The Vanguard Four Mutual Fund Portfolio

While rooting around the Morningstar and Diehards forums, I came across an interesting idea – the Four Mutual Fund Portfolio. It consists of the following:

Money Market Fund (Cash)
Total Stock Market Index Fund (VTSMX)
Total International Index Fund (VGTSX)
Total Bond Market Index Fund (VBMFX)

These four funds provide a great deal of diversification, tracking everything from the entire U.S. stock market to emerging markets. It leaves out stuff like gold, but that’s ok with me. It also give you the opportunity to allocate each of the funds to taxable or tax-deferred accounts for maximum tax efficiency (the list is from most tax-efficient to least). Credit to Taylor Larimore. Other advantages are:

Zero overlap
No manager changes
No style drift (from benchmark index)
Desired stock/bond/cash allocation is easy.
Never a need to rebalance within asset classes
High probablity of beating most funds
Never below index performance
Minimum maintenance
Lowest possible cost
Low taxes

The main disadvantage is that Vanguard has a $1,000 minimum for each of these funds to open in an IRA ($3,000 for non-IRA), and a $10 fee for each fund less that $5,000. As I only have $9,000 to invest in my own Roth IRA, I could get the 4 funds but this would charge me $40/year, or cause me another 0.44% in expenses. Not ideal.

Also, instead of a money market fund, I’d first compare with many other insured cash deposit options out there, as many times they beat the money market returns handily.


  1. ETFs are better and cheaper than index funds, and if you are looking for a way to easily buy the whole market with as few securities as possible, check out the Low Maintenance ETF Portfolio as outlined on

    I recommend the entire guide as an excellent and informative read, but that chapter discusses the way to capture the entire market cheaply with just 5 ETFs.

  2. Thanks for the suggestion. ETFs are another area I need to learn more about. But based on my brief knowledge, I would say that Vanguard has mutual funds similar to the ETFs in your link, with very comparable expense ratios. They also have minimums, which is why I’m going with one of their Target funds for now. Also, buying ETFs involves a commission, so spending $20 to buy/sell $2000 of ETFs like having a 1% upfront load and another 1% backend load. Again, more thought should (and will!) be put into this. Keep posting!


  1. […] to the above fund myself by buying similar underlying funds in the ratio of my choosing, a la the Four Fund Portfolio. […]

Speak Your Mind