After reading AssetClasses we can then start to think about Asset Allocations, i.e. of these AssetClasses what should we own, how much, and should we change our allocation over time?

Pick an Asset Allocation below and buy the fund across all of your accounts. If you are a nerd, you can optimize placement to save taxes, but for most of us it's probably not worth the hassle.

100% CASH(USD)

100% Total US Bonds

100% US Long Term Treasuries

100% US TIPS

20% Stocks / 80% Bonds

30% Stocks / 70% Bonds

40% Stocks / 60% Bonds

50% Stocks / 50% Bonds

60% Stocks / 40% Bonds

It should be noted if you add up all the stocks and all the bonds in the world you would end up with a 60/40 portfolio, so this could be considered the "default" portfolio. And you would go up or down from here, based on your "risk tolerance" (i.e. need and ability to take risk).

70% Stocks / 30% Bonds

80% Stocks / 20% Bonds

Technically FFNOX is an 85/15 fund, but it's close enough(and cheap enough) to be listed here, the difference won't matter over ones investing lifetime.

100% US Stocks

100% Global Stocks

It should be noted that this data is only for the past 13 years, and the Average annual return will likely go down and the Longest Consecutive Loss will likely go up over longer time frames. Over the same 13yr period, US stocks returned 15.96% Average annual return

Other Asset Allocations that are common:

Five Factor / Factor investing.

Academics( have been trying to explain how the public stock markets work. Their goal is to explain 100% of the public stock markets. In the 1970's academic literature was able to account for roughly 2/3rds of public market returns. In the 1990's 2 guys(Fama and French, Nobel prize winners) figured out a 3 factor model in 1992 that theoretically explains almost 90% of the market.

Today, in the 5 factor model papers, they are able to explain 95% of the public market's returns. This sounds AMAZING. If we KNOW empirically that we can reliably make 95% of the market with effective no work and no risk, who wouldn't take the deal?

Since the 5 factor model, academics have gone crazy for factors and are publishing new factors every other day trying to finish it off and explain the remaining 5%. So far none of these other "factors" have been even remotely provable. The 5 factor model so far has held up to scrutiny and it's likely mostly true, but so far WHY it's true is still up in the air, this paper says:

Across several tests we find no supporting evidence for these explanations, with global return factors bearing basically no relationship to market, downside or macroeconomic risks.

So it doesn't seem to be rational risks, so perhaps it's behavioural? i.e. Momentum comes from Greed and the other factors come from Fear. It's a theory. So far unproven.

Unfortunately reality makes this not the utopia of investing we might think it is, this method of investing is guaranteed to be a very bumpy, emotional ride, you absolutely must prepare to lose to the market for many decades. The academic theory is you will eventually be rewarded.

Implementing the 5 factor model for a DIY investor isn't the easiest, these days you can go through a financial advisor that has access to the DFA funds or use something like the Avantis funds. Paul Merriman is a fan and following his advice is a decent way to not get to off-track.

Probably one of the cheapest ways to do it(idea source):

So I believe the 5 factor model is mostly true. I also believe that for most investors it's probably a questionable way to invest, but I support it, if you think you have the ability to invest in it for the rest of your life.

At best you can hope for about 1%/yr max return above just holding the market (i.e. a Total Market fund like VT/VTI). This isn't nothing, but is it worth the heartache and emotional pain.. Only you can decide that, but it absolutely isn't for the faint of heart.

All Weather Portfolio / Turtle Investing.

Ray Dalio is famous for this method of investing, the idea is you own things that do well for any given economic condition, so you always have something doing well, so no matter what happens, you should be OK.

Often not talked about, but because you in theory own something that will always do well, you also will own things that will do poorly, which means some of your assets will ALWAYS underperform or lose money, it is by design. Since it is hard to know what will work out well in the next decades, we own everything and accept the lumps when they happen.

I call this Turtle Investing and has a lot to do with Start Date Sensitivity. This method of investing says, I don't want 30% returns on occasion if it means I have to eat 50% cuts on occasion, I'd rather just plod along like a turtle with strong stable growth overall. Economic academic literature doesn't spend much if any time researching this that I'm aware of.

If this idea appeals to you:

My personally created "Turtle Portfolio", modelled after the Pinwheel Portfolio


15% VTI (Total Stock Market)
15% VXUS (International Stocks)
--- Alternatively just hold 30% of VT, if you don't want to hold them separately
10% IJS (Small Cap Value)
10% VWO (Emerging Markets)
15% BND (Intermediate Bonds)
5% VNQ (Real Estate-REIT)
10% VPU (Utilities)
10% SGOL (Gold) IAU is the common choice, but SGOL is cheaper(.17ER vs .22).
10% cash (hold in your checking/savings/MMF)

Fidelity Version:

15% FZROX/FSKAX (Total Stock Market)
15% FZILX/FTIHX (International Stocks)
10% IJS (Small Cap Value)
10% FPADX (Emerging Markets)
15% FXNAX (Intermediate Bonds)
5% FSRNX (Real Estate-REIT)
10% VPU (Utilities)
10% SGOL (Gold) IAU is the common choice, but SGOL is cheaper(.17ER vs .22).
10% cash (hold in your checking/savings/MMF)

Another option perhaps, ACWV a minimum volatility ETF, but the history isn't out on how well it succeeds yet.

While accumulation phase, re-balance with new $$'s.

60/40 AA "bogleheads" portfolio

For the overview see above under "60% Stocks / 40% Bonds"

This is the "classic" 2 or 3 fund total market and bond holding fund. The idea here is you own the Total Market(though people disagree if "total" means US only or not, hence the 2/3 fund debate) and some bonds. With bond prices guaranteed to be terrible for the 2020's, owning bonds right now isn't the smartest choice, but it's definitely safe enough. See the bogleheads wiki page about it.

For the 2020's while accumulating, I'm more of a 100/0 bogleheads portfolio type, I.e. skip the bonds, and just own the total stock market, until we know what interest rates(and there for bonds) are going to do. If you already own bonds, there is probably little reason to sell them.

academic literature on asset allocation

There is loads of academic papers basically saying, we have no idea what a good asset allocation should look like. This article by Shiller is the best summary I can find on how nobody knows nothing about a good asset allocation.

If you believe in market efficiency, then the weights of the market should be efficient, so we can conclude holding market weight is a great starting point. After that, the decision is around one's need, ability and willingness to take on risk.

The research basically shrugs and says we haven't any idea what it should be. There is sort of a consensus on a glide-path across ones life, but then nobody can even agree on what the glide path should look like:

" However, debate about the shape of the glide path remains unsettled." source

They then go on to say(page 2):

Shiller (2005), Basu et al. (2013), Arnott (2012), and Arnott, Sherrerd, and Wu (2013) state that a rising glide path is better, while Pfau and Kitces (2014) argue for a U-shaped path and Estrada (2016) recommends an inverted U-shape.

So nobody knows nothing in the academic literature so far. Maybe someday they will figure it out, but I'm not holding my breath. So what is an investor supposed to do? Well, one sane answer is just go with the wisdom of the crowds and hold what everyone else holds, the 60/40 portfolio as a great starting point.


It's important to note that none of these portfolios will get you rich tomorrow, at best, they will increase your wealth 20-50 years from now. I.e. these are all long-term buy and hold strategies. If you want to get rich tomorrow, you MUST concentrate your investing AND you must be correct in your investment. The absolute best way to do this is to invest in yourself. I.e. Education, schooling, exercise and health, better paying jobs, etc. If you are finished investing in yourself for now and want to make a concentrated investment, then follow the old adage: put all your eggs in one basket and WATCH THAT BASKET. Vanguard has a pretty great page that shows various asset allocation models and what you can expect from them. Pick what works for you, and go for it!