Dedicated to Deposits: Deals, Data, and Discussion
Featured Savings Rates
Featured Accounts

Simple Way To Invest In A Diversified Stock Portfoloio

Tuesday, November 8, 2011 - 4:52 AM
If you want to start investing into stocks, this is a simple way to invest, and many claim this is the best approach for long-term success. Allan Roth in his CBS MoneyWatch article describes this investing strategy
Many investors think that diversification is complex. I, on the other hand, think proper equity diversification is remarkably simple. Here is a stock portfolio that's about as diversified as it gets, yet only uses two funds.

1)  Vanguard Total Stock Index (VTSMX, VTSAX, or VTI)
2)  Vanguard Total International Stock Index (VGTSX, VTIAX, or VXUS)

2
Ken TuminKen Tumin5,469 posts since
Nov 29, 2009
Rep Points: 125,077
1. Tuesday, November 8, 2011 - 6:44 AM
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.

 
5
51hh51hh1,476 posts since
Jan 16, 2010
Rep Points: 6,426
2. Tuesday, November 8, 2011 - 9:05 AM
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.
2
BozoBozo137 posts since
Feb 14, 2011
Rep Points: 937
3. Tuesday, November 8, 2011 - 9:23 AM
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.
3
Anon456Anon45630 posts since
Oct 30, 2011
Rep Points: 76
4. Wednesday, November 23, 2011 - 4:02 PM
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.
1
WealthManagerWealthManager8 posts since
Nov 21, 2011
Rep Points: 12
Reply