Bad Timing
Good day, boys and girls!
While the stock market is trying to figure out what it wants to be when it grows up and the media is hyping the panic game as shown in the graphic below, it might be helpful to close your eyes, take a step back, a deep breath and relax. (Double-click on it twice for a better view)
Many people have asked me how I have my personal investment portfolio constructed. I usually defer the answer, explaining that each portfolio must be put together on an individual basis and what is right for my circumstances and risk tolerance will most assuredly not be correct for theirs. As you can imagine, that answer, while true and correct, is not that helpful.
I recently came across a posting at Vanguard Diehards Investment Forum in which financial author and advisor Rick Ferri introduces a sample portfolio called the “Core Four”, which I think is probably the best starting point for new and seasoned investors alike. It is especially helpful for seasoned investors who might’ve lost their way and have a mish-mosh of inappropriate investments hodge-podged together that they have acquired though the years.
The “Core Four” outlines a 60% stock / 40% bond strategy and, as financial author Taylor Larimore has noted, has the following characteristics:
- It is globally diversified;
- It is very low cost;
- It is very tax friendly (tax efficient); and
- It is very easy to understand.
For those of you interested in percentages the “Core Four” strategy outlines the following:
- 35% of the total invested assets in the U.S. stock market (not individual stocks);
- 15% of the total invested assets in world stock markets (excluding the U.S.);
- 10% of the total invested assets in U.S. commercial real estate trusts (not sub-prime); and
- 40% of the total invested assets in the U.S. bond market (typically investment grade or “better”).
While my personal portfolio differs in some areas (for example, I take on more small equity and value risks than what’s present in the “Core Four” because I understand the risks I am taking), this is a superb launching point. You would be well-served to take the time and read the four pages of posts contained in the link above.
So, before you spend another night up worrying about your financial future, take some time to educate yourself. If you have any specific questions about the “Core Four” strategy, let me know and I’ll try my best to answer them.