Mixing It Up
Jonathan Clements | March 2, 2019
LOOKING TO BUILD an investment portfolio—or rethink the mix you already own? Check out HumbleDollar’s new portfolio-building guide.
The guide takes the most important advice from the site’s chapters on investing, markets and taxes, and turns it into nine simple steps that should help you build a sensible, low-cost portfolio of index funds. I’ve included step No. 1 below. If you like what you read, I encourage you to peruse the other eight steps.
Step No. 1: Ask Why. Want to buy the right investments? First, you need to decide why you’re investing. Are you looking to make a house down payment next year, put your toddler through college or fund a retirement that won’t start for 30 years?
That brings into focus the crucial issue of time horizon and hence the maximum amount of risk it’s prudent to take. While those who will spend their savings soon probably shouldn’t own anything riskier than a short-term bond fund, truly long-term investors could potentially stash 100% in stocks.
That doesn’t, however, mean you should take the maximum risk your time horizon allows. Other issues also come into play: You might opt to be more conservative if, say, you’re comfortably on track to meet your financial goals, you’re unnerved by the stock market’s price swings or there’s a chance you’ll need to dip into your portfolio earlier than expected, because your job situation is iffy.
While this portfolio-building guide offers nine steps, you might venture no further than the first four. Much hinges on how much complexity you’re willing to endure and what investment philosophy you favor.
That said, the sections that follow aren’t intended to be some freewheeling investment smorgasbord. In this guide, we aren’t wasting time—and risking lousy returns—by trying to pick individual stocks or hotshot mutual fund managers. Instead, in true HumbleDollar fashion, the goal here is capture as much of the market’s return as possible—by purchasing index funds with rock-bottom annual expenses.
- Think your little sports star will get a college scholarship? “Only 3% of high schoolers get to play NCAA Division 1 and 2 college sports—and not all will receive scholarships, let alone a full ride,” writes John Yeigh.
- Marketers constantly get us to make economic choices that aren’t in our best interest. How do they do it? Jim Wasserman details five key tricks used to influence our behavior.
- Just 27% of 401(k) participants know what they’re paying. Are you in the dark? Adam Grossman offers five pointers.
- “Carl—who is human—hasn’t been selecting my investments,” notes Dennis Friedman. “Instead, it’s been a computer. I call the computer Little Jack, after the late Jack Bogle, because it picks nothing but index funds.”
- Living paycheck to paycheck? Ross Menke has three recommendations: Keep housing costs to 25% of income, buy a car you can afford to purchase with cash, and trim cable, cell phone and other recurring expenses.
- “Real wealth is not income or net worth,” writes Richard Quinn. “It’s family, friends and grandchildren. It’s enjoying good health. It’s being able—when necessary—to help others.”
- Don’t want hackers to empty your financial accounts? David Powell’s advice: Use strong, unique passwords for each site, be leery of public wi-fi networks and adopt two-factor authentication.
- “Want to make life easier for your heirs?” asks John Yeigh. “Yes, you want to get your financial affairs in order. But do them another favor: Deal with your excess stuff.”
- Looking to invest in a private equity, venture capital or hedge fund? It’s a treacherous business—but you can improve your odds by asking 10 questions, says Adam Grossman.
- “If you look at total career earnings minus college costs, college students will, on average, catch up with non-college workers by age 30,” writes Dennis Quillen. “But the averages can be deceiving.”
- What’s more important than money? Time and people. For proof, ask yourself these eight questions.
- “I wish I’d encouraged my parents to get a dog,” Dennis Friedman says. “It would have helped my mother deal with the loss of my father. My mother says nighttime is the most difficult; having a dog would make it easier.”
- Got a business idea? Ross Menke suggests taking your cue from the $5 challenge tackled by Stanford University students—and think creatively about how to get started.
Looking for something to listen to in the car or at the gym? Check out my inaugural podcast with Creative Planning’s Peter Mallouk.
Follow Jonathan on Twitter and on Facebook. His most recent articles include Out of the Swamp, Working Late and House Rules. Jonathan’s latest book: From Here to Financial Happiness.
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