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Evaluating the Two Funds for Life Portfolio for Doctors

I recently read Paul Merriman and Richard Buck’s book, We’re Talking Millions: 12 Simple Ways to Supercharge Your Retirement. In terms of a book review, you could do much worse than this one as an introduction to getting started with investing the right way. But in this post, I want to specifically look at the main thesis of the book: the two funds for life portfolio.

Bringing you up to speed

The book itself is really good and walking the reader through the most important steps of investing and securing your nest egg. It is always immensely readable and too me about 4 days to get through.

The first portion of the book reviews things like saving, why active investing in the stock market doesn’t work, and why index funds are the way to go.

two funds for life portfolio
Can two funds carry you?

Me three to four years ago needed to understand those concepts. Now, I have them basically automated. For anyone looking for a quick refresher on those topics, here are some great posts:

However, again the focus here is what is covered largely in the second half of this book. That is where Merriman and Buck propose their preferred investment portfolio: the two funds for life portfolio.

What is the two funds for life investment portfolio?

The two funds for life portfolio is their set it and forget it index fund based investment recommendation for basically all investors.

I realize as I type this that it almost sounds like I’m being smug. Like I’m suggesting such simplicity is naivety. But I promise I’m not! Remember, I’m all about keeping it simple stupid (me).

Anyway, the two funds in this portfolio are:

  • A Target date index fund based on your goal age of retirement and
  • A small value index fund

That’s it.

Before getting deeper into analysis, let’s review each of these funds in turn.

Target date funds

First and most importantly, not all target date funds are based on low cost broadly diversified index funds. Some are actively managed. You want ones based on index funds.

With that out of the way, target date funds are a fund composed on other funds. Some stock index funds, some bond index funds. You pick the exact target date fund based on the year (approximately) that you expect to retire or reach FI. The target date fund starts off more aggressively early with a higher percentage allocation in stocks compared to bonds. Then, as you approach your target date, it becomes more and more conservative with a higher percentage of bond funds.

In general, target date funds aren’t perfect because nothing is, but they re a great option.

Small value index funds

Companies are arbitrarily divided in two broad ways, based on size and based on stock price to earnings ratio.

Put simply, stocks of big companies are considered large cap(italization). Stocks of small companies are small cap.

Stocks of companies with a higher stock price to earnings (P/E) ratio are called growth stocks. These tend to be stocks of established companies where the value of a stock share price seems equated or inflated compared to the earnings of the company.

In contract, value stocks are those of companies with a lower P/E ratio. These are stocks that may be undervalued and have a lot of room to rise.

Over the long term, small cap stocks and value stocks historically outperform large cap and growth stocks. And a small value index fund is an index fund with small value company stocks.

Why do Merriman and Buck recommend this portfolio?

Well, investing in an asset allocation of stocks and bonds based on your risk tolerance that progressively becomes more conservative (bond heavy) as you approach retirement is how I recommend to invest. It’s how I invest my money.

And a target date fund does just this for you in exchange some a *slightly* higher expense ratio. That is a worthwhile trade for many, maybe the majority, of investors who just don’t want to reset their asset allocation over time.

However, Merriman and Buck argue that a target date fund alone is not enough

Well, maybe that is a bit harsh. If you just want to do a target date fund alone, that’s fine in my and their book. It’s what they recommended for a long time.

But, the two fund for life portfolio calls for being a bit more aggressive. It calls for taking advantage of the fact that small value stocks outperform the market average historically. Thus, by adding a small value index fund (not trying to actively pick or time the market with small value stocks!), you can take advantage of this trend to increase your returns.

Especially at the beginning of your investment career when you can tolerate more risk and are looking for more growth.

And what percentage of each fund should you have? Obviously this is where you can personalize based on your risk tolerance. But I think 90% target date fund and 10% small value index fund is a good starting point.

Examples of a two funds for life portfolio

Here are some examples. I’ll use a target date fund with 2045 as the target date for illustration purposes.


  • Vanguard Target Retirement 2045 Fund (VTIVX)
  • Vanguard Small Cap Value Index Fund (VSIAX)


  • Fidelity Freedom® 2045 Fund (FFFGX)
  • Fidelity® Small Cap Value Index Fund (VISFX)

Would I invest in the portfolio?

Yeah. I would. In fact, I do.

I really love the simplicity of this investing strategy. If you look at my 403b investment portfolio, I basically am investing like this. Except I am doing it in a DIY fashion. Because I’m a nerd.

Selenid and I recently opened a small taxable fund and started contributing a small amount every month to it. We are near that bucket in our investment account waterfall. (Note we still don’t have a sizable Roth IRA yet because we use that money for real estate investing thus far. And we don’t want to “drip” money into the backdoor Roth for complexity reasons.)

And in this small but growing taxable account with Vanguard, we put it in the two funds for life portfolio you see above.

It keeps us right at our desired asset allocation and aligns perfectly with our written investment plan. But is even more hands off. Win-win.

Should doctors invest in the two fund for life portfolio?

Yes! No surprise there. If I invest in it, surely I really believe in it and think it would do well for other doctors!

This is an especially great strategy for physicians who don’t want even a slightly active hand in their investments. It is low cost, well-diversified, and built for early growth with a progressive dialing down of risk.

What’s not to like?!

You can even personalize your risk tolerance. For instance, if you are more risk tolerant, you can choose a target date fund with a target date beyond your expected FIRE date. Thus, you invest more heavily in stocks for longer. If you are more conservative, just choose a fund with a date sooner than your actual target date.

If you are one of the many high income earning physicians with a massive savings account because you haven’t pulled the investment trigger, the two funds for life strategy may be just right for you!

Also, if you find yourself in that boat, I wrote this post just for you: Help! I’m a High Income Earner But Scared to Invest

What do you think? Have you heard of the two funds for life portfolio? Would you invest in it? Why or why not? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

    3 thoughts on “Evaluating the Two Funds for Life Portfolio for Doctors”

    1. great post Jordan! The only caveat is that if you have to have a target date fund in taxable, this could be really painful as we saw with the Vangaurd target date cap gains debacle. But otherwise I love the 2 fund strategy, but will not use it myself given the aforementioned possible tax consequences of having a TDF in taxable, as well as the slightly higher fees, and then finally decumulation in retirement would be a mess!


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