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Invest With The Market

Our Approach to

Really Simple


stock chart rising prices

Investing can be really simple.  You don’t need to learn about technical or fundamental analysis or develop trading strategies.  The fact is that most professional traders lose money and most of the professional managing mutual funds don’t manage to consistently beat the benchmark indexes they compare themselves too.

Most of us don’t really want to be investors anyway, we live busy lives and worrying about which stocks bonds, or mutual funds to own is just too much work.  The fact is most of us would just like to have a really simple approach to investing. Something that you can stick with over time, and have the confidence that you have your investment needs covered.

Here is the one approach that makes investing really simple. Buy everything.  Yep, it’s that simple.  And you can do it with very little money by investing in just three index funds that allows you to cover the entire U.S. stock market, most of the U.S. bond market and get broad exposure to international stocks.  Pick “Exchange Traded Funds” or ETFs, over mutual funds as ETFs typically are less expensive and easy to purchase. ETFs are funds that trade on an exchange like a stock. They are an easy to use, low cost and tax efficient way to invest money and are widely available on most investment platforms.

Why index funds? The numbers shows that over time index funds will beat actively traded or managed funds. Roughly two-thirds of actively managed funds fail to beat simple index funds.  This is simply because ETFs costs are typically just 1/3 the costs of an actively managed fund.  (Morningstar, as of 12/31/15. Comparison is between the average Prospectus Net Expense Ratio for the iShares ETFs (0.37%) and the oldest share class of active open-end mutual funds (1.08%) with 10-year track records that were available in the U.S. between 1/1/2006 and 12/31/2015. Analysis excludes municipal bond and money market funds.)


Rather than trying to beat a benchmark, index funds dare to be average. They aim match a market barometer, such as Standard & Poor's 500-stock index or the Wilshire 5000 or the Russell 2000. Consequently, they don't require any monitoring. It doesn't matter much whether the manager leaves or stays put. Index funds have such an easy job that they tend to achieve their goals no matter who's in charge.

The best index ETF funds -- those provided, most notably, by Vanguard and Fidelity –have the lowest fees and expenses. Expenses range from less than 0.1% of assets annually to a still-modest 0.35% annually. By contrast, actively managed funds typically charge more than 1% for annual expenses (that doesn't include sales commissions, which many funds charge).

If you want to simplify your investments, consider low-cost exposure to the global stock market. Vanguard's Total World Stock Index Fund has an expense ratio of 0.30 percent. It is also available as a lower-cost ETF, Vanguard Total World Stock ETF, with an expense ratio of only 0.18 percent.

For the bond portion of your portfolio, consider exposure to both the domestic and international bond markets, such as the iShares Barclays Short Treasury Bond ETF and the SPDR Barclays Capital Short-Term International Treasury Bond ETF. 

You can buy these funds with any brokerage account.  Hundreds of commission-free ETFs available on a number of platforms including Vanguard, Fidelity, TD Ameritrade.

Stay away from ETF and Index funds that invest and track in narrow segments of the stock and bond markets.  Just invest in the index funds that cover the entire market. narrow ETFs make no sense whatsoever for investors. The main people they stand to enrich are those who market them.

Suggested Three index-fund portfolio

Want to invest with a minimum of fuss and a maximum of simplicity?

All it requires are three index funds. You can turn to either Vanguard ( 800-635-1511) or Fidelity (; 800-544-6666). I prefer Vanguard because the firm is organized in such a way to suggest that its prices will likely always remain rock-bottom.

Put three-quarters of your stock money in Vanguard Total Stock Market ETF (VTI) which covers the entire U.S. stock market.  With this ETF you get shares of large companies, midsize and small companies so you will see a most but solid return over time.

Invest the remaining fourth in Vanguard Total International Stock ETF (VXUS). It gives you the rest of the world with broad exposure across developed and emerging non-U.S. equity markets.

For your fixed-income money, use Vanguard Total Bond Market ETF (BND).

The only issue you might have is with Vanguard, they require an investment of $3,000 to start an account.  You can get the same type of indexes using iShares and in most cases you need to only buy a few shares to start.

To buy the U.S. stocks market, put 75 t0 80% in iShares Core S&P Total U.S. Stock Market ETF (ITOT). 


For your international exposure, put 10% in iShares Core MSCI Total International Stock ETF (IXUS). 


Finish with the reminder in iShares Core Total USD Bond Market ETF (IUSB).

How much should you put into bonds? If you're investing for retirement, keep 80% or more in stocks until you're within five years of retirement. Then start selling your stocks until you're 40% in bonds by the time you retire. You will need the 60% exposure to stocks to continue to grow your investment during retirement.

If you're investing for your child's education, start with 90% or more in stocks and begin scaling back when he or she gets within five years of college. Then gradually sell your stock funds first and then your bond funds until you're entirely in cash by the time your child is midway through college.

Does 80% or more in stocks seem too risky? You can pick different allocations if your fell this approach is too risky, but the math is simple: Stocks have always been the long-term winners, returning more than 10% a year on average since 1926. Bonds have produced about half that. Inflation, over the same time has averaged 3%.  Realize that when inflation is deducted from your returns, your real returns are less, but still better than any savings account or certificate of deposit.

Put less in stocks if you think you're likely to bail when the market tanks. You'll do fine with 70% or even 60% in stock funds. But if you have the stomach for it, put 80% or more in stocks.

That's it. That's the whole plan. Investing really can be simple.  But you have to stick with the plan, even when it doesn't seem to be working. For instance, in the 2000-02 bear market, broad-based index funds lost nearly half their value.

But if you follow this simple plan and stick with it, the odds are you will do well. Based on past results, you'll beat at least two-thirds of other fund investors.

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