Bogleheads Four-Fund Portfolio Overview
1. Background and Philosophy
The Bogleheads Four-fund Portfolio is an extension of the widely recognized Bogleheads Three-fund Portfolio, which is rooted in the investment philosophy of John C. Bogle, the founder of Vanguard and a pioneer of passive index investing. The Bogleheads community, inspired by Bogle’s principles, advocates for low-cost, diversified, and long-term investing strategies. The addition of international bonds in the Four-fund Portfolio further enhances diversification, aligning with the core Bogleheads tenets of simplicity, cost efficiency, and broad market exposure.
2. Asset Allocation, Diversification, and Risk
The portfolio is composed of four asset classes:
- VTI (Vanguard Total Stock Market ETF, 50%): Provides exposure to the entire U.S. equity market, offering diversification across large-, mid-, and small-cap stocks.
- VEA (Vanguard FTSE Developed Markets ETF, 30%): Covers international developed markets, complementing U.S. equities and reducing geographic concentration risk.
- BND (Vanguard Total Bond Market ETF, 15%): Adds U.S. bond exposure for stability and income, mitigating equity volatility.
- BNDX (Vanguard Total International Bond ETF, 5%): Introduces global bond diversification, hedging against U.S.-specific interest rate risks.
Diversification: The portfolio spans U.S. and international equities and bonds, reducing reliance on any single market or region.
Risk Level: Moderate growth, with a 20% allocation to bonds providing downside protection while maintaining growth potential through equities. This is a growth-oriented portfolio.
Pros:
- Low-cost, passive ETFs minimize fees and turnover.
- Broad diversification across asset classes and geographies.
- Simple to manage and rebalance.
Cons:
- No exposure to emerging markets (except indirectly through VTI’s multinational holdings).
- International bonds may introduce currency risk.
- Higher equity allocation may not suit conservative investors.
3. Application for Retirement Accounts (401(k) and IRA)
Investors can replicate this portfolio in their 401(k) or IRA accounts by selecting mutual funds or other investment options that mirror the ETFs:
- VTI: Look for a “U.S. Total Stock Market Index Fund” or an S&P 500 fund as a substitute.
- VEA: Use an “International Developed Markets Index Fund” or a broader “Global ex-U.S. Fund.”
- BND: Choose a “U.S. Total Bond Market Index Fund” or intermediate-term bond fund or core bond funds.
- BNDX: Opt for an “International Bond Index Fund” if available; otherwise, allocate to U.S. bonds.
Note: If a 401(k) lacks exact matches, prioritize higher-level asset classes (e.g., substitute missing international bonds with U.S. bonds). Avoid overcomplicating with non-core assets like commodities.
Rule of Thumb:
- For stock funds, prioritize index funds, especially low-cost index funds
- For bond funds, prioritize core bond funds or high-quality actively managed total return bond funds (if available).