The Ideal Portfolio

Let's suppose you're a young person with a stable income. You're reasonably comfortable with short-term volatility. How should you invest?

Allocate your assets thus:

  • 60% domestic stocks—Vanguard's VTSMX/VTSAX or similar.
  • 15% international stocks—Vanguard's VGTSX/VTIAX or similar.
  • 25% bonds—Vanguard's VBMFX/VBTLX or similar.

This allocation is the classic three-fund portfolio. It's simple, effective, and doesn't need much attention. Rebalance it every year or so, selling off funds that are up and buying funds that are down to re-establish your desired allocation.

Ensure that your bonds are kept in tax-advantaged accounts—bonds pay dividends, and keeping them in tax-advantaged accounts allows you to defer paying taxes on those dividends.

These suggested funds are all index funds, so only a bare minimum of money will be spent on fees.

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