So many investment choices, so many potential portfolio decisions. The inventory of stocks, bonds, funds and other financial assets for sale is big enough to fill a big-box store. But there’s a downside to shopping at financial supermarkets: It injects complexity into the investing process.
That can lead to portfolio miscues, such as chasing high-fliers that have already run up in price, investing in assets you don’t understand, or buying a bunch of funds that own many of the same stocks (which means you’re less diversified than you think).
“The more complex your portfolio is, the easier it is to get out over your skis,” says Matt Fleming, a wealth adviser at Vanguard Personal Advisor Services.
The good news? You can play it simple and build a portfolio using just three funds. If you choose correctly, you’ll get a low-cost, diversified mix of stocks and bonds that’s easier to track and manage.
This strategy, popularized by “Bogleheads” (investors who embrace the low-cost, index-fund approach espoused by the founder of Vanguard, the late John Bogle), includes investments in three asset classes: U.S. stocks, international stocks and U.S. bonds. The portfolio consists of index funds or exchange-traded funds that charge rock-bottom fees and invest in baskets of securities that cover an entire investment universe.