The Only Investments You Really Need?
May 27, 2008
When I see a magazine cover with a headline like “The Only 7 Investments You Need Now.”, I have to read it. At least for curiosity’s sake. And who knows? I might learn something about earning or growing my wealth.
So, when I saw that headline on the cover of this month’s Money magazine, I put down my $3.99, took it home and read it.
The important point that the article makes is that you don’t need to complicate your portfolio. Especially now, in a bear market that’s so unpredictable. That’s a good point.
But when it came to suggesting what investments you need now, the article suggests just 7 basic investment areas (i.e. Blue Chip U. S. Stock Fund, Small-Company Fund, etc.) and 1 fund in each area.
According to Money magazine, not me, this is all you need right now, along with the funds that they highlight for each selection. (Full disclosure: I don’t own any of the funds in this article.)
1. A Blue-Chip U.S. Stock Fund, like Fidelity Spartan 500 Index (FSMKX)
2. A Blue-Chip Foreign Stock Fund, like Vanguard Total International Stock Index (VGTSX)
3. A Small-Company Fund, like T. Rowe Price True Horizons (PRNHX)
4. A Value Fund, like Vanguard Value Index (VIVAX)
5. A High-Quality Bond Fund, like Vanguard Total Bond Market Index (VBMFX)
6. An Inflation-Protected Bond Fund, like Vanguard Inflation-Protected Securities Fund (VIPSX)
7. A Money-Market Fund, like Fidelity Cash Reserves (FDRXX)
To me, this article doesn’t go far enough. It doesn’t talk about asset allocation or portfolio construction. And it only gives us 1 fund in each area, with a very heavy emphasis on Vanguard Funds. So, it seems like just another old-time generic investment guide. One from Column A, one from Column B and so on.
But don’t take my word for it. Check it out yourself. And let us know what you think.
Well, I really love this recommendation, and every fund makes sense to some level….
However, I also think this is rather conservative, and I think the percentage allocation, and perhaps even whether to have certain funds in the first place should be weighed relative to each investor’s time horizon, and to a lesser extent, the risk tolerance.
Again, I’m going to recommend looking into Vanguard’s Target Retirement fund (I don’t work for Vanguard :D). It’s a fund of funds that already invest in several of these asset classes, with the allocations set according to your horizon. It’s even simpler than the recommendations in this list, but one that I think it’s adequate.
You can always augment your target fund with additional funds or ETFs if that’s what you truly desire.