Your Complete Portfolio in Only Seven Investments

It’s almost part of human nature to make investing more complicated than it needs to be. Seemingly endless investment options, elaborate tax shelters, real estate “no money down” programs and the like certainly muddy the investment landscape. But CNN Money has taken the opposite view and attempted to simplify a model portfolio into a list of only seven basic investments…

*A blue-chip U.S.-stock fund
*A blue-chip foreign-stock fund
*A small-company fund
*A value fund
*A high-quality bond fund
*An inflation-protected bond fund
*A money-market fund

CNN also includes recommendations for each investment option. The keys to their plan: good returns over the long term, low costs, and a diversified portfolio. Doesn’t get much simpler than that.

The only 7 investments you need [CNN Money]

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  1. mbgrabbe says:

    Money-market or TIPS bond funds are no place for money in the long term. You won’t make enough overtake inflation.

    Also, the first four options are very US-heavy. There’s no guarantee that the US will magically be economically superior to the rest of the world over the next 20-50 years. This is an assumption that, unfortunately, many financial planners make. I would recommend 1/2 domestic, 1/2 foreign to be safe.

  2. savvy9999 says:

    @mbgrabbe: I agree. I’ve been heavy into Asia-Pacific funds for about 5 years, with great returns.

    The AP region is a growth-funds gravy train, no sign of stopping that I can see.

  3. ludwigk says:

    This plan is very similar to what is known as the “Coffee House” portfolio, which recommends distributing your investments into several index funds, 60% into 6 stock funds, and 40% into a bond market index. This one has a money market fund, but the idea is the same: a broad portfolio of diversified, low fee, funds.

    I set one of these up last Dec/Jan, but its basically holding even after 4 months due to the crappy economy. I guess that’s better than having a significant loss over the same period of time.

  4. PaperBoy says:

    @ludwigk: Stocks go up, stocks go down. Over the long haul, a portfolio like that should make good money. One key is limiting your drops in value during the down cycle, which this is doing. Just staying even is more than good in this market, so stick with it.

  5. I don’t like seeing so much blanket bond advice thrown out there, especially for people under age 35 or so. I’d start at 100% stock at age 20, then add 1% into bonds each year thereafter until retirement. Something like that.

  6. DeepFriar says:

    @Ash78: rule of thumb says your bond percentage should mirror your age. IE: a 30 year old has 30% fixed income exposure.

  7. B says:

    There’s no blanket answer for stock to bonds ratio. How much of your portfolio you want invested in bonds depends on how risk adverse you are. a 40% bonds portfolio is very conservative, but if that is the kind of investment strategy you feel safe with, then you should do it.

  8. mdkiff says:

    @savvy9999: “The AP region is a growth-funds gravy train, no sign of stopping that I can see.”

    We’ve never heard anyone say that before – oh wait, the housing market…

  9. disavow says:

    @mbgrabbe: TIPS bonds are indexed to inflation, so buyers are guaranteed to come out a skosh ahead.

    Assuming you believe official inflation figures, which I don’t.

  10. @savvy9999: Yes, Asia-Pacific bottomed out after a steep slide in 2003, aka 5 years ago. Coincidence?

    Personally, I invested in Apple in 2000.Apple is another bubble that will not burst. Never. Impossible.

    I predict that Apple will be the largest security on the market in 2–3 years, at which point Steve Jobs will purchase the economy to continue Apple’s growth.

    I rate AAPL a strong buy.

  11. And when the stock market crashes?

  12. hejustlaughs says:

    @ceejeemcbeegee (AKA!): What’s your point? So what if the market crashes.

    If you invest appropriately it shouldn’t matter if the market crashes or not. You invest in the market because you can tolerate the risks. As you get older you shift to more stable investments.

    Markets “crash” all the time throughout history due to over-investment and speculation. If you’re investing for the long-term (which you should be), then market crashes don’t effect your regular investing.

    If the market crashed, smart investors would be picking up bargain stocks.

  13. barty says:

    @ceejeemcbeegee (AKA!): If it crashed tomorrow, as long as my investments have SOME value, didn’t freak and withdraw all my money, I’m OK. I have only incurred paper losses at that point and if I were really smart, I’d actually put MORE money into my investments. Think of it this way, if each fund in my investment portfolio is worth $.01, if it goes up to two cents, I’ve doubled the money I recently invested. Then consider what happens to that money when the market returns to normal? It might take it 10-15 years for me to recoup losses on the money I had in there before, but by that time I would have made it back in spades from putting more money in when the market was depressed.

    Right now is actually a GOOD time to buy in funds that aren’t loaded up with financial stocks.

  14. heavylee-again says:

    It’s possible that CNN’s recommendations are US-heavy because there are a lot of bargain on the US markets right now. Even though AP stocks/funds are doing well currently, buying them high isn’t the best way to make good money. Buying solid investments while they’re low, or ‘on sale’, and holding them (either until they bounce back, or for much longer) is a good way to make significant long term gains.

  15. adamcz says:

    This is really poor advice. Put all your money into an low cost index fund, as Warren Buffett and Charlie Munger would tell you to do. There’s no possible way that CNN employs someone who knows more about investing than those two do. The fact that they would have the audacity to contradict Buffett’s advice speaks to thier lack of intelligence and integrity.

    80% of Mutual funds fail to beat the indicies, and yet CNN thinks you should own several of them? And Consumerist helps to spread this advice? How will investors successfully pick the 1 in 5 mutual funds that beat the indicies?

  16. facted says:

    @adamcz: Actually, Warren Buffet suggests exactly what this CNN article suggests. A well-rounded portfolio should be composed of various index funds (ie: funds that mirror things such as the Down, the S&P 500, the FTSE, etc…) and give you broad exposure both to the US markets as well as overseas markets, both in Europe and in the emerging markets. If you only own one mutual fund, just make sure it is a world-wide index fund so that you don’t get tanked if whatever region you’ve invested in collapses.

    It’s all about diversity, and this stucture recommended by the article is excellent advice. One can argue about what % should be where as everyone has different levels of risk, ideas of what markets are going up/down. However, the idea of splitting your portfolio into various different pots is the way to go.

  17. facted says:

    One more thing about bonds: according to Vanguard, since 1967, bonds have an annualized return of approx. 8% which is about 1% less than stocks.

    Many people think that you won’t make nearly as much money on bonds which in many markets is true. However, they are typically a much stabler investment and for those investors who have trouble dealing with risk, adjusting your bond exposure upwards may help you feel more at ease.

  18. Thorkel says:

    Buffet and Munger doubtless know what they’re doing, but any time a private investor gives you advice you have to take it with at least a grain of salt. It’s possible their advice is colored by the fact that the more money you invest in the same funds, the better their investment is. And they’re a lot more likely than you to be good judges of when to sell out.

    As for overseas investments, just keep in mind that many other countries show a distressing tendency to nationalize things and seize foreign investements.