Core Four Portfolios

Core four portfolios are simple indexed portfolios that allocate assets across four asset class mutual  or exchange-traded funds.

Vanguard core four portfolios

Starting February 6, 2013, Vanguard began offering investors four fund portfolios, invested in four “total market” index funds through the firm’s series of low cost target date  and  target risk (called LifeStrategy)  balanced index funds. Furthermore, the firm’s on-line portfolio allocation tools now suggest similar four fund allocations.

The Vanguard  target date and LifeStrategy portfolios allocate investments across the following asset class index funds:

  1. Vanguard Total Stock Market Index Fund, holding approximately 3600 stocks,
  2. Vanguard Total International Stock Index Fund, holding approximately 5500 stocks,
  3. Vanguard Total Bond Market Index Fund, holding approximately 6300 bonds,
  4. Vanguard Total International Bond Index Fund, holding approximately 2300 bonds.

In its annual reports, Vanguard asserts that adding international bonds to its all-in-one balanced funds serves to further diversify their portfolios and dampen the volatility of their returns [see Vanguard – Global fixed income: Considerations for U.S. investors]. The large infusion of target date and LifeStrategy fund investment directed to the international bond fund has given the fund  a larger initial pool of assets to facilitate better sampling the fund’s index.

Vanguard allocates 40% of a portfolio’s stock allocation to international stocks and allocates 30% of a portfolio’s bond allocation to international bonds. The charts below show the portfolio allocations for four stock/bond allocation splits. (Click charts to enlarge).

Rick Ferri Core Four

Investment author and advisor Rick Ferri proposes a four fund portfolio that adds a US equity REIT fund to a portfolio consisting of US stocks, International stocks, and US bonds.The asset allocation menu holds the following positions:

  1. A US total market index fund
  2. An international total market index fund
  3. A US REIT index fund
  4. A US total bond market fund

Rick proposes that investors first determine their bond allocation. With the remaining funds, allocate 60% to US stock, 30% to international and 10% to REITs. For example, this formula  would provide the following allocations (click charts to enlarge):

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog

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