Chapter 3 – Building the Core: My VTI & SPY Foundation
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If I could only own two ETFs for the rest of my life, they'd be VTI and SPY. Here's why these boring index funds became the bedrock of my million-dollar plan.
VTI: The "Own Everything American" ETF
Vanguard Total Stock Market ETF (VTI) is my single favorite investment. With one purchase, I own almost 4,000 American companies—from Apple and Microsoft down to tiny regional banks and niche manufacturers I've never heard of.
When I first discovered VTI in 2015, I was blown away by its simplicity. Instead of agonizing over whether to buy large-cap or small-cap stocks, growth or value, tech or industrials—VTI just owns everything. It's like buying the entire American economy in a single transaction. This isn't just the big companies you know—it's literally everything:
Large-cap stocks (>$10B market cap): 85% of the index
Mid-cap stocks ($2B-$10B): 13% of the index
Small-cap stocks ($300M-$2B): 2% of the index
The genius of this approach is that VTI automatically adjusts its holdings as companies grow and shrink. When Amazon was a small online bookstore, VTI owned a tiny sliver. As Amazon grew into a trillion-dollar behemoth, its weight in VTI grew proportionally. I didn't have to predict Amazon's success—VTI captured it automatically.
The Fee Revolution
When VTI launched in 2001, its expense ratio was 0.20%—already low for the time. Today, it charges just 0.03%. That's three cents per $100 invested annually.
To put this in perspective: if you invested $100,000 in VTI, your annual fee would be $30. The average actively managed mutual fund charges 1.40%, or $1,400 annually on the same investment. Over 30 years, that $1,370 annual difference compounds to over $370,000 in additional wealth!
This fee compression didn't happen by accident. Vanguard's unique ownership structure means the fund company is owned by its investors. Lower costs mean higher returns for shareholders, creating a virtuous cycle that benefits long-term investors.
My VTI Performance Journey
I started buying VTI in March 2015 at $105.92 per share. Here's what that investment looked like over time:
2015-2017: The Foundation Years
Average purchase price: $108
Monthly investment: $300
Portfolio value after 2 years: $8,900
My reaction: "This is slow, but I'm building something"
2018: First Real Test
VTI dropped 15% during October-December correction
My DCA bought shares at $120, $110, $105
End of year value: $11,200 (despite market turmoil)
Lesson learned: Volatility helps DCA investors
2019-2020: The Acceleration
VTI gained 31% in 2019, then crashed 30% in March 2020
COVID crash let me buy shares at $90-100
End of 2020 value: $28,400
Realization: Bear markets create the best buying opportunities
2021-2022: Reality Check
VTI peaked around $230 in late 2021
2022 bear market brought it back to $170s
My automated investing continued regardless
Portfolio value: $47,300
Mindset: "This volatility is normal and temporary"
2023-2025: The Compound Payoff
VTI recovered to new highs above $300
Total portfolio value: $89,200
Total invested: $52,500
Total gains: $36,700 (70% return)
Annual return: 9.8%
What I Love About VTI
Complete Market Exposure: VTI owns pieces of every significant American business. When the next Apple, Google, or Amazon emerges from obscurity, VTI will automatically own it in proportion to its success.
Self-Cleaning: Companies that fail get smaller weights or drop out entirely. Companies that succeed get larger weights. I never have to research which companies to sell—the market handles it automatically.
Sector Neutral: VTI doesn't make sector bets. If technology dominates the next decade, VTI will capture those gains. If energy makes a comeback, VTI owns that too. I'm agnostic about which sectors will lead.
VTI vs. The Competition
Several other funds offer similar total-market exposure:
While the differences are minimal, I stick with VTI for three reasons:
Liquidity: $600B+ in assets means tight bid-ask spreads
Track record: 20+ years of reliable performance
Vanguard's structure: Owned by investors, not shareholders
The Small-Cap Advantage
One advantage VTI holds over S&P 500 funds is small-cap exposure. Academic research shows small companies have historically outperformed large companies by 1-2% annually, though with higher volatility.
From 1926-2023:
Large-cap stocks: 10.1% annual returns
Small-cap stocks: 11.9% annual returns
Small-cap premium: 1.8% annually
That 1.8% difference compounds dramatically over decades. On a $100,000 investment over 30 years:
Large-cap only: $1,745,000
With small-cap tilt: $2,180,000
Difference: $435,000
VTI captures this small-cap premium automatically through its total-market approach.
VTI Sector Breakdown (2025)
VTI's sector weights reflect the current American economy:
These weights change constantly as companies grow and shrink, but VTI automatically rebalances to maintain market-cap weightings.
Why VTI Works for Lazy Investors
The beauty of VTI is that it requires zero maintenance. I don't research holdings, debate sector rotations, or worry about management changes. I just keep buying shares monthly and let American capitalism do the work.
This "lazy" approach has several advantages:
No Analysis Paralysis: I don't spend hours researching which stocks to buy or sell. The market decides for me.
No Behavioral Mistakes: I can't fall in love with losing positions or sell winners too early. VTI owns everything proportionally.
No Career Risk: If I pick individual stocks and underperform, I look stupid. If I own VTI and underperform, the entire market underperformed—not my fault.
No Time Requirements: VTI works while I sleep, vacation, or focus on my actual career. Passive investing is truly passive.
The International Question
Friends often ask: "Doesn't VTI ignore international opportunities? What about China, India, Europe?"
My response: VTI companies already give me global exposure. Consider:
Apple: Earns 60% of revenue outside the U.S.
Microsoft: 50% international revenue
Amazon: Growing rapidly in Europe, India, Latin America
Google: Dominates search globally
Coca-Cola: Operates in 200+ countries
When I buy VTI, I'm not just buying American companies—I'm buying companies that generate profits globally. These multinational giants capture international growth without the currency risk, governance issues, and complexity of direct foreign investment.
VTI's Limitations
Nothing is perfect, and VTI has some limitations:
Market-Cap Weighted: The biggest companies get the biggest weights, which can create concentration risk. Apple alone represents 7% of VTI.
Growth Bias: Fast-growing companies naturally get larger weightings, potentially creating momentum bubbles.
No Value Tilt: Academic research suggests value stocks outperform growth stocks over long periods, but VTI is market-cap neutral.
No International: While U.S. companies operate globally, VTI misses pure-play international opportunities.
Cyclical Sectors: During certain periods, VTI's sector weights might be suboptimal (e.g., low energy weighting during oil booms).
Despite these limitations, VTI's broad diversification and low costs make it an excellent core holding for most investors.
My VTI Allocation Strategy
VTI represents 50% of my total portfolio allocation. Here's my reasoning:
Core Position: VTI is my baseline equity exposure. Everything else is a "satellite" position around this core.
Risk Management: By keeping VTI at 50%, I ensure broad diversification even if my other positions are more concentrated.
Simplicity: If I ever need to simplify my portfolio, I could sell everything else and just own VTI. It's a complete investment by itself.
Cost Efficiency: VTI's 0.03% expense ratio is impossible to beat with individual stock picking or active management.
The Bottom Line on VTI
VTI isn't exciting. It doesn't promise to beat the market or find the next big winner. It simply owns everything American and charges almost nothing to do it.
But boring can be beautiful. Over the past decade, VTI delivered 195% total returns while I focused on my career, family, and life. I didn't research companies, analyze financial statements, or worry about earnings reports. I just kept buying shares and letting American innovation compound.
For most investors, VTI should be the foundation of their portfolio—the steady, reliable core that captures broad market returns with minimal complexity and maximum tax efficiency.
SPY: The Granddaddy of ETFs
SPDR S&P 500 ETF Trust (SPY) holds a special place in ETF history and in my portfolio. Launched in 1993, it was the world's first ETF and remains one of the most liquid securities on the planet.
While VTI gives me exposure to the entire U.S. stock market, SPY focuses specifically on the 500 largest American companies. There's significant overlap—about 80% of VTI consists of the same stocks in SPY—but I keep both for reasons that go beyond pure diversification.
The Birth of an Industry
SPY's creation story is worth understanding because it explains why this fund is so unique. In the early 1990s, State Street Global Advisors wanted to create a security that traded like a stock but held a diversified basket of investments.
The S&P 500 was the obvious choice—it was already the most widely followed U.S. stock index, representing about 85% of total U.S. market capitalization. By creating an ETF that exactly tracked this index, investors could buy "the market" with a single transaction.
The innovation was revolutionary. Before SPY, individual investors who wanted broad market exposure had to either:
Buy expensive, actively managed mutual funds with high fees
Purchase individual stocks one by one (expensive and time-consuming)
Buy index mutual funds that only traded at end-of-day prices
SPY changed everything by offering instant diversification, professional management, and intraday liquidity at a low cost.
SPY by the Numbers (2025)
Assets Under Management: $584 billion
Expense Ratio: 0.095% (9.5 basis points)
Holdings: 500 companies
Average Daily Volume: $30+ billion
Bid-Ask Spread: Typically 1-2 cents
Dividend Yield: ~1.8% annually
My SPY Performance Journey
I started buying SPY alongside VTI in 2015. Here's how it performed in my portfolio:
2015 Purchase: $205.43 per share
2025 Current Price: $637.18 per share
Total Return: 210.2%
Annualized Return: 11.3%
Dividends Collected: $127 per share over decade
That means my initial $10,000 SPY investment became $31,020 through price appreciation and reinvested dividends. Not spectacular, but solid and consistent returns with minimal effort.
Why I Keep Both SPY and VTI
Given the 80% overlap between these funds, people often ask why I own both. Here are my reasons:
1. Liquidity Advantage
SPY is the most liquid ETF in the world. During market stress, I can sell large positions with minimal market impact. This matters when rebalancing or if I need to raise cash quickly.
During the March 2020 crash, when volatility was extreme, SPY maintained penny-wide bid-ask spreads while some smaller ETFs saw spreads widen to 10-20 cents. That difference can cost hundreds of dollars on large transactions.
2. Options Trading
SPY has the most active options market of any ETF. If I want to generate additional income through covered calls or protect against downside with puts, SPY provides the deepest, most liquid options chains.
I occasionally sell covered calls against my SPY position during periods of high volatility, generating 1-2% additional annual income. This strategy works best with highly liquid underlying securities.
3. Institutional Recognition
SPY is the gold standard for institutional investors, pension funds, and financial advisors. This institutional demand provides an additional layer of liquidity and price stability.
4. Track Record
SPY has 30+ years of performance history, including multiple bear markets, recessions, and crises. Its structure and management have been tested through every conceivable market condition.
5. Portfolio Diversification
While this might seem counterintuitive given the overlap with VTI, holding both SPY and VTI provides diversification across fund families (State Street vs. Vanguard) and index methodologies (S&P vs. CRSP).
SPY vs. VOO vs. IVV: The S&P 500 Wars
SPY isn't the only S&P 500 ETF. Competition has emerged:
So why do I stick with SPY despite its higher fees?
The 0.065% difference between SPY (0.095%) and VOO (0.03%) costs me about $65 annually on a $100,000 position. For me, SPY's superior liquidity and options market are worth this small premium.
However, for pure buy-and-hold investors who never trade options or rebalance frequently, VOO is probably the better choice due to its lower fees.
The S&P 500 Selection Process
Understanding how companies get into the S&P 500 helps explain why SPY is such an effective investment. The S&P 500 isn't just the 500 largest companies—it's the 500 most important American businesses as determined by a committee.
S&P 500 Inclusion Criteria:
Market cap: At least $15.8 billion (as of 2025)
Liquidity: Adequate trading volume and public float
Domicile: Must be U.S. company
Sector representation: Balanced across major industries
Financial viability: Positive earnings in most recent quarter
Public float: At least 50% of shares available for public trading
Time requirement: At least 12 months of public trading
This selection process creates a natural quality filter. Companies must be large, profitable, liquid, and stable to qualify. Weak companies get removed; growing companies get added.
Recent S&P 500 Changes (2020-2025):
Added: Tesla, Palantir, KenvueRemoved, PayPal, Meta (re-added), Moderna
Removed: Several small-cap companies that fell below size requirements
These changes happen 2-4 times per year and keep the index fresh and relevant.
SPY's Top Holdings
Top 10 Total: 34.7% of the fund
This concentration might seem risky, but these are the companies driving American economic growth. When people worry about SPY being "too concentrated," I remind them that these same companies are the ones generating most of the innovation, profits, and job creation in the economy.
When SPY Makes Sense
SPY works best for investors who:
Want broad U.S. market exposure with maximum liquidity
Trade options or need to rebalance frequently
Prefer the "blue chip" focus of large-cap companies
Don't mind paying slightly higher fees for premium features
Want the longest track record available in ETF investing
When SPY Doesn't Make Sense
Consider alternatives if you:
Want the lowest possible fees (choose VOO instead)
Want small-cap exposure (choose VTI instead)
Never trade or rebalance (liquidity premium isn't worth the cost)
Prefer international diversification (choose global ETFs)
Are building a simple, set-and-forget portfolio (overlap with VTI might be unnecessary)
My SPY Allocation Logic
I allocate 20% of my portfolio to SPY for these reasons:
Complement to VTI: While VTI gives me total market exposure, SPY provides extra weight to the most important American companies.
Liquidity Buffer: If I need to raise cash or rebalance during market stress, SPY provides maximum liquidity with minimal market impact.
Options Income: I can generate 1-2% additional annual income through covered call strategies on my SPY holdings.
Institutional Quality: SPY's massive asset base and institutional backing provide stability during market turmoil.
The SPY Bottom Line
SPY isn't the cheapest S&P 500 ETF, but it's the most liquid, most established, and most flexible. For investors who value these features and don't mind paying a small premium, SPY remains an excellent core holding.
Combined with VTI, SPY gives me broad market exposure with an emphasis on America's most important companies. It's not exciting, but it's effective—exactly what I want from a core portfolio holding.
Total Market vs. S&P 500: The Great Debate
One of the most common questions I get is: "Should I own VTI (total market) or SPY (S&P 500)? Isn't owning both redundant?"
After a decade of owning both funds and analyzing their performance through multiple market cycles, I've developed strong opinions about this debate. The answer isn't as simple as "one is better than the other"—it depends on your goals, time horizon, and portfolio complexity tolerance.
The Case for Total Market (VTI)
Broader Diversification
VTI owns almost 4,000 companies compared to SPY's 500. This includes mid-cap and small-cap companies that represent about 15% of total market value but often drive innovation and growth.
Consider some companies that are in VTI but not SPY:
Palantir (PLTR): Data analytics company growing rapidly
Snowflake (SNOW): Cloud data platform
CrowdStrike (CRWD): Cybersecurity leader
Datadog (DDOG): Cloud monitoring platform
Many of today's S&P 500 giants started as small companies that VTI owned from the beginning. By owning the total market, you automatically participate in the next generation of American business leaders.
The Small-Cap Premium
Academic research dating back to the 1920s shows small-cap stocks have historically outperformed large-cap stocks:
Long-Term Returns (1926-2023):
Large-cap stocks: 10.1% annually
Small-cap stocks: 11.9% annually
Small-cap premium: 1.8% annually
This premium exists because smaller companies:
Have more room to grow
Are less efficiently priced
Face higher business risks that require higher returns
Benefit more from economic expansion
Lower Fees
VTI's 0.03% expense ratio beats SPY's 0.095% by 0.065%. On a $100,000 investment, this saves $65 annually—not life-changing, but every dollar of fees avoided becomes dollars that compound.
Automatic Rebalancing
VTI automatically captures companies as they grow from small to large. When a small company becomes successful enough to join the S&P 500, VTI has owned it throughout its growth journey. SPY only adds it after it's already large and established.
The Case for S&P 500 (SPY)
Quality Bias
The S&P 500 isn't just the 500 largest companies—it's the 500 most important American businesses. The selection committee considers profitability, stability, and sector representation. This creates a quality filter that excludes speculative or financially weak companies.
Concentration Can Be Good
While VTI's broader diversification sounds appealing, most stock market returns come from a small number of companies. Research shows that just 4% of stocks account for all of the market's long-term gains above Treasury bills.
By focusing on the 500 largest companies, SPY concentrates on the businesses most likely to drive future returns.
Lower Volatility
Large-cap stocks are generally less volatile than small-cap stocks. During market stress, investors flee to quality, which typically means large, established companies with strong balance sheets.
Better International Exposure
S&P 500 companies generate about 40% of their revenue internationally, compared to smaller companies that are often domestically focused. This provides indirect international diversification.
Liquidity and Trading
SPY's massive liquidity makes it ideal for tactical moves, options strategies, and large transactions. If you ever need to quickly adjust portfolio allocations, SPY provides maximum flexibility.
Historical Performance Comparison
Let's look at actual performance data to settle this debate:
10-Year Returns (2015-2025):
VTI: 195.5% total return (10.8% annualized)
SPY: 210.2% total return (11.3% annualized)
Surprising result: SPY actually outperformed VTI over this period, despite VTI's small-cap exposure and lower fees.
Why did this happen?
1. Large-Cap Dominance
The 2010s and early 2020s were dominated by mega-cap technology companies. Apple, Microsoft, Amazon, Google, and Facebook drove most market gains, benefiting SPY more than VTI.
2. Small-Cap Struggles
Small-cap stocks underperformed during this period due to:
Rising interest rates (hurting growth companies)
Increased regulation and compliance costs
Difficulty competing with tech giants
COVID-19 disproportionately hurting smaller businesses
3. Factor Rotation
The "small-cap premium" isn't constant—it comes and goes in cycles. The 2015-2025 period favored large-cap growth stocks, which SPY owns in higher concentrations.
Sector Allocation Differences
The main difference between VTI and SPY isn't size exposure—it's sector allocation:
The differences are surprisingly small because large-cap stocks dominate both indices.
My Personal Allocation Decision
After extensive analysis, I own both VTI (50%) and SPY (20%) for these reasons:
VTI as Core (50%):
Broadest possible U.S. market exposure
Lowest fees available
Automatic capture of emerging companies
True "set and forget" simplicity
SPY as Satellite (20%):
Extra weight in America's most important companies
Maximum liquidity for tactical moves
Options income opportunities
Institutional-quality stability
Combined Benefits:
70% total U.S. equity exposure
Weighted toward large-cap quality companies
Participation in small-cap growth
Flexibility for portfolio management
The "Barbell" Approach
Some investors use a "barbell" approach: combining SPY (large-cap) with a dedicated small-cap ETF like IWM (Russell 2000). This provides more precise control over size allocation.
Example Barbell Allocation:
60% SPY (S&P 500)
20% IWM (Small-cap)
20% Bonds/International
Pros: More intentional small-cap exposure, potential for higher returns
Cons: More complexity, higher fees, requires rebalancing
I prefer the VTI + SPY combination for its simplicity and automatic rebalancing.
The Bottom Line
After ten years of owning both funds through multiple market cycles, I believe the VTI vs. SPY debate is less important than most investors think. Both are excellent choices that will deliver solid long-term returns with minimal complexity.
The performance difference over long periods is typically less than 0.5% annually—far less important than factors like:
Starting early and investing consistently
Keeping costs low across your entire portfolio
Maintaining discipline during market volatility
Avoiding behavioral mistakes like market timing
Whether you choose VTI, SPY, or both, you'll capture the long-term growth of American businesses at rock-bottom costs. Focus on the fundamentals—regular investing, low fees, and long-term thinking—rather than optimizing between two excellent choices.
My Core Portfolio Construction: The Exact Recipe
After years of experimentation, market cycles, and lessons learned from both success and mistakes, I've settled on a core portfolio structure that balances simplicity with effectiveness. This isn't theoretical—these are the exact allocations and rebalancing rules I use with my own money.
The 60/20/20 Core Foundation
My equity allocation follows a core-satellite approach:
60% VTI (Vanguard Total Stock Market)
20% SPY (SPDR S&P 500)
20% QQQ (Invesco NASDAQ-100)
This gives me 100% U.S. equity exposure with a growth tilt toward technology companies. Let me explain the logic behind each allocation.
VTI: The 60% Core Engine
VTI serves as my portfolio's foundation because it provides:
Maximum Diversification: 4,000+ companies across all sectors and sizes
Lowest Cost: 0.03% expense ratio saves money for compound growth
Zero Maintenance: Automatically rebalances as companies grow and shrink
Tax Efficiency: Minimal capital gains distributions
Behavioral Simplicity: I never question whether to own it
At 60%, VTI is large enough to provide stability but not so large that it dominates my entire strategy. If I held 90%+ VTI, I'd essentially have a one-fund portfolio. If I held less than 50%, I'd lose the benefits of broad market diversification.
SPY: The 20% Quality Overlay
My 20% SPY allocation serves multiple purposes:
Quality Filter: S&P 500 companies must meet profitability and stability requirements
Liquidity Premium: Provides flexibility for rebalancing and tactical moves
Options Income: Enables covered call strategies during high volatility periods
Institutional Benchmark: Matches the index most professionals use for comparison
The 20% allocation provides meaningful exposure without overwhelming the total market approach. It's large enough to matter but small enough to avoid excessive overlap with VTI.
QQQ: The 20% Growth Accelerator
QQQ represents my growth tilt and belief in American technological innovation:
Innovation Exposure: Captures companies driving economic transformation
Higher Growth Potential: Tech companies typically grow faster than the broad market
Secular Trends: Benefits from digitization, automation, and technological adoption
Asymmetric Returns: Potential for outsized gains during growth cycles
At 20%, QQQ can significantly impact portfolio performance without creating excessive concentration risk. It's my "high conviction" bet while maintaining broad market exposure through VTI and SPY.
The Complete Portfolio Architecture
My core equity allocation fits within a broader portfolio structure:
Rebalancing Rules and Discipline
I follow strict rebalancing rules to maintain target allocations:
Quarterly Review: Check allocations every three months
5% Threshold: Rebalance when any holding drifts >5% from target
New Money Allocation: Direct contributions to underweight assets
Annual Rebalancing: Full rebalancing every December regardless of drift
Example Rebalancing Scenario:
Target: 45% VTI, 15% SPY, 15% QQQ
Actual: 42% VTI, 16% SPY, 17% QQQ
Action: No rebalancing needed (all within 5% of targets)
Alternative Scenario:
Actual: 40% VTI, 18% SPY, 22% QQQ (QQQ >5% overweight)
Action: Sell 2% of portfolio from QQQ, buy 1% each VTI and SPY
Dollar-Cost Averaging Implementation
My monthly contribution schedule:
Total Monthly Investment: $2,000
Automatic Allocation:
$900 to VTI (45%)
$300 to SPY (15%)
$300 to QQQ (15%)
$160 to VWO (8%)
$240 to IEF/TLT (12%)
$60 to IBIT (3%)
$40 to cash (2%)
This automatic allocation maintains target weights without requiring monthly rebalancing decisions.
Key Takeaways: Building Your Core Foundation
After exploring VTI, SPY, total market vs. S&P 500 strategies and portfolio construction, here are the essential principles to implement immediately:
The Core Holdings Decision
VTI is the ultimate set-and-forget equity investment. At 0.03% fees and 4,000+ holdings, it provides maximum diversification at minimum cost. If you only owned one ETF for life, VTI would be an excellent choice.
SPY adds premium features for active investors. Its superior liquidity, options markets, and institutional recognition justify the slightly higher 0.095% fee for investors who value flexibility.
Both VTI and SPY capture 90%+ of equity market returns. The performance difference between total market and S&P 500 is minimal over long periods (typically <0.5% annually).
Geographic concentration can be smart strategy. U.S. companies provide substantial international revenue exposure without the complexity, currency risk, and governance issues of direct international investment.
Portfolio Construction Principles
Core-satellite approach balances diversification and conviction. Use broad market ETFs (VTI, SPY) as your foundation, then add smaller satellite positions for specific themes or growth opportunities.
Simplicity scales better than optimization. A 3-5 ETF portfolio is easier to manage, rebalance, and tax-optimize than complex multi-asset strategies with dozens of holdings.
Rebalancing rules prevent emotional decisions. Set specific thresholds (5% drift) and time periods (annual) for rebalancing rather than making ad-hoc adjustments based on market sentiment.
Asset location optimization can save thousands annually. Keep tax-inefficient investments in tax-advantaged accounts and tax-efficient ETFs in taxable accounts.
Cost and Tax Management
Every basis point of fees matters over decades. The difference between 0.03% (VTI) and 0.50% (typical mutual fund) equals $170,000+ on a $500,000 portfolio over 30 years.
ETF structure provides automatic tax efficiency. Capital gains distributions are rare, qualified dividends are tax-advantaged, and the creation/redemption process minimizes tax drag.
Dollar-cost averaging with automatic allocation maintains target weights. Set up monthly contributions that automatically flow to each holding in your target proportions.
Implementation Action Plan
Step 1: Choose Your Core Structure
Conservative: 100% VTI (ultimate simplicity)
Balanced: 70% VTI + 30% bonds
Growth-Focused: 50% VTI + 20% SPY + 20% QQQ + 10% bonds
My Approach: 45% VTI + 15% SPY + 15% QQQ + 8% VWO + 12% bonds + 3% Bitcoin + 2% cash
Step 2: Set Up Automatic Investing
Calculate monthly contribution amount
Set up automatic bank transfers
Configure automatic ETF purchases in target proportions
Enable dividend reinvestment on all holdings
Step 3: Establish Rebalancing Rules
Review allocations quarterly
Rebalance when any holding drifts >5% from target
Use new contributions to maintain target weights
Conduct full rebalancing annually regardless of drift
Step 4: Monitor and Adjust
Track performance against relevant benchmarks
Review allocation appropriateness annually
Adjust target allocations as life circumstances change
Resist urge to constantly tinker with successful strategy
Common Mistakes to Avoid
Over-diversification paralysis: Owning 20+ ETFs doesn't improve returns but complicates management and increases costs.
Performance chasing: Switching from VTI to last year's top-performing sector ETF destroys long-term returns.
Timing the rebalancing: Rebalance systematically according to rules, not based on market predictions.
Ignoring tax consequences: Consider tax impact of all portfolio decisions, especially in taxable accounts.
Complexity creep: Start simple and resist urge to add holdings unless they serve clear purposes.
Success Metrics
Track these key metrics to evaluate your core portfolio strategy:
Performance: Beat your benchmark (e.g., 80% VTI + 20% bonds) over 3+ year periods
Costs: Keep total portfolio expense ratio under 0.15%
Discipline: Maintain target allocations within rebalancing bands
Simplicity: Able to explain entire strategy in 2-3 sentences
The Ultimate Core Portfolio Truth
After a decade of testing different approaches, I've learned this: the best portfolio is the one you can stick with through multiple market cycles. VTI and SPY provide the returns of thousands of companies with the simplicity of buying two stocks.
That combination—broad market returns with behavioral simplicity—is the foundation of sustainable wealth building. Everything else is details.
Master the core, and you've solved 90% of successful investing.
Next: Chapter 4 will explore how to add growth acceleration through QQQ and other sector tilts while maintaining the solid foundation we've built with VTI and SPY.
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Disclaimer: This article constitutes the author’s personal views and is for entertainment and educational purposes only. It is not to be construed as financial advice in any form. Please do your own research and seek advice from a qualified financial advisor. From time to time, I have positions in all or some of the mentioned stocks when publishing this article. This is a disclosure - not a recommendation to buy or sell stocks.