A Toy Portfolio Designer

This is a toy that designs investment portfolios. It is based on the culture of investing typical of the Bogleheads: low cost, low turnover, top-down asset allocation, mostly index funds, and a strong intent to buy/hold/rebalance. Oh, and we kinda like Vanguard. Sort of a lot: they're low-expense, put investor benefit first, and are essentially organized like a non-profit, so they're never trying to squeeze you on fees to raise their profits. The portfolios this simple-minded tool can generate are in fact almost all Vanguard index funds. Even the 2 funds that are not technically index funds are low turnover, low expense ratio, and low style drift, which makes them index-like.

The general idea is to force you to make the most important decisions, and drive the portfolio design from there:

• The most important decisions are things like the overall stock/bond ratio, the domestic/foreign stock ratio, and so on.
• It won't let you make dumb decisions like:
  • Using long-term bonds, or
  • Using growth stocks, or
  • Using unreasonable sector funds.
  • Some dumb decisions like 100% REITs, or 0% bonds, are of course still possible, so caveat lector.
  • Somewhat more marginally: it does not use VBMFX, the Total Bond Market Index Fund. That involves mortgage-backed securities, against which there was some animus even before the 2007-2008 financial meltdown, due to negative convexity.
• Of course we are also vastly oversimplifying by ignoring taxes, and the effect of asset placement in taxable vs tax-deferred vs tax-free accounts.
• You can, however, fiddle around the edges with things like short vs intermediate bonds, the use of TIPS for inflation protection, the use of REITS, and tilting to capture the value & small-value premia.
• Most of these funds have frequent trading restrictions, and some may have large minimum acount sizes too. Cope.

The original inspiration was some work by Rick Ferri, describing a benchmark portfolio he called the "Core 4". It's 4 index funds, covering bonds, REITs, US stocks, and international stocks. I used it as a benchmark to compare against my own portfolio for a year or so. I eventually realized that the difference between my portfolio and this simple benchmark were due to a very small list of decisions. Those decisions could be phrased as simple questions, for which each set of answers implied a unique portfolio. Depending on your answers, you could have as few as 1 fund, or a many as 9.

Core 4 Portfolio:

Set bonds to suit your risk tolerance, TIPS to 0%, bond term to intermediate, REITs to 10%, foreign to 40%, and don't check small & value tilt.

A 3-fund total markets portfolio:

Set bonds to suit your risk tolerance, TIPS to 0%, bond term to suit your risk tolerance, REITs to 0, foreign to suit your preference, and don't check small & value tilt.

A fully-tilted portfolio of 9 funds:

Set bonds to suit your risk toplerance, TIPS to 50%, bond term to suit your risk tolerance, REITs to 10%, foreign to 40%, and check small & value tilt.

Got all that? Ok, here's the form, all 6 crummy questions of it:

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Disclaimer: This web page is intended solely for education and entertainment. Nobody but you takes any responsibility for whatever you do to your own finances (or, for that matter, your education and entertainment). No attempt has been made to account for taxes; in a taxable account this would all look very different. While some of the portfolios you can generate here may be reasonable, many will not be. Either learn to tell the difference yourself, or consult a fee-only financial planner. Non-US investors will have to look elsewhere — for which we apologize — as most of these funds are not available outside the US; there may be similar ETFs available.