World's Simplest 2-Fund Portfolio: VTSAX + VBTLX + Cash
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- Опубликовано: 1 июн 2024
- Looking for the world’s simplest portfolio? VTSAX and VBLTX are two of the best index funds out there, and when combined with some cash, they make a perfect 2-fund portfolio. In this video I explain the rationale behind this strategy, sample allocation by life stage as well as some alternative funds.
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Timecodes:
0:00 - Intro
1:17 - The Tools
2:32 - Why VTSAX?
6:01 - Why VBTLX?
7:28 - Why Cash?
8:53 - Sample Allocation by Life Stage
10:48 - VTSAX & VBTLX Alternatives
13:28 - International Exposure
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DISCLAIMER: I am not a financial adviser. These videos are for educational and entertainment purposes only. I am merely sharing my personal opinion. Please seek professional help when needed.
I am a HUGE fan of JL Collins, your advice sounded so similar so I started watching your videos. I see why now. :) Thank you for sharing that you read his book and I look forward to more of your content.
So glad I found your channel . You made personal finance so simple!
Tae, thanks so much for this. I decided to come back and watch this, and I had forgotten that you had included "phase of life" investment mix recommendations. 75/25 looks right for our situation now. Thanks, again! NB
I liked your opening quote “greatest enemy of a good plan is a dream of a perfect plan” so much, I subscribed.
You doing great job!!!
Thanks Tae, very helpful
Great insight Tae. Can you create a video of the best value Funds in light of the current banking crisis? Would you use a position in a precious metal fund as a hedge?
Makes sense - there are two big classes -stocks, bond (of course cash reserve)...
Excellent content...
Might look into this
Great content 😃
Excellent advice
Great video!
Excellent details
Love it!
This seems like the most straight forward honest way to approach a portfolio. I really need this simplicity. Thanks so much for sharing!
Do you have a video on the transition period? That is, is there a strategy for selling stocks to buy bonds and adjust your portfolio when it’s time?
Can't believe you joined the LIV Tour
Great video. Simple is best.
Thank you!
great video.
Great video. But why can you not reply to your fans' comments below? You don't have very many. Try to answer their questions. Keep them happy.
I love your videos
How did _bonds smooth out a rough ride in stocks,_ 2022? How about speaking to how long it will take to recover from 2022 bond losses.
I have started with SCHD & Voo to go long run. Should i consider add SWTSX or vtsax?
Well said.
This sounds like JL Collins - The Simple Path to Wealth
Thank you for the video.
I started investing back in the 1970s. Two months ago I liquidated my ½ million-dollar stock/bond portfolio to buy my second dream home. I must now start a new investment/savings program. Your two-fund portfolio is a good way to start.
My current 3.25% $250k 4 year bank CD comes due at the end of this month. I'm renewing it at the same bank for 59 mos. at 4.85%. That's 4.85% with no market risk FDIC monthly income of $1k per month I'll add to cover my living expenses in early retirement. This represents 15% my conservative\bond\cash portion of my portfolio. I'll take a FDIC bank CD's near 5% any day of the week over a bond fund.
Synchrony 5.15%
Absolutely. I don't see a reason to waste your time on bonds. Guaranteed bank CDs are superior in almost every way for preserving wealth. Even better if you put them in a credit union and support an institution that gives you some say in how it operates. You just have to be patient and come to terms with the fact that the money is locked down for an extended period of time.
Except you pay taxes on CDs.
Excellent this is the way to go, start young and buy these funds monthly. It took me 40 years to figure this out after investing in all kinds of assets and stocks. This way you don't have to think you just dollar cost average in to the funds and forget about it. Thanks great video I wish knew this when I was 20.
For your Roth buy SCHD and reinvest dividends.
Thanks for this. I’m in my 30s and I think I’m going to go 100% in VTSAX for the next decade, then reallocate when I get to my late 40s.
100%. No no no. Grab sp500 index funds in as well. Look up warren buffets outlook on this. If you want to get rich. Sp500
@@_Delta_P_ why is SPY better than VTSAX?
@@_Delta_P_ vtsax is 99% made up of the S&P 500.
@@_Delta_P_ there’s very little difference between the two but Vanguard also offers an index fund and etf that mirrors the S&P
Occam’s Razor, good stuff.
Great sharing...For roboadvisor managed funds (Wahed for my case), so I should set up two funds based on risk profiling - 1st for aggressive funds (equity, ETF's)and the 2nd for conservative type funds (bonds/ sukuks). As for cash, I have been investing in Malaysian government managed unit trust funds with guaranteed capital preservation and also in Employee Provident Fund (EPF) with guaranteed min 2.5% yearly dividend.
So intriguing. Thank you for sharing.
Thanks Tae, I’m still conflicted about purchasing bond funds. Wouldn’t you do better just buying short-term T-Bills directly from the government?
Hi Tae, Question. What is the equivalent of VTSAX and VBLTX in TIAA? That is the plan my employer works with. I do have a separate Roth IRA that has funds invested in VTSAX and VBLTX but would like to replicate the funds in TIAA.
Great video, Tae. Ever since learning about John Bogle and the loyal boglehead family, I've been a huge fan of Vanguard's index funds. All my retirement savings (IRA and 401K) are in Vanguard index funds. Simply the best!
I have a simpler 1-fund portfolio. It's the best because I'm young, risk tolerant, and extremely lazy
Tbh a 1 fund portfolio with an s&p 500 index fund will outperform 90% of investors
All in on AMC let's go boyz
SCHD if you invest in that your entire working life, by the time you are ready to retire you should be able to live in the dividends, assuming you are putting 60% of your earnings into investments like you should.
Qqq
Covid can stop you in your tracks and make you an old man in a matter of days...never take anything for granted...
How about gold ETF / precious metals or REITS? Any place for them in the portfolio? Great video by the way
Thanks!
Your welcome! Thank you!
Great advice. I have been doing almost exactly this for many years and it has proven to be a solid strategy.
Why use mutual funds vs ETFs? Sometimes mutual funds generate capital gains in a down market due to sales of shares.
That video is so spot on, I just ordered the "Simple path to wealth" by JL Collins 😁
You might consider a high yield online savings account for the cash portion of your portfolio. Ally Bank just raised the interest they are paying on savings to 3.25%. You won't get rich, but every little bit helps.
And Vanguard US Treasury MM Fund is at 3.98%. Their Federal MMF is 4.3%. Check writing is available.
Sounds like John Bogle- great advice
Why be in stocks and bonds at the same time?
Depends on the interest rates
Hi Tae,
Thank you for putting this video together! I prefer to keep it simple as well, and VTSAX is my main holding, since I’m still in the wealth accumulation phase. I would be 100% VTSAX, but the 401(k) doesn’t have that as an option, or a total stock market fund in general. For that account, I’m 100% in a mutual fund that tracks the S&P 500, and I believe the expense ratio is 0.02%.
I've always avoided bonds because they are somewhat complicated to trade. With interest rates going up a little more before we expect the Fed to lower rates would it make sense to invest in bond funds now by dollar cost averaging for when they start to go down. Once the Fed lowers rates would the value of the bond fund increase because they hold bonds at a higher rate than currently available?
thank u for emphasizing cash the good old way cash is always king like u said gives u peace of mind luv it Tae
Is there an ETF version to this approach vive mutual funds?
I’m 23 and I work at vanguard and this is pretty much how our 401k works, we offer the target retirement plan in 5 years intervals (2025,2030 and so on) and it transitions from more of a stock at a younger age to more bonds as we get closer to retirement. The balance for me being 23( 90 stock & 10 bonds). That will change as I age
This is great advice but what if you’re Canadian? What to do?
Helpful! Thank you!
I have had a Vanguard 500 Index and Vanguard Primecap Funds for many years. The problem I have now is how to withdraw from an index fund in the most tax efficient way. My financial advisor and my accountant can't give me an answer. Vanguard has no idea because their records don't go back far enough. But fund shares are taxed differently depending on how long they are/were held. I don't want to trigger an audit because I just closed my eyes and hit the withdraw button. Withdrawing from mature index funds might be a good subject for a new video. Thanks for this video it was very well done.
VBTLX has negative returns over the 5 years. How exactly does VBTLX work? Are you supposed to just get dividends, or do you eventually sell the shares?
This video is phenomenal. Fucking bravo.
How much do you need to start one of these, and how much to actually make money on it every year?
Tae, what's your thoughts on VTABX?
I have been researching for months on how to invest, and this was the most valuable piece of information yet. Fantastic. Thank you
My new 401k is with Principal…what do you recommend for them? I’m not sure what the equivalent would be. Any help is appreciated!
I have my 401k with Principal. I’m invested primarily in the Fidelity S&P 500 fund.
@@Polostar79 I didn’t realize you could get Fidelity funds with Principal…thanks for the info.
Grasshopper, this is true
Not sure I follow the Netflix example for the index fund? it wasn't a top 500 company for the 20 yrs you mention it had 23,000% growth? thus it wasn't in in the index fund until it already soared?
I have this same setup
good info! im thinkn 65% 35% minimum
What about a vanguard target date for even simpler investing? Only .08 expense ratio vs .04-.05 for the funds recommended here
Why not just move the fund allocation each year yourself?
@@franwex that’s kind of the point, why would someone want to manually change it each year? Especially if you want to help friends or family who aren’t interested in learning to manage it themselves. The video title said “world’s simplest” but I’m proposing something that seems simpler.
@@TheKev507 then in that case-it is better to have a target date fund. The price difference is rather small and worth it for that person.
Fine for tax deferred accounts (401, IRA, Roth IRA, etc.). Not great for taxable ("brokerage") accounts due to potential tax surprise from distributions.
@@groberts1780 I assumed we were talking retirement accounts too. That’s a really good point, haha.
Really enjoyed your vlog..I have an old 401k from work…thinkin about opening an IRA in my Schwab acct…and using you Schwab recommendations… I’m 74 and I only take out RMD’s…..$607,000
I like your thesis for the VTSAX. Similar principal applies to other index funds of similar types. Examples: FZROX, FSKAX, SWTSX, VTI, SCHB, and ITOT.
Yes i just changed my employer retirement to FSKAX! Vs the IDX 2045. Over time the FSKAX performs a lot better!!!
@@LayniDaHun Smart!
Hello. What do you think about interest rates going up in the near and distant future? How will this impact the stock market? Are we heading toward a crash any time soon? Thank you.
He would tell you that no one can predict a stock market crash. In act he has told us this in prior videos. Don't try to time the market, it is a waste of time.
This is especially true for people in mid 30s such as myself, the best portfolio is the simplest one you can have, so many people think it's so simple that they are having doubts if that simple portfolio is enough for retirement, but let me tell you from my experience in the market for 15 years. I have tried all sorts of investment / trading, from options, swing, day trade, you name it
I quit all those in 2016 and i went full 3 fund portfolio and have been investing in 3 fund portfolio ever since, and yes, though returns may not be crazy, but i have been the happiest ever since i did that, i don't stress, i don't get overworked! i enjoy my life more with such simple portfolio and knowing that i own the total stock market, i am just at peace
I’m retired so what do I do with my 403b? Am I stuck leaving it there or is there anyway to take that money and invest it in index funds?
@Rachel Dufresne Coincidentally my 403b is invested in what the OP suggested...VTSAX (80%), VBTLX (10%) except I wanted a bit more international exposure so I added VTIAX (10%) = total portfolio. Depends on what financial investment companies your school district selected and whether those vendors sold you mutual funds or annuities. Unfortunately, teachers have been exploited for years! State and local unions have allowed these well known financial companies, who are not fiduciaries (i.e. supposed to act in our best interest), to come into our schools and sell us products to fatten their wallets not ours. Most teachers don't realize this. I was lucky enough to have a father, an average blue collar worker, who was interested in finances and building wealth, to educate me. I started saving for my own retirement and opened a ROTH IRA that I fully funded yearly. The measly limitations the government allowed was better than investing in high cost mutual funds or annuities. So for years I maxed out a ROTH IRA and refrained from investing in a 403b to avoid exploitation until my school district selected a vendor who offered low cost Vanguard mutual funds (hence portfolio above). This, along with my pension, SS, Roth IRA, and stock portfolio I started decades ago thanks to my father, I'm confident about retirement when the time comes. My suggestion...carefully look at what you're invested in before leaving as many of these vultures sold products with astronomical closed end fees. Another suggestion..look up 403b wise. It's a nonprofit organization, helping K-12 teachers since 2000. Hope this helps!
@@jaycee4528 thanks
Did u just read the Simplest Path to Wealth? That's exactly what this book recommends :-)
Bond funds were never meant for zero interest rates. Bonds that were bought before 2008, had ever increasing market values as interest rates went down to zero. People that bought bond funds before 2008 were getting interest plus capital gains, but had to sell in 2021 to lock in gains. People that were buying bond funds in recent years were buying funds that contained bonds with inflated market values, much higher than bond payoff value. They were buying future loss. Most people had no idea of the market values of bonds in their funds. You have to follow the 10yr interest rate to know when to buy & sell bond funds. You cannot blindly buy bond funds and you cannot count on them for security.
Bond funds, in my opinion, is "old school" Instead of investing in a product that continues to slowly LOSE money, put that same money in CD's at different institutions to take advantage of FDIC insurance. Guaranteed to make at least SOMETHING and not lose anything. Again just my opinion but bond funds are NOT what they used to be.
You cannot make money with any CD as they are always less than inflation. You can only reduce the loss of true value.
@@dougturk7116 Maybe you are looking at CD's wrong. A person needs multiple streams of income and CD, Bonds, Closed End Funds, Dividend Stocks, all do that. We all need income and income investments are the only things I invest in. CD's are just a part of the picture. The key is having enough diversified income to cover your living expenses plus extra income to reinvest for the future. As long as my investments cover my expenses and still growing, I am OK with that.
@@miken7629 Hey, it’s your money so if you’re happy with investing in CDs to beat inflation that’s all that matters!
@@hankhamelin329 you don’t know what you’re talking about
Great video. The biggest mystery to me is still international. You make a sound explanation on VTSAX giving International exposure indirectly, yet almost all financial books have a different take on this and strongly advise investors to include international funds. Which is it?
VTIAX
VTSAX international sibling.
Remember - most of the S&P500 companies are multinational so investing in international/emerging market funds is often not an advantage. 🤔
@@MTtroutfisher406 my thoughts exactly. Yet many experts don’t fully buy into this notion.
Direct international exposure would obviously be stronger than indirect exposure.
The problem is the s&p 500 has outperformed international funds but a substantial amount for 30 some years. Some people think international is somewhat "due" to outperform domestic stocks, and the us market if inflated. While others, like myself, just don't believe that will be the case for any significant period of time. International funds just seem to always underperform. There seems to be no use for them.
IMO.... you could pick anything that's broad and stick with it....even SCV. You'll get times where one is doing better than the other but will do ok. Gotta watch for Japan like bubbles though but hard to do on large market like US and when it does bubble it grows out of it after several years.
Awesome Info! Glad I found this I’m 43 yes old & invested 80% VTSAX & 20% VBTLX.
Can you do a video where you do a deep dive into VBTLX (I.e how total bonds market functions, the benefits of having it in your portfolio etc…)?
I watched one of your videos today… I liked it… Especially the part where you talked about the importance you feel of having cash. So do I. I would like to hear more about this. I totally agree. I have had years with the cash for a while and it is like speaking a different language or some thing. I am in my 50s and have lived my whole life in debt. It feels F’ing amazing! Let’s hear more about that plan! 👍
You can also put your cash in certificate deposits and treasury bills. This gives you the opportunity to get your cash to grow. Using a CD ladder, you can choose CDs that mature every 3 months.
Interest rates on them have improved in the past year but they were very poor for more than a decade.
CDs are taxed by the state?
@@blockaderunner If your state has an income tax, yes.
ty
What is the point of VTSAX transaction costs vs. VTI???
why a mutual fund instead of voo etf?
Liked! I'm unsure of how bond works so I'm kind of reluctant to own one. Currently, I don't have any bond in my portfolio but I kept seeing folks said it's good to have some bonds. Since VBTLX is a mutual fund/bond, does it still behaves like the normal MF where I can just contribute/sell whenever I wanted or do I have to wait until it reaches the maturity date to add/sell?
You can contribute or sell VBTLX at any time for its market value just like any other mutual fund.
The most important thing is low fees. Most funds dont outperform the index fund. Just biy a index fund
In Sept of 2015. I put 10K in each of these funds: VBTLX (bond fund), VTSAX (total market fund) and VTIAX (Total international Stock fund). Today, my VBTLX holding is worth $10,696. VTSAX is worth $23,200, and VTIAX is worth $15,000. I sure wish I had put it all in VTSAX!
I did something very similar to this, and my result is same. It even outperforms others despite the stock taking beatings over the last year.
To me, you don't need to put too much on Bond and International. Just stick to US market. You'll do good.
That's entirely the wrong investing mentality. Don't chase returns - decide on what your risk tolerance is, and diversify to try and capture market risk as a whole. Why were you 33% bonds, and 50/50 US/International? Was there a good reason for that split, or did you just decide to evenly split your contributions between them because you didn't know what you wanted to do?
The simplest portfolio is a target date fund. Your portfolio is highly concentrated in the US market. According to Vanguard, the US market is forecasted to return only 4.7%-6.7%, while non-US markets are expected to return 7%-9%. Every investor's equity should have around 40% exposure to non-US markets.
Vanguard has been saying this for years. Nobody, not even Vanguard, knows what the future holds. Just pick a strategy and stick to it
Thank you Sir. This is a great foundation to build and hold financial wealth. I have these two funds at a very similar percentage in my portfolio.
How'd this portfolio build do this year? Probably not well.
If you only invested this year and then exited the market completely. You're doing it wrong.
My two funds. S&P 500 and Small Cap both Vanguard. All equity.
And no debt. I also have cash.
I can afford the all equity approach because I don’t plan on using the money for another 15-20years. Will switch to some bonds in retirement.
I watch my share of RUclips videos but rarely comment. Been investing > 20 yrs. and have done well with the KISS (Keep it Simple Stupid) method.
This is a fantastic video that emphasizes this point. Great job, Tae.
What’s your view on index funds such as Vanguard life strategy 80? For an expat living in Dubai looking to retire in Europe in 25 years. Great channel, thanks for the content.
Big fan of your videos. What about those of us that have pensions in relation to bonds? Can pensions take the place of bonds? Those of us that have pensions should be not invest in bonds at all?
I completely agree!
I have a modest GE pension and I treat it like Social Security and that is it doesn't impact my investment mix.
My company recently moved their 401K from Merrill Lynch to Vanguard and I chose Target Date funds for it and a Roth IRA and I use my pre-existing Vanguard brokerage account for proven dividend stocks and some speculation.
I wouldn't consider a pension as a substitute for the bond portion of my portfolio. Different animals entirely.
As a couple we became fully retired one year ago 2021. October 2020 my husband wanted to go to 8 years of cash, incase the world went into a repeat of the Great Depression. I was absolutely in agreement, I love the mix of cash, stocks, bonds, and CDs etc. Since going to about 1/5 of our retirement funds to cash, I would often read that cash was a mistake by the TV and internet professionals. Of course I did not agree with them, some portion of cash is King in our minds. By spring of 2021 the professionals were advocating cash for a coming recession. A little late in my mind. I just found Mr Kim, love his thought. Keep it simple and save!!! Ree
That worked out great for you both, as cash is paying quite well these days.
Shiiiiiit, when the 20s i was rich AF but really broke AF.
Took a lot of saving in 30s to get back.
Best pay is 40 and 50s. If you can remain employed.
VTSAX has over 4,000 companies in it which is crazy & their Top 10 holdings mirror many other funds out there today. Many would do far better looking at blending a solid dividend SMA along with some small & mid cap added in along with bonds as they age.
This may be a stupid, question, but what good does having 10-20% in bonds do for your portfolio? It doesn't seem to offer much safety
You could live a couple of years off that if the market crashes.
@@ThhVkk The real benefit to bonds, and treasuries in particular, is the negative correlation to the returns of stocks. So when one is up, the other is down, making for a somewhat smoother ride. Since 2008 rates have been extremally low, making bonds look like horrible options. But up until 2008, treasuries were paying 5-6% for 10 yrs and were viable options to counter weight your stock portfolio. If you are young bonds probably shouldn't be in your portfolio. If you are near retirement or in retirement they may serve a more limited purpose than they once did.
Also, rates are up right now so bonds can be more attractive, but most likely that will be gone in a couple years and we will be back to low rates.
how about instead of total bond, buy tbills ladder
Hmm. Wouldn’t you be better off with duration for long term? Tbills are good for a couple of years.
I've been in a 65/35 mix with these 2 funds thru my 40's, 50's and now 60's. I do have ±10% in Vanguard International Fund equivalents... I'm down 25% in 2022, which is of course, very scary when you have just recently retired, but I plan to execute 3 large/high-tax Roth conversions likely Q2/Q3. I know that kind of sounds like market-timing, and it is, but it's just repositioning from TAX to nontaxable IRAs. The problem is taking the tax hit and pulling that tax money out of the growth model.
I’ve been doing a lot of Roth conversions too, by transferring shares directly from my regular IRA into my Roth one, and paying the tax with quarterly Estimateds out of my taxable account. Taking advantage of the down market, but without selling stock to do it, except sometimes a few shares to pay the taxes.
@@margaretmarshall3645 Hi and thanks for the reply! Quick question, I've been using TURBO TAX while doing my Roth conversions. But I've noticed that TURBO TAX does not tell me about the quarterly tax that I should be paying. I've just been relying on the IRS to penalize me after filing, and then I simply pay interest on the non-paid tax, but I would rather pay the tax quarterly as you are doing. Can you tell me where to look to understand the quarterly tax process calculation and payment process? Thanks.
Index Bubble ....true/false...your thoughts?
great video, simple and easy to manage
Bonds??
I began my investment journey at the age of 38, primarily through hard work and dedication. Now at the age of 42, I am thrilled to share that my passive income exceeded $100k in a single month for the first time. This success reinforces the importance of the advice mentioned earlier. It is not about achieving quick wealth, but rather ensuring long-term financial prosperity
Investors should exercise caution with their exposure and exercise caution when considering new investments, particularly during periods of inflation. It is advisable to seek guidance from a professional or trusted advisor in order to navigate this recession and achieve potential high yields.
This is superb! Information, as a noob it gets quite difficult to handle all of this and staying informed is a major cause, how do you go about this are you a pro investor?
Through closely monitoring the performance of my portfolio, I have witnessed a remarkable growth of $483k in just the past two quarters. This experience has shed light on why experienced traders are able to generate substantial returns even in lesser-known markets. It is safe to say that this bold decision has been one of the most impactful choices I have made recently.
Wow, that’s stirring! Do you mind connecting me to your advisor please. I desperately need one to diversified my portfolio.
I’ve actually been looking into advisors lately, the news I’ve been seeing in the market hasn’t been so encouraging. who’s the person guiding you?
Nice foundational plan. I've been doing similar, with equity Income - instead of bonds, and large cap index, to round it out. I also have more aggressive growth, and aggressive income ETFs.
Bargain basement prices for many investments, great time to buy and hold. IMO.