Dec 12th, 2007
What a portfolio might be made up of
One of the books in my online “Now Reading” collection is The Lazy Person’s Guide to Investing. As far as investing books go, it’s quite elementary and designed for folks who are pretty uninterested in investing, but I like it a lot, in large part for simplifying 401(k) fund choices for the millions of American workers who have that wonderful investment option.My favorite part of The Lazy Person’s Guide is the sample portfolios they give as examples. This helps to cover asset allocation as well as fund choice all in one simple step. The Couch Potato, the Coffeehouse, and other included portfolios help to give the reader options and models to follow. When I recently worked on reallocating my 403(b) portfolio, I reviewed some of the portfolios in this book. I didn’t take one of their models to use as my own, but I took ideas from several and came up with my new allocation:
50% Total Stock Market Index
25% International Fund [unfortunately, my 403(b) plan doesn't offer an index]
25% Total Bond Market Index
Before this, my allocation was approximately the same, but I owned about twenty funds. I took the opportunity to reduce the number of funds I owned, simplifying the portfolio (I am not an advocate of people tracking dozens of funds, but it’s quite possible to track three, at least occasionally) and making it very easy to make sure that the assets I want in domestic stocks are in domestic stocks, the assets I want in international stocks are in international stocks, and the assets I want in bonds are in bonds. Index funds also make this a very low cost, highly diversified, and extremely efficient proposition. The fact that this is all in a 403(b) means that there are no taxes to pay upon the reallocation, and in the case of my plan, no fees to pay either.
Are there flaws with this portfolio? I’m sure that everyone has their own opinion, but low costs, high levels of diversification, and market matching performance says that it ought to do fine in the long term. If I was in retirement I’d probably want something a bit more balanced; if I was a bit younger, I might (but then again, might not) want something with more stock market allocation. What do you have in your portfolio? I’ve shown you mine; will you show me yours?
