The Simpler than Dirt Portfolio

A few days ago I published a post called The Dirt Simple Investment Portfolio which showed how you could invest $12,000 using just three funds and yet still get good diversification.  The strategy used a total bond market fund, a total stock market fund, and an international stock market fund.  But what if you wanted things to be even simpler than that?  Today I present The Simpler than Dirt Portfolio.

The Simpler than Dirt Portfolio uses only fund – a target date retirement fund.  These funds are designed for the novice investor who wants to just invest in one fund and forget about it.  There is no rebalancing or shifting asset allocations involved.  The fund managers shift the investments for you, going from equities when you are young to fixed income assets when you are older, so the investments automatically get less risky as you get closer to needing the money.

Some advisors are critical of these types of funds, saying that they are not well designed because they may be too risky for some – having a larger percentage of stocks than some people would like – and too safe for others – having a larger percentage of bonds.  (Note that more bonds means lower return over long periods of time but lower declines when the market as a whole falls.)  There is also a difference among fund companies in the percentage of stocks and bonds in portfolios for a given retirement date.  This can be remedied, however, by simply selecting a fund with a retirement date that is suitable for your risk tolerance.  If you want to take more risk, select a fund that has a target date farther into the future.  If you want less risk, select one that is not as far out as your actual retirement date.

For example, let’s say that you are 30 today and let’s assume you are planning on retiring at age 65.  You would normally select a fund that was designed for those retiring in 35 years, so you would select a 2050 fund or maybe a 2055 fund.  An example would be the Vanguard Target Retirement 2050 fund.  Looking at the portfolio composition for this fund, one sees that it is 10% bonds and 90% stocks, each asset category allocated between domestic and international assets.

Let’s say, however, that this portfolio is too volatile for your taste.  (Volatile means that the value would swing rapidly from year to year or even month to month.)  You might then choose to buy a 2035 fund instead, such as the Vanguard Target Retirement 2035 Fund, which is 85% stocks and 15% bonds.  (Note that this is still fairly aggressive for a retirement fund.  I would have cited the Retirement 2040 Fund instead of the 2035 Fund, but it actually has the same composition as the Retirement 2050 Fund.  Vanguard is doing things right from an investing standpoint – you want to be largely invested in stocks until you are getting close to retirement – but it really shows you need to read what is in the fund rather than just going by the name if you want to make sure you have a lower stock exposure.)  If this is still too risky, you might consider the retirement 2030 fund, which is about 75% stocks and 25% bonds.

Retirement date funds are an option for those who don’t want to spend much time at all worrying about their investments.  You might give up a little bit of performance, but it makes things really simple.  If you avoid doing things like leaving assets uninvested in cash for long periods of time because you are too busy to look for investments, you actually might come out ahead with a simpler than dirt portfolio.

Contact me at or leave a comment.

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