This is a sample investment portfolio designed primarily for a retirement fund in a Vanguard account. It’s an excellent company that offers some of the lowest fees in the industry and holds a stellar reputation. A series of 8 Vanguard ETF’s (exchange traded funds) form the portfolio. Each of these are passively managed, follow an index, and normally contain hundreds of different holdings. If you purchase them with a Vanguard account, you don’t have to pay a commission.

The model is designed for an individual who wants to retire at the age of 66 when social security kicks in, starting with an aggressive allocation and adding a 10% bond investment every 5 years after the age of 40. I stopped the model 6 years early because at that point, you should probably take a closer look at your specific needs going into retirement.

I want to reiterate that this is meant to serve as a general example, one you can use as a model. This should not be considered investment advice; always perform your own risk analysis before investing and read the prospectus associated with each fund.

 

The Portfolio

The ticker symbol for each ETF is in the left column, and the allocation percentage during the given time frame is in the symbol’s row.

Ticker 20-40 40-45 45-50 50-55 55-60
MGC 35% 35% 35% 32% 30%
VO 15% 13% 11% 9% 6%
VB 15% 13% 10% 9% 6%
VEA 13% 12% 11% 10% 8%
VWO 7% 5% 3% 0% 0%
VNQ 15% 12% 10% 10% 10%
VCIT 0% 10% 15% 20% 20%
VGIT 0% 0% 5% 10% 20%

vanguard-chart-cropped

 

Holdings

MGC: Vanguard Mega-Cap – This is an index fund covering the largest US stocks. I made it the core holding of the portfolio because it contains the strongest companies based in the most stable country in the world. We’re talking about companies like Apple, Microsoft, Johnson and Johnson, and Exxon Mobil. MGC covers the first 70% the US stock market’s value.

VO: Vanguard Mid-Cap – This is an index fund covering midsize US stocks. While much smaller than the companies included in MGC, these still have some stability and cash flow. Not nearly as many of these businesses are household names, but some of them are still recognizable, such as Electronic Arts, Dollar Tree, and The Dr. Pepper Snapple Group. Mid-cap stocks can be more volatile, but they have historically provided slightly higher returns. VO covers the 70% to 85% segment of the US stock market’s value.

VB: Vanguard Small-Cap – This is an index fund covering the smallest US stocks. They are the most volatile and contain higher risk because they aren’t as well established. However, these companies have far more room for growth. Investing in small businesses provides diversification benefits and can increase returns over the long run. I barely recognized any of the companies included in this index, but some of the familiar names were Domino’s Pizza and JetBlue Airways. VB covers the 85% to 98% segment of the US stock market’s value.

VEA: Vanguard Developed Markets – This is an index fund holding stocks in stable foreign countries such as Japan, Canada, the UK, France, and Germany. Historically, international and US stock markets alternate periods of higher performance, so investing overseas can help increase the likelihood of gains even during times of poor performance in the US.

VWO: Vanguard Emerging Markets – This is an index fund holding stocks in developing economies around the world. These markets aren’t nearly as stable, but they make up for that weakness with much higher growth rates, which is key because America is only growing at around 2% annually. Almost a third of VWO’s holdings are in China, 15% are in Taiwan, and significant investments are made in India, Brazil, and South Africa, among others.

VNQ: Vanguard REIT – Historically, real estate has been one of the highest performing investments. The problem is, you can’t invest in an apartment complex through a brokerage account. However, with a Real Estate Investment Trust, you’re basically buying shares of a company that purchases and manages rental properties for you, providing exposure to hotels, offices, health care centers, residential areas, and retail spaces.

VCIT: Vanguard Intermediate-Term Corporate Bond – Because bonds don’t offer as high of returns as stocks, this example does not include them until the age of 40. The primary focus is to diversify away from riskier assets and smooth out fluctuations in the market. Corporate bonds have higher yields than treasuries, and most of the ratings in this fund are moderately safe at BBB or A. Additionally, I chose intermediate-term bonds to decrease the risk associated with rising interest rates. With VCIT, you’re essentially lending money to American companies with good balance sheets.

VGIT: Vanguard Intermediate-Term Government Bond – This is an index fund similar to VCIT, but it invests in treasury bonds instead. The yield is lower, but the bonds are safer and the fund is less volatile. I increase the proportion of treasuries in the portfolio as retirement age approaches.

Final Thoughts

Hopefully, this model portfolio gives you some ideas to use with your own retirement account. Investing is never a one size fits all activity, so this model probably won’t be exactly what you’re looking for. It’s simply intended to provide a baseline to work from and to show you some of the funds you could use if you invest through Vanguard.

Good luck!