Vanguard ETF Portfolio Allocation for Long-Term Success

Building a long-term investment portfolio with Vanguard ETFs can be a straightforward process. By allocating your investments across a range of asset classes, you can create a diversified portfolio that can help you achieve your financial goals.

A 60% stock and 40% bond allocation is a common starting point for many investors, as it provides a balance between growth and stability. This allocation can help you ride out market fluctuations and generate steady returns over time.

Investing in a mix of domestic and international stocks can also help you tap into different economic growth drivers and reduce your reliance on any one market. For example, the Vanguard Total Stock Market ETF (VTI) tracks the US stock market, while the Vanguard FTSE Developed Markets ETF (VEA) tracks developed international markets.

By spreading your investments across a range of sectors and industries, you can also reduce your exposure to any one particular company or sector. This can help you avoid significant losses if one of your investments experiences a downturn.

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Creating a portfolio with Vanguard ETFs can be a straightforward process. Consider looking at portfolios from other ETF-type investors, like Mike Piper, aka Oblivious Investor, who has designed eight sample portfolios using Vanguard funds.

One of Mike's seven-fund portfolios includes a mix of large-cap, international, fixed income, small-cap value, small-cap international, and real estate investment trusts (REITs). This portfolio is intriguing because it includes value stocks and small-cap stocks, which have historically outperformed the general market.

A general rule of thumb for allocating your money is to subtract your age from 110 to determine the percentage of your assets that should be in stocks. For example, if you're in your early 40s, you should keep about 70% of your money in stocks.

To create a diversified portfolio, consider using a combination of ETFs that track different asset classes, such as the S&P 500, small-cap stocks, international stocks, fixed income, and real estate. Here are five Vanguard ETFs that can form a solid portfolio backbone:

By using a combination of these ETFs, you can create a low-cost, diversified portfolio that meets your investment goals.

Portfolio construction is a crucial step in creating a Vanguard ETF portfolio. A correlation of +1 between two assets means their returns move in perfect synchrony, implying similar performance in different market conditions.

To create a well-diversified portfolio, consider using a combination of five ETFs, such as Vanguard's S&P 500 ETF (VOO), Vanguard Small-Cap ETF (VB), Vanguard International Stock ETF (VXUS), Vanguard Real Estate ETF (VNQ), and Vanguard Total Bond Market ETF (BND). These ETFs provide exposure to various asset classes, including domestic and international stocks, real estate, and fixed income.

Here are the five Vanguard ETFs that can be used to create a long-term investment portfolio:

If you're looking to create a diversified portfolio with just a handful of ETFs, consider using a combination of low-cost index funds from Vanguard and other reputable providers.

A good starting point is to use a general S&P 500 index fund as the backbone of your portfolio, such as the Vanguard S&P 500 ETF (VOO) with an expense ratio of 0.13%.

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You can also add exposure to small-cap stocks, international stocks, and fixed income with other ETFs, like the Vanguard Small-Cap ETF (VB) and the Vanguard Total Bond Market ETF (BND).

To create a more diversified portfolio, consider using a combination of five ETFs, such as the Vanguard S&P 500 ETF (VOO), the Vanguard Small-Cap ETF (VB), the Vanguard International Stock ETF (VXUS), the Vanguard Real Estate ETF (VNQ), and the Vanguard Total Bond Market ETF (BND).

Here's a breakdown of the five ETFs I'd use to create a portfolio:

These ETFs can provide a solid foundation for a long-term investment portfolio, and can be easily managed and rebalanced as needed.

Mid-Cap options are a great way to diversify a portfolio. The Vanguard U.S. Multifactor Admiral fund (VFMFX) is an actively managed mid-cap blend fund that has top quintile returns for its category.

It's worth noting that this fund has a low expense ratio of 0.18%. The Vanguard Mid Cap Index Admiral fund (VIMAX) is a passively managed option that tracks the CRSP U.S. Mid Cap index and is used in AAII’s Asset Allocation Models.

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Investors who prefer ETFs can consider the Vanguard U.S. Multifactor ETF (VFMF), a mid-cap blend option with A+ Investor Grades of A on its year-to-date and three-year and five-year annualized returns. This actively managed fund invests in U.S.-listed stocks with strong recent performance.

The Vanguard U.S. Multifactor ETF and the Vanguard U.S. Momentum Factor ETF (VFMO) are both mid-cap options with strong performance. The Vanguard U.S. Multifactor ETF has the smallest level of assets, at $281 million.

On a similar theme: Dimensional Fund Advisors Small Cap Value

Mike Piper's seven-fund portfolio is an example of a well-diversified investment portfolio that includes a mix of asset classes.

Large-cap stocks make up 20% of the portfolio, allocated to the Vanguard 500 Index Fund (VFINX/VOO).

International stocks are also 20% of the portfolio, allocated to the Vanguard Total International Stock Index fund (VGTSX/VXUS).

The portfolio includes two fixed income allocations: 15% to the Vanguard Total Bond Market Index Fund (VBMFX/BND) and 15% to the Vanguard Inflation-Protected Securities Fund (VIPSX/TIP from iShares, no Vanguard equivalent).

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These allocations demonstrate the importance of diversification in a portfolio.

Here's a breakdown of the portfolio's asset allocation:

A rolling return is a measure of investment performance that calculates the return of an investment over a set period of time, with the starting date rolling forward.

This approach can provide a more accurate representation of the investment's historical performance and helps investors evaluate the investment's consistency over time.

The Vanguard S&P 500 ETF (VOO) has averaged a 10% annualized return since 1965, making it a reliable choice for long-term investments.

To put rolling returns into perspective, let's consider a balanced strategy like the one outlined earlier, which includes a mix of ETFs from Vanguard. This strategy has historically produced returns of around 7% annualized over long periods.

Here's a rough estimate of what you could expect from this strategy:

Keep in mind that past performance is not a guarantee of future results, but this strategy has shown consistent returns over the long term.

Seasonality plays a significant role in portfolio management, and it's essential to understand how it affects investment decisions.

Investing in the Bogleheads Four Funds Portfolio during certain months can be more beneficial than others.

The time period from January 1985 to December 2024 shows that the Average Return and Gain Frequency (Win %) can be useful indicators of past performance.

Considering these metrics, it's better to invest in the Bogleheads Four Funds Portfolio in months with historically high Average Return and Gain Frequency.

The specific months that offer the best investment opportunities are not explicitly stated, but analyzing the past performance can help identify trends.

Related reading: Bogleheads Portfolio Allocation