficient fund placement wiki page as you make your choices. The typical advice is to put your bond fund in a tax-deferred account if available.

The specific funds you choose can also be somewhat dependent on which custodian you're involved with. Fidelity, Vanguard, Schwab... Where are your accounts?

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Topic Author
rich1day
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Re: Help me with a three-fund portfolio

Post by rich1day »

Tom_T wrote: Fri Mar 29, 2024 5:34 pm Check the Wiki. There are too many posts on this topic to point you to a thread.

https://www.bogleheads.org/wiki/Three-fund_portfolio
Hello! I read that.
There are too many posts on this topic to point you to a thread
This is why I ask for fund choice

Thanks!
Topic Author
rich1day
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Re: Help me with a three-fund portfolio

Post by rich1day »

retired@50 wrote: Fri Mar 29, 2024 5:40 pm
rich1day wrote: Fri Mar 29, 2024 4:25 pm Hello Bogleheads

I have decided to go for a 70/30 asset allocation with 20% international stocks

I want to save for retirement as my primary objective (Age: he is 40 / she is 36)
Here are my contributions
1. Max out His & Her Roth IRA
2. Invest whatever remains

I want to adopt the three fund portfolio & not sure what funds to choose - so, this is where I need help

Kindly recommend
1. which funds to choose
2. where to keep the funds in tax efficient way


Thanks!
Do you have any access to a 401k plan or other workplace plan?

Consider the tax efficient fund placement wiki page as you make your choices. The typical advice is to put your bond fund in a tax-deferred account if available.

Regards,
I don’t have a 401k at work. Wife too
I read that article may be I need to give it a few more reads. Honestly, couldn’t wrap my head around !
The specific funds you choose can also be somewhat dependent on which custodian you're involved with. Fidelity, Vanguard, Schwab... Where are your accounts?
Can you give me some funds that can fit into a three fund portfolio from the three? Not sure which one is better than the other
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retired@50
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Re: Help me with a three-fund portfolio

Post by retired@50 »

rich1day wrote: Fri Mar 29, 2024 5:53 pm
retired@50 wrote: Fri Mar 29, 2024 5:40 pm
rich1day wrote: Fri Mar 29, 2024 4:25 pm Hello Bogleheads

I have decided to go for a 70/30 asset allocation with 20% international stocks

I want to save for retirement as my primary objective (Age: he is 40 / she is 36)
Here are my contributions
1. Max out His & Her Roth IRA
2. Invest whatever remains

I want to adopt the three fund portfolio & not sure what funds to choose - so, this is where I need help

Kindly recommend
1. which funds to choose
2. where to keep the funds in tax efficient way


Thanks!
Do you have any access to a 401k plan or other workplace plan?

Consider the tax efficient fund placement wiki page as you make your choices. The typical advice is to put your bond fund in a tax-deferred account if available.

Regards,
I don’t have a 401k at work. Wife too
I read that article may be I need to give it a few more reads. Honestly, couldn’t wrap my head around !
The specific funds you choose can also be somewhat dependent on which custodian you're involved with. Fidelity, Vanguard, Schwab... Where are your accounts?
Can you give me some funds that can fit into a three fund portfolio from the three? Not sure which one is better than the other
The three fund wiki page linked above gives example 3 fund portfolios (with fund ticker symbols) at each of the major brokers.

At Vanguard, for example, it would be as follows:
1. VTSAX for US stocks
2. VTIAX for international stocks
3. VBTLX for bonds

With no 401k plan or other tax-deferred account you'll probably want to put your bond fund in the Roth account... Unless you're in a very high tax bracket and would prefer to use a tax-exempt municipal bond fund. Vanguard has several choices for munis.

Regards,
Last edited by retired@50 on Fri Mar 29, 2024 6:01 pm, edited 1 time in total.
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Tom_T
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Re: Help me with a three-fund portfolio

Post by Tom_T »

rich1day wrote: Fri Mar 29, 2024 5:53 pm
retired@50 wrote: Fri Mar 29, 2024 5:40 pm
The specific funds you choose can also be somewhat dependent on which custodian you're involved with. Fidelity, Vanguard, Schwab... Where are your accounts?
Can you give me some funds that can fit into a three fund portfolio from the three? Not sure which one is better than the other
The Wiki page does recommend funds to use from the different providers.
bonesly
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Re: Help me with a three-fund portfolio

Post by bonesly »

rich1day wrote: Fri Mar 29, 2024 4:25 pm Kindly recommend
1. which funds to choose
2. where to keep the funds in tax efficient way
1. Total US Stock Index, Total International Stock Index, Total US Bond Index. Specific funds would depend on which brokerage you're dealing with but Vanguard, Fidelity, and Schwab all have funds tracking these three indexes. The proportion of assets held in each depends on your Asset Allocation.

2. Stocks only in Roth 401k/IRA. All bonds in Trad 401k/IRA plus some stocks if maxing out the contribution leaves you with room for more bonds than your asset allocation calls for (it seems you don't have a traditional tax-deferred account, so bond placement will be sub-optimal). Stocks only in taxable; municipal bonds might be acceptable if you're in one of the top two Federal tax brackets.

See the Wiki topics on 3-Fund Portfolio and Tax-Efficient Fund Placement.
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steve r
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Re: Help with a three-fund portfolio

Post by steve r »

The lowest expense ratio will be at Fidelity (zero funds)

FRZOX (U.S. Total Stock Market) 0 expense ratio (56 percent of funds)
FZILX (International Index) 0 expense ratio (14 percent of funds)
FUAMX (Intermediate term treasuries)* 0.03 expense ratio (30 percent of funds)

Plan to rebalance every so often.

*My own personal research suggest treasuries is a better diversifier of stocks than a bond fund that holds corporations. In a sense, if you own stocks, you will be both the borrow and lender (which does make sense to me). Opinions vary.

Other Fund Companies have similar very low expense options.

I do think 30 percent bonds more than 5 or ten years from retirement is a tad conservative. Opinions vary.

Rebalancing is easy to do on paper, but sometimes it is hard mentally to do. Some people hate buying more of what is underperforming or even losing money. For others, it is difficult to not load up even more on what is losing money. This is me.

For this reason, I only have FFNOX -- Fidelity Multi Asset fund with an expense ratio of 0.11 and enough money market cash account to balance things out. Yes it cost slightly more, but it simplifies things. Note that this has more than your stated target of 20 percent international.

At Vanguard holding a unique fund allows you to get to close to your target with two funds at 50/50 (equal amounts)
VBIAX ... this holds 60 percent U.S. stock and 40 percent U.S. bonds (mostly treasuries)
VTWAX ... this holds almost all stocks in the world, at market cap weights. Currently roughly 60 percent U.S. and 40 percent international.

This will put you at 60 percent U.S. Stocks / 20 percent international stocks / 20 percent bonds. (though the U.S. / international mix can shift over time).

Best of luck.

EDIT. I missed you comment on tax efficient. Some posters suggest the zero funds are not tax efficient. I am not familiar with this. (I invest primarily in tax deferred) sorry I cant be more help.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
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Re: Help me with a three-fund portfolio

Post by ruralavalon »

rich1day wrote: Fri Mar 29, 2024 4:25 pm Hello Bogleheads

I have decided to go for a 70/30 asset allocation with 20% international stocks

I want to save for retirement as my primary objective (Age: he is 40 / she is 36)
Here are my contributions
1. Max out His & Her Roth IRA
2. Invest whatever remains

I want to adopt the three fund portfolio & not sure what funds to choose - so, this is where I need help

Kindly recommend
1. which funds to choose
2. where to keep the funds in tax efficient way


Thanks!
Which fund firm or brokerage are the Roth IRAs with?

That will determine which funds you can choose from.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Help me with a three-fund portfolio

Post by LadyGeek »

rich1day - You had a duplicate thread in the general investing forum, possibly by accident. I merged those posts into this thread and removed the duplicate post.

If you have any questions, ask them here. To do that, just view this thread and click on the "Post Reply" button.

(Thanks to the member who reported the post and explained what's wrong.)
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Re: Help me with a three-fund portfolio

Post by yogesh »

56% VTI
14% VXUS
30% BND or VTEB
Last edited by yogesh on Fri Mar 29, 2024 7:53 pm, edited 1 time in total.
Emergency: FDIC | Taxable: VTI | Retirement: TD2035
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Beensabu
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Re: Help me with a three-fund portfolio

Post by Beensabu »

yogesh wrote: Fri Mar 29, 2024 7:21 pm 56% VTI
14% VXUS
30% BND
+1

Those are ETFs, so you can buy them at any brokerage without paying extra "not in our fund family" fees every single time you buy. Just make sure whatever brokerage you're with doesn't charge commissions on ETF trades - Vanguard doesn't charge commissions on Vanguard funds; Fidelity and Schwab don't charge commissions on ETF trades for US-based funds (so pretty much any ETF you might want to buy).

ETFs are also easily transferred if you change brokerages, which matters if you're trying to move a taxable account from one place to another without any tax consequences.

Also, VEA is better than VXUS in a taxable account. And don't use BND in a taxable account - you can use VTEB in taxable instead.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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rich1day
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Re: Help me with a three-fund portfolio

Post by rich1day »

Beensabu wrote: Fri Mar 29, 2024 7:41 pm
yogesh wrote: Fri Mar 29, 2024 7:21 pm 56% VTI
14% VXUS
30% BND
+1

Those are ETFs, so you can buy them at any brokerage without paying extra "not in our fund family" fees every single time you buy. Just make sure whatever brokerage you're with doesn't charge commissions on ETF trades - Vanguard doesn't charge commissions on Vanguard funds; Fidelity and Schwab don't charge commissions on ETF trades for US-based funds (so pretty much any ETF you might want to buy).

ETFs are also easily transferred if you change brokerages, which matters if you're trying to move a taxable account from one place to another without any tax consequences.

Also, VEA is better than VXUS in a taxable account. And don't use BND in a taxable account - you can use VTEB in taxable instead.
Bogleheads guide to investing puts index funds preferred than ETFs is there a reason behind that?
Also, how index funds and etfs are different? And how to choose the one or other?

I don’t know what you all think having one separate portfolio for index funds and another for etfs with keeping same asset allocation

Didn’t mean to argue bogleheads guide to investing says so. But honestly, couldn’t understand them both

I read the book at least 3 times and the wiki pages of three fund portfolio several times.
I want to start somewhere rather than just keep reading over and over.
Hope I make sense

Thanks!
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rich1day
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Re: Help me with a three-fund portfolio

Post by rich1day »

All!

Thanks for the replies!!

I read the book bogleheads guide to investing at least 3 times and the wiki pages of three fund portfolio several times.
I want to start somewhere rather than just keep reading over and over.
Hope I make sense
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Beensabu
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Re: Help me with a three-fund portfolio

Post by Beensabu »

rich1day wrote: Fri Mar 29, 2024 8:45 pm Bogleheads guide to investing puts index funds preferred than ETFs is there a reason behind that?
Because the price of ETFs fluctuates intra-day like stocks and you can trade ETFs like stocks, at any point of the day while the market is open. While with mutual funds you get the closing price on the day whose close (4pm ET) you bought before, and there are restrictions on frequent trading. Some people will trade (and often) based on intra-day price movements if they can, so mutual funds work better to save them from themselves.
Also, how index funds and etfs are different? And how to choose the one or other?
There are structural differences, but if you have VTI or VTSAX (or VXUS/VTIAX, or BND/VBTLX) then you have the same thing.

People seem to like having ETFs in their taxable accounts because they're more tax efficient (have less capital gains distributions) than mutual funds and are also easily portable between brokerages.
I don’t know what you all think having one separate portfolio for index funds and another for etfs with keeping same asset allocation
If you want to have mutual funds in your Roth and ETFs in taxable, there's nothing wrong with that.

We still don't know what brokerage you have your Roth IRAs with, though. If you want mutual funds in your Roths, then you pick the "Total US Stock Index Fund", "Total International Stock Index Fund" and "Total US Bond Index Fund" options that your specific brokerage offers.

Make sure you buy mutual funds within the "fund family" at your brokerage (ex. Vanguard mutual funds at Vanguard, Fidelity mutual funds at Fidelity, Schwab mutual funds at Schwab) in order to avoid paying unnecessary transaction fees for buying a mutual fund outside their "fund family". For example, if you buy non-Fidelity mutual funds in a Fidelity account, they charge you a $49.95 transaction fee each time you buy more shares (but there's no transaction fee for buying a non-Fidelity ETF in a Fidelity account).

So if you don't want to say what brokerage you have your Roth IRAs with, then people are going to suggest ETFs. Nobody wants you to accidentally pay $50 for every buy transaction because they recommended VTSAX for a Fidelity account - that would suck.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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rich1day
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Re: Help me with a three-fund portfolio

Post by rich1day »

@Beensabu

Here are my holdings.
I didn’t pick these. I signed up with robo advisor betterment and they chose these funds I believe based on my AA

First of all, do you see anything odd in these holdings?
I understand this is not simple as a three fund portfolio, but Does it make sense to compare these holdings against a three fund portfolio? And if so, how do they really stack up against a three fund portfolio?
What do you think of their cost for managing funds?

Second of all, I am thinking to quit betterment and start DIY. I would really love if someone can help me with how to evaluate whether I can stay with betterment or ditch them and start DIY.

So, coming back to your question about which broker I have accounts with, I don’t have any accounts at present with Vanguard or Fidelity or Schwab.

Now, can you please provide me some directions on how to choose funds from these brokers?

Please give me recommendations for both index funds and ETFs while adhering to tax efficiency
I love to educate myself but at the same time, I don’t want to keep waiting until I become fully educated to get started.

Thanks

His Roth IRA at Betterment

Code: Select all

--------------------------------------------------------------------------------
Holdings                               | Current Weight | Fund fees per year % |
-------------------------------------------------------------------------------- 
U.S. Total Stock Market                |                |                      | 
VTI: Vanguard Total Stock Market ETF   | 30.7% | 0.03%   |
--------------------------------------------------------------------------------
Vanguard Small-Cap Value ETF           |                |                      | 
VBR: Vanguard Small-Cap Value ETF      | 5.7% | 0.07%     |
--------------------------------------------------------------------------------
Vanguard Value ETF                     |                |                      | 
VTV: Vanguard Value ETF                | 8.0%   | 0.04%     |
--------------------------------------------------------------------------------
Vanguard Mid-Cap Value ETF             |                |                      | 
VOE: Vanguard Mid-Cap Value ETF        | 6.6%   | 0.07%     |
--------------------------------------------------------------------------------
International Developed Market Stocks  |                |                      | 
VEA: Vanguard FTSE Developed Markets   | 25.4%   | 0.05%     |
--------------------------------------------------------------------------------
International Emerging Market Stocks   |                |                      | 
VWO: Vanguard FTSE Emerging Markets    | 13.6%   | 0.08%     |
--------------------------------------------------------------------------------
U.S. Inflation-Protected Bonds         |                |                      | 
STIP: iShares 0-5 Year TIPS Bond ETF   | 0.5%   | 0.03%     |
--------------------------------------------------------------------------------
Vanguard Short-Term Inflation-Protected|                |                      |
Securities ETF             |                |                      | 
VTIP: Vanguard Short-Term Inflation-   |                |                      |
Protected Securities ETF               | 0.7%   | 0.04%     |
--------------------------------------------------------------------------------
U.S. High Quality Bonds                |                |                      | 
AGG: iShares Core Total US Bond Market |                |                      |
ETF                                    |                |                      |
BND: Vanguard US Total Bond Market ETF | 3.6%   | 0.03%     |
--------------------------------------------------------------------------------
International Developed Market Bonds   |                |                      | 
BNDX: Vanguard Total International     |                |                      | 
Bond ETF                               | 3.5%   | 0.07%     |
--------------------------------------------------------------------------------
International Emerging Market Bonds    |                |                      | 
EMB: iShares Emerging Markets USD Bond |                |                      | 
ETF                                    | 1.7%   | 0.39%     |
--------------------------------------------------------------------------------
Total                                  | 100%           | 0.06%                |
-------------------------------------------------------------------------------- 
bonesly
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Re: Help me with a three-fund portfolio

Post by bonesly »

rich1day wrote: Sat Mar 30, 2024 9:20 am First of all, do you see anything odd in these holdings?
The robo-advisor algorithm at Betterment simply is not using the same program logic as say a robo-advisor at Vanguard, that's all.

It does have the three core elements of a 3-Fund Portfolio
1) 30.7% VTI: Vanguard Total Stock Market ETF
2) 25.4% VEA: Vanguard FTSE Developed Markets + 13.6% VWO: Vanguard FTSE Emerging Markets (likely similar to VXUS)
3) 3.6% BND: Vanguard US Total Bond Market ETF

...and it does add international bonds, which Vanguard's robo-advisor would have done...
4) 3.5% BNDX: Vanguard Total International

...but then it adds a bunch of "titls" which are essentially sector bets as they're overlapped with 1) and 2) above:
5) 5.7% VBR: Vanguard Small-Cap Value ETF (already included in VTI)
6) 8.0% VTV: Vanguard Value ETF (already included in VTI)
7) 6.6% VOE: Vanguard Mid-Cap Value ETF (already included in VTI)

...and inflation-protected bonds, but too small to matter (Vanguard would wait until you were older and then buy these in a meaningful % of portfolio).
8) 0.5% STIP: iShares 0-5 Year TIPS Bond ETF (too tiny to make a difference)
9) 0.7% VTIP: Vanguard Short-Term Inflation-Protected Securities ETF (too tiny to make a difference)

Yogesh's suggestion is much simpler and is essentially reallocating so you get rid of 4) through 9):
56% VTI
14% VXUS
30% BND

You might want to adjust the percentages because Yogesh is suggesting 70/30 with 20% of stocks in international, but it looks your AA is closer to 90/10, with 40% of stocks in international (closer to the international weighting that Vanguard would use and matched to the global market-cap weighting between US and ex-US). The following adjustment to Yogesh's suggestion is likely more appropriate if your AA is really 90/10.
72% VTI
18% VXUS
10% BND


If you have any concerns that Betterment's robo-advisor got your AA wrong and that's too aggressive, consider taking the (free) Vanguard Investor Questionnaire to see what AA it recommends based on your personal responses to the quiz.
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Re: Help me with a three-fund portfolio

Post by Beensabu »

rich1day wrote: Sat Mar 30, 2024 9:20 am First of all, do you see anything odd in these holdings?
It's an aggressive (90/10) globally diversified slice-and-dice portfolio with a value and small/mid tilt. There's nothing odd about that - it's just got more pieces than a simpler three-fund portfolio. It's also a little bit hilarious that they have your 10% bond allocation sliced up into so many pieces, but those slices make sense for a larger bond allocation, so the robot doesn't know it's being funny.
Does it make sense to compare these holdings against a three fund portfolio? And if so, how do they really stack up against a three fund portfolio?
Sure, you can compare it here:

https://www.portfoliovisualizer.com/bac ... TYeL3mK518
What do you think of their cost for managing funds?
All the ETFs in your portfolio have low ERs.

It looks like Betterment charges a 0.25% AUM? It's not terrible, but it reduces the returns you would have otherwise over time. There are other places that don't charge any annual fees (or waive them if you're okay with electronic statements only).

Betterment does charge $75 to transfer your account out FYI.
Second of all, I am thinking to quit betterment and start DIY. I would really love if someone can help me with how to evaluate whether I can stay with betterment or ditch them and start DIY.
If you keep your current slice-and-dice portfolio, then maybe stay with them until you understand why it's sliced up that way and how to rebalance it yourself.
So, coming back to your question about which broker I have accounts with, I don’t have any accounts at present with Vanguard or Fidelity or Schwab.
You're with Betterment. :)
Now, can you please provide me some directions on how to choose funds from these brokers?
You can transfer your entire portfolio (it's all ETFs) in kind to another Roth account wherever you want.

If you want a three-fund portfolio, then:

VTI instead of VTI, VBR, VTV, VOE
VXUS or VEA* instead of VEA, VWO
BND or VTEB* instead of STIP, VTIP, AGG, BND, BNDX, EMB

*VEA is better than VXUS in a taxable account. VTEB is better than BND in a taxable account.

If you want mutual funds in a Vanguard Roth account:

Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)

If you want mutual funds in a Fidelity Roth account:

Fidelity ZERO Total Market Index Fund (FZROX)** or Fidelity Total Market Index Fund (FSKAX)
Fidelity ZERO International Index Fund (FZILX)** or Fidelity Total International Index Fund (FTIHX)
Fidelity U.S. Bond Index Fund (FXNAX)

**Do not use the ZERO funds (FZROX or FZILX) in a taxable account - they're not portable. You can just use the Vanguard ETFs in taxable, no matter which broker - easy peasy.

If you want mutual funds in a Schwab Roth account:

Schwab Total Stock Market Index (SWTSX)
Schwab International Index (SWISX)
Schwab U.S. Aggregate Bond Index Fund (SWAGX)
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rich1day
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Re: Help me with a three-fund portfolio

Post by rich1day »

@beensabu, @bonesly

How does these funds from Vanguard, Schwab and Fidelity compare? I can look at their expense ratio but other than that, is there anything else I should be looking for comparison? Morning star rating maybe? Please let me know.
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rich1day
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ETF vs Index Funds - Either or Or Both?

Post by rich1day »

[Thread merged into here --admin LadyGeek]

Hello,

Thinking of constructing a 3-Fund Portfolio.
Just curious does anyone here have both ETFs and Index Funds in their portfolio
Should that be either this or that or both?

Thanks!
livesoft
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Re: ETF vs Index Funds - Either or Or Both?

Post by livesoft »

We have both. Many ETFs are index funds.
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Johm221122
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Re: ETF vs Index Funds - Either or Or Both?

Post by Johm221122 »

Depends on situation. I've always used mutual funds until recently. It's just what was available when I started especially in my 401k plans.

I've recently used ETF's just to try them with the interest my brokerage CDs pay. They are just as easy as mutual funds.
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David Jay
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Re: ETF vs Index Funds - Either or Or Both?

Post by David Jay »

Your question makes it sound like you think there is a difference between ETFs and Index funds. These are not different things, they are overlapping things.

- An ETF is an "Exchange Traded Fund" - a mutual fund that is purchased through a brokerage, rather than through a mutual fund company.
- An Index Fund is a fund that does not actively seek to pick winners but follows an index as an investing strategy.

So Index Funds are available both as traditional mutual funds and as ETFs. In Vanguard's case, the traditional mutual fund and the ETF are sometimes exactly the same fund, just different share classes.

One can also purchase actively managed products as traditional mutual funds and as ETFs.
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Re: ETF vs Index Funds - Either or Or Both?

Post by Doctor Rhythm »

I assume you mean ETF vs mutual fund.

It’s not something to spend much time thinking about. For workplace accounts, you probably won’t have a choice so just buy the index fund in whatever package it’s offered. Similarly, you can do either or both in other retirement accounts like a traditional IRA or Roth. Outcome of funds tracking the same index will be so similar, it won’t matter. There is a potential reduction in capital gains distribution (and therefore tax) with using ETFs in a taxable account — with Vanguard’s major funds being an exception. This difference is going to be small.

I’m almost exclusively invested in mutual funds. If a reason emerges to buy an ETF, I wouldn’t hesitate to do so.
Last edited by Doctor Rhythm on Sat Mar 30, 2024 9:17 pm, edited 2 times in total.
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Re: ETF vs Index Funds - Either or Or Both?

Post by gunny2 »

David Jay wrote: Sat Mar 30, 2024 9:01 pm Your question makes it sound like you think there is a difference between ETFs and Index funds. These are not different things, they are overlapping things.

- An ETF is an "Exchange Traded Fund" - a mutual fund that is purchased through a brokerage, rather than through a mutual fund company.
- An Index Fund is a fund that does not actively seek to pick winners but follows an index as an investing strategy.

So Index Funds are available both as traditional mutual funds and as ETFs. In Vanguard's case, the traditional mutual fund and the ETF are sometimes exactly the same fund, just different share classes.

One can also purchase actively managed products as traditional mutual funds and as ETFs.
Well put. As soon as I saw this thread I went "??" Maybe the question was meant to be EFTs or mutual funds? (Which are very similar things anyway...)
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Re: ETF vs Index Funds - Either or Or Both?

Post by 3000 »

It all depends on you.

When I first started I used FXAIX (Fidelity 500 Index Fund) in my Roth and taxable. Since the amount was small I sold out of FXAIX in taxable and bought ITOT (iShares Core S&P Total US Stock Market ETF). I made the change in my taxable account if I ever wanted to transfer to another provider for a bonus and/or tax loss harvest one day.

This year, instead of buying more FXAIX in my Roth I have switched to IVV (iShares Core S&P 500 ETF). The reason being is I like seeing the price during the day.

ETFs can be purchased by dollar amount now so they are like an index mutual fund in that regard, you also buy at the current market price instead of the price at the end of the day.

In my taxable account I like to buy ITOT by shares and in my Roth I buy IVV by dollar amount.
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Re: ETF vs Index Funds - Either or Or Both?

Post by UpperNwGuy »

rich1day wrote: Sat Mar 30, 2024 8:26 pm Just curious does anyone here have both ETFs and Index Funds in their portfolio
I use ETFs in my portfolio. All of my ETFs are index funds.
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Re: Help me with a three-fund portfolio

Post by bonesly »

rich1day wrote: Sat Mar 30, 2024 8:21 pm How does these funds from Vanguard, Schwab and Fidelity compare? I can look at their expense ratio but other than that, is there anything else I should be looking for comparison? Morning star rating maybe? Please let me know.
They're all tracking the same index (or in the case of the Fidelity ZERO funds) a proprietary index that is "effectively equivalent." They all track their respective indexes with very little error. They are all effectively the same in comparison. To me, the choice comes down to:

Do I want ETFs or Mutual Funds?

If I want ETFs, then just use VTI, VXUS, and BND as you can buy those at any brokerage.

If you want mutual funds then buy the funds offered by the brokerage where your assets are located. Do NOT buy Fidelity ZERO funds in a taxable account as they're not portable (but if you wanted portability, you should have used ETFs anyway).
- - - - - - - - - -
ETFs should only be traded during market-open, so if you aren't comfortable (or can't because of workplace rules) finding time during the east-cost market operating hours (9a to 4p) to make your trades, that could be an issue that would be resolved by using Mutual Funds. Some brokers allow fractional transactions on ETFs, but others (notably Schwab) only let you trade in whole shares. For those only offering whole shares, most of the $X you want to invest will go to your desired ETF but some of it will be left sitting in a cash settlement fund due to the whole-share limitation.

Mutual Funds trades all execute at end-of-day (1-4 hours after market close) at the same price (Net Asset Value = NAV). There's no bid/ask spread or intra-day price movement and no limitations with whole shares; you buy or sell fractional shares in the exact dollar amount you specified. For some, the ease of placing an order at any time of day in an exact dollar amount is easier than working with a bid/ask spread and a share count on an order that should only be placed during market-open (and probably not within an hour of market-opening or market-closing due to potential for price volatility at that time of day).
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Re: ETF vs Index Funds - Either or Or Both?

Post by sycamore »

UpperNwGuy wrote: Sat Mar 30, 2024 9:49 pm
rich1day wrote: Sat Mar 30, 2024 8:26 pm Just curious does anyone here have both ETFs and Index Funds in their portfolio
I use ETFs in my portfolio. All of my ETFs are index funds.
Same here.

One of my ETFs tracks a total stock market index. Another one tracks a small cap value index. Another one tracks a large cap index. And another one tracks a dividend growers index.
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Re: ETF vs Index Funds - Either or Or Both?

Post by dcabler »

rich1day wrote: Sat Mar 30, 2024 8:26 pm Hello,

Thinking of constructing a 3-Fund Portfolio.
Just curious does anyone here have both ETFs and Index Funds in their portfolio
Should that be either this or that or both?

Thanks!
ETFs ARE funds. And they can be index funds.
You probably meant ETFs or Mutual funds.

In a taxable account, ETFs usually are considered to be the winner due to better tax efficiency vs. a mutual fund.
In a tax deferred account, that doesn't matter.

I go with ETFs everywhere these days - might as well be consistent.

Cheers.
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Re: Help me with a three-fund portfolio

Post by ruralavalon »

Which fund company or brokerage are your accounts with?
rich1day wrote: Sat Mar 30, 2024 8:21 pm @beensabu, @bonesly

How does these funds from Vanguard, Schwab and Fidelity compare? I can look at their expense ratio but other than that, is there anything else I should be looking for comparison? Morning star rating maybe? Please let me know.
The Vanguard, Fidelity and Schwab total stock market index funds use different indexes but have had essentially identical performance, Portfolio Visualizer, 2012-2024.

Don't waste any time or effort trying to decide if one total stock market index fund is a tiny bit better than the others. Use the fund of the company where you have your accounts.

Which fund company or brokerage are your accounts with?

The Vanguard and Fidelity total international stock index funds cover both developed and emerging markets, but the Schwab international index fund is less diversified and covers only developed markets.

Nevertheless the performance of the 3 international stock index funds has been very similar, Portfolio Visualizer, 2017-2024.

The Vanguard, Fidelity and Schwab bond index funds all use a version of the Bloomberg U.S. Aggregate Bond Index.

All 3 bond index funds have had somewhat similar performance but the Schwab fund has had a lower Compound Annual Growth Rate (CAGR). Portfolio Visualizer, 2018-2024
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Re: Help with a three-fund portfolio

Post by BolderBoy »

steve r wrote: Fri Mar 29, 2024 6:31 pm *My own personal research suggest treasuries is a better diversifier of stocks than a bond fund that holds corporations. In a sense, if you own stocks, you will be both the borrow and lender (which does make sense to me). Opinions vary.
Your personal research seems to be borne out in this thread: viewtopic.php?t=428109
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Re: Help me with a three-fund portfolio

Post by retired@50 »

ruralavalon wrote: Sun Mar 31, 2024 8:23 am Which fund company or brokerage are your accounts with?
Betterment.

See OP's post above.

Regards,
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rich1day
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Re: Help me with a three-fund portfolio

Post by rich1day »

retired@50 wrote: Sun Mar 31, 2024 10:08 am
ruralavalon wrote: Sun Mar 31, 2024 8:23 am Which fund company or brokerage are your accounts with?
Betterment.

See OP's post above.

Regards,

Not sure how to link my post
Here is the info you need
Thanks

His Roth IRA at Betterment

Code: Select all

--------------------------------------------------------------------------------
Holdings                               | Current Weight | Fund fees per year % |
-------------------------------------------------------------------------------- 
U.S. Total Stock Market                |                |                      | 
VTI: Vanguard Total Stock Market ETF   | 30.7% | 0.03%   |
--------------------------------------------------------------------------------
Vanguard Small-Cap Value ETF           |                |                      | 
VBR: Vanguard Small-Cap Value ETF      | 5.7% | 0.07%     |
--------------------------------------------------------------------------------
Vanguard Value ETF                     |                |                      | 
VTV: Vanguard Value ETF                | 8.0%   | 0.04%     |
--------------------------------------------------------------------------------
Vanguard Mid-Cap Value ETF             |                |                      | 
VOE: Vanguard Mid-Cap Value ETF        | 6.6%   | 0.07%     |
--------------------------------------------------------------------------------
International Developed Market Stocks  |                |                      | 
VEA: Vanguard FTSE Developed Markets   | 25.4%   | 0.05%     |
--------------------------------------------------------------------------------
International Emerging Market Stocks   |                |                      | 
VWO: Vanguard FTSE Emerging Markets    | 13.6%   | 0.08%     |
--------------------------------------------------------------------------------
U.S. Inflation-Protected Bonds         |                |                      | 
STIP: iShares 0-5 Year TIPS Bond ETF   | 0.5%   | 0.03%     |
--------------------------------------------------------------------------------
Vanguard Short-Term Inflation-Protected|                |                      |
Securities ETF             |                |                      | 
VTIP: Vanguard Short-Term Inflation-   |                |                      |
Protected Securities ETF               | 0.7%   | 0.04%     |
--------------------------------------------------------------------------------
U.S. High Quality Bonds                |                |                      | 
AGG: iShares Core Total US Bond Market |                |                      |
ETF                                    |                |                      |
BND: Vanguard US Total Bond Market ETF | 3.6%   | 0.03%     |
--------------------------------------------------------------------------------
International Developed Market Bonds   |                |                      | 
BNDX: Vanguard Total International     |                |                      | 
Bond ETF                               | 3.5%   | 0.07%     |
--------------------------------------------------------------------------------
International Emerging Market Bonds    |                |                      | 
EMB: iShares Emerging Markets USD Bond |                |                      | 
ETF                                    | 1.7%   | 0.39%     |
--------------------------------------------------------------------------------
Total                                  | 100%           | 0.06%                |
-------------------------------------------------------------------------------- 
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Re: ETF vs Index Funds - Either or Or Both?

Post by rich1day »

@all

To clarify,

These are what I was referring to ETF’s

VTI Vanguard Total Stock Market ETF
VXUS Vanguard Total International Stock ETF
BND Vanguard Total Bond Market ETF
VT Vanguard Total World Stock ETF

And these are what I was referring to index funds

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares
VTIAX Vanguard Total International Stock Index Fund Admiral Shares
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares
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Re: ETF vs Index Funds - Either or Or Both?

Post by livesoft »

My answer is the same:
livesoft wrote: Sat Mar 30, 2024 8:28 pm We have both. Many ETFs are index funds.
As an example we own shares of both VLCAX and VV, but in different accounts. They could be in the same account though.

Does my answer help you?
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Re: ETF vs Index Funds - Either or Or Both?

Post by Johm221122 »

rich1day wrote: Sun Mar 31, 2024 12:54 pm @all

To clarify,

These are what I was referring to ETF’s

VTI Vanguard Total Stock Market ETF
VXUS Vanguard Total International Stock ETF
BND Vanguard Total Bond Market ETF
VT Vanguard Total World Stock ETF

And these are what I was referring to index funds

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares
VTIAX Vanguard Total International Stock Index Fund Admiral Shares
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares
In taxable I would lean towards ETF'S
In retirement plans at work probably index funds
In an IRA it's not much difference
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Re: ETF vs Index Funds - Either or Or Both?

Post by Cocoa Beach Bum »

rich1day wrote: Sun Mar 31, 2024 12:54 pm...
And these are what I was referring to index funds

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares
VTIAX Vanguard Total International Stock Index Fund Admiral Shares
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares
Why wasn't VTWAX included in your list of mutual funds? It's the mutual fund version/class of the VT ETF.
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Re: ETF vs Index Funds - Either or Or Both?

Post by livesoft »

Johm221122 wrote: Sun Mar 31, 2024 1:08 pmIn taxable I would lean towards ETF'S
In retirement plans at work probably index funds
In an IRA it's not much difference
That's fine and OK, but it suggests that
VTI and VTSAX
VXUS and VTIAX
BND and VBTLX

might be different in IRA, retirement plans at work, and taxable. They would NOT be different. They would be the SAME. That might blow the mind of the OP, but it is true.
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Re: ETF vs Index Funds - Either or Or Both?

Post by Johm221122 »

livesoft wrote: Sun Mar 31, 2024 1:19 pm
Johm221122 wrote: Sun Mar 31, 2024 1:08 pmIn taxable I would lean towards ETF'S
In retirement plans at work probably index funds
In an IRA it's not much difference
That's fine and OK, but it suggests that
VTI and VTSAX
VXUS and VTIAX
BND and VBTLX

might be different in IRA, retirement plans at work, and taxable. They would NOT be different. They would be the SAME. That might blow the mind of the OP, but it is true.
OP probably should merge this with his other question
viewtopic.php?p=7796991#p7796991
Help me with a three-fund portfolio
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Re: Help me with a three-fund portfolio

Post by rich1day »

Sorry, had to move this post to get some attention to my important questions!!
Last edited by rich1day on Sun Mar 31, 2024 2:33 pm, edited 3 times in total.
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Re: ETF vs Index Funds - Either or Or Both?

Post by Silverado »

rich1day wrote: Sun Mar 31, 2024 12:54 pm @all

To clarify,

These are what I was referring to ETF’s

VTI Vanguard Total Stock Market ETF
VXUS Vanguard Total International Stock ETF
BND Vanguard Total Bond Market ETF
VT Vanguard Total World Stock ETF

And these are what I was referring to index funds

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares
VTIAX Vanguard Total International Stock Index Fund Admiral Shares
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares
It would help if you clarify that you understand (or don’t understand) that those ETFs you listed are also Index Funds.

Please reference the post by David Jay.
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Re: ETF vs Index Funds - Either or Or Both?

Post by gotoparks »

Have more mutual funds than ETFs. My retirement account uses mutual funds. I don't have a preference.
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Re: Help me with a three-fund portfolio

Post by LadyGeek »

rich1day - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)
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Re: ETF vs Index Funds - Either or Or Both?

Post by rich1day »

Silverado wrote: Sun Mar 31, 2024 2:10 pm
It would help if you clarify that you understand (or don’t understand) that those ETFs you listed are also Index Funds.

Please reference the post by David Jay.
I now understand them. Thanks!
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Re: Help me with a three-fund portfolio

Post by rich1day »

@All @bonesly @beensabu @ruralavalon

Your answers lead me step closer to an actionable investment plan. I really appreciate and thank you all for that.

Now,

1. I want to do an 80/20 AA with 70/30 US/INT stock mix
2. I want to have separate portfolios for me and my wife coz I think we might want to adjust our AA over different timeframe coz I am 41 and she is 37.
please comment on what you all think about this. Do you recommend a combined portfolio for both of us?
The fund choice - I am going to keep the same between mine and wife’s but AA adjustment, we plan to do at different timeframe since she is 4 years younger than I am.
3. I want to do ETF funds for now even though I don’t trade often and am more leaning towards passive investing style. Also, I see there is no minimum investment requirement for VG ETFs so that will be a plus.
4. I want to max out our Roth IRA contributions for both of us.(roughly 14K)
5. We don’t have workplace 401K
6. I did not have a traditional IRA because I don’t know will I be in a lower/higher tax bracket when I withdraw ( I ask your opinion here as well.. not sure if we can still contribute to a traditional IRA if we both max out our Roth IRA contributions. Or do you suggest splitting the investments between traditional and Roth IRA’s ?)
7. I do believe I might have some money that I would like to invest after maxing out our Roth IRA.
8. So, where do I put those extra dollars?

9.
My fund choices are:

VTI Vanguard Total Stock Market ETF
VXUS Vanguard Total International Stock ETF
BND Vanguard Total Bond Market ETF

10.
How do I distribute these funds between my accounts? So far I only have mentioned I have a Roth IRA and I don’t know what other options remain where I can invest the remaining money?

11.
Should I choose/opt for additional/slightly different funds based on what you all are going to recommend where to put my extra dollars after maxing out our Roth IRA’s?

Thanks a lot for your advise!!
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Re: Help me with a three-fund portfolio

Post by Beensabu »

rich1day wrote: Sun Mar 31, 2024 2:07 pm I want to do an 80/20 AA with 70/30 US/INT stock mix
What does your wife want to do?
I want to have separate portfolios for me and my wife coz I think we might want to adjust our AA over different time periods coz I am 41 and she is 37.
That's barely an age difference. If you look at target date funds, each one usually spans a target date range of 5 years. :)

Your AA should be one that you are both comfortable with, not necessarily based on age.
Do you recommend a combined portfolio for both of us?
It seems like most long-term committed couples do a combined portfolio. You don't have to, of course.
...not sure if we can still contribute to a traditional IRA if we both max out our Roth IRA contributions.
You can't.
Or do you suggest splitting the investments between traditional and Roth IRA’s ?
You can if you want to - if any traditional IRA contributions would be tax-deductible, and you want that deduction now more than you want the tax-free growth and withdrawal later. It's up to you.
I do believe I might have some money that I would like to invest after maxing out our Roth IRA. ...So, where do I put those extra dollars?
A taxable account.
How do I distribute these funds between my accounts? So far I only have mentioned I have a Roth IRA and I don’t know what other options remain where I can invest the remaining money?
However you want. You usually want to keep bonds out of a taxable account if you can, and most people say to keep bonds out of a Roth because you want investments with the most growth potential in there. But if what you've got is Roths and taxable, and you want bonds, then you have to put them in either one or the other or both...
Should I choose/opt for additional/slightly different funds based on what you all are going to recommend where to put my extra dollars after maxing out our Roth IRA’s?
Use VEA instead of VXUS and VTEB instead of BND in a taxable account.
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Re: Help me with a three-fund portfolio

Post by bonesly »

rich1day wrote: Sun Mar 31, 2024 2:31 pm 1. I want to do an 80/20 AA with 70/30 US/INT stock mix
So that's
56% VTI
24% VXUS
20% BND
rich1day wrote: Sun Mar 31, 2024 2:31 pm 2. I want to have separate portfolios for me and my wife coz I think we might want to adjust our AA over different timeframe coz I am 41 and she is 37.
please comment on what you all think about this. Do you recommend a combined portfolio for both of us?
The fund choice - I am going to keep the same between mine and wife’s but AA adjustment, we plan to do at different timeframe since she is 4 years younger than I am.
My wife and I have a combined portfolio; we're 3 years apart. Unless there's an age difference of 6 years or more, your time-frame is essentially identical from a portfolio risk management perspective. Subsequently, a 4-year age difference is not a good reason to have separate portfolios for you and your wife. Now if you run all your finances separately (you have your money, she has her money) that's a reason to manage everything separately (my youngest son and his wife do this; baffles me but it's their choice!).
rich1day wrote: Sun Mar 31, 2024 2:31 pm 3. I want to do ETF funds for now even though I don’t trade often and am more leaning towards passive investing style. Also, I see there is no minimum investment requirement for VG ETFs so that will be a plus.
The lack of a minimum initial investment may be a valid point but "more leaning towards passive investing style" is not valid since the ETFs (VTI, VXUS, BND) and the Mutual Funds (VTSAX, VTIAX, VTBLX) are the same index funds, just different share classes; they are all passive index funds, but ETFs are traded like stocks and Mutual Funds are priced once/day after market close.
rich1day wrote: Sun Mar 31, 2024 2:31 pm 6. I did not have a traditional IRA because I don’t know will I be in a lower/higher tax bracket when I withdraw ( I ask your opinion here as well.. not sure if we can still contribute to a traditional IRA if we both max out our Roth IRA contributions. Or do you suggest splitting the investments between traditional and Roth IRA’s ?)
If you're pretty sure your tax bracket will not be lower in retirement, then all Roth is likely the way to go. Given that you will have no tax-deferred accounts, you'll want all your bond holdings in the Roth to avoid the on-going tax-burden of having them in a taxable account which is inefficient from a tax-burden perspective (see Tax-Efficient Fund Placement). It's sub-optimal because you'd ideally put bonds in a tax-deferred account and only ever stocks in a Roth, but you don't have that option (perhaps a future employer will offer a low-cost 401k plan).
rich1day wrote: Sun Mar 31, 2024 2:31 pm 7. I do believe I might have some money that I would like to invest after maxing out our Roth IRA.
8. So, where do I put those extra dollars?
In a taxable account like @beensabu suggested.
rich1day wrote: Sun Mar 31, 2024 2:31 pm 10.
How do I distribute these funds between my accounts? So far I only have mentioned I have a Roth IRA and I don’t know what other options remain where I can invest the remaining money?
This depends on how many dollars are in the Roth and how much is in the Taxable Account. For example, if you had $7,500 in Roth and $1,500 in Taxable, then it might look like this:
Image

The spreadsheet to figure out how to meet an AA across multiple accounts is very simple:
AA Current and Proposed
rich1day wrote: Sun Mar 31, 2024 2:31 pm 11.
Should I choose/opt for additional/slightly different funds based on what you all are going to recommend where to put my extra dollars after maxing out our Roth IRA’s?
I put VOO (Vanguard S&P-500) in taxable, rather than holding VTI in both Taxable and Tax-advantaged so you avoid the potential for Wash Sales.
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Re: Help me with a three-fund portfolio

Post by rich1day »

bonesly wrote: Sun Mar 31, 2024 4:54 pm
If you're pretty sure your tax bracket will not be lower in retirement, then all Roth is likely the way to go.
I am not sure. I would want to ask What is the normal? When people are in retirement, they won’t be earning more than they use to during their employment before retirement correct?

Are tax-deferred and tax-advantaged both the same or are they different? Can you help understand by providing example?
Between these vehicles, Roth IRA, Traditional IRA, 401K, HSA which are tax-advantaged and which are tax-deferred? And is there more that fit into either the classification?

Shall the bond(20%) portion of the portfolio be invested in Traditional IRA instead of a Roth? Do you recommend this?
And once I max out the IRA where do I put the bonds? I believe in a taxable account?

Also, I wanted to ask guidance about investing in a HSA

Finally, based on the answers for the above, can you please lay out a plan like you did earlier?
I am very much obsessed with wanting to getting started

Thanks!
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