Creating a gone-fishing portfolio begins with a top-level asset allocation. We use six asset categories. The three for stability are short money (maturing in less than two years), U.S. bonds and foreign bonds. The three asset categories we use for appreciation are U.S. stocks, foreign stocks and hard asset stocks.

Setting these top-level asset allocation targets is the most important part of your investment management decisions. It will determine not only how much return your portfolio gets but also how much risk you are taking.

Asset allocations are best built from the top down rather than looking at what you already have and then determining how they are categorized. An age-appropriate asset allocation if you are 40 years old might be 3.0% short money, 5.8% U.S. bonds, 5.8% foreign bonds, 32.2% U.S. stocks, 36.2% foreign stocks and 17.0% hard assets. My previous articles have suggested allocations appropriate for people at other stages of life.

This article focuses on just the U.S. stock allocation. Although it is not the largest allocation in our models, it is the biggest allocation for most investors.

The gone-fishing philosophy suggests a fund selection criteria of low fees and expenses, a large number of holdings to track the index and, if possible, tilting toward small and value to take advantage of these trends.

Our first U.S. stock selection, therefore, should be Vanguard Total Stock Market ETF (VTI). It is by far one of the best ways of participating in the lion’s share of U.S. equity market returns.

First, the expense ratio for this fund is 0.07%. That is incredibly reasonable, 94% lower than the average expense ratio of funds with similar holdings, according to Lipper Inc. Low fees and expenses are critical because whatever return the fund does not take you get to keep.

VTI invests in more than 3,000 stocks that represent the entire U.S. market. VTI is currently trading at $67.53 per share. Where else can you buy virtually every company in the United States for less than $100?

If friends at a cocktail party say they are invested in Sotheby’s (BID) or Coeur D’Alene Mines (CDE), you can say you own shares as well. If you own 100 shares of VTI (worth about $7,000), you would own 0.03 shares of Sotheby’s and 0.05 shares of Coeur D’Alene Mines, each worth about $1.41.

Although VTI includes smaller stocks, it consists mostly of large-cap stocks because the bigger companies comprise the largest part of the U.S. stock market. In fact, 15.3% of your investment will be in the top-10 stocks: Exxon Mobil, Apple, Chevron, GE, IBM, Microsoft, AT&T, Procter & Gamble, Johnson & Johnson and JPMorgan Chase.

This is a better diversification than an S&P 500 index fund. An S&P 500 index fund has 18.9% in the top-10 holdings and 100% in large cap. VTI has only 71.5% in large cap with 19.6% in mid cap and 8.9% in small cap. This broader diversification resulted in VTI beating the S&P 500 index by 0.64% annually over the last five years.

Although VTI includes small and value, it does not tilt toward small and value, which historically should boost returns. For that reason we recommend splitting your U.S. stock allocation into two thirds VTI and one third Vanguard Small-Cap Value EFT (VBR).

Investing some in VBR overweights the small-cap value stocks, which are most likely to perform the best. As it turns out, VBR has outperformed the S&P 500 by 0.97% annually over the past five years. The expense ratio remains a low 0.23%, and the number of holdings is still more than 900.

A blended portfolio of $7,000 of VTI and $3,500 of VBR beat the S&P 500 by 0.94% over the past five years. Notice that the blended return is much closer to the higher return of VBR, even though it is the small component. This is because there is a rebalancing bonus that is gained by regular rebalancing over five years.

Also interesting to note is that adding VBR would not add any shares of Sotheby’s (a small-cap growth stock), but it would include an additional 2.2 shares of Coeur D’Alene Mines (a small-cap value stock) worth an additional $21.

VTI and VBR also kick off dividends. The trailing 12-month dividend yield for VTI is 1.7% and for VBR is 1.93%. That’s certainly better than any interest rate you will get for your money at the bank. So even if the U.S. markets just go sideways, investing in VTI and VBR beats 90-day Treasury yields.

If your U.S. stock allocation is 32.2% of your portfolio, put two thirds, or 21.5%, in VTI and one third, or 10.7%, in VBR. This is good enough for investors who are just getting started. If you are interested in the subsequent steps of building a more sophisticated portfolio, some excellent exchange-traded funds (EFTs) would help round out the tilt toward value and mid and small cap: Vanguard Value (VTV), Vanguard Mid-Cap (VO) and Mid-Cap Value (VOE), Vanguard Small Cap (VB), iShares Russell 2000 (IWM) and Russell 2000 Value (IWN) and iShares Micro-Cap (IWC).

Another way to boost returns would be to overweight certain sectors of the economy. The U.S. government heavily regulates the financial, energy and health-care sectors of our economy. As a result, U.S. companies struggle to compete globally in these areas. Technology, however, is not heavily regulated in the United States and therefore is one of the areas where we are most competitive and therefore most profitable.

VTI is composed of 18.8% stocks in the information technology sector. You can overweight this sector by adding some Vanguard Information Technology ETF (VGT). Although VGT includes more than 400 technology companies, over half of whatever you invest is put into the top-10 companies in the index.

Tweaking a gone-fishing portfolio is much more fun than if your investment portfolio is too complex and you are not able to fish at all. So set a U.S. asset allocation and rebalance once or twice a year.