3 Super-Simple DIY Portfolios

Home/Investing/3 Super-Simple DIY Portfolios

Investing doesn’t have to be difficult – and it shouldn’t be! Here are three super-simple portfolio options for do-it-yourself investors to consider. None of these portfolios use more than three funds. How is that for simple?

3 Super-Simple DIY Investing Portfolios

Investing Is For Everyone

Steadily investing money into the stock market is one of the best ways to grow wealth over an extended period of time. Investing isn’t just for the wealthy though. It’s for anyone who wants to grow wealth – regardless of their starting point.

Even someone who doesn’t know anything about investing can easily get started. If you have no interest in the day-to-day tasks that come with managing investments, consider contacting a unbiased financial planner to help out.


RELATED POSTS:
Everyone should know this: The magic math behind consistent investing
What is the best way to invest small amounts of money?


DIY Investing Isn’t For Everyone

While managing your own investments isn’t hard, there are things you need to know and consider. Improperly managed investment accounts is why investor returns lag investment returns. Some studies have shown investors underperforming the market by a minimum of 2% – some as high as 7%!

If you are going to manage your own investments take time to understand:

  • how to build a portfolio that aligns with your goals and risk tolerance;
  • the best way to fund the investment account;
  • when to rebalance the account and how;
  • tax implications of holding then selling certain types of investments

DIY investing isn’t overly complicated, but having some base knowledge and a plan in place can increase an investor’s success.

There are also potential fee concerns depending on the investing platform used. If you’re going to be investing small amounts of money regularly you should look into either free-trade ETFs or one of the low-cost automated platforms.


RELATED POSTS:
5 Reasons Your Investments Are Performing Below Average
Here is portfolio diversification in action


Here are three simple DIY portfolios for consideration…

Simple DIY Portfolios

Simple Portfolio Option #1

Have you heard of Warren Buffett? He’s the guy who is involved in a million dollar bet that the S&P 500 Index will outperform a professional actively managed fund over a ten year period. Here’s how that bet is going so far if you are curious.

Mr Buffett also said:

“Consistently buy an S&P 500 low-cost index fund, I think it’s the thing that makes the most sense practically all of the time.” – Warren Buffett* in a CNBC interview

So maybe someone should just do that?


RELATED BOOK: Warren Buffett: The Life, Lessons & Rules For Success


The simplest diversified investment portfolio would be one with a single investment holding – like the S&P 500 Index. Investors interested in this option can find good funds that track the S&P 500 Index or that holds US large cap stocks. Just one of several options would be Vanguard’s S&P 500 ETF (VOO).

Simple 1-fund investment portfolio

Of course a 100% stock investment can be very volatile. It could have large swings up and down, potentially in a short period of time.

Make sure you understand your risk tolerance as part of considering any specific portfolio allocation.


RELATED POST: Understanding Investing Risk and Your Risk Tolerance


Simple Portfolio Option #2

A portfolio just one step beyond a single-fund option is a two-fund solution.

I’m sure you’ve heard a lot of talk about using a balance of stocks and bonds in an investment portfolio. Bonds help lower the volatility of a portfolio while stocks provide the upside performance.

That’s a very easy portfolio to implement – without picking a single stock or bond.

How?

Buy two ETFs, one that represents the total US stock market and another representing the total US bond market. With those two funds you just need to decide what percentage of your portfolio you want allocated to stocks vs bonds.

Two popular low-cost ETFs to consider would be Vanguard’s Total Stock Market ETF (VTI) and Vanguard’s Total Bond Market ETF (BND).

So, for example, if you determined that the best portfolio for you was a 60/40 stock/bond mix, you could easily pull that off with these two funds. That simple 2-fund portfolio would look like this:

Simple 2-fund investment portfolio


RELATED BOOK: The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich


Simple Portfolio Option #3

Just one step further in complexity – but still incredibly simple – is a 3-fund portfolio.

The 3-fund portfolio has been very popular with Bogleheads. Bogleheads is a group inspired by John Bogle (founder of Vanguard) but the group is not run or endorsed by him.

This third fund added would specifically be to gain some international exposure. Many international markets aren’t as mature as the US market and they’re growing very quickly. Sure, they can be rather volatile, but sometimes their swings run counter to US fluctuations. They might be up on a day that the US market is down – or vice versa. This can actually lower the total portfolio’s volatility.

From the Bogleheads’ 3-fund page: “For example, one could use Total Stock Market ETF (VTI), Vanguard Total International Stock Index Fund (VXUS) for international, and Vanguard Total Bond Market ETF (BND).”

Example: If you still wanted a 60/40 stock/bond mix, but split the stock portion between US and international companies. Like this:

Bogleheads 3-fund portfolio


RELATED BOOK: The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel 


What About You?

I just looked at our personal investment portfolio allocations. Granted, we’re in the middle of making some changes, but today this is how we stand:

Simple DIY Portfolios: Our Portfolio Allocation - September 2017

Now, admittedly we’re in more than three funds right now. We are in the process of simplifying though. Our portfolio is more complex than it needs to be and returns aren’t necessarily justifying the complexity.

I’m curious…

How many investments are in your portfolio right now? Do you feel like it is too many? Or too few? Would you consider a simplified portfolio model such as one of the ones mentioned above?

Are you following us on Facebook yet? If not, just click here to Like our page – we appreciate it!

 

Do you have a personal financial plan?

Financial planning checklist 2018 small

Here's a free personal financial planning checklist - to make sure you have the most important financial items covered.

Get it now and start checking points off the list.

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit

10 Comments

  1. Matt @ Optimize Your Life September 26, 2017 at 11:54 am - Reply

    I have a simple (but somewhat eccentric) portfolio based on the options available in my 457 account. Everything that goes into my 457 account goes into Vanguard’s 2050 retirement fund, while everything that goes into my IRA and taxable account goes into VTSAX. I end up with a very stock-heavy portfolio that works great while I am accumulating and doesn’t require any time or effort to maintain.

    I’m sure it is not exactly optimal and I will rebalance in a more planned way when I get closer to the withdrawal stage, but it has worked for me so far.

    • Brad Kingsley September 26, 2017 at 2:25 pm - Reply

      Sounds smart Matt. I like that you have the long-term (IRA) account more aggressive since you have plenty of time to ride out recessions. The 2050 fund is mostly stocks right now – as it should be this far away from the goal date. There is room for optimization as you stated, but it’s a decent option – especially given limited fund selection in most 457 accounts.

  2. Laura September 27, 2017 at 3:17 am - Reply

    Not sure if it’s ideal, but we like to do a bit more: REIT, Bonds, emerging market, small cap, mid cap, and S&P 500.

    • Brad Kingsley September 27, 2017 at 2:39 pm - Reply

      “Ideal” is tricky because it is different for everyone.

      I like that you have the REIT and Bonds for income and conservative returns, but have balanced it with emerging markets, small, and mid-cap which are more aggressive. Depending on ratios, that might perform pretty close to “market” returns while enjoying a bit less volatility.

      Thanks for sharing Laura!

  3. Making Your Money Matter September 27, 2017 at 7:00 pm - Reply

    I didn’t jump into the investing world for so long because it all seemed so complicated. Diversification and allocation are important, but so is just getting started. Great tips for someone needing to overcome analysis paralysis! And Betterment is a great option for lots of people!

    • Brad Kingsley September 28, 2017 at 10:50 am - Reply

      Thanks Kathryn! Yes, Betterment makes it super-easy for anyone to get started with investing, regardless of their knowledge. Certainly worth considering for someone who isn’t investing yet – or wants to simplify their investing.

  4. Tom @ Dividends Diversify September 28, 2017 at 11:58 am - Reply

    Brad,
    Great post. These portfolios are excellent options for most people. I am a big fan of Vanguard ETF’s. Low cost, great diversification.
    Tom

  5. Financial Rookie November 24, 2017 at 2:36 am - Reply

    I’m 100% in the S&P 500 VFIAX in my 457 and 25% VTI/BND/VXUS/VNQ each in my Roth. Keeps me aggressive but a little more balanced in the IRA.

    • Brad Kingsley November 24, 2017 at 1:00 pm - Reply

      That’s a good conservative mix in your IRA portfolio – with very nice income (especially from the REITS). Someone with a lower risk tolerance and/or a shorter retirement timeframe might want to consider something similar. Thanks for stopping by sharing Financial Rookie!

Leave A Comment