Investing 101 Etfs Index Funds Asset Allocation

A pooled investment that holds the same stocks/bonds as a market index (e.g., S&P 500), in the same proportions — passive.

Most active funds underperform benchmarks after fees over 10+ year horizons (SPIVA reports).

1) Broad diversification.
2) Low expense ratio (≤0.10%).
3) Liquidity (tight bid-ask, high AUM).

All Vanguard, broad US.
VTI: total US ETF.
VOO: S&P 500 ETF.
VTSAX: total US mutual fund (same as VTI).

Total US stock + Total International stock + Total bond. Adjust allocation to taste/age.

Average time to receive cash flows. Longer duration = more sensitive to interest rate changes (price drops more when rates rise).

Lower correlation to stocks; stabilize drawdowns; provide rebalancing fuel when stocks fall.

Annually or when allocation drifts more than ~5 percentage points from target. Tax-aware in taxable accounts.

Bad returns early in retirement do more damage than bad returns later, even at the same average. Mitigate with bond ladder or bucket strategy.

DWR factors when money was added/removed; TWR isolates manager skill. Investor returns often lag fund returns due to bad timing.

At 7% avg: ~$760k vs ~$574k — about $186k of fees lost to the higher-fee fund.

Bonds + REITs in tax-advantaged (interest taxed as ordinary income). Broad stock index in taxable (low turnover, qualified dividends).