Other than an affectionate gesture or the rock band, KISS probably makes you think of the power of simplicity. The saying, “Keep It Simple Stupid” forms the acronym and simplicity is among the greatest attributes of mutual funds, as well as the most successful of investors.
Here are 3 simple ways to invest with mutual funds:
- Invest With Just One Fund: Some funds are a hybrid of other funds. The most common type of hybrid fund is balanced funds, which are mutual funds that provide a combination (or balance) of underlying investment assets, such as stocks, bonds and cash. This is asset allocation in its simplest of forms. Balanced funds usually have a stated objective described as aggressive, moderate or conservative. You can also use a similar hybrid type fund called a target date retirement fund, which is just as it sounds: You pick one fund that has the year that is closest to your expected retirement date and put all of your savings into it. The fund will invest in such a way that is appropriate for the time frame until retirement and it will also slowly shift the allocation more conservative as the years go by.
- Build a Lazy Portfolio: A lazy portfolio is a collection of investments that requires very little maintenance. It is considered a passive investing strategy, which makes lazy portfolios best suited for long-term investors with time horizons of more than 10 years. Here is an example of a lazy portfolio, which can be built with just three funds from Vanguard Investments:
40% Total Stock Market Index
30% Total International Stock Index
30% Total Bond Market Index - Build a Core and Satellite Portfolio: If you want to build something a little more customized but still keep it simple, you can try using what is called a core and satellite design that consists of a “core,” such as a large-cap stock index mutual fund, which represents the largest portion of the portfolio, and other types of funds—the “satellite” funds—each consisting of smaller portions of the portfolio to create the whole. For a simple guide, see this Moderate Mutual Fund Portfolio Example.
It’s as simple as that! If you spend more than a few hours on this, you may be making it too complex!
source: wealthforum.com