resjudicata
New member
@bernard05 That is a loaded question, mainly because there are multiple schools of thought on what the best allocations are. It also heavily depends on your personal goals and timeline.
The simplest piece is the ratio of stocks to bonds. Stocks have higher volatility (ie, higher risk of going down) but higher returns than bonds. This is where your time horizon matters. Ie, when do you want to be able to start spending this money? The more time you have, the more you want a higher % of stocks over bonds to increase your returns. The less time you have, the higher the % of bonds you want in your portfolio.
These percentages are not static by the way. You can and should adjust them over time. The closer you get to your goal, the more your portfolio should shift to emphasize bonds.
Btw, when you hear the phrase "60/40" portfolio, it's referring to 60% stocks, 40% bonds. It's a pretty standard portfolio. It's also very conservative, 40% is a HIGH bond allocation. That would be good for someone maybe in their late 50s, getting closer to retirement. I'm 35 myself, I have 90% stocks, 10% bonds in my portfolio right now. I'm choosing higher volatility in exchange for higher returns because I have 30+ years until I retire.
Also, in terms of diversification, your choice of stocks and bonds matters. Thankfully this is made SUPER easy by modern index funds. An index fund is a low cost basket of investments, in this case either stocks or bonds, depending on the fund. Rather than trying to buy a bunch of individual stocks in certain proportions on your own, you just buy shares of an index fund and know that your investment is being properly diversified.
This wonderful help comes at a price, unlike buying stocks or bonds directly, buying funds comes with a fee, or Expense Ratio (ER). Fortunately, in today's world there are a ton of low-fee options out there. As a rule, if the ER is >0.1%, you better have a damn good reason for investing in that fund because there are cheaper alternatives out there. To keep things even simpler, you can't go wrong with Vanguard funds.
The big index fund names that come up most often would be VTI (Vanguard Total US Stock Market), VXUS (Vanguard Total Ex-US Stock Market), and BND (Vanguard Total Bond Market) funds. They are very simple ways to diversify your portfolio. The stock funds are weighted by "market cap", which just means they have more of big companies and less of small companies, proportional to their sizes, but they still have everything in them. Market cap weighting tends to be the default choice for most diversified funds, but there are arguments in favor of other weighting systems if you want to explore them.
In terms of US vs Ex-US Stocks, the current market cap ratio would be 60% US 40% Ex-US. Whether you follow that or not is up to you. I personally do 80% US 20% Ex-US, I know I'm personally biased in favor of US investments but that's just my decision.
Anyway, I think this is a sufficient info dump for you. I would recommend /r/personalfinance, their wiki is an excellent source of general investing information. Also /r/bogleheads for advice on diversification.
The simplest piece is the ratio of stocks to bonds. Stocks have higher volatility (ie, higher risk of going down) but higher returns than bonds. This is where your time horizon matters. Ie, when do you want to be able to start spending this money? The more time you have, the more you want a higher % of stocks over bonds to increase your returns. The less time you have, the higher the % of bonds you want in your portfolio.
These percentages are not static by the way. You can and should adjust them over time. The closer you get to your goal, the more your portfolio should shift to emphasize bonds.
Btw, when you hear the phrase "60/40" portfolio, it's referring to 60% stocks, 40% bonds. It's a pretty standard portfolio. It's also very conservative, 40% is a HIGH bond allocation. That would be good for someone maybe in their late 50s, getting closer to retirement. I'm 35 myself, I have 90% stocks, 10% bonds in my portfolio right now. I'm choosing higher volatility in exchange for higher returns because I have 30+ years until I retire.
Also, in terms of diversification, your choice of stocks and bonds matters. Thankfully this is made SUPER easy by modern index funds. An index fund is a low cost basket of investments, in this case either stocks or bonds, depending on the fund. Rather than trying to buy a bunch of individual stocks in certain proportions on your own, you just buy shares of an index fund and know that your investment is being properly diversified.
This wonderful help comes at a price, unlike buying stocks or bonds directly, buying funds comes with a fee, or Expense Ratio (ER). Fortunately, in today's world there are a ton of low-fee options out there. As a rule, if the ER is >0.1%, you better have a damn good reason for investing in that fund because there are cheaper alternatives out there. To keep things even simpler, you can't go wrong with Vanguard funds.
The big index fund names that come up most often would be VTI (Vanguard Total US Stock Market), VXUS (Vanguard Total Ex-US Stock Market), and BND (Vanguard Total Bond Market) funds. They are very simple ways to diversify your portfolio. The stock funds are weighted by "market cap", which just means they have more of big companies and less of small companies, proportional to their sizes, but they still have everything in them. Market cap weighting tends to be the default choice for most diversified funds, but there are arguments in favor of other weighting systems if you want to explore them.
In terms of US vs Ex-US Stocks, the current market cap ratio would be 60% US 40% Ex-US. Whether you follow that or not is up to you. I personally do 80% US 20% Ex-US, I know I'm personally biased in favor of US investments but that's just my decision.
Anyway, I think this is a sufficient info dump for you. I would recommend /r/personalfinance, their wiki is an excellent source of general investing information. Also /r/bogleheads for advice on diversification.