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Many investors choose Vanguard index funds for good reason. When it comes to building a solid stock portfolio, three Vanguard funds, VOO, VTI and BND, are often the first recommended on online discussion forums like Reddit.
VOO offers access to 500 of the largest U.S. companies and is a choice for investors seeking all-around exposure or blue chip stocks. VTI captures an even broader reach, covering nearly the entire U.S. equity market, including small and mid-cap stocks.
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On the other hand, BND is a popular choice for conservative investors as it offers a diversified mix of U.S. bonds that reduces volatility and serves as a buffer against downturns. Investors frequently seek recommendations on balancing stocks and bonds in their portfolios to align with financial goals, particularly retirement planning.
A 50-year-old Reddit user recently sparked a debate on the r/ETFs community with his post. The investor shared that he is 12 years away from retirement but behind on savings. Currently, he contributes to his employer’s 401(k), has a Roth and a Traditional IRA and is investing equally in VOO, VTI and BND.
“I am 50 years old and a little behind in retirement savings. I am invested in my employer’s 401(k) and they provide matching. I do have a Vanguard Roth and Traditional IRA and so far have invested in VOO, VTI and BND equally,” the investor wrote.
The investor is now facing a critical question: Should he increase his BND allocation for more safety or keep the money in VOO and VTI to optimize growth potential?
Let’s dive into the suggestions Reddit members of the r/ETFs community had to offer.
Pump More Into BND or Ride It in VOO and VTI? Reddit’s Suggestions
Diversify with VXUS
The first comment on the 50-year-old investor’s post recommended diversifying with VXUS instead of holding both VOO and VTI.
The reasoning? VTI already includes VOO, making holding both redundant. Also, adding VXUS to the portfolio provides international exposure.
“VTI already fully includes VOO (by weight, the VOO part is over 80% of VTI right now). It rarely if ever makes sense to hold both. VXUS is a more natural complement, as VTI only covers the U.S. and VXUS covers outside the US. There have been many times when market favor was outside the U.S. and favor can flip extremely quickly and unexpectedly,” one comment reads.
Another comment highlighted the importance of international stocks and noted that Vanguard advises investors to ensure that 40% of their portfolio is allocated to international stocks.
“Vanguard: 40% of the stock is recommended to be international,” the comment says.
Invest in Growth-Focused Stocks and Buy Bonds Closer to Retirement
With 12 years left until retirement, the r/ETFs community recommended that the investor prioritize stock-heavy allocations to maximize growth potential.
“Everyone has different levels of risk they’re willing to take with the ‘safe’ part of the portfolio. For better-expected growth, you’d up the VTI/VXUS part, many would prefer the ‘safe’ part of the portfolio to be much more on the safer side,” one comment reads.
Although bonds are a safer investment, which is beneficial closer to retirement, they also have lower returns. The community suggested that the investor weigh this trade-off carefully.
“BND adjusts the safety of the portfolio. [ …] However, bonds do have lower expected returns than stocks, but there have been times when bonds would have been the better choice even after a decade,” one Redditor wrote.
Another commenter emphasized that bonds are crucial as retirement nears.
“BND is super important to consider as you approach retirement. Anyone saying otherwise doesn’t understand long-term investing,” the Reddit member said.
However, the majority consensus was that the investor should shift to bonds closer to retirement instead of prioritizing them now. The 50-year-old acknowledged this advice in his reply to a comment.
“I think from what everyone has shared here, there is no need to contribute to BND during this wealth-building time. My risk tolerance is moderate. Looks like I need a diverse mix of stocks (domestic and international) and let it ride,” he wrote.
