• Choose a category
• All
• Classic-Fiction

The Coffeehouse Portfolio by Bill Schultheis

Bill Schultheis, the author of The New Coffeehouse Investor (Portfolio, 2009), believes that the secret to financial success is mastering the basics: saving, asset allocation, and matching the market. He says you can match the market with this lazy portfolio:

40% Vanguard Total Bond Index (VBMFX)

10% Vanguard 500 Index Fund (VFINX)

10% Vanguard Value Index (VIVAX)

10% Vanguard Total International Stock Index (VGSTX)

10% Vanguard REIT Index (VGSIX)

10% Vanguard Small-Cap Value Index (VISVX)

10% Vanguard Small-Cap Index (NAESX)

To read more about The Coffeehouse Portfolio, head to http://tinyurl.com/LP-coffee.

Other lazy portfolios

These are just a few suggestions. There are scores of index funds out there, and countless ways to build portfolios around them. In fact, there's a subculture of investors who love lazy portfolios. You can read more about them at the following sites:

Bogleheads. http://tinyurl.com/BH-lazy

MarketWatch. http://tinyurl.com/MW-lazy

The Kirk Report. http://tinyurl.com/TKR-lazy

There's no one right approach to index-fund investing. Yes, it's simple, but you can spend a long time deciding which asset allocation is right for you. While it's important to do the research and educate yourself, you probably shouldn't spend too much time sweating over which choice is "best." Just pick one and get started—you can always make changes later.

If these lazy portfolios are a bit overwhelming, consider starting out with a portfolio made up of just one fund as explained next.

Single-Fund Portfolios

Building a portfolio of index funds isn't for everyone. Some folks crave greater complexity or more control—or they believe (despite evidence to the contrary) that they can outperform the market on their own. Others have no interest in building portfolios (even of just three or four funds) or can't afford the minimum investments.

If you don't want to mess with allocating assets, consider plunking down some cash for just one investment. Two good options are lifecycle funds and all-in-one funds. These might not suit your needs perfectly, but they're a fine place to start.

Lifecycle funds

Many mutual-fund companies now offer lifecycle funds (also called target-date funds), which try to create a diversified portfolio that's appropriate for a specific age group. For example, say you were born around 1970. In that case, you might consider a fund like Fidelity Freedom 2035, which includes a mix of investments that make sense for people who plan to retire in 2035 (when they'll be around 65).

Lifecycle funds have a lot of things going for them. For example, you get:

Automatic asset allocation, since lifecycle funds include various asset classes.

International exposure. Lifecycle funds are collections of mutual funds, including some international investments.

Automatic rebalancing. Fund managers adjust lifecycle funds' asset allocation to make them more conservative as you get older.

The main drawback of lifecycle funds is that you don't have any control over them. For example, if you want the international portion of your stocks to be 50% (or more), you're out of luck. Some people are okay with that, but the lack of control drives other people crazy. And keep in mind that not all lifecycle funds are created equal. Fees and investment styles vary from company to company; some are aggressive, others more conservative.

Lifecycle funds are perfect for investors who don't want to worry about all the jargon and nonsense that usually come with investing. If you decide to buy a lifecycle fund, buy only that fund. If you spread your money around (especially to other lifecycle funds), you defeat the whole purpose of this kind of investment.

Note

You don't have to pick a lifestyle fund that matches your likely retirement date. Instead, choose one that matches your risk tolerance. If the Fidelity Freedom 2035 is too aggressive for you, for example, go with the Fidelity Freedom 2025 instead. You can