What would your alternative strategy be, then? 100% index funds? Or are you just suggesting to have the majority of your money in funds and then own a few individual stocks if necessary?
I'm sort of new to this and just learned about FIRE through Reddit which led me to this forum. So, I am just trying to get a better perspective on how I should be investing going forward. I am 29 and would like to retire by 50.
Thank you again for your input here.
Heckler's link is a good starting point. You can literally write a book on portfolio construction, and many people have. There are some example portfolios on Bogleheads somewhere. The thing about building a port is you have to think about what you are trying to accomplish, and then do it. If you start jumping around you'll screw yourself.
Here are my thoughts, in bullet points and in no particular order in order to get you started. But this is just a starting place.
Markets rise and fall, but fees are gone forever.
Keep it as simple as possible, but no simpler.
Even what appear to be small fees, like say 0.4, will wind up costing you the price of a small house or car over your investment lifetime.
A lot of people here like JL Collin's advice:
http://jlcollinsnh.com/stock-series/For good, logical reasons he explains in his stock series, he recommends 80/20 Vanguard total stock market (VTSAX) and Vanguard total bond market (VTBLX). Cheap and simple. Cheap and simple are good.
I disagree. And here's why: VTSAX is cap weighted, so the biggest stocks are most of the fund. For that reason, it very closely tracks the S&P500 index, which also cap weighted, which in turn also closely tracks the S&P100. So you think you are buying the whole market, but VTSAX actually behaves like a large-cap fund of the 100 largest stocks (probably the top 50, but I haven't checked). I think that's a mistake because small caps actually outperform large caps. So if you stir in a little bit of small cap and mid-cap in there, the returns improve by non-trivial amounts. Over the last 45 years or so, anyway.
Why not go all small caps? Small caps are more volatile, and different market segments can outperform or underperform for very long periods of time. For example, mid-caps have been outperforming large caps for the last 15 years or so. But large caps were better in the 1990s. So you need a mix. Let the big and mid caps do the heavy lifting and let some small caps run wild.
Avoid gold.
It is worth pondering some international exposure. Upside: Not well correlated with the US market. Non-correlation is good. Downside: High fees and more complexity. Its hard.
Bonds are like the ballast in a ship. They slow the ship down, but they make the ship more stable, so having some ballast is good. So have the right amount of ballast, but not too much.
Volatility is not the same as risk.
A lot to think about. In the meantime, do 80/20% (VTSAX) and Vanguard total bond market (VTBLX) and you'll be just fine until you come up with a plan in a year or two.