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3 Simple Model Portfolios For DIY Index Investors

I recommend three portfolios for DIY index investors that can make investing simpler and cheaper. Plus, they could very well outperform more expensive portfolios.

Model Portfolios For DIY Index Investors

Table of contents

    Your investment portfolio doesn’t have to be complicated. In fact, when it comes to long-term investing, as with many things, simpler is often better.

    If you’re new to investing, this should come as a relief.

    Ever since I opened my first IRA at age 22, I’ve been frustrated by the perpetually-growing oceans of investing “advice”.

    Inundated with too much advice—some of it contradictory—you may easily experience decision paralysis and do nothing. Although sometimes it’s proper to do nothing (such as waiting out a down market), sitting idle is a terrible outcome when it means you leave money uninvested.

    Today, I want to give you three super-simple portfolio ideas that are perfect for a traditional or Roth IRA or even a taxable investment account. These investing strategies emphasize simplicity and low expenses while ensuring diversification through total-market index funds.

    The best part? These cheaper, simpler portfolios may very well outperform fancier, more expensive portfolios.

    What about a robo advsior?

    Robo advisors make investing as easy as possible, but charge fees that you don’t pay if you build your own portfolio.

    They’re the easiest option

    For investors looking for the simplest possible way to set up an IRA or stash extra savings in a taxable investment account, robo advisors provide a welcome option.

    Often, the only decisions to make when you open a robo advisor account are how much to invest and how long you plan to leave your money invested. (The robo advisor will calculate your ideal asset allocation for you based upon that and your answers to a few easy simple questions.)

    But, there are fees

    Robo advisors will invest your money into the same or similar mutual funds we recommend below, but they will charge you additional fees for the services they provide, which include automatically rebalancing your portfolio and, in taxable accounts, harvesting losses to reduce your taxable capital gains.

    Fees vary by company and account size, but 0.25 percent a year is a good example. That means you’ll pay $25 a year for every $10,000 invested to the robo advisor. That’s in addition to the expenses charged by the underlying mutual funds. That may not seem like a lot now, but due to compounding, the fees can add up to tens of thousands of dollars over your lifetime.

    If you do want to head in the direction of a robo advisor, we’re currently really liking what Betterment has been doing. There are no minimum starting balances, so you can start investing with the $5 you find behind your couch. They have low fees, and and they’re a great way of getting your foot in the investing door. Check them out here or read our full review here for more information.

    The Vanguard 3-Fund Portfolio

    Vanguard founder John Bogle is the Godfather of the low-cost index investing movement. Although you see it everywhere today, indexing was once a radical idea. Nobody believed that purchasing a bit of every stock could be as successful as paying a professional to make big bets on a few winning companies.

    Now, studies show that not only was indexing as successful as active investing, it actually generated higher returns after adjusting for expenses.

    Variations of the following Vanguard “lazy portfolio” have been famous for decades, however, they remain compelling for their unrivaled simplicity.

    Recommended portfolio

    • Vanguard Total Stock Market Index
    • Vanguard Total International Stock Index
    • Vanguard Total Bond Market Index

    Total Stock Market Index Fund and Total Bond Market Index Fund

    The classic Vanguard two-fund portfolio consists of the Vanguard Total Stock Market Index Fund and Vanguard Total Bond Market Index Fund.

    The great thing about a two fund portfolio is that allocating your assets couldn’t be easier: Whatever your target stock/bond allocation, that’s the percentage of your portfolio you put into each fund. If it’s 50/50, you own equal amounts of each fund.

    Vanguard Total International Stock

    Although the two-fund portfolio works, I recommend adding a third fund to the mix—the Vanguard Total International Stock Market Fund. That’s because the Total Stock Market Fund holds only U.S. stocks, and exposure to foreign stocks is important, especially for investors with a long time horizon.

    There are many reasons to add international stocks to your portfolio, but there’s one that’s so big you can’t ignore. Market returns are the result of growth. Think of a company like Apple that started in a garage and is now one of the three most valuable companies in the world. Most companies will never achieve such a trajectory, and trying to predict which ones is a fool’s errand. Instead, you want your portfolio to be exposed to sectors of the market that have a high potential for growth. And that’s where international stocks come in.

    The U.S. is a highly-developed country. Breakout companies may still happen when radical technology is involved, but with so many of citizen’s needs adequately met by existing companies, there’s little room for average companies to grow exponentially. Contrast this with a country that’s still developing where there is still a need for roads, rail, power and gas lines, hospitals and basic medicines, and more diversified consumer products. Growth may not happen there overnight, but you know the potential is there and, over time, companies serving those countries are going to get a lot bigger as their economies develop.

    The downside, of course, is that foreign stocks are typically more volatile. You’ve got to deal with currency risks, political unrest, natural disasters, and myriad other factors that can wreak havoc with intentional stock valuations in the short-term.

    Do you want foreign stocks in your portfolio? Yes. How much of your money should you invest abroad? Probably between 15 and 30 percent, but never more than 40 percent.

    ETFs or mutual funds

    Here’s the 3-fund Vanguard portfolio. You can choose to purchase these funds either as exchange-traded funds (ETFs) or mutual funds.

    If you have at least $10,000 to invest in any single fund, you can purchase Vanguard Admiral Shares which come with a lower expense ratio. I prefer mutual funds because there’s no commission to buy or sell shares and you can transact in any dollar amount. When it comes time to sell, ETFs trade in real-time, whereas mutual fund redemptions take at least a day to process.


    Allocation is a very personal decision based upon your age, investment horizon, and risk tolerance. If this were my portfolio and I invested it in an IRA for a traditional retirement age of about 65, I would use the following allocations:

    Age 25

    • 40% Vanguard Total Stock Market Index
    • 40% Vanguard Total International Stock Index
    • 20% Vanguard Total Bond Market Index

    Age 40

    • 40% Vanguard Total Stock Market Index
    • 25% Vanguard Total International Stock Index
    • 35% Vanguard Total Bond Market Index

    My experience with Vanguard

    Just a few years ago, Vanguard would be my sole and unequivocal recommendation for where to build a portfolio of lost-cost index funds. Today, competitors have made huge strides in offering funds that match and increasingly beat Vanguard’s expense ratios.

    Another thing to keep in mind is that, as an already big company, Vanguard has experienced explosive growth over the last 10 years as investors shift to index funds. Although I haven’t experienced it personally, I read a lot of gripes about Vanguard’s customer service, especially from customers with smaller accounts.

    Open a Vanguard account today

    Fidelity 5-Fund Portfolio

    Here’s a simple Fidelity portfolio idea using six of these commission-free iShares ETFs.

    Why six instead of only three? Well, we’ve upped the funds on this one to provide a slightly more tailored portfolio while maintaining the spirit of simplicity.

    Recommended portfolio

    • iShares Core S&P Total US Stock Market
    • iShares S&P Small Cap 600 Value
    • iShares Core MSCI Total International Stock ETF
    • iShares Core US Aggregate Bond
    • iShares Core 1-5 Year USD Bond ETF

    While the Core S&P Total US Stock Market is similar to Total Stock Market, adding the S&P Small Cap 600 Value fund adds exposure to smaller stocks that are underrepresented in total stock market funds.

    You want exposure to these small stocks because of the growth potential. It’s easier for a $100M company to grow 1,000 percent to become a $1B company than it is for a $10B company to grow by the same percentage to become a $100B company.

    In the Fidelity portfolio you’ve got the Total International Stock ETF for foreign exposure, and then two bond ETFs. The 1-5 Year USD Bond ETFs rounds out the US Aggregate Bond ETF with shorter-duration bonds. This fund provides stability in volatile markets. A very young investor could be fine without this fund in an IRA, but I would add it in when you near 25 years from retirement.


    Age 25

    • 20% iShares Core S&P Total US Stock Market
    • 20% iShares S&P Small Cap 600 Value
    • 40% iShares Core MSCI Total International Stock ETF
    • 20% iShares Core US Aggregate Bond
    • 0% iShares Core 1-5 Year USD Bond ETF

    Age 40

    • 35% iShares Core S&P Total US Stock Market
    • 15% iShares S&P Small Cap 600 Value
    • 20% iShares Core MSCI Total International Stock ETF
    • 15% iShares Core US Aggregate Bond
    • 15% iShares Core 1-5 Year USD Bond ETF

    My experience with Fidelity

    I have accounts with both Vanguard and Fidelity, and am liking Fidelity more and more. I think they’re excellent choice for investors of all experience levels.

    In addition to a robust but user-friendly online experience, I find Fidelity’s customer service is consistently good. To top it off, Fidelity offers over 200 iShares exchange-traded funds commission-free, making it a great place to begin building your own portfolio with any dollar amount.

    Open a Fidelity account today

    Schwab 6-Fund Portfolio

    As a final option, here’s a similar 6-fund profile available at Charles Schwab.

    Recommended portfolio

    • Schwab US Large Cap ETF
    • Schwab US Small Cap ETF
    • Schwab International Equity ETF
    • Schwab Emerging Markets Equity ETF
    • Schwab U.S. Aggregate Bond ETF
    • Schwab Short-Term US Treasury ETF

    In this example, we add an Emerging Markets ETF to the international exposure. This increases the risk/reward of the portfolio. Among international stocks, those in developing/emerging markets have the highest growth potential, but also the most risk from monetary and political instability.


    Here are my sample IRA allocations for this portfolio:

    Age 25

    • 20% Schwab US Large Cap ETF
    • 20% Schwab US Small Cap ETF
    • 20% Schwab International Equity ETF
    • 20% Schwab Emerging Markets Equity ETF
    • 20% Schwab U.S. Aggregate Bond ETF
    • 0% Schwab Short-Term US Treasury ETF

    Age 40

    • 35% Schwab US Large Cap ETF
    • 15% Schwab US Small Cap ETF
    • 10% Schwab International Equity ETF
    • 10% Schwab Emerging Markets Equity ETF
    • 15% Schwab U.S. Aggregate Bond ETF
    • 15% Schwab Short-Term US Treasury ETF

    Open a Charles Schwab account today


    If you’re new to investing or have been in the market for years but are checking in to make sure you’re on the right track, know that ANY of the above-mentioned portfolios are just fine (including a roboadvisor).

    If you already have a preference for Vanguard, Fidelity, or Schwab, you can safely just pick the portfolio at your favorite broker. Otherwise, it’s totally a matter of personal opinion. It’s possible to keep a Vanguard portfolio extremely simple, but Fidelity and Schwab are a bit ahead when it comes to their online experience and (possibly) customer service.

    Read more

    Start investing today

    Low-fee roboadvisor with no minimum investment. Creates fully-automated portfolios based upon your desired allocation.

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    For investors looking for a one-stop full-service broker, Fidelity offers thousands of direct mutual funds, commission-free iShares ETFs, and reasonable $4.95 stock trades.

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    About David Weliver

    David Weliver is the founding editor of Money Under 36. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


    We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 36.

    1. Aaron Kozick says:

      If the Fidelity portfolio has all iShares products in it, then should this be listed as a Blackrock portfolio. You can trade iShares at multiple Brokerage firms, so do not see the connection to Fidelity based portfolio.

      • Dave Berg says:

        iShares are commission free at Fidelity. They may be elsewhere, but that’s my thought on the author basing it as a Fidelity portfolio. However, Fidelity now has some zero fee funds that could be substituted, such as Fidelity Zero Total Market Index fund (FZROX) and the Fidelity Zero International Index fund (FZILX)

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