Model Portfolios for Vanguard Investors (2024)

I remember sitting in a meeting with Vanguard founder Jack Bogle at Morningstar’s offices many years ago, not long after his heart transplant. “I wanted to visit sooner,” he said in his booming baritone, “but I had a change of heart!” He loved that joke and was feeling good. He didn’t know it at the time, but that new ticker would help him have many more highly productive years.

I was a junior analyst and his visit made an imprint. He asserted, as I heard him do many times subsequently, that because Vanguard’s mutual ownership structure put fund shareholders at the top of the heap, it was superior to other asset managers who were trying to serve both company shareholders and fund shareholders at the same time.

That thesis made sense to me then and it makes sense to me now. And it clearly makes sense to a lot of investors: Vanguard has increased its market share in open-end mutual funds and exchange-traded funds by about 5% per year over the past decade. If it keeps up that pace, reports Morningstar’s Alec Lucas in the firm’s “Parent” rating, Vanguard will have a 50% share of the U.S. fund industry by 2035.

While competitors like Fidelity and iShares have matched or even undercut Vanguard’s expense ratios on some core index offerings, Vanguard’s asset-weighted expense ratio across its lineup is a rock-bottom 0.08%, versus an industry average of 0.47%. As Morningstar’s Alec Lucas notes, that savings adds up to more than pocket change for Vanguard investors. In 2022, Vanguard’s cost advantage saved its investors collectively about $26 billion compared with what they would have shelled out if they had invested in funds with average expenses. And even though some customers have griped about Vanguard’s shortcomings on the customer service front, the firm still earns Morningstar’s highest Parent rating. That owes largely to its shareholder-friendly structure, which makes fundholders indirect owners of the firm. (Vanguard is owned by its U.S. mutual funds, so its fundholders indirectly own Vanguard.)

For investors who choose to amalgamate their holdings at Vanguard, the firm offers all the key building blocks they need. I’ve created model portfolios for investors at different life stages (retired versus still working/saving), different account types (taxable versus tax-sheltered), and with different investment providers (Vanguard, Fidelity, T. Rowe Price, and Schwab supermarket). Investors can adopt the portfolios wholesale, but the portfolios can also be useful from the standpoint of benchmarking.

Here’s a closer look at the Vanguard-specific portfolios.

Model Vanguard Portfolios for Retirees

These portfolios are designed for people who are actively tapping their accounts in retirement. To help facilitate ongoing portfolio cash flows, they all follow a basic bucket structure. As such, they hold roughly two years’ worth of portfolio spending in cash, another eight years’ worth of spending in high-quality bonds, and the remainder in riskier assets—mainly a globally diversified equity portfolio. (The Moderate and Conservative versions have slightly higher weightings in cash and bonds.)

These portfolios are geared toward investors’ retirement accounts—mainly their traditional and Roth IRAs. Because investors don’t owe taxes on such accounts until they pull their money out in retirement, I chose the holdings without regard for tax efficiency. I’ve used Vanguard Dividend Growth VDIGX as the linchpin equity holding because of its ability to protect on the downside, but minimalist investors could reasonably use Vanguard Total Stock Market VTSAX (also in the portfolio) as their stand-alone equity holding

These portfolios are designed for investors’ taxable (non-retirement) accounts. Because any income or capital gains distributions from those accounts are dunned for taxes, I chose holdings that have historically kept those distributions low. I used Vanguard’s low-cost, no-nonsense municipal bond funds for fixed-income exposure, and its tax-managed funds for equity exposure. However, investors could opt for total stock market index funds and exchange-traded funds instead, as they’ve been neck and neck with the tax-managed funds from the standpoint of tax efficiency over time. I’ve created Aggressive, Moderate, and Conservative versions of these portfolios. Retirees should use their own anticipated portfolio spending to determine which of these versions is the best fit given their situations. For example, the retiree who gets all of her cash flow needs from her required minimum distributions from her IRA may want to opt for the Aggressive version because she’s not actively spending from the taxable account.

Like the mutual fund portfolio above, these portfolios are meant to be held in investors’ taxable (non-retirement) assets. Because ETFs provide such broad exposure in a single package, the portfolios are all quite svelte, with five holdings apiece. (Note that a previous version of these portfolios included an iShares ETF for short-term municipal-bond exposure, but Vanguard recently launched a competing fund that earns a Morningstar Analyst Rating of Gold.)

Model Vanguard Portfolios for Retirement Savers

These portfolios are designed for investors who are still working and saving for retirement. While I used a “bucket” setup to guide the asset allocations of the in-retirement portfolios, I used Morningstar’s Lifetime Allocation Indexes to help guide these portfolios’ allocations. Investors should use both their risk tolerance and especially their risk capacity to inform which type of asset allocation makes the most sense for them.

These portfolios are geared toward investors’ tax-sheltered accounts, whether traditional or Roth. Because they’re managed without regard for tax efficiency, they feature a mix of index funds as well as actively managed funds; they also include finely tuned exposures (for example, discrete international growth and value funds) to facilitate rebalancing. However, a minimalist investor could reasonably use a three-fund portfolio instead: Vanguard Total Stock Market, Vanguard Total International Stock Index VTIAX, and Vanguard Total Bond Market Index VBTLX. (An ultra-minimalist investor could simply opt for one of Vanguard’s solid target-date funds.)

These portfolios are designed for investors’ taxable (non-retirement accounts). Thus, a key goal is to reduce the tax drag of year-to-year capital gain and income distributions. Their equity exposure consists largely of Vanguard’s tax-managed funds, whereas the bond exposure comes through municipal bond funds, whose income skirts federal income taxes. However, investors could opt for total stock market index funds and ETFs for equity exposure instead, as they’ve been neck and neck with the tax-managed equity funds from the standpoint of tax efficiency over time.

As with the mutual fund portfolios, these ETF portfolios are designed to limit taxable distributions; they hold tax-efficient, broadly diversified equity ETFs and municipal-bond ETFs. As with the taxable ETF portfolios geared toward retirees, these portfolios are ultra-minimalist. (Note that a previous version of these portfolios included an iShares ETF for short-term municipal-bond exposure, but Vanguard recently launched a competing fund, Vanguard Short-Term Tax-Exempt Bond VTES, that earns a Gold rating.)