My wife loves waterfalls and I love having a happy wife. Since we are both still working a regular job 5 days a week, we value our free time on the weekends, when weather permits we try to seek out a new waterfall somewhere and go for an adventure. The major plus of this is that it is extremely cheap to do and we both enjoy it. I also enjoy the simple fact of getting away from everything and being alone in the woods. Since we like to keep our free time simple and fun, I think we should apply the same idea to our investing. Like I said before my wife and I are both still very busy people, we are working towards financial independence so that we can go hunt waterfalls any day of the week we want. So we need an investment strategy that is simple also and that doesn’t require a lot of time setting up or monitoring, enter the index fund!!!!! Currently I invest in a few funds and only re-balance once a year. Here is the break down of what funds I use and a rough estimate of the current allocation.
VTI – 15% – Total stock market index
VOO – 40% – Large cap/Fortune 500 companies
VYM – 20% – High dividend
VEU – 10% – All world index
VNQ – 10% – Real Estate investment
BND – 5% – Total bond index fund
Okay so this is my current allocation and it is slightly over complicated. If I didn’t already own any funds I would consolidate VTI and VOO into only VTI. So why would a 5 fund portfolio get the job done and only require re-balancing it once a year. This portfolio provides exposure to almost every type of asset class. VTI – gives you a broad exposure to the entire US stock market, large, mid, and small cap companies, it basically moves with the US economy. VYM – has a lot of overlap with VTI and a slightly higher expense ratio to but it has a much larger dividend yield, I love dividends because it’s a sign of stability and income. VEU – still has some overlap with VTI but also provides exposure to stocks outside of America, you could go with an emerging market but I am bullish on America and the strength we wield in the economic world. VNQ – I also love real estate. I always have since I was a small child, my grandmother was a real estate broker and I loved going to open houses and getting to pretend like I lived in the large houses. VNQ allows me to be exposed to the real estate market and receive part of the rents that the tenants pay without having to actually deal with being a landlord. Lastly BND – Gives me exposure to the overall bond market and hopefully will provide a little stability in the portfolio. Bonds and real estate are considered non-correlated which basically means they don’t move together, so if stocks fall in price bonds and real estate will hopefully hold their value or even move the opposite direction.
Imagine owning part of every public company in America, part of the highest dividend paying companies in America who will send you money every few months, Part of some of the best and most prestigious real estate properties in the world, (who will also send you money every few months) and a large part of public debts guaranteed to be paid for by the US government (the same ppl that guarantee the dollars you get paid in will have value.) All of this you can simply pull up on your smart phone and check any time any where in the world. I’m 36 so I don’t have a lot of bond exposure right now but I will as I get closer to retirement. I have a traditional IRA and ROTH IRA at Vanguard that I employee this portfolio at. I also have an IRA at Fidelity that has the same basic allocation but slightly higher on the bonds and no REITS. I have a 401k with Wells Fargo at work that is 75% domestic large cap index, 10% domestic mid cap index, 10% International index, and 5% US bond index, this is all in BlackRock funds who happen to have fairly low expenses. If I leave my employer I will transfer everything to Vanguard. So when I say keep it simple I mean own 5 funds that allow you to own part of the world and don’t mess with it until you are 60 years old.
Disclaimer —- I own a brokerage account at a couple places that I purchase individual stocks at, I happen to like analyzing the companies financial statements and monitoring the stock prices. This is a VERY small percentage of my overall portfolio and a small amount of my monthly income goes towards it. It does however keep me from messing around with and messing up my retirement accounts. No matter how much studying I do I have not and will not beat the return of my K.I.S.S accounts. So Keep It Simple and don’t be STUPID………………………