Is ChatGPT's Portfolio Better Than VTSAX?

Jason's analysis of his retirement plan shows that the simple path beats the efficient frontier. Is he right or is he missing something?

Minerva is worried about the impacts of tax inefficiency to her wealth. Are her investments properly located?

Scott feels frozen because he doesn’t understand the nuances of the efficient frontier. Where can he get a simplified explainer so he can start taking action?

Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Jason asks (2:23):   Is it possible that my simple portfolio is already outperforming the efficient frontier? Or am I misinterpreting the data?

I’ve been intrigued by the efficient frontier discussions over the past year, especially episode 577, where Joe helped a listener named Kelsey work through limited 401(k) options. As a public safety officer, I’m in a similar position.

I have access to both a 457(b) and a 401(a), plus a pension that’ll provide a guaranteed income. So, I’ve been fairly aggressive with a 90/10 stock-to-bond allocation. According to Portfolio Visualizer, this mix has an expected return of 13.22 percent with a standard deviation of 14.33.

To compare, I asked ChatGPT to create a 90/10 allocation that would fall on the efficient frontier, using the funds available in my 401(a). It suggested 25 percent S&P 500, 25 percent large cap growth, 15 percent mid cap, 15 percent small cap, 10 percent international, and 10 percent bond.

But here’s the twist: when I plug that allocation into Portfolio Visualizer — using the 30 percent max weight guideline — the expected return drops to 12.9 percent with a higher standard deviation of 16.75.

When I match the standard deviation of my current portfolio (14.33), the return drops even further to 11.65 percent, which seems contrary to what I’ve taken from your episodes. I thought the efficient frontier should help me increase returns for the same level of risk?

I’m perfectly happy with a VTSAX-and-chill approach, but if the efficient frontier really can deliver better returns at the same risk level, I’d love to understand how to take advantage of it.

Am I misinterpreting something here?

Minerva asks (35:16):   What’s the best way to avoid paying unnecessary taxes on investments—without doing anything shady?

As we approach retirement, my spouse and I are starting to think about where our investments live. Up until now, we’ve focused almost entirely on tax-advantaged retirement accounts, but we’re ready to build out our brokerage account to complete our tax triangle.

That brings up a big question: Which types of funds belong in each type of account?

Which investments are better off in IRAs or 401(k)s because they generate high tax drag? And which ones are more efficient to keep in a taxable brokerage because they throw off minimal gains along the way?

We’d appreciate a deep dive into tax-efficient asset placement—especially for those of us closing in on retirement.

Scott asks (1:18:34): Do you have any straightforward resources that explain the efficient frontier and offer actionable steps for someone ready to move beyond a basic index fund strategy?

I appreciated Joe’s thoughtful take on the “VTSAX and chill” approach versus optimizing for the efficient frontier. I’m intrigued by the idea of taking 15 minutes to shift my portfolio toward something more efficient—but I’m not sure where to start.

Part of the appeal of VTSAX is how simple and clearly defined the steps are, thanks to JL Collins. Are there any articles, videos, or guides that simplify the efficient frontier in the same way?

Resources Mentioned:
https://affordanything.com/episode577
https://affordanything.com/episode547
https://affordanything.com/yournextraise
https://affordanything.kit.com/assetl...
   • The Truth About Making the Efficient Front...  
https://acorns.com/share/?shareable_c...
https://www.whitecoatinvestor.com/sma...


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