The Core Four Portfolio by Rick Ferri invests in four fundamentally unique asset types that are productive both on their own and as a group.

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• 48% Total Stock Market
• 24% International Stocks
• 20% Intermediate Bonds
• 8% REITs

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Overview

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Rick Ferri has long been a vocal champion of low-cost DIY investing, and the Core Four Portfolio represents his best advice for people who want to escape high fees and complex asset allocations. In his own words:

Simple investing is a virtue – the ultimate in portfolio sophistication. A few low-cost, broadly diversified index funds or ETFs held in a portfolio will beat complex strategies almost every time. Why waste your time and money on complexity? Be simple and be rewarded.

The four assets in the Core Four are selected based on the following characteristics:

1. All have an economic purpose that is fundamentally different from each other.
2. All produce regular cash-flow from interest, dividends or rents.
3. The historic correlations between asset classes have resulted in a diversification benefit.
4. All asset classes can be purchased using a very-low cost index fund or ETF.

A notable part of Ferri’s philosophy is evident in the juxtaposition of points 2 and 3. While some portfolios select assets primarily for how they affect overall performance as a group, Ferri believes that they should also stand on their own with regular cash-flow.

The Core Four Portfolio does a nice job of distilling several similar portfolios down to their simplest form, and is a good choice for investors seeking a solid financial foundation with low fees and minimum complexity.

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Portfolios with a similar structure or design intent

Ideal Index Portfolio — Similar structure with a few more stock funds

No-Brainer Portfolio — Shares a common philosophy with a different 4th fund

Pinwheel Portfolio — Builds on the Core-4 assets with performance-augmenting tweaks

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The Global Market Portfolio by Doeswijk, Lam, and Swinkels represents the total investible financial market weighted by the market share of each asset.

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• 45% World Developed Stocks
• 5% Emerging Market Stocks¹
• 44% World Developed Intermediate Bonds²
• 4% REITs
• 2% Gold³

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Lots of index investors talk about the benefits of owning the whole market rather than picking and choosing investments. But if you peel back myopic index definitions and truly look at the big picture, what is the market? The Global Market Portfolio answers that question by following the true cap-weighted global market for all possible investments.

Several people have written about the Global Market Portfolio, but the underlying research almost invariably traces back to a set of academic papers by the trio of Ronald Doeswijk, Trevin Lam, and Laurens Swinkels who did the real legwork to gather the insane amount of data required to describe the total market as a whole. While they cover the bases in extreme detail, the fascinating thing from a portfolio perspective is that the Global Market Portfolio can be easily approximated with only 5 simple index funds. So even with the broadest-possible market coverage that may seem impossibly complex on the surface, investing in the whole world is easily attainable with minimum effort even for DIY index investors.

Featured Discussion

Own the Financial Field With the Global Market Portfolio

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Portfolios with a similar structure or design intent

Total Stock Market — The same philosophy applied to the US stock market

Sandwich Portfolio — Similar structure with a few more funds

Classic 60-40 — Follows the single largest market rather than the entire world

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The Three-Fund Portfolio prioritizes simplicity in diversification by owning the whole world in just three low-cost index funds.

Asset Allocation

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• 48% Total Stock Market
• 12% International Stocks¹
• 40% Intermediate Bonds

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The Three-Fund Portfolio was created by Taylor Larimore after being inspired by the writings of Jack Bogle to simplify the investments from his own complex mix of 16 different funds to something much more sustainable. The original version back in 1999 actually included four funds — domestic stocks, international stocks, bonds, and cash. But as interest rates dropped over the years Larimore simplified even further, and the Three-Fund Portfolio took its final form.

While the percentages cited on Portfolio Charts represent the most common default version of the portfolio, Larimore doesn’t actually see it as a fixed asset allocation. Instead, he recommends adjusting the percentage of bonds according to your age, goals, timeframe, and risk tolerance. Those factors may naturally change over time, and the Three-Fund Portfolio can change right along with them. So it’s more than just an asset allocation — it’s a portfolio meant to grow right alongside the investor for life.

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Portfolios with a similar structure or design intent

Classic 60-40 — A similar Bogleheads staple without the international fund

Core Four Portfolio — Four simple index funds to own the market and minimize risk

Total Stock Market — A simple and effective broad domestic stock index fund

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The Total Stock Market Portfolio is the simplest and most cost-effective way for anyone to invest their money without overthinking it.

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• 100% Total Stock Market

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In contrast to the common advice to never put all of your eggs in one basket, the Total Stock Market portfolio does just the opposite. Buy a single total market stock fund and for the most part just ignore it. It doesn’t get much simpler than that!

While hardcore asset allocation fans may think that sounds way too simplistic, there’s a lot of merit to the idea that young investors are best served by spending less time on fine tuning their portfolios and more time on earning and saving. The most articulate advocate for this line of thinking today is perhaps JL Collins. Here’s what he has to say about the idea of putting everything in a total market fund and calling it a day:

Owning 100% stocks like this is considered “very aggressive.”  It is and you should be.  You have decades ahead.  Market ups and downs don’t matter ‘cause you avoid panic and stay the course.  If anything, you recognize them as the “stocks on sale” buying opportunities they are.  Perhaps 40 years from now you might want to add a Bond Index Fund to smooth out the ups and downs.  Worry about that 40 years from now.

Collins has a substantial following in the FIRE community, and the Total Stock Market Portfolio (which he refers to as the Wealth Building Portfolio) is a staple among aggressive young investors looking to race to financial independence. It’s a good choice for people who want to truly keep it simple and who are willing and able to power through the inevitable drawdowns that come with a volatile asset allocation.

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Portfolios with a similar structure or design intent

Global Market Portfolio — Tracks the full field rather than a single haystack

Classic 60-40 — Adds a bond fund to reduce risk

No-Brainer Portfolio — Mostly stocks, but with a little more variety

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The Classic 60-40 Portfolio by John Bogle is a simple and effective asset allocation that follows the stock and bond markets with only two inexpensive index funds.

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• 60% Total Stock Market
• 40% Intermediate Bonds

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As the godfather of index investing, John Bogle spoke eloquently about the importance of avoiding market timing, diversifying your portfolio, minimizing fees, and staying the course. At a time when common investing advice involved individual stock picking, he went a different direction and not only promoted buying the entire market but also created the first index funds that made it possible for people to do so. The Classic 60-40 portfolio is his default asset allocation suggestion for pretty much every investor, and has been a staple of portfolio discussions ever since.

The Classic 60-40 consists of two funds — a total stock market fund and an intermediate bond fund. The stocks are intended to drive returns, while the bonds are selected to reduce volatility and smooth out the ride. Bogle suggests that the percentage of stocks can be varied by the age of the investor, with young investors holding up to 80% and retirees holding as few as 50%. But he’s also a big fan of keeping it simple, and suggests that sticking with a 60-40 portfolio for life is really all you need.

One interesting note about the Classic 60-40 is that Bogle was never a fan of international markets because he believed that “the US is the most productive country in the world”. In fact, he chose to invest only in US funds with his own money. So while the concept can also be applied to other markets, it might rightfully be considered a US-centric portfolio philosophy.

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Portfolios with a similar structure or design intent

Three-Fund Portfolio — The same idea with 20% of the stocks dedicated to international

Total Stock Market — A broad domestic stock index fund without the bonds

Core Four Portfolio — Four simple index funds to own the market and minimize risk

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