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3 simple model portfolios for DIY index investors

I recommend three portfolios for DIY index investors that can make investing simpler and cheaper. Plus, they could very well outperform more expensive portfolios.

Your investment portfolio doesn’t have to be complicated. In fact, when it comes to long-term investing, as with many things, simpler is often better.

If you’re new to investing, this should come as a relief.

Ever since I opened my first IRA at age 22, I’ve been frustrated by the perpetually-growing oceans of investing “advice”.

Inundated with too much advice – some of it contradictory – you may easily experience decision paralysis and do nothing. Although sometimes it’s proper to do nothing (such as waiting out a down market), sitting idle is a terrible outcome when it means you leave money uninvested.

Today, I want to give you three super-simple portfolio ideas that are perfect for a traditional or Roth IRA or even a taxable investment account. These investing strategies emphasize simplicity and low expenses while ensuring diversification through total-market index funds.

The best part? These cheaper, simpler portfolios may very well outperform fancier, more expensive portfolios.

What about a robo-advisor?

Robo-advisors make investing as easy as possible, but charge fees that you don’t pay if you build your own portfolio.

They’re the easiest option

For investors looking for the simplest possible way to set up an IRA or stash extra savings in a taxable investment account, robo-advisors provide a welcome option.

Often, the only decisions to make when you open a robo-advisor account are how much to invest and how long you plan to leave your money invested. (The robo-advisor will calculate your ideal asset allocation for you based upon that and your answers to a few easy simple questions.)

But, there are fees

Robo-advisors will invest your money into the same or similar mutual funds we recommend below, but they will charge you additional fees for the services they provide, which include automatically rebalancing your portfolio and, in taxable accounts, harvesting losses to reduce your taxable capital gains.

Fees vary by company and account size, but 0.25% a year is a good example. That means you’ll pay $25 a year for every $10,000 invested to the robo-advisor. That’s in addition to the expenses charged by the underlying mutual funds. That may not seem like a lot now, but due to compounding, the fees can add up to tens of thousands of dollars over your lifetime.

If you do want to head in the direction of a robo-advisor, Acorns is a best-for-beginner option where you can set recurring investments for as little as $5 at a time. It also serves as one of the best spare change investment apps for the more passive.

Wealthfront is another great choice when it comes to robo-advisors. You can start with a portfolio tailor-made for you and customize it to your liking, or build your own portfolio from Wealthfront’s collection of expertly vetted ETFs. You can get started with as little as $500, and Wealthfront takes care of all the little details so that there’s no manual trading required. 

» MORE: Compare the best robo-advisors

The Vanguard three-fund portfolio

Vanguard founder, John Bogle is the Godfather of the low-cost index investing movement. Although you see it everywhere today, indexing was once a radical idea. Nobody believed that purchasing a bit of every stock could be as successful as paying a professional to make big bets on a few winning companies.

Now, studies show that not only was indexing as successful as active investing, it actually generated higher returns after adjusting for expenses.

Variations of the following Vanguard “lazy portfolio” have been famous for decades, however, they remain compelling for their unrivaled simplicity.

Recommended portfolio

  • Vanguard Total Stock Market Index.
  • Vanguard Total International Stock Index.
  • Vanguard Total Bond Market Index.

Total Stock Market Index Fund and Total Bond Market Index Fund

The classic Vanguard two-fund portfolio consists of the Vanguard Total Stock Market Index Fund and Vanguard Total Bond Market Index Fund.

The great thing about a two-fund portfolio is that allocating your assets couldn’t be easier: Whatever your target stock/bond allocation, that’s the percentage of your portfolio you put into each fund. If it’s 50/50, you own equal amounts of each fund.

Vanguard Total International Stock

Although the two-fund portfolio works, I recommend adding a third fund to the mix – the Vanguard Total International Stock Market Fund. That’s because the Total Stock Market Fund holds only U.S. stocks, and exposure to foreign stocks is important, especially for investors with a long time horizon.

There are many reasons to add international stocks to your portfolio, but there’s one that’s so big you can’t ignore. Market returns are the result of growth. Think of a company like Apple that started in a garage and is now one of the three most valuable companies in the world. Most companies will never achieve such a trajectory and trying to predict which ones is a fool’s errand. Instead, you want your portfolio to be exposed to sectors of the market that have a high potential for growth. And that’s where international stocks come in.

The U.S. is a highly developed country. Breakout companies may still happen when radical technology is involved, but with so many of citizen’s needs adequately met by existing companies, there’s little room for average companies to grow exponentially. Contrast this with a country that’s still developing where there is still a need for roads, rail, power and gas lines, hospitals and basic medicines, and more diversified consumer products. Growth may not happen there overnight, but you know the potential is there and, over time, companies serving those countries are going to get a lot bigger as their economies develop.

The downside, of course, is that foreign stocks are typically more volatile. You’ve got to deal with currency risks, political unrest, natural disasters, and myriad other factors that can wreak havoc with intentional stock valuations in the short term.

Do you want foreign stocks in your portfolio? Yes. How much of your money should you invest abroad? Probably between 15% and 30%, but never more than 40%.

ETFs or mutual funds

Here’s the three-fund Vanguard portfolio. You can choose to purchase these funds either as exchange-traded funds (ETFs) or mutual funds.

If you have at least $10,000 to invest in any single fund, you can purchase Vanguard Admiral Shares which come with a lower expense ratio. I prefer mutual funds because there’s no commission to buy or sell shares and you can transact in any dollar amount. When it comes time to sell, ETFs trade in real-time, whereas mutual fund redemptions take at least a day to process.


Allocation is a very personal decision based upon your age, investment horizon, and risk tolerance. If this were my portfolio and I invested it in an IRA for a traditional retirement age of about 65, I would use the following allocations:

Age 25

  • 40% Vanguard Total Stock Market Index.
  • 40% Vanguard Total International Stock Index.
  • 20% Vanguard Total Bond Market Index.

Age 40

  • 40% Vanguard Total Stock Market Index.
  • 25% Vanguard Total International Stock Index.
  • 35% Vanguard Total Bond Market Index.

My experience with Vanguard

Just a few years ago, Vanguard would be my sole and unequivocal recommendation for where to build a portfolio of lost-cost index funds. Today, competitors have made huge strides in offering funds that match and increasingly beat Vanguard’s expense ratios.

Another thing to keep in mind is that, as an already big company, Vanguard has experienced explosive growth over the last 10 years as investors shift to index funds. Although I haven’t experienced it personally, I read a lot of gripes about Vanguard’s customer service, especially from customers with smaller accounts.

Open a Vanguard account today.

Fidelity six-fund portfolio

Here’s a simple Fidelity portfolio idea using six of these commission-free iShares ETFs.

Why six instead of only three? Well, we’ve upped the funds on this one to provide a slightly more tailored portfolio while maintaining the spirit of simplicity.

Recommended portfolio

  • iShares Core S&P Total US Stock Market.
  • iShares S&P Small Cap 600 Value.
  • iShares Core MSCI Total International Stock ETF.
  • iShares Core US Aggregate Bond.
  • iShares Core 1-5 Year USD Bond ETF.

While the Core S&P Total US Stock Market is similar to Total Stock Market, adding the S&P Small Cap 600 Value fund adds exposure to smaller stocks that are underrepresented in total stock market funds.

You want exposure to these small stocks because of the growth potential. It’s easier for a $100M company to grow 1,000% to become a $1B company than it is for a $10B company to grow by the same percentage to become a $100B company.

In the Fidelity portfolio you’ve got the Total International Stock ETF for foreign exposure, and then two bond ETFs. The one-five Year USD Bond ETFs rounds out the US Aggregate Bond ETF with shorter-duration bonds. This fund provides stability in volatile markets. A very young investor could be fine without this fund in an IRA, but I would add it in when you near 25 years from retirement.


Age 25

  • 20% iShares Core S&P Total US Stock Market.
  • 20% iShares S&P Small Cap 600 Value.
  • 40% iShares Core MSCI Total International Stock ETF.
  • 20% iShares Core US Aggregate Bond.
  • 0% iShares Core one-five Year USD Bond ETF.

Age 40

  • 35% iShares Core S&P Total US Stock Market.
  • 15% iShares S&P Small Cap 600 Value.
  • 20% iShares Core MSCI Total International Stock ETF.
  • 15% iShares Core US Aggregate Bond.
  • 15% iShares Core 1-5 Year USD Bond ETF.

My experience with Fidelity

I have accounts with both Vanguard and Fidelity and am liking Fidelity more and more. I think they’re an excellent choice for investors of all experience levels.

In addition to a robust but user-friendly online experience, I find Fidelity’s customer service is consistently good. To top it off, Fidelity offers over 200 iShares exchange-traded funds commission-free, making it a great place to begin building your own portfolio with any dollar amount.

Schwab six-fund portfolio

As a final option, here’s a similar six-fund profile available at Charles Schwab.

Recommended portfolio

  • Schwab US Large Cap ETF.
  • Schwab US Small Cap ETF.
  • Schwab International Equity ETF.
  • Schwab Emerging Markets Equity ETF.
  • Schwab U.S. Aggregate Bond ETF.
  • Schwab Short-Term US Treasury ETF.

In this example, we add an Emerging Markets ETF to the international exposure. This increases the risk/reward of the portfolio. Among international stocks, those in developing/emerging markets have the highest growth potential, but also the most risk from monetary and political instability.


Here are my sample IRA allocations for this portfolio:

Age 25

  • 20% Schwab US Large Cap ETF.
  • 20% Schwab US Small Cap ETF.
  • 20% Schwab International Equity ETF.
  • 20% Schwab Emerging Markets Equity ETF.
  • 20% Schwab U.S. Aggregate Bond ETF.
  • 0% Schwab Short-Term US Treasury ETF.

Age 40

  • 35% Schwab US Large Cap ETF.
  • 15% Schwab US Small Cap ETF.
  • 10% Schwab International Equity ETF.
  • 10% Schwab Emerging Markets Equity ETF.
  • 15% Schwab U.S. Aggregate Bond ETF.
  • 15% Schwab Short-Term US Treasury ETF.

Open a Charles Schwab account today.


If you’re new to investing or have been in the market for years but are checking in to make sure you’re on the right track, know that ANY of the above-mentioned portfolios are just fine (including a robo-advisor).

If you already have a preference for Vanguard, Fidelity, or Schwab, you can safely just pick the portfolio at your favorite broker. Otherwise, it’s totally a matter of personal opinion. It’s possible to keep a Vanguard portfolio extremely simple, but Fidelity and Schwab are a bit ahead when it comes to their online experience and (possibly) customer service.

About the author


David Weliver

Founder of Money Under 30, David has over 20 years of experience as a personal finance journalist covering credit cards, banking and investing.

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