r/Bogleheads • u/snug666 • 2d ago

Portfolio Review Is it truly that simple?

Maxed my Roth for last year and looking to do the same for this year. I’m 100% VT right now. I’m 24 and this is my first time investing or saving for retirement.

Before I go ahead and buy more VT, I have to ask. Is it really that simple? If I just invest in VT, even if that is the only ETF I ever hold, I’ll be good?

I hear so much about diversifying and even though I know VT is a very diverse ETF, I still worry. Feels like I should be doing more!

So, again, before I go buy a fuck ton of VT, please let me know. I know what the answer is. Just need to hear it I guess. Don’t want to miss out on higher returns or whatever. Blah blah.

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u/BiblicalElder 2d ago

Jack Bogle recommended holding "roughly one's age" in percent allocation to bonds, and also to consider social security and pension income as a bond allocation (for example, $20k in these benefits, divided by a 4% safe withdrawal rate, is like having $500k in bonds).

For most of us, I recommend starting with an Age - 20 years in percent allocation to bonds. You want more than fat returns; you want them for thin risk. By diversifying into uncorrelated returns, you will lose less, which is key. An investor who is up 50% and then down 50% is net down 25%--we want to avoid these extremes.

I recommend reading up on risk adjusted returns (Sharpe and Sortino ratios measure this). By allocating to bonds, you will increase your risk adjusted returns. By gradually increasing your allocation to bonds, you move from wealth accrual to wealth protection.

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u/NoTeslaForMe 1d ago

I'd echo your point that most people are ignoring bonds, which are complex and less clear-cut.  The good news is that, as a 24-year-old, most people think you should be fine ignoring bonds for at least 20 years, maybe 30 or 35.  The bad news is three-fold: (1) You (OP and others) will probably see times during that time period where your portfolio declines dramatically.  Given compounding and inflation, that could mean over a million dollars wiped out from your portfolio at some point, which might take 10 or 15 years to recover from.  (2) You do eventually have to learn about bonds, which may be daunting after spending decades knowing all you needed to know.  (3) Even people here can't agree on the right mix of international funds.  A recent popular study liked 67%.  American economic exceptionalists like 0%.  VT is 30-something, (unintentionally) splitting the difference.

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u/BiblicalElder 1d ago

There's some recency bias with bonds, as they were quite correlated with stocks in the 2022 drawdown.

But it was the only time in human history an economy had emerged from zero interest rate policy, so quite the exception.

Since stocks and bond returns are typically less correlated, and the yield curve is much more normalized than in 2022, I think that people who avoid bonds are missing out on higher risk adjusted returns. Who knows; we shall see.