Investing can seem very complex if you are new to it. There are so many options out there. How is one to choose between stocks, mutual funds, CDs, corporate bonds, treasury bonds, savings accounts, and even more exotic options like lending on Prosper. With all this complexity it may be worth simplifying things dramatically. Here’s my idea of a simplified or lazy portfolio.
The first step to my plan is to get a Zecco account. I choose Zecco simply because they charge no commissions to buy exchange traded funds (ETFs). That means, that’s you can re-balance and add to your portfolio each week without incurring huge costs.
What does this lazy portfolio look like? It splits 100% of your money equally into the following ETFs:
- 25% – Total Stock Market Index (Ticker: VTI) – This ETF tracks the performance of many US stocks. It’s a great way to diversify yourself in across large and small, growth and value stocks.
- 25% – Vanguard All-World Ex-US fund (Ticker: VEU) – This invests in the many stocks all outside of the United States. I believe you shouldn’t put your eggs in one basket and I consider the US one basket. This reduces currency risk and mitigates against some of the problems that pop up from time to time, like the sub-prime lending one that we are in now.
- 25% – First Trust Global Real Estate Index Fund (Ticker: FFR) (Ticker: FFR) – This invests in real estate around the world. While it does hold a fair share of US real estate, over 60% is outside of the US (hat tip to Sun’s Financial Diary for the help on this one.) This is a great hedge when all the stock markets aren’t performing.
- 25% – Vanguard Total Bond Fund (Ticker BND) – This tracks the performance of a huge number of bonds. Bonds can be a little risky if bought individually, but in a fund such as this, that risk is reduced with the many holdings. Bonds also move independently of stocks and real estate, so if either of those two areas are doing poorly, bonds may stabilize your portfolio.
You won’t get rich overnight investing in this allocation. However, since it covers so many areas, you’ll likely find that you sleep well each night.