Why Low-Cost Beats High-Return Every Time
A fund charging 1% in annual fees will cost you roughly $100,000 on a $500,000 portfolio over 20 years compared to one charging 0.05%. Before picking any fund, check its expense ratio. This single number is the most reliable predictor of long-term performance — lower is almost always better.
Your Two Core Accounts: 401(k) and Roth IRA
Start with your 401(k). In 2025 you can contribute up to $23,500 (under 50) or $31,000 (50+, including the $7,500 catch-up). Contributions are pre-tax, meaning a $23,500 contribution only costs you $16,450 out of pocket if you're in the 28% bracket. Always contribute at least enough to capture your employer match — that's an instant 50–100% return on your money.
Then fund your Roth IRA. You can contribute up to $7,000 per year ($8,000 if 50+), provided your MAGI is below $146,000 (single) or $230,000 (married filing jointly) in 2025. Roth accounts grow tax-free forever — the gains on $7,000/year invested from age 25 to 65 at 7% real returns compound to over $1.4 million, completely tax-free at withdrawal.
Backdoor Roth for high earners. If you earn above the Roth income limits, contribute to a non-deductible Traditional IRA ($7,000) and immediately convert it to a Roth. This is legal and widely used. Watch for the pro-rata rule if you have existing pre-tax IRA balances.
The HSA: America's Most Under-Used Investment Account
If you have a High-Deductible Health Plan (HDHP), open a Health Savings Account. In 2025 the contribution limit is $4,300 (individual) or $8,550 (family). The HSA is the only triple-tax-advantaged account in the US:
- Contributions are pre-tax
- Growth is tax-free
- Withdrawals for medical expenses are tax-free
Most people use the HSA as a spending account. The smarter move: pay medical bills out of pocket, let the HSA grow invested in index funds, and withdraw tax-free in retirement. After age 65 you can withdraw for any reason (taxed like a Traditional IRA) — making it effectively a second 401(k).
The 3-Fund Portfolio
Once accounts are set up, keep the investments simple. The 3-fund portfolio, popularised by the Bogleheads community, covers the entire investable market with three funds:
| Fund | Vanguard | Fidelity | Expense Ratio |
|------|----------|----------|---------------|
| US Total Market | VTSAX / VTI | FSKAX / FZROX | 0.03–0.00% |
| International | VXUS / VTIAX | FTIHX | 0.07–0.06% |
| US Bonds | VBTLX / BND | FXNAX | 0.03–0.025% |
Asset Allocation by Age
Your bond allocation provides the cushion during crashes. A common starting point:
| Age | US Stocks | International | Bonds |
|-----|-----------|---------------|-------|
| 25–35 | 60% | 30% | 10% |
| 35–45 | 55% | 25% | 20% |
| 45–55 | 50% | 20% | 30% |
| 55–65 | 40% | 20% | 40% |
Target-date funds (e.g., Vanguard Target Retirement 2050, expense ratio 0.08%) automate this rebalancing if you prefer simplicity over control.
Rebalancing and Contribution Priority
Follow this order of priority each year:
- 401(k) to employer match (free money)
- Max HSA ($4,300–$8,550)
- Max Roth IRA ($7,000)
- Max remaining 401(k) ($23,500)
- Taxable brokerage account (for amounts beyond tax-advantaged limits)
Rebalance annually — simply redirect new contributions toward under-weighted asset classes rather than selling, which avoids triggering taxable events.
Ready to see if your current portfolio is on track? Analyze your portfolio at /analyze to get an instant breakdown of your allocation, costs, and a personalised action plan.