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Overwhelmed by Investing? Here's the Quickest Way to Simplify the Process.
Key Points
You can cover your bases with as few as three funds.
Three simple investments fill your portfolio with hundreds or even thousands of different stocks.
Fortunately, the types of funds you need are plentiful, providing you with options.
If you ever find yourself wondering if it's possible to build a balanced portfolio on your own that cuts through the noise and eliminates unnecessary decisions, the answer is yes. As a bonus, you can set up and run exchange-traded funds (ETFs) with minimal effort. Here's how.
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Aim for three investment types
If you want to cover your bases, you can get there with three types of funds:
- A broad stock market index fund for domestic exposure.
- An international stock index fund for global diversification.
- A high-quality bond index fund for stability.
Investing in three to four low-cost index funds can cover hundreds or even thousands of securities, providing you with instant diversification without the need for constant research or trading. The following three funds create the ideal portfolio foundation:
1. Domestic exposure
If you're not sure where to start, this fund is among the best for providing primarily domestic market exposure:
- Fidelity 500 Index Fund (NASDAQMUTFUND: FXAIX): Invests primarily in the 500 largest U.S. companies, offering broad exposure to the U.S. market. The aim is to mirror the performance of the S&P 500 and does so with an extremely low expense ratio of 0.015%.
2. International exposure
For broad exposure to international stocks in developed markets outside of North America, there are some strong options, including:
- iShares Core MSCI EAFE ETF (NYSEMKT: IEFA): This ETF seeks to track the investment results of the MSCI EAFE index, which includes large- and mid-cap companies across Europe, Australia, New Zealand, and other markets. The fund holds a diverse portfolio of stocks across sectors and industries. With an expense ratio of 0.07%, it provides the exposure you're looking for at a low cost.
3. Bonds
When the market is off its axis or inflation is eroding your portfolio, having a bond index fund can help minimize losses. Here's one worth considering:
- Vanguard Total Bond Market ETF (NASDAQ: BND): Designed to provide broad exposure to the U.S. bond market, this ETF tracks the Bloomberg U.S. Aggregate Float-Adjusted Index, which represents a broad range of U.S. investment-grade bonds. For example, you'll find U.S. Treasury bonds, government agency bonds, corporate bonds, and mortgage-backed securities. By holding thousands of bonds, this Vanguard ETF can help balance your portfolio and reduce risk.
If you decide to simplify your investment process, all you need to get started are these three easy-to-buy and manage index funds.
Dana George has positions in Fidelity Concord Street Trust - Fidelity 500 Index Fund. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.