In the last couple weeks, I’ve had a few people ask me about my own portfolio. I was surprised to find that I’d never actually written about it before. So here goes:
- Vanguard Total Stock Market Index
- Vanguard Total International Stock Index
- Vanguard REIT Index
- Vanguard Intermediate-Term Treasury Fund
That’s it. Nothing fancy. Nothing even remotely clever. Just low-cost mutual funds in four different asset classes: U.S. stocks, international stocks, real estate, and Treasury bonds.
Why So Simple?
My primary reason for keeping things so simple (or perhaps my second reason, because plain-old laziness may be the first) is that it helps me avoid mistakes.
I have a tangible understanding of what each of those funds represents, and I have a firm grasp of what each of them is doing in my portfolio. The result: I’m never tempted to bail out of any of them at exactly the wrong time just because of poor recent performance.
Also important to me: My wife also understands the role of each of these funds. If I were to die, she’d be perfectly capable of handling the portfolio.
Tinkering or Chasing Performance?
In other words, part of the reason I keep things so simple is to avoid a pitfall I’ve seen many investors run into. They read an article (or book, or blog post) explaining the benefits of owning a particular type of investment, and they add that investment to their portfolio.
Then, when that investment has a period of poor performance (as all investments do from time to time), they start to have doubts. The argument behind owning that investment no longer seems quite so convincing. Or they may have even forgotten the argument completely–leading to a “what’s this one for again?” moment.
There are perfectly valid reasons to add other asset classes to your portfolio (a small-cap value fund or commodities, for instance), but if you don’t have a fundamental understanding of why you’re doing it, all you’re really doing is chasing performance. And that’s not likely to end well.