The Ideal Portfolio
Let's suppose you're a young person with a stable income. You're reasonably comfortable with short-term volatility. How should you invest?
Allocate your assets thus:
- 60% domestic stocks—Vanguard's VTSMX/VTSAX or similar.
- 15% international stocks—Vanguard's VGTSX/VTIAX or similar.
- 25% bonds—Vanguard's VBMFX/VBTLX or similar.
This allocation is the classic three-fund portfolio. It's simple, effective, and doesn't need much attention. Rebalance it every year or so, selling off funds that are up and buying funds that are down to re-establish your desired allocation.
Ensure that your bonds are kept in tax-advantaged accounts—bonds pay dividends, and keeping them in tax-advantaged accounts allows you to defer paying taxes on those dividends.
These suggested funds are all index funds, so only a bare minimum of money will be spent on fees.