The Simple FIRE Portfolio and Where to Hold It

Once money is being saved, it has to be invested somewhere, and in which accounts. This chapter explains why most FIRE plans settle on a small number of low-cost index funds, how to think about the split between stocks and bonds, and how to order the accounts you fill so that the money is both tax-efficient and reachable before 59½. The theme is that simple usually wins, because the things you control (costs, taxes, behaviour) matter more than the things you do not.

Why index funds

An index fund holds every security in a market index, such as the whole US stock market, in proportion to its size. It does not try to pick winners. That sounds modest, and it is the reason it works.

• Costs compound too. Every year a fund charges a fee, that fee is taken out of your return, and the money it takes never grows. Broad index funds are among the cheapest ways to own the market.
• Most stock pickers fall behind. S&P Dow Jones Indices' long-running SPIVA reports have repeatedly found that most actively managed US stock funds trail their benchmark index over periods of ten years or more, largely because of their higher costs.
• Diversification is built in. One total-market fund holds thousands of companies, so no single failure can sink the plan.
• Simplicity protects behaviour. A plan you understand is a plan you are less likely to abandon in a crash.

Here is what a fee does to a FIRE timeline. The two cards are the same household; the second simply gives up one percentage point of return a year to costs.

With $100,000 invested and $3,000 added a month toward a $1,250,000 target, the low-cost version arrives in about 19.6 years. Losing one point a year to fees cuts growth after inflation from 3.9% to 2.9% and pushes the date out to about 21.5 years. And the fee does not stop at retirement: it keeps taking the same share of a much larger balance every year after. The investment fee calculator shows the cost on your own balance.

Stocks, bonds and the split between them

Stocks have historically grown faster than bonds over long periods, and have fallen much further in bad years. Bonds grow more slowly and usually cushion a portfolio when stocks fall. Your asset allocation, the share in each, is the largest single decision about risk you will make.

What the split should be depends on things only you can judge:

• Time until you need the money. Money you will not touch for twenty years can ride out more swings than money you will need in two.
• How you behave in a fall. The right allocation is one you will hold through a 40% drop without selling. If you are not sure, assume you will feel it more than you expect.
• Flexibility in retirement. If you could cut spending or earn some income in a bad year, you can carry more in stocks.

Many FIRE plans hold mostly stocks while saving and add bonds as the target approaches, because the years just before and after leaving work are when a crash does the most damage. Chapter 8 returns to this. The asset allocation calculator shows the trade-off between expected growth and the size of a bad year for different mixes.

International stocks are worth considering too. US companies have done well over the last few decades, but no country leads forever, and holding companies from other markets spreads the risk that one economy has a long poor run. A total world fund, or a US fund paired with an international fund, covers it.

The accounts, and the order to fill them

Where you hold investments matters almost as much as what you hold, because each account type is taxed differently and has different rules on when you can take money out.

• Workplace plan: 401(k), 403(b), TSP. Up to $24,500 of your own contributions in 2026 if you are under 50, with higher catch-up limits from 50. Traditional contributions lower your taxable income now and are taxed when withdrawn; Roth contributions are taxed now and come out tax-free later.
• IRA. Up to $7,500 in 2026 across traditional and Roth IRAs if you are under 50. Whether a traditional contribution is deductible, and whether you can contribute to a Roth directly, depends on your income, filing status and whether you have a plan at work.
• HSA. Available only with a qualifying high-deductible health plan. Up to $4,400 for self-only coverage or $8,750 for family coverage in 2026, employer money included, plus a catch-up from 55. Contributions are deductible, growth is untaxed, and withdrawals for qualified medical costs are tax-free.
• Taxable brokerage account. No contribution limit and no age rules. You pay tax on dividends each year and on gains when you sell, at long-term capital gains rates for holdings kept over a year.

A common order, which you should adapt to your own plan's rules, is: contribute enough to the workplace plan to get any employer match (an immediate return no investment can promise); then the HSA if you have one; then an IRA; then more in the workplace plan; then the taxable account.

For early retirees there is a twist. Money in a 401(k) or traditional IRA generally carries a 10% additional tax if withdrawn before 59½, unless an exception applies. That does not make those accounts a bad idea: their tax break is valuable, and Chapter 5 covers the legal routes to reach the money early. But it does mean many FIRE plans deliberately build a taxable account or Roth contributions as the bridge for the first years after work.

Roth or traditional? For many people pursuing FIRE, traditional contributions are attractive while working at a high tax rate, because the money can later be withdrawn or converted to Roth in early-retirement years when taxable income, and so the tax rate, is low. Roth contributions make more sense when your tax rate now is low, or when you expect a high rate later. The answer depends on your bracket now and your expected bracket later.

Asset location means putting each investment in the account where it is taxed least. Bonds, whose interest is taxed as ordinary income, often sit best in tax-deferred accounts; broad stock index funds, which are relatively tax-efficient, often sit well in a taxable account. The asset location calculator estimates the difference for your mix.

Keep it simple and automatic

A complete FIRE portfolio can be two or three funds. The work that remains is mostly behaviour: contribute automatically every payday, rebalance back to your target mix once a year or when it drifts far from it, and do not change the plan because of a headline. Most of the damage people do to their returns comes from selling after a fall and buying after a rise.