Two-fund portfolio

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Investors who want a simple asset allocation portfolio often use a two-fund portfolio. This consists of one equity index fund and one fixed income fund. The fund selections can vary depending on asset class (global equity or domestic equity, and bond type), and asset type (mutual fund, exchange-traded fund (ETF), and collective investment trust (CIT)).

Global two-fund portfolios
Rick Ferri has proposed a two-fund portfolio consisting of the following asset classes:
 * A global stock market index fund/ETF
 * A US intermediate term bond index fund/ETF

He suggests a US total market bond index fund/ETF for the fixed income selection. However, you can substitute a global bond index fund/ETF, a US intermediate-term bond index fund/ETF, a US intermediate-term treasury bond index fund/ETF, or a US municipal bond index fund/ETF for the fixed income allocation. You may also find that employer-provided retirement plans will use collective investment trusts as investment vehicles.

You can adjust Rick Ferri's two-fund portfolio to reflect any stock/bond allocation. The charts below show suggestions for different asset allocations.

Global two-fund portfolio allocations

US-only two-fund portfolios
Both John Bogle and Warren Buffett have recommended portfolios for investors who want to invest in US domestic stocks and bonds.

John Bogle's two-fund portfolio
John Bogle has often suggested that an investor can use one total US stock market index fund and one total US bond index fund. He has also suggested that an intermediate-term bond index fund, or a low-cost intermediate municipal bond fund can be used for fixed income allocations. You can allocate the portfolio in various stock/bond allocations, as shown in the charts below.

John Bogle's two-fund portfolio allocations

Warren Buffett's two-fund portfolio
Warren Buffett has suggested a two-fund portfolio consisting of a 90% allocation to an S&P 500 index fund and a 10% allocation to treasury bills.

You can purchase treasury bills in a brokerage (or Treasury Direct) account, where investors tender a noncompetitive bid at auction. You can also use a treasury money market fund, or an ETF investing in 1 to 3 month bills for access to the treasury bill market.

However, you are free to substitute an intermediate bond fund (total bond, intermediate bond, treasury bond, or municipal bond) for the t-bill allocation if desirable. Many employer-provided retirement plans offer S&P 500 index funds or collective investment trusts.

You can also choose to allocate the Buffett two-fund portfolio to various stock/bond allocations.

One balanced index fund portfolio
You can also build a two-fund portfolio by investing in a single balanced index fund. For example, Vanguard, Fidelity, and Charles Schwab offer target date retirement index funds that provide access to global stocks and intermediate bonds. Vanguard also offers global target risk balanced index funds (the LifeStrategy funds). Vanguard's funds provide access to both global stocks and global bonds. Fidelity and Schwab's target date offerings provide access to global stocks and US bonds.

Vanguard offers a US Balanced Index Fund, consisting of a 60/40 stock/bond allocation using a total US stock market index allocation and a total US bond market index allocation.

Because of tax implications, it is often recommended that balanced index funds are used in tax-deferred and tax-free investment accounts.