Sample allocations and holdings for aggressive, moderate, and conservative accumulators.
By Christine Benz | 07-29-16 | 02:00 PM | Email Article

Vanguard is easy to recommend as a destination for investors aiming to simplify their financial lives by investing with a single firm. Morningstar's analyst team gives the firm an A rating for stewardship, owing to its strong corporate culture and ultra-low-cost products. It also fields the largest number of Morningstar Medalist funds of any fund firm.

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

If anything, the biggest challenge for investors who are already sold on what Vanguard has to offer is winnowing down the firm's standout lineup into a reasonably compact portfolio. One way for retirement savers to do so is to buy one of the firm's target-date funds; the funds in the series receive Gold ratings--one of only two target-date lineups to do so. Alternatively, it's hard to find fault with the "three-fund portfolio" espoused by many Bogleheads. (For the uninitiated, Bogleheads are true believers in the low-cost, index-centric investment philosophy of Vanguard founder Jack Bogle.) 

For investors who would like more nuance in their portfolios--for example, the chance to own some of the firm's standout actively managed funds or Treasury Inflation-Protected Securities, which  Vanguard Total Bond Market Index (the sole bond holding in the three-fund portfolio) excludes--I've created Vanguard-specific portfolios. I've developed "bucket" Vanguard portfolios geared toward investors who are already retired, but the portfolios featured in this article are geared toward Vanguard-centric investors who are in the process of accumulating assets for retirement  and using tax-deferred accounts to do so.

Portfolio Basics
As with the other model portfolios, I've used the weightings of Morningstar's Lifetime Allocation Indexes to guide the portfolios' baseline allocations. To populate the portfolios, I leaned on  Morningstar's list of medalist funds and input from Morningstar's analyst team. I've used the lower-cost Admiral share class, when available, for these portfolios, but investors who cannot pony up the minimums for these funds can use the Investor share classes.

For each portfolio, I've included an anticipated time horizon--the investor's number of years to retirement. However, as with any off-the-shelf asset-allocation guidance, investors should take into account their own personal situations before implementing these allocations. Investors who are nearing retirement and expect to be able to rely on nonportfolio assets like a pension to fund their in-retirement living expenses may well want a more aggressive allocation than the one featured in the conservative portfolio, for example. Meanwhile, nervous investors who have retreated from equities in times of market stress or who are investing for nearer-term goals as well as retirement may well want to downplay stocks relative to the weightings of the aggressive and moderate portfolios. It's also worth noting that stocks aren't especially cheap right now, so investors who have a substantial amount of money to invest will want to dollar-cost average to avoid buying stocks (or bonds!) at a high point. 

Aggressive Vanguard Retirement-Saver Portfolio
Anticipated Time Horizon to Retirement: 40 years

30%:  Vanguard Total Stock Market Index
10%:  Vanguard Equity-Income
5%:  Vanguard Mid Cap Growth
10%:  Vanguard Selected Value
5%:  Vanguard Small Cap Value Index
20%:  Vanguard International Growth
15%:  Vanguard International Value
5%:  Vanguard Total Bond Market Index  

This portfolio is anchored by a sizable position in a total stock market index fund that covers the waterfront. (Indexers could reasonably use that fund as their sole U.S. equity position and call it a day.) I've augmented it with some of our analysts' favorite actively managed funds to give the total portfolio a slight tilt toward the value side of the Morningstar Style Box. Vanguard Equity-Income provides active exposure to value stocks; both of its management teams favor firms with above-average dividend yields as well as other attractive characteristics, such as low valuations. Vanguard Selected Value provides exposure to mid-cap value (as well as mid-cap blend) stocks, employing three distinct management teams with different spins on a value-investing strategy. Unfortunately, all of Vanguard's actively managed large-growth-leaning funds are closed to new investors, including the superb Primecap-managed offerings. To keep the portfolio from skewing too heavily toward value stocks, I've also included a position in Vanguard Mid Cap Growth, an actively managed fund. Finally, because the resultant portfolio includes next to nothing in small-value stocks, which have tended to outperform large-cap and growth stocks over long periods of time, I added a slice of dedicated small-cap-value exposure via the firm's index fund. 

On the international-equity side, I've employed two fine actively managed funds--Vanguard International Growth and Vanguard International Value--that complement one another well. Here again, an investor could reasonably use a total international-stock fund in lieu of the active offerings. 

Because the time horizon for this portfolio is so long, it includes but a tiny slice of fixed-income exposure. And while Morningstar's Lifetime Allocation Indexes call for a small stake in commodities, Vanguard fields no such fund. The closest approximation is the firm's Precious Metals and Mining fund , which has historically had a much closer correlation with the equity market than metals' prices. I've steered that position to stocks instead, though investors in search of extra diversification plus, potentially, an inflation hedge, might also consider Vanguard Global ex-US Real Estate Index .

Moderate Vanguard Retirement-Saver Portfolio
Anticipated Time Horizon to Retirement: 20 years 

30%: Vanguard Total Stock Market Index
10%: Vanguard Equity-Income
5%: Vanguard Mid Cap Growth
10%: Vanguard Selected Value
5%: Vanguard Small Cap Value Index
15%: Vanguard International Growth
10%: Vanguard International Value
12%: Vanguard Total Bond Market Index
3%: Vanguard Total International Bond Market Index

Even though it's geared toward an investor in his or her 40s--with a 20-year time horizon--this portfolio is also stock-heavy, with an 85% allocation to U.S. and foreign stocks. The key variance with the aggressive portfolio is that this one is lighter on foreign stocks and has a slightly heavier fixed-income position, including a small allocation to Vanguard's hedged foreign-bond index fund. 

Conservative Vanguard Retirement-Saver Portfolio
Anticipated Time Horizon to Retirement: 5 years 

25%: Vanguard Total Stock Market Index
10%: Vanguard Equity-Income
5%: Vanguard Small Cap Value Index
10%: Vanguard International Growth
5%: Vanguard International Value
23%: Vanguard Total Bond Market Index
7%:  Vanguard Short-Term Bond Index
9%:  Vanguard Inflation-Protected Securities
6%: Vanguard Total International Bond Market Index 

With a substantially shorter time horizon, this portfolio is meaningfully more conservative than the aggressive and moderate portfolios. But given that the retirement saver's real time horizon is his or her life expectancy, it includes a sizable allocation of 55% to equities. 

Because the bond stake of the conservative portfolio is substantially larger than the other two portfolios', it also makes sense to diversify it further. Investors should become more attuned to inflation protection in their portfolios as retirement draws near and they'll rely on their portfolios to supply their "paychecks"; thus, it makes sense to build out a position in an inflation-protected bond fund. Because investors with five years until retirement will still have many years in retirement, I've included Vanguard Inflation-Protected Securities, which has a long duration. Investors who are concerned about interest-rate-related volatility could use Vanguard Short-Term Inflation-Protected Securities instead. I also included a core short-term fund, as soon-to-retire investors should begin thinking about how to stage their portfolios for drawdown mode. It's too early for those using the "bucket" approach to begin raising cash, but a high-quality short-term fund is appropriate. 

Because the equity piece is relatively smaller, I reduced some of the smaller actively managed positions but left the stake in Vanguard Equity-Income in place. It's a fine in-retirement holding, as is  Vanguard Dividend Appreciation Index , which is the core equity holding in my Vanguard "bucket" (in-retirement) portfolios. 

How to Use
As with all of the model portfolios, the key goal here is to depict sound asset-allocation and portfolio-management principles. That means that investors can and should plug in another fund in the same category if one of the funds I've named here is unavailable or if I've omitted one of their favorites. (I would have loved to include one of the Primecap-managed offerings, for example.) Alternatively, an all-index portfolio is perfectly appropriate.

Also, in keeping with the philosophy behind the bucket portfolios, I'll employ a strategic (that is, long-term and hands-off) approach to asset allocation; I'll make changes to the holdings only when individual holdings encounter fundamental problems or changes.

Securities mentioned in this article

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Christine Benz has a position in the following securities mentioned above: VWIGX VTRIX Find out about Morningstar's editorial policies.
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