A Balanced Portfolio with Vanguard ETFs: VTI, VGT, and VIG

Thank you, Anonymous, for reaching out with your question about a portfolio consisting of ETFs and index funds, specifically Vanguard#39;s VTI, VGT, and VIG. You are indeed the first person I have come across with a similar interest, making your inquiry both welcome and enlightening.

First and foremost, congratulations on taking the initiative to invest! It’s important to note, however, that while I can provide guidance and insights, no one can accurately predict the future of the market, individual assets, or specific indexes. As Charlie Munger, Warren Buffett’s partner, wisely stated, We are not the smartest investors, but we read others who perhaps are or who have part of the answer. Why invent the wheel? Under this wise guidance, Warren and his partners have seen monumental growth span over five decades.

A great starting point for understanding various portfolio structures is to explore the work of renowned authors and financial experts like Mebane Faber. Faber’s books and eBooks offer a wealth of information on portfolio examples and backtesting from the 1970s. Additionally, you can find comparable and practical portfolios by performing a Google search for lazy portfolios. The MarketWatch lazy portfolio page showcases 10 diverse portfolios, each backtested for the past 10 years, providing a comprehensive comparison.

Index funds like VTI (Vanguard Total Stock Market ETF), VGT (Vanguard FTSE All-World ex-US ETF), and VIG (Vanguard Index PM—an index fund) are designed to provide broad market exposure with a low-cost, passive investment approach. The key to a well-balanced portfolio is ensuring that the components are uncorrelated, meaning they do not move in tandem with each other. This diversification can help minimize risk and optimize returns.

For those looking to create a balanced portfolio, Vanguard offers a variety of ETFs and index funds that cater to different risk tolerances and investment goals. When constructing your portfolio, consider how these assets might perform in different economic environments, such as bull, bear, and sideways markets.

It is worth mentioning that Markowitz’s Portfolio Theory can be a valuable resource for understanding the principles behind portfolio construction and optimization. By leveraging this theory, you can better align your portfolio with your risk profile and investment objectives.

Mebane Faber, an extraordinary quantitative analyst and the CEO of his own company, provides insightful information on how to balance a portfolio to match your specific risk tolerance. His portfolios, as you will find in his books, tend to perform within a narrow range over time, showcasing their stability and reliability.

Lastly, it’s crucial to keep your investment costs low. Vanguard ETFs and index funds are known for their low expense ratios, making them attractive choices for long-term investors. Avoid falling under the spell of any expert broker friends or relatives who may offer advice that is not aligned with your best interests.

Great job on taking the first step towards developing a strong investment plan! Best Wishes for your journey!