12 Minimalist Portfolios You Don’t Have to Babysit

One of my favorite presentations—and one of the best-performing Morningstar videos on YouTube—is an oldie about how to build a portfolio that you don’t have to babysit. That’s a topic that I’ve revisited several times over the years, both in articles and videos.

Why am I so keen on low-maintenance, minimalist, no-babysitter-required portfolios? The main reason is that life can be busy and unpredictable; you may have periods in your life when you don’t have the time, inclination, or ability to manage your portfolio. While some Morningstar readers are hobbyists who are committed to monitoring their portfolios every day or every week, it’s practical to build a portfolio that could run itself for a period of time if need be.

The other reason to be hands-off with your portfolio is performance-related. When we examine the performance data on professional fund managers, we don’t see a strong indication that more active strategies beat less busy ones. For example, so-called tactical funds, which actively jockey among asset classes, have not made a compelling case for themselves. Nor does our research point to a connection between portfolio turnover and better performance. Those types of findings call into question whether individual investors who are actively changing up their holdings will have any better luck than the pros.

Finally, some investment complexity is inevitable: Most of us hold multiple accounts with different tax characteristics, and jobs like determining a safe withdrawal rate and figuring out whether to buy long-term-care insurance are inherently complicated. If you have an opportunity to streamline your investment portfolio, why not do so?

Of course, a single target-date or static-allocation fund can be an elegant solution for minimalists, but some investors might want more control over their portfolios’ asset allocations. (That’s especially true for people in retirement, who are actively spending from their portfolios.)

With such investors in mind, I’ve created a series of minimalist model portfolios. They all lean heavily on low-cost broad-market index funds (and exchange-traded funds for the taxable portfolios). Because major investment firms generally offer such funds at a very low price point, you should feel free to use the index funds on offer from your provider of choice. Each of the following four series has three underlying portfolios for conservative, moderate, and aggressive investors. (I’ve created a number of model portfolios, including some specific to fund families like Fidelity and Vanguard.)

In-Retirement Portfolios

Minimalist Portfolios for Retirees (Tax-Sheltered Accounts): These portfolios are geared toward retirees’ traditional tax-deferred or Roth accounts. In other words, they’re managed without regard for ongoing tax efficiency, and they all feature meaningful allocations to bond funds, whose income is taxed at investors’ ordinary income tax rates. These three portfolios are all based on the Bucket system for retirement portfolio planning, meaning that they hold cash, bonds, and a globally diversified equity portfolio. Investors should use their portfolio spending to determine how much to drop into each of the asset classes. And on an ongoing basis, asset-class performance can drive the “where” of retirement spending. In a year like 2022, when both stocks and bonds were down, the investor could spend from her cash holdings. In good equity years like 2019-21, trimming appreciated equity holdings could supply cash flows for spending. And now that bond and cash yields are substantially higher, investors should be able to use their portfolios’ income distributions for a significant share of their cash flow needs.

Minimalist Portfolios for Retirees (Taxable Accounts): Like the tax-sheltered portfolios above, these portfolios employ a Bucket approach featuring cash, bonds, and stocks. In contrast with the tax-sheltered portfolios, however, these portfolios are designed for retired investors’ taxable (that is, nonretirement) accounts. As such, they hold a combination of exchange-traded funds for equity exposure and municipal-bond funds for fixed-income exposure. (I’ve used Fidelity funds for muni-bond exposure, but Vanguard fields some solid options as well.) That combination should limit any taxes related to these portfolios on a year-to-year basis. Investors should use their own planned spending to inform how much to hold in each of the three buckets. The Aggressive portfolio assumes a 4% spending rate, for example. But because many investors tap their taxable portfolios first in the early years of retirement, their early-retirement withdrawals from those accounts—and in turn their allocations to Buckets 1 and 2—may need to be higher.

Retirement Saver Portfolios

Minimalist Portfolios for Retirement Savers (Tax-Sheltered Accounts): These three portfolios are geared toward people who are still working and accumulating assets for retirement and doing so in the confines of a tax-sheltered account like an IRA or a company retirement plan. They’re composed of total market index funds—U.S. stock, international stock, and bond—in varying allocations. Young accumulators—people in their 20s and 30s—will likely want to employ something like the Aggressive version, whereas the Moderate portfolio is geared toward people in their 40s and 50s. The Conservative portfolio, meanwhile, is appropriate for those on the cusp of retirement or skittish investors who are uncomfortable with the highs and lows that can accompany an equity-heavy portfolio. Note that these portfolios aren’t meant to address such investors’ short- or intermediate-term spending goals; these model portfolios can help with shorter horizons.

Minimalist Portfolios for Retirement Savers (Taxable Accounts): These three portfolios are designed to help still-working investors accumulate additional investments for retirement within their taxable accounts. As with the taxable portfolios for retirees, above, these portfolios feature municipal-bond funds and equity ETFs. The key difference relative to the retiree portfolios is that the asset allocations here are more aggressive: These portfolios don’t have an ongoing cash allocation and their bond allocations are also lighter. Thus, they’re not meant for investors’ short- or intermediate-term spending goals; these model portfolios are, however.