Buffett recommends buying S&P 500 and a bit of Short Term Bond for the long-term investment portfolio. But investing doesn’t have to be this boring. There’s big universe of Index Funds out there and you can have some fun with different kinds of portfolios.
Click here for some of the best known lazy portfolios. If you want more, the options are endless. There’s no guarantee that you will be able to beat S&P 500 but perhaps you will learn a thing or two while slicing and dicing your portfolio.
Once you have decided on an ideal mix, stick with it. Don’t jump in and out of funds just because somebody else is changing the mix. There will never be a Perfect Portfolio.
Now let’s see if we can squeeze out an extra 1-2% return, which can be significant in the long run. Or some practices that will help us achieve our original goal:
DCA (Dollar Cost Averaging) or SIP (in India): Never think that you can time the market; nobody has been able to…on a consistent basis, to profit from it. Best is to put the contributions on an auto mode i.e. taken out on a specific date of the month. This helps us stay disciplined.
Rebalancing: It is good to rebalance your portfolio once or twice a year or whenever the original asset allocation has moved up by more than 5%. Click here to read more on rebalancing.
Buy more stocks when we know End of the World is near: This type of events are not common but you’re bound to notice few (if not more) in this life time, latest being “Credit Crisis/Lehman brothers Fiasco”. This is the time when everybody screams “Sell, Sell..” and keeps on predicting a lower benchmark/Index. Most of the folks will be rushing to buy Gold, moving money to cash or hiding it under the mattress. If you have extra cash lying around that you don’t need for another 10-20 years..just plough it into Stocks (of course Index Funds).
If you want to read a good book on building your ideal portfolio, I recommend William Bernstein’s “The Four Pillars of Investing”.
Stay Sharp, Stay Invested…!!