Book Review: The Intelligent Asset Allocator

What’s your style of investing: Stocks, or Bonds? And if you say “Stocks”, are you fond of Small Cap or Large Cap, and would those be in the categories of Value or Growth, and in US, European, Asian, or Emerging Markets?

I’ve learned that readers of Mr. Money Mustache vary widely in their response to a question like this.

Some will immediately scoff at the simplicity of it, slicing each of the investment types above into further subcategories and then commenting on their appropriateness given our current position in the business cycle.

Others will discount stocks and bonds entirely, muttering something about “Federal Reserve toilet paper” and “Fiat money”, before talking about their portfolio of precious metals (and at the extreme end of this position, stockpiles of canned food, guns, ammo, defensible land and tinfoil hats).

And quite a few of us will say, “I have no effing idea – I just checked a few appropriate-looking boxes on my company’s 401(k) signup sheet and I’ve got the rest of my ‘Stash in cash  because I don’t feel comfortable enough to invest massively in stocks!”

One of the goals of this blog is to get the latter category of people to get off of their asses and start learning about real investing. You do this by reading books – you might even start with those mentioned in the Book Recommendations page right here on MMM. But you must do it.

The good news is, you don’t need to know anything about investing to start saving for financial independence and early retirement. Learning frugality and how to live an efficient lifestyle is by far the most important part. Paying off all your debt is a good first step. And after that, while your savings are still small, your loss from not investing is small.

The bad news is, every $100,000 you have sitting around in a 1% bank account is missing out on about $6,000 per year compared to what you’d get by investing it well. Right now, it is actually shrinking, since it is growing more slowly than inflation. Your hesitance to read a few investment books is costing you $500 per month, for each hundred thousand idle employees.

So I’m writing this post under the guise of a book review of The Intelligent Asset Allocator by William Bernstein, but it’s really more than that. An understanding of Asset Allocation is a useful and necessary brick in your understanding of stock market investing, and it is something I’ve never covered properly on this blog before, so here we go!

Let’s start with the concept. In a long-ago article on stock investing, I described the basic idea of an index fund and suggested that you don’t have to know anything about individual stocks. You just need to find the right index funds, with the lowest management fees. By using the Vanguard investment company (www.vanguard.com), you get this without any further research.

But in that old post, I oversimplified things by only mentioning the VFINX index fund – a fund that holds only very large US-based companies. That’s still a good no-brainer investment choice for long-term growth, but the concept of Asset Allocation takes it up a notch by offering less volatility (which we all understand thanks to the past decade) while sacrificing little or none of the long-term performance. To understand how this could be, check out the following example:

Imagine you start with a $1.00 investment.
Now you start flipping a coin. If the coin comes up Heads, your investment goes up by 30% For Tails, you lose 10%.

After one coin flip, you could be one of two places:
Up 30% so you have $1.30 : there’s a 50% chance of this
Down 10% so you have 90 cents : also a 50% chance

But what if we start over and split our money in half and add a SECOND coin, and bet 50 cents of our money on the outcome of each coin?
After one flip, you could be any one of four places:

Two Heads:
both of your fifty cent chunks went up by 30%. The are now 65 cents each, totaling $1.30.
Two Tails:
Both chunks are down to 45 cents each. You have 90 cents.
A Head and a tail:
One chunk is worth 65c, the other is 45c, you have $1.10
A Tail and a head:
One chunk is worth 65c, the other is 45c, you have $1.10

Note that each of these outcomes has an equal probability of happening: 25%. But notice how you now have a three out of four chance of making money, and only a one out of four chance of losing it on any given flip. Over time, flipping the single coin and the double coins will yield exactly the same long-term returns: an average of a 10% gain per flip. But flipping the double coins will provide much less volatility.

As it turns out, you can do almost the same trick with stocks by understanding the principles of Asset Allocation (also known as Modern Portfolio Theory) explained in this book. Although it’s not a new idea, it is still quite magical, because we are getting less gut-wrenching volatility without compromising on the long-term return.

The reason this works is because the results of the separate coin flips are uncorrelated. To re-create the smoothing effect of flipping two coins with stocks, investors need to find stocks (or “asset classes”) that are also not correlated.

At the most basic level, this is the idea of “diversification”. If you buy one randomly-selected stock on the stock market, and I buy twenty, on average we might be expected to earn the same annual return, but your stock will swing wildly while my mixture of twenty will tend to cancel each other out and move more smoothly.

But if you look more closely at a graph of the share prices of two large US company stocks, even in different industries, you will find that they are still heavily correlated. They zigzag up and down together in response to the short term diaper crappings of market speculators over irrelevant news headlines. Similarly, if you compare the movements of a stock index of ALL the large US companies and the movements of ALL the small US companies, you’ll see a similar correlation. With correlated assets, you don’t get the full benefits of the double coin flip, so you can’t shake the volatility.

But Asset Allocators have figured out a way around this. By studying detailed historical price charts of many types of assets (stocks and bonds of  multiple countries around the world), they have found an appropriate mix of healthy investments that tend to move much more independently of each other. Bonds, for example, often move in exactly the opposite direction of stocks.

The book offers interesting explanations on how this all works out mathematically, but let’s just skip directly to the end result: You get the best results by owning at least four asset classes.

If you only want four, the author suggests you might hold these ones, by simply plopping 25% of your investment portfolio into each:

US Large-capitalization stocks (as measured by the S&P 500 index)
US Small-cap stocks (the Russell 2000 index):
Foreign stocks (the Europe, Australasia, and Far East index, also known as EAFE)
US short-term bonds

If you wanted to do all your investing with Vanguard funds as I do, you might throw 25% each into VFINX, VB, VDMIX, and VBISX.

Now you’re nicely diversified and owning slices of thousands of companies across the world with only those seventeen capital letters. It is truly an amazing and convenient world we live in. But there’s one last step: rebalancing.

The book explains that due to various market manias, occasionally one of these asset classes will start to inflate into a bubble, even while others will drop in price. To take advantage of this, you sell the funds that have appreciated, and use the proceeds to buy the assets that have gone on sale. Once per year, you simply make the appropriate mix of sales and purchases to set all of your allocations back to 25%, and you have effectively done a “buy low, sell high” move without even knowing what companies you own.

To beginner investors, this sounds crazy, and to advanced ones, it sounds like “well, DUH!”. But if you read enough investment books, they will convince you that the math and statistics behind all of this show that rebalancing works out quite well over the long run. You get reduced volatility and increased returns, with very little effort.

And the convenience goes even further: there are even index funds that will do this asset allocation and rebalancing for you! Vanguard’s VBINX fund, which I have recommended in the past, automatically maintains a 60/40 split of US stocks and bonds. There are surely other funds out there which will do a full 4-way round-the-world allocation as well (if you know of one,  let me know and I will update the article).

So it’s a good book. Financial and engineering nerds will eat it up. But people who find even this article’s attempt at an introduction to the topic confusing will probably want to start with a more general-purpose investment book, like The Four Pillars of Investing, by the same author.

  • rjack February 17, 2012, 6:20 am

    FYI…here is a site that shows various asset correlations:


    • Debbie M February 17, 2012, 10:59 am

      One problem is that the correlations change over time. And lately, they’ve been getting higher than in the past.

      • Mr. Money Mustache February 17, 2012, 11:41 am

        That’s an interesting point – the Asset Allocator book was written in 1998. It makes sense that continued economic globalization would tend to reduce correlations.

        But Rjack’s link still shows some nice noncorrelation using recent time periods. Debbie M, do you have a reference where we could review the increase in correlation over time?

        I’m sure William Bernstein himself is keeping an eye on this as well, maybe his own website or more recent writings would show his opinion.

    • Rbusch June 6, 2014, 4:37 pm

      Another mutual fund that gives you a mix of those 4 asset classes is Fidelity Four in One Index Fund. It is probably a better bet in that the asset allocation is not 25% of each category, but only 15% bonds, more large caps than small caps, etc. Fees are not as low as Vanguard but close.

      • Bryan October 10, 2023, 4:01 pm

        The Fidelity Four in One Index fund (FFNOX) switched to Fidelity Multi-Asset Index Fund in 2021 and now is made up of a mix of 7 ETFs. At this time, 2023, it has a 0.11% expense ratio.

  • Ben February 17, 2012, 6:25 am


    Good summary of an excellent book. Asset allocation is so logical, simple, and important, and yet I made it through 20 years of school (into my PhD) without learning about it in any classroom.

    For those of you who are scared of the math behind it, don’t worry- forge ahead and it will make more and more sense! The four-class portfolio MMM mentioned is a great place to start, and will probably do almost as well as complicated portfolios, in a fraction of the time. For those of you who are asset-class junkies, he describes much more nuanced portfolios.

    Also, for younger investors (like myself), it is easy to ‘buy your way in’ to a diversified portfolio by starting with 1-2 of the index funds and adding funds over a couple of years.

  • Ben February 17, 2012, 6:26 am

    *taking up only a fraction of your free time compared to your stats-geek MMM peers, not earning the same amount of money more quickly.

  • Erin February 17, 2012, 6:37 am

    I am here: ““I have no effing idea – I just checked a few appropriate-looking boxes on my company’s 401(k) signup sheet and I’ve got the rest of my ‘Stash in cash because I don’t feel comfortable enough to invest massively in stocks!”” mixed with I collect canned goods to survive the apocalypse – duh.

    Part of my game plan for this weekend (besides working so I can retire early like the MMM family) is to ride my bike to the library, sign up for a library card and borrow some books on investing. I am trying to behave like a full-blown mustachian this weekend.

    My game plan is to read a few of your book reviews first so I can pick some gooders – but if you have any other/immediate suggestions, please don’t hesitate to let me know!

    • chemistay February 17, 2012, 10:07 am

      I did that last weekend! I started off with ‘Enough’ by Bogle and ‘The Intelligent Investor’ by Graham which are both pretty interesting (if a bit dry…I’ve always been a fiction reader until now). I’m actually going back tomorrow for ‘The Intelligent Asset Allocator’ since the previous borrower finally returned it. Yay for library cards!

    • Debbie M February 17, 2012, 11:10 am

      Canned goods aren’t just good for apocolypses. They are also good for when the stores get bought out before snow storms, hurricane warnings, etc. They are also good for when you are sick or otherwise don’t feel like going shopping. They are good for when your budget is tight for a little while. They are good when the prices of some things go up for a year or two due to bad growing conditions–you can just keep eating the stuff you got at the older, better price.

      They do take up space. They are heavy. So they are bad for moving and they can make it harder to live in a smaller, cheaper house. You can develop allergies or otherwise decide you want to stop eating things you’ve already stocked up on. Old cans can explode. Stuff can leach out of the cans into acidic fillings (but you can use jars for those things). They can rust and stain your shelves. It’s probably like clothes, too, where you can have a whole pantry full of cans but have nothing you want to eat.

      • Alex Martelli May 11, 2013, 12:04 pm

        For disaster preparedness (earthquakes &c), priority #1 is to store at least 3 days’ worth of drinkable water — food is a lesser priority than that. Also consider meds & non-prescription medical supplies (inc. bandages &c).

        Canning your own food is a great idea (saves lots of money AND lets you ensure you have good healthy food in those jars) and I recommend investing in a pressure canner (my favorite brand is Presto). Be sure to rotate your canned supplies regularly (they don’t keep forever!-).

  • The Money Monk February 17, 2012, 6:54 am

    I definitely fall under the category

    “muttering something about “Federal Reserve toilet paper” and “Fiat money”, before talking about their portfolio of precious metals (and at the extreme end of this position, stockpiles of canned food, guns, ammo, defensible land and tinfoil hats)”

    We live in tumultuous times.

    • Mr. Money Mustache February 17, 2012, 12:11 pm

      We sure do live in tumultuous times.

      I mean, shit, just last week I went to the grocery store, and they were down to their last four cartons of whipping cream. What if FIVE people in my part of town wanted to have fruit and cream for dessert that night!? Someone would have to do without!!

      Then there was the time that oil went to $140 per barrel. The shock to the economy was so huge, that Chevrolet started producing fewer of its truck-based Tahoe SUVs, and instead developed the Traverse, which manages a wonderful 16MPG city since it only has a 281 horsepower engine.

      I tell ya, with close calls like that, I can tell our society is JUST on the brink of collapse. We have already cut consumption to the bone and there is just no room for adjustment to any future economic shocks.

      • Oskar February 20, 2012, 12:03 am

        :-) That is some funny stuff…we really need to put our problems in perspective….!

      • Chris S April 1, 2013, 9:07 pm

        MMM, it’s really endearing when you ridicule your readers for not sharing your perspective.

        You really are pretty close-minded some times.

        • Kira October 3, 2014, 6:09 pm

          Closed-minded? I thought his response was spot-on (and funny).

      • Scott May 7, 2013, 1:52 pm

        Hilarious! On a more serious note, I’m following Bogle’s recommended asset allocation (age in total bond index, the balance in total US stock index). Do you think that the four fund portfolio you have here will outperform Bogle’s two fund over the long term? Can you point to any serious studies?? Thanks.

        • Alex Martelli May 11, 2013, 12:09 pm

          I think the age component is bunk (Benjamin Graham had choice words about this silly idea, already popular in his time, but of course his now-old disciple Warren Buffett has even better ones!-) and using index funds *for bonds* is absurd (not even any theoretical justification, but, think of it in common sense terms: it means you want to lend more money to the entities incurring the biggest debts — lend more and more to wastrels who keep getting deeper in debt — how does that make any sense at all?!). Get your bond exposure through actively managed ETFs like BOND, if not via bonds directly!

      • Karen December 15, 2014, 12:13 pm

        Dude, you are my hero. I have about 2000 pounds of food in my basement and no fucking clue where my 401k is invested. But that shit is going to change. Thanks for talking me off the ledge!!

  • October MacBain February 17, 2012, 6:56 am

    Thank you for this. I’m in that third group of investors that has no effing idea. Soon as my debt is paid off (shooting for the end of this year), all of that “extra” money is going into investing in something beyond my 401k.

  • The Money Monk February 17, 2012, 6:57 am

    To paraphrase Chris Martenson,

    Right now we should be more worried about return OF capital then return ON capital.

    • Value Indexer February 17, 2012, 8:06 am

      If you’re going for safety you could aim for preservation of purchasing power, which is not the same as return of capital.

      • The Money Monk February 17, 2012, 10:59 am

        yeah that is what I am doing, I just liked his quote. Obviously if your capital is just returned 100% in dollar terms you could still be wiped out if the currency loses value in real terms.

    • jlcollinsnh February 17, 2012, 8:09 am

      or to paraphrase Buffet…

      since others are so fearful, now is the time to be greedy.

      • Mr. Money Mustache February 17, 2012, 11:49 am

        Yup – I’m with the old wealthy guys on this one. I’ve read/watched Chris Martenson’s crash course, and I enjoyed it – he’s a smart guy. But I feel he is missing the natural flexibility of capital markets in his predictions of doom.

        To put it another way: he made the crash course several years ago. He described quitting his executive job and moving to a small house in the country as a preparation for apocalypse. Then he made this course and ended up earning millions from the popularity it got him – he even does speaking tours now.

        So: times got bad, the economy went crazy, and yet he adapted to the new situation and still managed to go out and make a great living for himself.

        He is in fact an accidental microcosm of what ALWAYS happens: times get tough, humans adapt, and we surprise ourselves by how we managed to prosper despite all the unexpected shit that hit the fan.

        There will be no apocalypse.

        • Mikey November 6, 2016, 7:20 pm

          No apocalypse?!? Way to kill the fun, MMM! Always a spoilsport…*

          *Sarcasm, in case anyone was actually wondering ;)

          • Steve November 8, 2016, 12:24 am

            Unless you read Infinite Jest or watch Idiocracy. Maybe there won’t be an apocalypse, but the future could certainly suck for people that want to steer it away from the lowest common denominator. But it still looks like Walmart 1 – MMM – 0

  • AK February 17, 2012, 6:59 am

    Just when I was starting to to fall for the badassity of MMM, he comes out in support of MPT. If MMM=badassity, then MPT = lemming.

    Markets are incredibly efficient, they just aren’t very accurate. Using historical returns to project future results, is possibly one of the worst assumptions an investor can make. For example, using that logic with long-term government bonds might be the fastest path to ruin for many an investor.

    The best book on investing I can ever suggest is the Dick Davis Dividend, I purchased a copy of it and donated it to my local library. He too adovcates to an extent some of the tenets of MPT, but also presents all sides. I think it’s an excellent book for people trying to figure out their own personal investment style. It truly has something for everyone.

  • gestalt162 February 17, 2012, 7:18 am

    That’s all well and good MMM, and I can pull off this strategy in my 401(k) if I wanted to, but the management fees on funds that mimic small-cap stocks and foreign stocks are a full 1% higher than just keeping my money in VINIX. Is it worth the 1% higher management fees (admittedly it would only be for 75% of my money, so .75% higher fees) to diversify as you said?

    • Mr. Money Mustache February 17, 2012, 11:56 am

      Low management fees are critical. But did you review the Vanguard funds I listed above? The small-cap and international ones have expense ratios around 0.22%. That’s nowhere near the 1% premium you describe.. perhaps you are looking at another brand of funds?

      • Matt February 17, 2012, 12:32 pm

        I got the impression he was talking about 401(k)-specific funds. In some (many?) cases, the employer’s 401(k) pics are quite lousy, and your only choices are high-fee stuff.

        If that is the case, I’m assuming the best bet is to contribute only enough to maximize your employer match (if there is any), then put the rest in a traditional or Roth IRA.

        • gestalt162 February 17, 2012, 2:48 pm

          Yeah this is 401(k) specific. I’ll take both nuggets of advice- go with the low-fee VINIX in my 401(k), and use some of MMM’s silver-bullet Vanguard funds in my IRAs.


          • Alex Martelli May 11, 2013, 12:50 pm

            Lobby as hard as you can for your employer to move the 401k to Vanguard, as mine has — Vanguard’s not any costlier or harder to work with than other 401k guardians, and they’re an absolute delight for the employees. Besides access to all Vanguard funds (often at favored conditions, e.g better-class shares even for smaller investments) they offer a `brokerage option` where you can move 401k monies and invest in any stocks or ETFs — my commissions there are $2 (!!!)… and their fees for handling the 401k at all are the lowest I’ve yet seen anywhere. I can’t believe other 401k guardians get ANY business at all!-)

  • Brave New Life February 17, 2012, 7:27 am

    Thanks for the refresher course, MMM. I read this book about 2 years ago and found it to be the most influential book on my investing strategy, resulting in a complete overhaul of my portfolio (I use the word “portfolio” lightly since my “portfolio” consisted of 100% value stocks)

    I used to be one of those guys that ignorantly said “I’m an aggressive investor so I have 100% of my money in stocks.” I simply hadn’t considered the obvious benefits of the Modern Portfolio Theory. Soon after reading this, I moved to the permanent portfolio (with slight variations).

    Now, can you go back and write this post in 2007? You could save me a cool six figures in capital losses…

  • Value Indexer February 17, 2012, 8:02 am

    Asset allocation was probably around before Modern Portfolio Theory, although it may not have had the same name. MPT includes the idea that you can calculate a precise mix of different assets that will perform exactly the way you want (as long as they do exactly what they did in the past). Before 2008 I used to hear people say that you could use MPT to figure out a mix of stocks that would be as safe as bonds. Strangely I don’t hear that now :)

    Given the surprising difficulty of predicting the future based on past information (20 years is far too short, 100 years is far too long because market data that old might be a horoscope accidentally misplaced), I prefer to be somewhat right instead of precise but misguided.

    • Alex Martelli May 11, 2013, 12:00 pm

      Asset allocation has indeed been along since well before MPT — Benjamin Graham covered it quite simply in “The Intelligent Investor” (for securities only, since that’s what he knew about — not about other asset classes such as real estate, commodities, &c), recommending 50/50 stocks/bonds as typical, stretching up or down within 25/75 – 75/25 if/when you judge the two asset classes over/under priced wrt each other, but not beyond those boundaries. Worked great for the last 60+ years (and was designed based on the experience of the previous 30) through a huge variety of economic conditions. I’m 75/25 these days (fair-priced stocks, too-pricey bonds).

  • jlcollinsnh February 17, 2012, 8:06 am

    Asset Allocation is a wonderful tool and, measured over the decades a young person will be invested, it will deliver almost (but not quite) the same level of return as a 100% stock portfolio.

    For professionals who must measure their performance short and long term it is the only way to fly.

    Since that little margin of difference favoring 100% stocks can compound significantly, my advice to young folks is toughen up, learn to hold thru the inevitable gut wrenching declines, and enjoy the benefits.

    VTSAX is the Vanguard Total Stock Market Admiral Index Fund. With this one fund you get large, mid and small cap stocks. Value and growth stocks. Because large US companies are inherently international in scope, you also have exposure to the the economies of the rest of the world.

    After decades of wealth building in VTSAX, when like me you are older, you’ll want to smooth out the ride a bit. That’s why we now hold:

    VTSAX 50%
    VGSLX 25% (REIT)
    VBTLX 25% (bonds)

    • Mr. Money Mustache February 17, 2012, 12:21 pm

      Hey Collins… although I agree with you almost fully you might be interested in some of the claims made in the Asset Allocator book.

      Bernstein is able to mathematically prove that mixing in an optimal ratio of an uncorrelated asset, even one with a lower return, you can actually exceed the return of stocks slightly, even with less volatility. That is the whole reason I wrote this article.

      The key to this lies in the rebalancing. The non-correlation allows you to reduce the hit taken in the inevitable down years, while automatically buying more stocks during those years – with no need for whimsical market timing. The statistics show that you end up beating the market ever so slightly in this way.

      He calls this optimum line on the returns graph “The efficient frontier”, which is actually the name of his company and website these days.

      Also, remember that Mustachians aren’t usually interested in “decades of wealth building” – at least not with all of their portfolios. Since many of us plan to retire in less than ten years, we benefit greatly from a non-100%-stock portfolio due to the reduced volatility.

      • jlcollinsnh February 17, 2012, 1:30 pm

        yep, we’re on the same page here. important topic and as always well presented.

        I’ve done a lot of reading on this over the years. some sources say AA gives slightly better performance, most say 100% stocks do. all agree the ride will be smoother (not to say smooth though) and rebalancing is key.

        For those retired or planning to in the next decade or so, AA makes all the sense in the world. Heck, even I do it now, although I hate owning bonds. In fact, I wouldn’t argue real hard against it even for longer terms it it helps an investor sleep better at night.

        I would make two observations:

        AA can be many things as it involves selecting from many assets to build your ideal portfolio. This, of course, increases the chance of error in selection and/or execution. Simple is better.

        AAers mainly tout the lower volatility the approach provides and this is absolutely true. But the jlcollinsnh approach is to toughen up and learn to live with volatility for those slightly greater returns.

        Finally, even hard core Mustachians like yourself are likely to continue to earn money long after they reach FI. Don;t start investing like a geezer too soon. :)

        But this is all nit picking. Spend less than you earn, avoid debt and invest gets you there AA or jlcollinsnh style.

        • Mr. Money Mustache February 17, 2012, 2:22 pm

          I don’t know JL – I’ve been surprising myself with how LITTLE money I can earn now that I’m spending so much time working on this blog :-). And I’ve probably averaged less than $20,000 in paid-labor income per year in the six years since “retirement”. Maybe even less than $10k (too lazy to go look it up right now).

          The future is uncertain, and I may again rake in big bucks someday. But I sure don’t have any foreseeable plans to do so, and therefore I am very comfortable with depending on my stable passive income rather than the current market value of any particular stocks.

          • jlcollinsnh February 17, 2012, 3:06 pm

            Ha! me too. if there’s big bucks in bloging it’s eluded me so far.

            but I did have the impression some of your real estate projects were making handsome returns?

            • Mr. Money Mustache February 17, 2012, 4:17 pm

              In recent years, the projects I’ve done mostly involved helping OTHER people make a bunch of money on their houses. I only charged a small hourly fee for the actual work I did – including the most recent “Foreclosure project”. I still might do one by myself, but I have so far resisted the extra commitment needed to do my own high-energy projects since I’m not motivated by earning extra dough. Being a Dad really keeps me busy and uninterested in big business plans (for now).

            • jlcollinsnh February 17, 2012, 6:39 pm

              too bad we don’t live closer. I’d be happy to exploit you for my profit as well.

              Being a Dad is much more important. My little girl just came for a visit from college and we just got back from dinner.

          • Ms Blaise November 9, 2016, 1:50 pm

            This was written in 2012, and in 2016 you are now making 400k plus annually from the blog. How great is that! Well done you. No one will ever see this comment deep in the bowels of the comment section of an old post. But I’ve been reading through from the beginning and felt compelled to post.

            • TBDSEA June 1, 2017, 12:27 pm

              Ha… nobody? I seem to remember that the suggestion is to read from the beginning. A later post said that you could add a mustache to your photo if you read all the articles :)

  • Dollar D @ The Dollar Disciple February 17, 2012, 9:15 am

    I like how the analogy of flipping a coin is applied to stock investing…

    I like to think our odds of the market going up are greater then 50% over the long term but I think if you ask the people whose retirement accounts got crushed in the recession they would probably not even be that optimistic.

  • FreeUrChains February 17, 2012, 9:17 am

    Aren’t these Index Funds leveraged 100:1 by their fund Managers? Almost like Housing Prices, most consumers borrow with a mortgage, or a non-recourse loan [high incomers do this for their houses, while low incomers do this more for Apartment Complexes in CA], they pay their minimums for 30 years usually making a profit if renting out at a high rent, then they have enough cash to put 20% down on more non recourse loans or mortgages, until one person is making $100k-$1M/ year, while technically leveraging/ borrowed $10M-$100M. The same thing is done with index funds of other people’s money and with Businesses’s with stock investor’s money.

    The Owners, Fund Managers, CEO’s, and Bank Leaders have the power of control of the leverage. When they Sell, not if, they destroy lives in the process, millions of people lose millions of dollars as they “Strategically default” from their 100: 1 leverage.

    • Mr. Money Mustache February 17, 2012, 12:01 pm

      Nope, that does not accurately describe any of the funds at Vanguard, and indeed probably not any index fund at all.

      You might be confusing Index Funds (passively managed funds which simply track a group of stocks), with Hedge Funds (highly computerized science projects with use massive leverage and dubious statistical predictions to often earn 25-100% annual returns, and occasionally earn -10,000% returns.

      The shiftier categories of Hedge funds, and their externalizing of financial mass destruction, is actually one of the things Vanguard founder John Bogle speaks out against in his book “Enough”, reviewed elsewhere on this blog.

  • BC February 17, 2012, 9:33 am

    MMM, on the Vanguard VRTIX you recommend, it’s an institutional fund and the minimum investment amount is 5 million. I think NAESX is the small cap fund you were meaning to suggest, it has a $3,000 minimum.

  • Carolina on My Mind February 17, 2012, 9:53 am

    Thanks for this article, MMM. I have a lot to learn about asset allocation, but my biggest question is this: if I’m currently contributing the maximum to my 401(k) and putting part of my take-home pay into index funds every month, should I use the same allocation for my 401(k) contributions as for my after-tax investments? Or should I use one allocation for pretax investments and a different one for after-tax investments, so that together they create the overall asset allocation that I want?

    For example, suppose my 401(k) account is divided among a few asset classes, but ALL of my after-tax investments are in stocks. Is that okay as long as the overall allocation is what I want, or should my after-tax investments be similarly diversified? Or should the two accounts both be diversified, but differently? Does this question make sense? I’m not asking for specific advice about my own situation, but would love some general thoughts from you and your readers on this subject. Thanks!

    • BDub February 17, 2012, 11:51 am

      I am assuming you are still in the wealth accumulation phase at this point.

      Anything that spits out income/dividends should be kept in a tax-deferred (401K) or tax free (Roth IRA). Assets that reinvest income through growth and price appreciation could be kept in normal brokerage accounts if Roth and 401K are maxed.

    • Matt February 17, 2012, 12:22 pm


      I’m definitely no expert, just learning these things myself. But from what I gather (and what I’m doing), is you should look at everything as a whole. I.e., 401(k) plus any IRAs plus cash plus stuff in e.g. a brokerage account.

      And note that retirement accounts are generally tax-advantaged, typically meaning you pay taxes when you start taking distributions (i.e. in retirement). A true MMMer will take minimum yearly distributions, meaning minimal taxes. IOW, most people will probably have a lower tax burden when they retire. With this in mind, put things that pay a regular yield (high-dividend funds, most bonds, REITs, etc) into a tax-advantaged account. Then put the long-term growth stuff (i.e. where you realize gains in the distant future) into taxable accounts.

      The only catch to the “unified portfolio” approach is when you think about early retirement. If you retire before 65 or whatever, then you’ll (generally) only have access to your taxable account stuff. So in this case you would want to mange two portfolios separately. But to me, unless I get some good info to steer me otherwise, I think I’ll continue to take the unified approach. And only when I actually get to the point when I can early-retire will I look a split-portfolio view, and re-balance accordingly.

      • TBDSEA June 1, 2017, 12:39 pm

        The question of how to distribute your asset allocation across tax advantaged, and non-tax advantaged accounts is subtle, but important. In my field we put the higher risk/higher reward allocation into the most tax advantaged account, and the least risk/least reward in the least tax advantaged account. This way you are able to take advantage of low taxes on the biggest gains.

        For the most simple example imagine you have 2 types of accounts, and 2 types of assets: you have asset allocation of bonds (VBTLX, as JLCollins suggested above) and stocks (VTSAX, again as JLCollins suggested), and you have tax advantaged accounts (say a Roth IRA or 401k) and a non-tax advantaged account, such as a straight brokerage account.

        In my field we would suggest that you put the stocks in the advantaged account, and the bonds in the brokerage account. Why? Because if the gains are greater in the stocks, then you reduce your tax burden.

        • Sarah September 3, 2018, 8:13 pm

          This is the opposite of what I’ve read everywhere else. Any mix of stocks and bonds can go in one’s 401k/403b or traditional IRA, while Roth IRAs and taxable (brokerage) accounts are best off, tax-efficiency-wise, with 100% stock – all of this because of the inherent tax inefficiency of bonds, and the tax efficiency of stocks. (I am speaking here ONLY of passively managed index funds, not individual stocks and bonds of which I know nothing.)

          When you say “In my field,” what field is that?

          Perhaps I have misunderstood what you meant. No matter. For anyone seeing this and wishing to read more, here’s an article from Vanguard on tax-efficient placement (“asset location”): https://advisors.vanguard.com/VGApp/iip/site/advisor/etfcenter/article/ETF_AssetLocation

          and a longer research paper that covers the same and more: https://personal.vanguard.com/pdf/ISGTEEI.pdf


  • BusyExecutiveMoneyBlog February 17, 2012, 10:09 am

    Engineer nerd here. Bernstein is one of my favorites. His concepts, coupled with the John Bogle’s theory of low cost index investing is my current strategy.

  • Poor Student February 17, 2012, 11:54 am

    I never thought of stock investing like using the coin flip, or at least the concept of adding more coins means the chance of a big loss is less. My portfolio is not nearly as diversified as I would like, but with each purchase I make sure to buy at the very least a different sector, if not entirely different asset class.

  • Christine Wilson February 17, 2012, 11:57 am

    Thank you. I understand diversification and rebalancing a portfolio but need to know which industries are correlated! I love the simple breakdown of four categories. I’ll probably start there. Looking forward to reading this book and increasing my knowledge.. to where it should be! Thanks!

  • lurker February 17, 2012, 12:00 pm

    check out the correlation with commodities before just putting everything into stocks and bonds…what do you wise mustaches think?

  • Ed February 17, 2012, 1:04 pm

    MMM, you often mention yourself being a bit green and frugality often goes together with being green (biking, library, no 200 hp cars etc…) however if one would like to extend that into investing, there is not much around… Living in Europe, i am lucky to be able to invest in wind coops which usually pay 4-6% dividends. But in the US, what is available? All of the large caps are companies with no green credentials at all, in fact i’m pretty sure they contribute to non-moustachian lifestyles as well. (oil giants, consumerism etc) And if Moustachianism becomes mainstream your stocks will actually crash… But that will probably never happen: instant satisfaction of spending money on “stuff” is more appealing than keeping the wallet closed and watching in agony VBTLX moving up and down :)

    • Mr. Money Mustache February 17, 2012, 2:32 pm

      We’ve got some good investments like that around here too. In fact, that would be a good topic for the forum – sharing green investment ideas. I wouldn’t be surprised if a solar/wind operator could return greater than 6% dividends in the years to come, actually.

  • ermine February 17, 2012, 1:17 pm

    so what happens if Vanguard go titsup?

    There must be other companies doing an S&P500. You have zero diversity against your fund provider. That would bother me. They have been known to go down in the past, and diversity in this direction is hopefully easy to get?

  • plainquaker February 17, 2012, 1:45 pm

    (adjusting tinfoil hat)

    As adherents to the Alpha Strategy, a book you might want to add to your
    list, we are about to take a position in propane. It will be about a thousand
    gallons at $3.49 per gallon.

    We wanted to top up before the Currency Wars really heated up later this
    spring, and gasoline jumps to five bucks a gallon. By following the Alpha
    Strategy, we are still eating at 2007 prices and baking bread with nine dollar
    wheat berries.

    Currency Wars is another book to add to your Library. It will explain why
    precious metals are the place to be in the race to the bottom.

    And for Mike Key; If you took the time to read economics and history you
    would know that there will always be a new system to replace the old one. But the transition from one system to another can be a time
    of great austerity and hardship for people who have not prepared. It might
    only be a few years. But that will be little consolation if you cannot heat
    your home or fill your belly.

    If I may quote Kyle Bass who purchased 20 million nickels as a hedge;

    “I’m not someone who is hell-bent on being negative his whole life,” he said. “I think this is something we need to go through. It’s atonement. It’s atonement for the sins of the past.”

    The take home: Atonement is coming, bitchez. Beavers beware.

    Unless of course you really believe that “This time is different”, in which
    case you may safely ignore Black Swan theory.

  • Mr. Money Mustache February 17, 2012, 4:19 pm

    Very interesting stuff!

    I also recently took a smaller position in Propane, about $30 worth in the form of two cylinders full – in anticipation of Barbecue Season.

    • QUAKERPLAIN February 17, 2012, 5:37 pm

      make that $2.09 per gallon with the bulk discount applied. That is what
      propane cost back in 2005, and is a years supply

  • Bryan in Tahoe February 17, 2012, 11:20 pm

    I made one of the best investments of my life today: Refinancing my mortgage from 4.25% to 3.75%, with a 1.5 point CREDIT from the lender which wipes out all closing costs and actually puts $500 in my pocket, and lowers my monthly payment by $100 a month. Crazy! I’m getting paid $500 to save $100 a month.

    Regarding investing: Why didn’t we all just by AAPL 10 years ago?

  • regambale February 18, 2012, 6:57 am

    Fellow MMM Blog readers,

    I am hoping that someone can help me answer this question. Without rambling on into too much detail, here is the short story: I own three homes. Two are rentals, and one is a primary. The rentals have no mortgage and bring in a combined $2475/mo. in rent payments. Cost for ONLY taxes, insurance and HOA fees is about $700/mo. (combined). Our primary residence has a mortgage (just purchased in Sept. 2011). Monthly mortgage is $1520 ($243k loan, 4.25% interest). The only debt I have is the home, and a student loan ($14k at 6.8% int.). But there is currently no extra money to save/invest (except in husband’s 401k). Should I sell the two rentals (despite the houseing market) and pay off all debt to be completely debt free and begin investing extra money elsewhere (both homes should bring in about $360k, not including closing and other costs)?? Or hang on to the rentals for the income and try to sell later?? My gut tells me to sell now because just taxes, insurance and interest on the primary home is costing about $20k/yr. which seems to outweigh what the homes could increase in value over the next few years. Thoughts/suggestions??

    appreciated!! thank you!

  • regambale February 18, 2012, 6:58 am

  • Mr Mark February 18, 2012, 9:59 am

    I’m always amazed when peolpe haven’t heard of VANGUARD.

    There are 2 ‘core’ funds – a nice place for ~30% (?) of your stocks – I like:

    Vanguard Wellesley Income Fund Investor Shares (VWINX) [fees 0.25%]
    Vanguard Wellington Fund Investor Shares (VWELX) [fees 0.3%]

    Then there are then loads of funds to diversify with. They have some nice tools to help you choose. I’m long on these ones [fees%]

    Vanguard Equity Income Fund Investor Shares (VEIPX) [0.31%]
    Vanguard Mid-Cap Growth Fund (VMGRX) [0,31%]
    Vanguard Extended Market Index Fund Investor Shares (VEXMX) [0.30%]
    Vanguard International Growth Fund Investor Shares (VWIGX) [0.47%]
    Vanguard Small-Cap Value Index Fund (VISVX) [0.37%]

    I’m a bit wary of bonds right now. The balanced funds above have enough for me. But if you are in a high tax bracket you could look at intermediate term tax-free Municipal bonds.

    But only investing in pieces of paper make me nervous too. So I think owning 2 properties (the one you live in, and a good rental) is a big part of MMM’s success. It’s your own dividend machine. The associated gains from a bit of fun ‘sweat equity’ are a bonus, and the rent is inflation proofed automatically.

    Plus I have a slice of a forest (land equity + tree crop) that grows every day at ~10% compounded per year, regardless of Wall St.

    As I get to FI, I’ll rebalance a bit towards dividend stocks and corp bonds. Maybe some annuities.

    • Alex Martelli May 11, 2013, 1:06 pm

      Great ideas. In my 401k at Vanguard, I get to buy — even in small amounts — VWIAX — the Admiral version of Wellesley — at just 0.18% expense vs VWINX’s 0.25%, so that makes it even more of a no-brainer for the bulk of my 401k. It’s an actively managed fund (with low turn-over), 1/3 in dividend paying solid large-cap stocks, 2/3 in investment-grade corporate bonds — proof positive that “actively managed” (vs index) does NOT have to mean “high cost”!-).

      Wellesley is very US-centric and investment-grade-centric, so I put the rest of my 401k in international stocks (again, mostly, through Vanguard funds) and especially in friskier bonds & other fixed income investments (via, mostly, actively managed ETFs: HYLD, SNLN, BIZD, GLCB, EMCB — with Vanguard 401k’s `brokerage option` at $2 commissions, a smattering of small ETF positions is fine!-)…

  • Walkinwood February 18, 2012, 10:09 am

    This book was instrumental in my reaching ER.

    In the late 90s, I thought, like everyone else, that I could pick winning stocks, and they comprised the bulk of my portfolio. The stock I2 going up 10-fold after I bought it, proved that to me. The end of that story is not news to anyone here – I lost almost 40% of our portfolio.

    Then, in 2002 I read this book. Bought the argument, did more reading, decided on an Asset Allocation, sold all my individual stocks, bought no-load, low cost mutual funds and have stuck to it since then.

    We ER’d in May 2008.

    I highly recommend Bernstein’s The Four Pillars of Investment and Burton Malkiel’s A Random Walk Down Wall Street.

    Keep up the good writing.

  • Marcus February 18, 2012, 1:51 pm

    This is very interesting and will help me restructuring my investments a fair bit. I think I may have been trying too hard to “beat” the market, which clearly isn’t a good long term strategy, even if i spent my full day, every day, doing it. I don’t. Instead I spend my days doing other work, which I may be better at, as my employer keeps paying me to do it.

    Anyway, my question is whether hedging in volatility indicators, such as VIX or its mirror XIV, is something that would be a good option in this case? They are highly unpredictable, but they should do the opposite of the market fairly often.

    • Value Indexer February 18, 2012, 6:32 pm

      There’s long-term opposites and short-term opposites. For example take the two ETFs that are respectively double the S&P 500’s daily return, and double its inverse return. Over one day they are opposites as promised, but over a year they can both lose money even though one is the opposite of the other.

      The relevant period is the time between rebalancing, which should be between 1 and 4 years for most people. If something isn’t correlated to the other asset classes over that period, then it may be a good addition if you aren’t diversified enough yet. I don’t want to hand down rules since (like most experts) I’m not actually an expert but if you have 4-8 somewhat different asset classes you’re doing all right. I also have a personal rule not to invest in anything that doesn’t use the capital productively to generate at least a modest cash yield on its own, even to diversify (is there an engine powered by gold yet?).

  • Shilpan February 18, 2012, 7:47 pm

    Have you considered ETFs? Vanguard is the best choice for no-load index funds but, you can also diversify your portfolio by buying ETF for each of the categories that you’ve mentioned in your article.

  • Gray Fox February 20, 2012, 6:40 pm

    Gray Fox here. Asset allocation of almost all stocks during times of crisis…think 4Q08 and 1Q09…goes to 1. It doesn’t matter whether they are large cap, small cap, Europe or whatever, they are almost 100% correlated…right when you need them to NOT be. This has caused a real dilemma for the Bernstein-type allocators (and there are many of them around).

    The thing is, asset allocation is a great idea. The nub is finding relatively uncorrelated asset groups instead of looking at the traditional large caps/small caps/Europe etc (by the way, Europe was over 90% correlated with the US, although this may again be switching back because, as Margaret Thatcher said, “socialism works as long as you don’t run out of other people’s money”. Well, that wall is in the process of being hit).

    So what to do? How about this: do some research on Harry Browne. Harry was a big libertarian guy who actually ran for president (I think) some years back. No traction there, but he was pretty astute in his investing, and actually came up with something called the Permanent Portfolio. It goes like this:
    25% money market funds…holding ONLY US paper
    25% 20-30 year US bonds
    25% S&P 500 index fund, as mentioned by MMM above
    25% gold
    …yes, gold…not gold stocks, but gold. You can buy the bullion coins OR etf’s like GLD or IAU (check them out).

    He found over the years, with rebalancing (MMM is spot on…rebalancing is a huge key to success here), your volatility was stunningly low and your returns were really decent.

    I could go on and on, and will when I get an opportunity to post on my blog. I think you get the idea.

    Permanent Portfolio. Harry Browne. I have adopted the idea for part of my holdings.

    Peace out.

    The Gray Fox

    • jlcollinsnh February 21, 2012, 10:51 am

      Browne is an interesting guy who expects a de-flationary depression and/or Armageddon.

      In the case of the 1st, the money funds and long-term bonds will be stellar and holding actual gold is thought to be for the latter. If society really collapses, I’m not so sure will be trading in gold or anything else.

      If we don’t go into a depression those cash holdings will be returning close to zero percent and long bond prices will collapse with the resurgence of inflation.

      His 25% S&P holding is his insurance in case the world doesn’t end.

      So that becomes the fundamental question we all must answer for ourselves: what does the future hold?

      As for me, I’m in the optimistic camp. So I hold 50% in stocks, 25% RIETS and 25% bonds (in case we do deflate.)

      I also figure if Armageddon does come, none of this will matter anyway. ;)

      • Gray Fox February 21, 2012, 6:33 pm

        Getting back to Mr. Collins of NH, if this is something you truly have an intellectual curiousity about, there is an article about what happened when Iceland’s economy and banking system collapsed a couple years ago.

        Gold actually saved the bacon of those who owned it. In fact, the Iceland version of the PP actually overall preserved capital reasonably well…considering stocks and govt bonds went to hades in a hand basket.

        If one had rebalanced according to PP principles, one would have done decently compared to, I think, stock losses of somewhere 75-90% (just going from memory).

        Yes, that was Armageddon to them. Yet the PP has a solid low-volatility track record going back to 1970…in US market terms.

        Anyway, this approach works…at least has for the last 41 years through all kinds of different market chaos.

        The Gray Fox

        • jlcollinsnh February 21, 2012, 7:04 pm

          not sure I see a disagreement here, Mr. Fox. For the kind of collapse Iceland experienced the PP portfolio would be expected to perform very well.

          Fortunately, those events are rare and it makes more sense to me to build a portfolio based on more common expectations.

          But for those who expect financial collapse PP would make sense. and any portfolio that holds 50% in cash and long term bonds will have low volatility. However, during inflationary times those same holdings will get killed (but rebalancing will help) and if the economy improves such a portfolio will significantly underperform.

          if Armageddon — that is the real collapse of worldwide financial, social, moral and political structures — ever does occur, what’s in our portfolios will be the least of our concerns.

          Or maybe I’m just watching too much of The Walking Dead.

  • Ross February 21, 2012, 10:19 am

    I think I understand the idea of what you’re saying in principle, but I’m wondering over what time scale the investments should be uncorrelated? For example, I took a look at the history of the four Vanguard investments you mentioned at the following Google Finance link:


    (please be patient, it might take awhile to load all the data). Scrolling through the history of percent change, three of the four investments (the exception being VBISX) seem to move more or less up and down together on daily, weekly, monthly, and yearly time horizons. The fourth seems to change hardly at all. Is this sufficiently uncorrelated or is there something I’m not understanding?

    • Alistair June 27, 2016, 8:43 pm

      Yes this really needs answering. Also, VDMIX is not something that appears to be purchasable on Vanguard any more?

  • Marcia February 21, 2012, 11:56 am

    I found that to be really interesting. I will admit to starting my 401k savings that way. We are more diversified now for sure, but at an expense of – yeah, we pay a financial planner to help us diversify.

    We still manage to find ourselves with 10’s of thousands of dollars at the end of the year that just accumulated in savings, so I might have to spend more time to actually take over some of my own money management.

  • Mr. Money Mustache February 22, 2012, 9:17 am

    Hey Jon – this article might help fill out the picture a bit: http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-safety-margin/

  • BC February 22, 2012, 12:21 pm

    I was actually referred to MMM by someone on a forum for the Harry Browne Permanent Portfolio. I must say, looking up the correlation of the four investments of the Permanent Portfolio, vs. the four Vanguard funds listed here, the PP investments seem to be FAR less correlated. I would like to hear Ross’ comment above addressed by MMM or someone who can better explain this.

  • Chris March 25, 2012, 9:32 am

    Vanguard is the best. It’s unique ownership structure makes investing in its funds incredibly cheap. The mutual funds own the company so when you invest in Vanguard, you are part owner. This keeps the costs of investments incredibly low.

    There are two easy investments with Vanguard that might help someone who wants easy, hands off investing or if you are brand new to saving/investing.

    Take a look at the Vanguard Lifestrategy funds and Vanguard Target Date Retirement funds. Both investments are set up with the Total Stock Market Index, Total International Stock Index, and the Total Bond Index. The lifestrategy funds are fixed asset allocation according to which one you choose. They have Growth, Moderate, Conservative and Income. Simply pick the one that suits your time horizon.

    The Vanguard Target Date Retirement funds invest in the same index funds except they automatically become more conservative as you approach your Retirement Date. Target Date Retirement Funds also add Inflation Protected Bonds and Money Market (cash) to the index mix when you approach your retirement date.

    Both are excellent investments and very cheap. Expense Ratio 0.13 to 0.19%. You can’t go wrong picking almost any of Vanguards funds. These two all-in-one funds categories are my favorite. Take a look and see what you think.

  • drea September 29, 2013, 7:00 pm

    re: rebalancing
    ‘Once per year, you simply make the appropriate mix of sales and purchases to set all of your allocations back to 25%, and you have effectively done a “buy low, sell high” move without even knowing what companies you own.’

    What if all of your indexes had losses? just make a sad clown face and hope next year is better?

    • wij May 12, 2014, 7:59 am

      Even if all your indexes have losses in a year, it’s likely that some had more loss than others, so the result is that the actual dollar amounts in your accounts are no longer in the relative proportions you want them, so rebalancing can still be done. The same is true if all your indexes have gains in a year; some will gain more than others, throwing the balance off. The only time you wouldn’t need to rebalance is if all your indexes had exactly the same return (whether positive or negative).


      Say you started with $75K of fund 1, $50K of fund 2, $50K of fund 3, and $25K of fund 4. Your asset allocation is 3:2:2:1 or 37.5% : 25% : 25% : 12.5%. If all of your funds tank, suppose the end result is $50K : $45K : $10K : $15K. These are all losses, but not all at the same rate of loss. Fund 3 did the worst, falling from $50K to $10K.

      Your asset allocation is out of whack. You now have a total of $120K instead of $200K. To get back to the asset allocation you prefer, you need it to be 3:2:2:1 again. So you rebalance to $45K : $30K : $30K : $15K. You’d do this by selling $5K of fund 1 and $15K of fund 2 and buying $20K of fund 3. No change to fund 4.

      In this rebalancing you can see that you’re forced to sell from the funds that did well relatively speaking and buy more of the funds that didn’t do so well. Fund 1 lost “only” 33% and fund 2 lost “only” 5% and you sell some of those to bolster up fund 3, which lost a whopping 80%. This is still a sort of “sell high” and “buy low” approach, although it may seem odd to think that you’re “selling high” when fund 1 and fund 2 holdings are worth less than they were before.

      What you’re really doing is selling from the funds with the higher recent returns and buying into the funds with the lower recent returns. It’s not always the case that the higher returns will have to be positive and the lower returns will have to be negative. It’s just that in that case it’s a little more obvious that you’re buying “high” and selling “low.”

  • Stephen October 25, 2013, 2:22 pm

    The permanent portfolio (Harry Browne) is similar and has been shown to work over long time scales. http://quotes.morningstar.com/fund/f?t=PRPFX is one such fund. Its performance is a little off a theoretical permanent portfolio but does seem to be getting closer as it matures.
    An etf product is http://www.globalxfunds.com/permanentetf/

    Disclaimer, I’m not in either as I’m in Euro land.

  • TW January 25, 2014, 11:22 am

    Hello MMM,

    I’m a first time investor (outside of my retirement accounts)

    I was revisiting this page to begin my Vanguard investments today, but it appears VDMIX and VDMAX (admiral version) are both closed to new investors. Is there an alternative (preferably admiral) to this fund?

    I later read in one of the post in your forum that users suggested:
    VTMGX (10% ER) and VTIAX (16% ER), Vanguard’s comparison feature shows that VTMGX is pretty close to VDMAX and I just wanted to check with you if you see VTMGX as a good replacement as a 25% mix into this article’s equation.

  • Allan March 20, 2014, 1:09 am


    When considering asset allocation as a non American, should I use my own countries stock market in place of the us stock market and consider the US as a foreign investment.

    This does not seem right to me as my own country (Australia) makes up a small portion of the global market.


  • Chicago April 25, 2014, 10:41 am


    What are your thoughts on the LifeStrategy Funds vs. the blanced fund you mentioned (VBINX)? Or, do you think it’s better to buy each fund separately and rebalance them yourself?


    In regards to your comments under the article “How Much is Too Much In Your 401k,” if you think buying separately is better, do you now recommend ETFs (such as VTI) over the mutual fund version (VTSMX)?


  • "Nugent. Ted Nugent" May 25, 2014, 8:52 pm

    William Bernstein’s “Deep Risk” which is the third booklet in his “Investing for Adults” series addresses many of the questions/topics here rather well….especially the Harry Browne approach (which I was a subscriber of prior to reading Bernstein’s booklets.) He really takes the theory behind asset allocation to a new level and suggests that ALL risky assets that can be easily traded are going to be highly correlated in times of economic duress…

  • Noobie June 25, 2014, 10:54 am

    I’m still in the no ef’ing idea category but my understanding is that Bernstein’s advice is generally aimed at people in their 20s. I’m in my late 30s and trying to save and invest so that I can retire at 55 or 60–is this advice still relevant for me?

    Also, if it is relevant… do I really need to read the book? What else will I get from reading it that isn’t here? (I’m asking because reading a finance book is my idea of painful. )

    • Greg January 14, 2016, 4:08 am

      Noobie, I’m kind of with you here. I AM reading “Your Money or Your Life” right now since it seems to be the foundational read for the MMM lifestyle, but the other books people mention don’t tempt me much at all. I wonder the same question that you ask. What did you decide?

  • Raphael D. October 14, 2014, 1:11 pm

    Good evening MMM, I don’t know how many readers you have based in Europe, specifically in Germany, but I’m one of them. I guess I’m a pretty young reader (21 in march 2015) and therefore not very familiar with investing. Although I do have a portfolio with about 5000 euros, it is a portfolio which has self-selected stocks such as Microsoft, McDonalds etc.(I was aiming for the big names when I opened it at the naive age of 18 when I was finally legally able to manage my money.) Anyways, ever since I got hooked on Mustachianism (which unfortunately bases all it’s investing tips on North Americans), I have a hard time selling my portfolio and pumping the money into diversified Vanguard assets due to unnecessary taxes. What would you suggest for the european Mustachian to invest in?

  • Eric October 18, 2014, 12:53 pm

    Bernstein has a couple of books that are suitable for younger investors (“4 pillars of investing” and “If you Can”) come to mind with the former being a really great primer on investing. You definitely couldn’t jump into his “Investing for Adults” series without having a pretty solid understanding of the fundamentals.

    As to whether or not you really need to read them, it all depends on how interested you are in the topic. If you have no interest, you could do pretty well just picking a target date retirement fund from Vanguard, setting up an automatic deposit each month and forgetting about it. I happen to be really interested in Portfolio Theory so I like to dig deeper and learn as much as I can to be able develop a portfolio that is customized to my personal risk tolerance, goals, and tax circumstances.

  • Ulf Benjaminsson December 5, 2014, 5:30 pm

    I wonder, for those of us still building the stash and doing regular deposits, how do we decide how to invest the cash each time?

    My salary comes monthly and is promptly invested. But how do I spread it?
    – do I buy the currently cheapest pillar (= price per share) to get the most shares for my money?
    – or do I buy whatever asset is currently falling behind, to keep the current value of each pillar in the 25% range?
    – or do I only worry about how much I’ve spent in each pillar, making sure I spread the cash evenly each time?
    – ???

    This is probably completely obvious, but I can’t seem to figure it out. Anyone know which is the “correct” strategy to do continual asset allocation?

    (and yeah; I get that once a year I do a proper re-allocation by selling/buying appropriately. But as long as I’m only buying, what do I do?)

    • Eric December 10, 2014, 8:01 am

      I would recommend the second option you suggested, adding new money to whichever pillar was below the 25% level. Depending on how large the account is and how much you are adding each year, this could eliminate the need to do an annual rebalance. This would be beneficial if you are investing in a taxable account since your rebalance would likely trigger a taxable event.

  • Monsieur Sanscash March 5, 2015, 10:31 am

    Hi MMM,

    Just started to read your BLOG in January and I am hooked. I have been to worst Mustachian ever and your BLOG really helps me to see that there is light at the end of the tunnel.

    I just wanted to add a link for the Canadian folks like me, which is related to this post. It is in-line with your index philosophy and this book. It’s called the Canadian Couch Potato, which provides three basic diversified portfolios that needs to be balance only once a year. http://canadiancouchpotato.com/model-portfolios-2/

  • Jared April 30, 2015, 11:45 am

    Do you still recommend these four funds now in 2015? Thank you for all the inspiration over the years.

  • Erik May 6, 2015, 5:48 am

    Great stuff (again), MMM! However I would like to deepen into the allocation of bonds and stocks specifically, as I miss out on it both in the article and subsequent reactions. The rule of thumb for Bogleheads is, after establishing sufficient cash reserves, your age (in %) in bonds and the remainder in stocks (both in low expense index funds of course!). Depending on how risk averse (or seeking) you are, you can increase (or decrease) the investments in bonds. The reasoning behind this and way more is accurately described in the book The Bogleheads’ Guide To Investing. I would recommend everyone to read this, especially since it serves as a great complement to the information conveyed on this blog. (Hopefully this will soon be part of The MMM Reading List ;) )


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