The problem with most investors? They have overly complex portfolios, with a jumbled mix of stocks, bonds, and mutual funds that creates an avalanche of paperwork and record keeping, as well as so-so results.
Design engineers have long relied on the KISS principle — Keep It Simple, Stupid.
While investors are rarely stupid, some financial advisors believe that the majority of them have overly complex portfolios, with a jumbled mix of stocks, bonds, and mutual funds that creates an avalanche of paperwork and record keeping, as well as so-so results.
Intelligent investing doesn’t have to be complex, however, say some well-known investment gurus, who have cut investment choices down to a bare minimum.
William Bernstein, a neurologist and financial advisor, has created what he calls his “No-Brainer” portfolio that calls for putting 25% of your investment into four index funds that cover four investment categories — domestic stocks, both large- and small-cap, bonds, and European stocks.
Although Bernstein’s one-year results trail the S&P500, he’s done better than the index over three- and five-year periods. Another Wall Street legend, Charles Ellis, takes the KISS strategy a step further. Put all your cash into two funds, he says — the Vanguard Total World Stock Index and Vanguard Total Bond Market Index. Vary the mix according to your age, holding more stocks than bonds when you’re younger and gradually shifting assets to bonds as you grow older.
According to John Bogle, founder of Vanguard and the father of the index fund, trying to beat the stock market is a loser’s game. Given the high costs of active trading, he says, the winners are the common-sense investors who create a diversified portfolio and hold on to it. Another secret to building wealth through successful investing is consistency, say financial experts. Put money into your simple portfolio regularly, and let the magic of compounding do the rest.