Monday, July 08, 2013

Simple Is

A way to make investing both minimalist and broadly diversified at the same time.

A Portfolio That's as Simple as One, Two, Three

It may sound counterintuitive, but for the average individual investor, less is actually more. ...

Some experts are pushing a back-to-basics approach to investing. As drastic as it may sound, they say it's possible—even at times desirable—to construct a very well-diversified portfolio using just three low-cost mutual funds or ETFs.

"In this atmosphere, where it's so easy to get drawn into complicated and niche areas of the market, this is a good way to be disciplined," says Abby Woodham, a fund analyst at investment researcher Morningstar Inc. ...

A classic trio provides exposure to U.S. stocks, foreign stocks and U.S. bonds, Vanguard Total Stock Market Index fund, Vanguard Total International Stock Index, and Vanguard Total Bond Market Index.

Together, the three mutual funds, which also offer ETF shares, track more than 15,000 global securities. ...

And, of course, I bring this up because you can access these funds (and some others like them) in the TAG 401(k) Plan.

The Vanguard Target Retirement Funds -- which the TAG Plan has in abundance -- contain all the above funds ... and more. You can also purchase them directly from Vanguard, and if you buy Admiral Shares (as linked above), then your costs will be microscopic: under one tenth of a percent.

I bring this up (yet again) because it's easy to get shafted when you're investing. You can fall prey to a smiling "financial advsior" who will take you out to nice breakfasts and dazzle you with bullshit, and all for the very modest fee of 2% off the top.

Happened to me. For twenty years.

And here's the really sad part. After twenty years, I had made some money, but not as much as I would have raked in if I had put everything in the Total Stock Market Index. The genius who was busily buying and selling stocks with his computer models and platoon of experts (there in the back room) underperformed the market, but this was something -- if I'd had a brain -- I should have expected. Because when you give away a piece of the action to a smart operator who promises to make you rich, you're usually guaranteed to end up with less.

I know that now. I didn't know that when I was thirty-three. Don't make the same bone-headed mistakes I did.


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