In my free time I'm trying to decide what/how/where I'm going to diversify my Roth IRA portfolio. I'm saving right not but haven't actually opened the account. My question is, is it a bad idea to buy, say, VOO (S&P 500) ETF's as well as VTI ( Total Stock Market ETF's). I can see why someone would argue to just go with VTI. But, VTI tracks 3700 stocks whereas VOO is ~500. VTI could decline as VOO prices increase, and vice-versa. I'm trying to decide what ETF's I would like in my Vanguard Roth IRA.

Here's what I was thinking:

  • 1) S&P 500 ETF (VOO) and/or
  • 2) Total Stock Market ETF (VTI) and
  • 3) Total World Stock ETF (VT) and/or
  • 4) Vanguard total International World Stock ETF (VXUS)

-Vanguard suggested (Don't really trust an automated program giving advice on my asset allocation) to spend (assuming $10,000 invested) 60% VTI and 40% VXUS

I know this method covers a great deal of the market, but are two ETF's really enough? I thought it would be good to buy 3-4 ETF's but I'm not entirely sure.

This all comes down to budget too, and at the moment I cannot max mine out at $5,500/year. But I think I can invest 3-400/mo in my Roth IRA. So investing in two ETF's/mo is probably my best bet until I adjust my asset allocation. Looking for some advice.

In all honesty, I know what I think is the right thing to do in my mind, but no one in my family has planned for retirement, and have no idea what an IRA even is. With that being said, I believe I know what I need to do, but this is the only place I can go for advice to reaffirm/adjust my retirement planning.

2 Answers 2


Let's simplify things by assuming you only own 2 stocks. By owning VOO and VTI, you're overweight on large- and mid-cap stocks relative to the market composition. Likewise, by owning VTI and VT, you're overweight on U.S. stocks; conversely, by owning VXUS and VT, you're overweight on non-U.S. stocks. These are all perfectly fine positions to take if that's what you intend and have justification for. For example, if you're in the U.S., it may be a good idea to hold more U.S. stocks than VT because of currency risk. But 4 equity index ETFs is probably overcomplicating things. It is perfectly fine to hold only VTI and VXUS because these funds comprise thousands of stocks and thus give you sufficient diversification. I would recommend holding those 2 ETFs based on a domestic/international allocation that makes sense to you (Vanguard recommends 40% of your stock allocation to be international), and if for some reason you want to be overweight in large- and mid-cap companies, throw in VOO. You can use Morningstar X-Ray to look at your proposed portfolio and find your optimal mix of geographic and stock style allocation.

  • Okay, thanks for the advice. I was also looking at VB or VBK, but someone suggested that VTI covered these. I just don't understand how owning an ETF with this large of a volume can be as beneficial to gains. I see how it can mitigate risk, but at the same time with what I stated above, couldn't you gain more (potentially) from VB than VTI and vice-versa? Why is that a bad idea to own both..
    – DukeLuke
    Feb 29, 2016 at 19:08
  • VB and VBK are the same story--good if you want to be overweight in a certain stock style, but not necessary, especially if you're just getting started with investing. VTI does contain all the stocks in VOO, VB, and VBK (and VB contains all the stocks in VBK). However, if you think small-cap stocks will do better than large- and medium-cap stocks, you might hold VB in addition to VTI to tweak your stock style allocation.
    – Craig W
    Feb 29, 2016 at 19:21

You are overthinking it. Yes there is overlap between them, and you want to understand how much overlap there is so you don't end up with a concentration in one area when you were trying to avoid it.

Pick two, put your money in those two; and then put your new money into those two until you want to expand into other funds.

The advantage of having the money in an IRA held by a single fund family, is that moving some or all of the money from one Mutual fund/ETF to another is painless. The fact it is a retirement account means that selling a fund to move the money doesn't trigger taxes.

The fact that you have about $10,000 for the IRA means that hopefully you have decades left before you need the money and that this $10,00 is just the start. You are not committed to these investment choices. With periodic re-balancing the allocations you make now will be adjusted over the decades.

One potential issue. You said:

"I'm saving right not but haven't actually opened the account."

I take it to mean that you have money in a Roth TRA account but it isn't invested into a stock fund, or that you have the money ready to go in a regular bank account and will be making a 2015 contribution into the actual IRA before tax day this year, and the 2016 contribution either at the same time or soon after.

If it is the second case make sure you get the money for 2015 into the IRA before the deadline.

  • Have the money - haven't opened the IRA yet.
    – DukeLuke
    Mar 1, 2016 at 14:07

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