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Financial Literacy - Growing your bottom line Click Here
Wealth tactics
Professional money managers strive to beat the market. Their strategies require toil, vigilance ... and may not work.
Growing your bottom line

Simple (and complex) investment strategies

"I think that a strategy that doesn't involve any selling whatsoever is more of an act of faith than anything else," says Alex Green, author of "The Gone Fishin' Portfolio: Get Wise, Get Wealthy ... and Get on with Your Life."

Green recommends that investors seeking a no-hassle portfolio follow a diversified asset allocation strategy and invest in no-load index funds. Investors need only check in once a year to rebalance it according to the original plan.

To determine the ideal allocation, investors can follow an expert's asset allocation plan, visit a fee-only certified financial planner or make up their own.

Green shares this allocation from "The Gone Fishin' Portfolio," with the caveat that the book offers much more than just the allocation model.

"In the book I explain the importance of cutting costs, minimizing taxes, rebalancing and sticking with the program -- all the things that are important to someone's financial success," he says.

Gone fishin' asset allocation model
15 percent U.S. large cap index
15 percent U.S. small cap index
10 percent emerging markets index
10 percent European equities index
10 percent Pacific equities index
10 percent high-yield corporate bonds
10 percent short-term investment grade bonds
10 percent inflation-protected securities
5 percent REIT index
5 percent precious metals

Green suggests investors choose Vanguard funds, other no-load index funds or ETFs to populate the portfolio.

Many fund families offer no-load index funds, but be wary. Although some track the same indexes, not all are created equal. When choosing an index fund, investors should take note of fees and expenses as well as how closely the fund tracks the index it follows.

"If, historically, the fund is either plus or minus a percentage point off its benchmark, that's a fairly high tracking error," says Vanguard's Donaldson.

In other words, the best performance does not necessarily indicate the best index fund.

"Your goal is the fund that gives you the purest exposure to the segment that you're looking for," Donaldson says.

Some proponents of indexing subscribe to the efficient markets hypothesis, which holds that markets are rational and efficient. Stock prices reflect the true value of companies, affirmed by the consensus of a large, informed investment community.

-- Posted: Nov. 21, 2008
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