Simple Way To Invest In A Diversified Stock Portfoloio

Not that easy, Scarlett...:D

One has to build an adaptive profolio suited for one's risk tolerance and time horizon; and it is not simple.

It will begin with a test/experiment in real stock market environment with daily ups/downs.  One needs to modify one's porfolio accordingly until smooth sailing.  One needs to adjust one's porfolio and fund selection according to weather-of-the-month of weather-of-the-season as well.

Blindly taking total-market funds will only afford you as a sitting duck when the market turns violant and when economy turns to recession.  I used to think that diversification and asset allocation are sufficient; but that (promotion/strategy) is only a trick for all poor/dumb investors (including myself) to have a false sense of peace while their money goes down the drain.

JMHO.

 

While I would agree that VTSAX and VTIAX are excellent, low-cost, well-diversified equity funds (I own both), a proper asset allocation (AA) should also include fixed-income (such as a total bond fund, a CD ladder, an after-tax cash emergency fund). Relative percentages between and even within asset categories are also important. I would point anyone seriously saving for (or in) retirement to the Boglehead.com site and Wiki.

By the way, an extremely simple balanced fund (domestic stock 60%/domestic total bond 40%) is VBIAX (which I also own). Add a dollop of international exposure with VTIAX, if you wish.

Ken -

Would never get everyone together on this topic.  OF COURSE, You are ALL correct.  Ken just said a simple way ..... not the BEST or even the most prudent.  

Diversified portfoilios are a good idea, but you will probably never get two advisors to exactly match up on what that means, exactly.

Actively managed, or indexed ETF, is another discussion.

Scott Burns writes a column in the Dallas Morning News about the COUCH POTATO investor, with a pretty interesting track history.  Only makes adjustments once a year.

Your POST was good food for thought.  Probably did need a caveat of SIMPLE is argueably not always the BEST approach.  Room for discussion.  THANKS for your posts.

Since I am in the business of creating asset allocations, I would include, Equities, Fixed Income, Global Real estate and commodities.  I can show models back tested over 20+ years how they perform much better than a stock bond portfolio.

As for the "buy and hope" strategy by the Couch potato, I am from the camp of risk management, not growth oriented.  Many of my clients are retired and depend on their remaining assets to live, fund furture liabilities and preserve a legacy for their heirs.  I identify with my clients what I call the "Price Point of Pain".  How much to "too much" volatility.  I use real world numbers and not precentages.  I find that is a truer hot button rather than saying  a percentage.  For example.. 5% volatility doesnt sound bad, but if that 5% is on 1million, 50K loss does. 

Everyone should speak to an reputable advisor.  Ask other successful people who they use.  Once you have a name, go onto FINRA.org/brokercheck and validate their credentials.  Once satisfied, go interview them.