Your perfect portfolio

In the previous post, I argued that wealth ultimately depends on three variables: how much you contribute, how long you stay invested, and the returns you earn. On paper, chasing higher returns looks like the fastest path to wealth. In practice, higher expected returns usually come with higher risk—and that risk often shows up behaviorally, causing hesitation, second-guessing, or selling at exactly the wrong time. That's why the two levers you truly control—how much you save and invest, and how long you remain invested—matter far more than trying to outsmart the market. In that sense, my definition of a “perfect” portfolio is a simple one: it lets you invest new savings immediately and stay invested through everything. Of course, what makes this possible will look different for each person. In the rest of this post, I'll review two portfolio philosophies and highlight a few practical principles inspired by them. I hope this helps you find your own path toward a “perfect” portfolio.

John Bogle's perfect portfolio [video]

Entirely in low-cost stock and bond index funds. Allocation should be age based
Focus on U.S. market for equity investments. 20% allocation to international is fine
Regular rebalancing is not terrible, but not necessary
A small percentage in emerging market index and gold

William Sharpe's perfect portfolio [video]

Treasury inflation-protected securities (TIPS) plus all the tradable bonds and stocks in the world
World Bond-Stock fund (WBS; four-fund proxy): a portfolio holding all publicly traded bonds and stocks worldwide, weighted by their global market value
It makes little sense to be obsessive about rebalancing since the majority of the changes in their relative values will result from changes in the prices of assets already held in WBS

My investing journey started with JL Collins's aggressive VTSAX and chill approach, and was shaped by Ray Dalio's strong opinions during the low interest rate era — “cash is trash,” “don't own bonds,” and “gold should be part of your portfolio.” As my nest egg grew and market environment changed, my perspective shifted. I gradually moved toward William Sharpe's globally diversified WBS strategy, focusing on the efficient frontier and adding bonds and international exposure for a balanced and hopefully more resilient portfolio.

Summary of principles

Low-cost broad market passive index funds (ETFs preferred in taxable accounts)
Global diversification based on market weights (including emerging markets) is especially compelling in Dec of 2025, given elevated US valuations, a decade of US outperformance, and a weakening dollar. A modest home-country bias is reasonable, reflecting where you expect to spend your money
Bond allocation should reflect your risk tolerance and investment time horizon. Consider your future earning potential ("human capital") as a bond-like asset. (As of Dec 2025, bonds appear especially attractive.)
A small percentage in non-productive assets (e.g., gold and crypto) is acceptable if they do not exceed their market proportions relative to stocks and bonds
A small percentage for individual stocks is acceptable if you acknowledge that it is for fun and they will collectively underperform broad market in the long run

Further Resources

Andrew W. Lo and Stephen R. Foerster (2021) In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest (affiliated link)