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Investing Specialists

Three Simple Sample Vanguard Portfolios

Some ideas for building long-term portfolios using Vanguard's active and index funds.

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I've discussed a lot of Vanguard funds in recent columns but I've rarely offered insights on long-term portfolio building. In this article I'll offer suggestions for three simple, buy-and-hold portfolios: one composed entirely of index funds, one made up of both index and actively managed Vanguard funds, and one for taxable investors.

Portfolio creation can be complex, so to expedite the process I set ground rules. First, I limited each portfolio to five funds because investors often hurt themselves by overdiversifying. Second, I sought exposure to all asset classes instead of picking which styles or sectors were poised to outperform. Third, I kept it cheap, which isn't a problem at Vanguard. Finally, I focused on the long term. It's impossible for me to know the holding periods and risk appetites of you readers, so I used a risk-tolerant person with a decades-long time horizon as my model investor. That led to an aggressive stock/bond split of 85%/15%. I also baked in a generous helping of international stocks (roughly 40% of assets if you look at the funds' underlying holdings).

One size doesn't fit all. If you're more or less risk-averse or have a different holding period, adjust the allocations. To help settle on an appropriate asset allocation, use online tools, such as Morningstar's Asset Allocator and Portfolio Allocator. Vanguard also offers an investor questionnaire on its Web site.

Dan Culloton has a position in the following securities mentioned above: VDIGX. Find out about Morningstar’s editorial policies.