For a 40–50-year-old investor with a moderate risk tolerance and a focus on balanced growth and capital preservation, here’s a recommended portfolio allocation using your selected funds:
| Asset Class | Fund(s) | Percentage | Rationale |
|---|---|---|---|
| Domestic Stocks | VTI | 40% | Core U.S. equity exposure for growth and diversification. |
| International Stocks | FZILX | 20% | Diversifies globally, capturing growth in developed/emerging markets. |
| Broad Bonds | BND | 30% | Stabilizes the portfolio with investment-grade U.S. bonds (mix of durations). |
| Short-Term Bonds | SCHO | 10% | Reduces interest rate risk and provides liquidity for rebalancing. |
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Stocks (60% Total):
- VTI (40%): The backbone of your equity exposure, covering the entire U.S. stock market (large, mid, and small caps). Historically delivers ~10% annualized returns over long periods.
- FZILX (20%): International stocks add diversification and exposure to faster-growing economies (e.g., India, China). FZILX’s zero expense ratio makes it cost-effective.
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Bonds (40% Total):
- BND (30%): The "anchor" of your bond allocation, providing steady income and reducing volatility. Its average duration (~6–8 years) balances yield and interest rate sensitivity.
- SCHO (10%): Short-term Treasuries (1–3 year duration) are less sensitive to rate hikes and act as a cash-like buffer during market downturns.
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Risk Tolerance:
- If you’re more conservative, increase bonds (e.g., 50% bonds: 35% BND + 15% SCHO).
- If you’re growth-oriented, tilt toward stocks (e.g., 70% stocks: 45% VTI + 25% FZILX).
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Time Horizon:
- At 40–50, retirement is likely 10–20 years away. This allocation balances growth (stocks) with stability (bonds) to weather market cycles.
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Diversification:
- The 2:1 ratio of U.S. to international stocks aligns with Vanguard’s research, which suggests 20–40% international exposure minimizes volatility.
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Rebalancing:
- Rebalance annually or when allocations drift by ±5% (e.g., sell bonds to buy stocks after a market correction, or vice versa).
| Asset Class | Expected Annual Return* | Risk (Volatility) |
|---|---|---|
| VTI (U.S. Stocks) | 7–10% | High |
| FZILX (Int’l Stocks) | 6–9% | High |
| BND (Bonds) | 3–5% | Low/Moderate |
| SCHO (Short Bonds) | 2–4% | Very Low |
*Based on historical averages and 2025 economic forecasts (moderate inflation, potential Fed rate cuts).
- $100,000 Portfolio:
- $40,000 in VTI
- $20,000 in FZILX
- $30,000 in BND
- $10,000 in SCHO
This mix aligns with a moderate-growth investor prioritizing stability as they approach retirement. Adjust based on your specific goals (e.g., legacy planning, early retirement).
For further refinement, consider:
- Adding sector-specific ETFs (e.g., tech, healthcare) for targeted growth.
- Using tax-advantaged accounts (e.g., IRA, 401(k)) for bond holdings to minimize tax drag.