The $2 Million Portfolio: Two Funds, Three Funds, or Five?

Tyler Gardner (0:00)

Complexity in portfolio construction is mostly a story we tell ourselves to feel less anxious about not knowing the future. It does not, on average, improve our returns. It mostly improves our feelings about our returns, which is a different thing. Simple feels insufficient. Simple is almost always the right answer.

Hello friends, this is Tyler Gardner welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be.

Quick note before we dive in. July's pre-order incentive for my book Real Wealth is live, and this one is for the investors who are ready to go beyond the basics. Pre-order this month. Tell me you did at tylergardner.com/book, and I'll send you Investing 2 Beyond the Foundation, a full hour video presentation on the five things every investor needs to know after they've mastered the fundamentals. Yours to keep, delivered to your inbox digitally in early August. And if you pre-order now, you're locked in for every monthly incentive through December 1st. tylergardner.com/book. Now let's get into it. Welcome back everyone. Thank you as always for choosing to spend some time thinking about Money With Me, which has over the past several months started to feel less like a podcast, and more like a really cool, long, ongoing conversation, which I happen to like way more than just the solo podcast. Today, we're going to go back to a topic we visited on a few occasions, because you all continue to ask some great questions about the details on this one. A few months ago, I did an episode on how I would handle a $2 million portfolio in retirement. The 90-10 split, the withdrawal math, the framework for not running out of money. That episode, against a lot of my expectations, became the most listened to thing I've put out since starting the show about a year and a half ago. Now, I covered the funds I would use in that original episode, but only briefly, kind of somewhere in the middle, in a way that flew past some listeners. And in the month since, the most consistent feedback I've gotten has been some version of, Tyler, that was a great episode, but I want to slow down and actually understand the allocation piece. What goes where and why, and legitimately, what is the difference between using two funds versus three funds versus five funds. Additionally, this is going to serve as a reminder episode and answer to the following question. Shouldn't my portfolio be more complex than just two or three funds? To which the answer is always and forever, unequivocally, no. So today is the deep dive, and if you listen to the original $2 million episode, parts of this are going to feel like review. You've heard me reference VTI and a money market fund before. Stay with me anyway, because we're going to go several layers deeper than I went the first time. We're going to walk through legitimate ways to allocate the $2 million, a two-fund version, a three-fund version, and a five-fund version. But then we're also going to cover some actual mechanics, what each fund does, why bond funds and money market funds are fundamentally different instruments, and where the marketing version of diversification stops matching the mathematical version. And we're going to be honest about which version is actually going to be right for most people. So, if you didn't listen to the original episode, yes, this one will stand on its own, you don't need the prerequisite, but you still might want to go back and check it out, as it offers a foundational framework for all of us.

And, a small but crucial disclaimer before we start, since I do this every time I get into the specifics, I am not your financial advisor. I am a former financial advisor and licensed portfolio manager, who is now a guy walking through the woods of Vermont talking into a phone. This is not personalized advice. For the application to your specific situation, whether it's your tax bracket info, your other income, your timeline, your spouse, your health, the 40 billion other variables that actually matter, please work with a CPA or a CFP who knows your numbers and your goals. Today is the framework that you can use to learn more about what works for you, but this is not a substitute to your doing the deep work on your own. It's a compliment. And, familiar ask before we get into it, if this show has ever been useful to you, a review on Apple or Spotify is the single best thing you can do for it. It is genuinely how the show finds new listeners, and it is how I know that this entire endeavor is reaching someone besides the deer currently standing in my front yard as I record this episode at 6 a.m. on an early Vermont summer morning. All right, two million dollars, three options, let's get into it.