One of the challenges that I’ve had to deal with during my (admittedly short) investing career is avoiding the persistent urge to tinker.
There’s this thing that I think happens to a lot of us as we begin to learn more about investing. We start devouring a lot of information and get a handle on what we think is the best way to invest. Then we digest more information – which starts to add complexity and various nuances to what we initially thought. Eventually, we start second-guessing ourselves, which leads us to tinker some more with our money.
You see this especially if you ever read posts in the major investment forums, with people debating over what sort of asset allocation is the correct one. There’s a lot of quibbling over the details – things like what percentage of your investments should be in domestic and international equities, or how much small-cap or medium-cap or large-cap you should have, or what’s the proper bond allocation given your age. And eventually, someone will come along and scare you by telling you that some seemingly reasonable asset allocation is going to leave you broke.
I fell into this second-guessing and handwringing when I started investing years ago. Since I didn’t know what to do, I turned to robo-advisors, which I loved because they gave me a low-cost, diversified portfolio that seemed to make sense and that could be backed up with research.
Knowing that I wasn’t totally messing things up is why I decided to use Betterment when I opened my first Roth IRA back in 2015. Yes, I could have set things up directly with Vanguard and created the same portfolio on my own. But the problem for me was that I didn’t really know what I was doing. I took comfort in knowing that Betterment was making sure I was doing things right.
My work-sponsored retirement plans were a little more difficult for me to figure out since there initially weren’t any robo-advisors for those types of accounts. My first 401k automatically put my contributions in a balanced Vanguard fund (50% stocks, 50% bonds), which was likely too conservative for where I was in life. Eventually, I learned about Target Date Funds and moved my investments into one of those. Then, robo-advisors hit the 401k market and I found a company that could create what it said was the correct asset allocation for my age and risk tolerance. I paid $1 per month for this service and I was happy with it since I felt like, at a minimum, I wasn’t doing anything disastrously wrong with my 401k.
Then, a few years ago, I read JL Collin’s Stock Series and his excellent book, The Simple Path to Wealth. This led me to start tinkering again. This time, I was going to go with a US Total Stock Market Index Fund – specifically VTSAX. The explanation for why this fund was sufficient convinced me. And the fact that John Bogle (the founder of Vanguard) seemed to hold the same belief further made me think this was the right way to go about with my investing strategy.
But as I’ve gained more knowledge about how investing works and have become more comfortable with managing my own portfolio, I’ve started to get a bit more nervous.
Maybe this strategy is a little bit too simple. Maybe I need to diversify into more asset classes. A lot of people much smarter than me have said as much.
And as I get more and more nervous, the urge to tinker keeps on growing.
The Urge To Tinker
My guess is that many of you reading this have probably done this same thing. You make an investing plan and pick an asset allocation that you think makes sense, but then you start tinkering with it as you read more stuff. Sometimes, the tinkering is justified. Other times, it might just be tinkering for the sake of tinkering. A lot of the time, I think we tinker out of fear that we’re doing something wrong.
I told myself a while back that the VTSAX plan was the one I was going to stick with. It made sense to me and I knew the worst thing I could do was to keep changing what I was doing.
So, when I created a Solo 401k for all of my side hustles, I put all of it into Fidelity’s version of VTSAX, called FSKAX. When I started investing inside my HSA, I put it all into a Vanguard S&P 500 Index Fund, since that was the closest option I had to VTSAX. And then, when I finally moved my Roth IRA directly to Vanguard, I put all of it into VTSAX.
I did the same thing for my wife’s retirement accounts. We opened her Roth IRA with Vanguard about two years ago and put it all into VTSAX. We did the same thing with her 401k, also putting all of her contributions into VTSAX.
The only notable exception to this 100% VTSAX strategy is that I left my 457 plan the way I had it – it’s currently set up with 40% in a Vanguard US Large Cap Fund, 12% in a Vanguard US Mid-Cap Fund, 8% in a T-Rowe Price Small-Cap Fund, and 40% in a Vanguard Total International Fund. This was the allocation that the robo-advisor I used created for me many years ago and I’ve decided to let this ride as is, although admittedly, I’m not sure why.
I also use have money set up in taxable accounts with M1 Finance, SoFi, and Axos Invest (formerly called WiseBanyan), which all have a significant international allocation in their portfolios. M1 Finance and SoFi are used primarily just as regular, small investment accounts to see how they work. Axos Invest is where I put money as part of my strategy for longer-term goals. I like all three of these robo-advisors since they don’t charge any management fees.
Is VTSAX Alone Enough? Who Knows?
Is investing it all into VTSAX and similar index funds the perfect way to invest? The obvious answer is – of course not. The truth is, perfect isn’t really an attainable state. And even if you could do things perfectly, there’s really no way to know without the benefit of hindsight.
More important than perfect is whether it’s good enough. The point of saving and investing money for the future is to have enough to do whatever it is we’re trying to do. It doesn’t require hitting home runs and getting everything right. All we have to do is not screw things up too much along the way – we just need to cross the finish line.
And there are legitimate reasons to believe that going solely with VTSAX is good enough to get across the finish line. There’s no need for me to rehash it all here, so I’ll just point to people much smarter than me. JL Collins has his post that lays out his rationale. John Bogle has his rationale too. And Banker On Fire recently wrote a great post that lays out a very reasonable rationale for why a 100% US equity portfolio is enough (I especially enjoy this post since it’s written by someone not based in the US).
I don’t see this mentioned as often, but another factor that makes me think a 100% VTSAX strategy is good enough has to do with the natural geographic advantages that helped make the United States as dominant as it is today – features that few countries in history have ever had. That includes:
- Two oceans with a lot of natural harbors, helping to facilitate trade. Access to the world ocean also has few natural chokepoints.
- A large network of navigable rivers leading into the interior that allows for even more trade and low-cost movement of goods.
- A large, fertile interior that can support a big population base (very different compared to other large countries that have large swaths of non-arable land).
- No major enemies nearby that can rival the country – and the nearby countries all have major geographic challenges that limit their ability to challenge the US (too much inhospitable land to the north, too much desert in the south).
(Readers Note: I’ve been watching a lot of geography videos, and reading geography books, including Prisoners of Geography, which I think is a great book for anyone interested in geography and how it impacts countries)
All this isn’t to say that this is the right strategy. But, as Vin Diesel said in The Fast and The Furious, it doesn’t matter if you win by an inch or a mile. Winning’s winning. And in this case, winning doesn’t mean beating everyone else. It just means getting yourself to the end.
More Important Than Anything – It’s Sticking With It
No, this plan I have isn’t the right one. It could very well be the wrong one. I think the chances that it completely fails, however, is probably close to zero.
At a minimum, I do think that it’s a reasonable plan. And that’s what matters. So long as it’s reasonable, it should be enough to get me to the finish line. In the grand scheme of things, I’m still very early in my investing career. At this point, what really matters aren’t the returns I get – it’s the brute force savings that I’m able to do over the next 10 or more years of my life.
But that urge to tinker is still there, especially when I read investment forums that tell me that I’m making a terrible mistake following this VTSAX only advice. Look to almost any Boglehead post where someone asks about investing 100% in a US Total Market Index Fund and you’ll see dozens of people say, in completely certain terms, what a bad decision that is – as if they know the future.
Perfect is what we all want to achieve. But that’s only available in hindsight.
So what can we do? The only thing we can do – make a plan that’s reasonable that can get the job done. Then, stick with that plan. And quit the tinkering!
Note: If you really want an easy strategy that does include a significant international allocation, it seems like investing 100% in a fund like the Vanguard Total World Stock Index Fund (VTWAX) is one potential way to do it. It’s divided into about 55% US and 45% international and with an expense ratio of only 10 basis points, it’s super cheap.