Thursday, December 27, 2007

Tucking Money Away and Asset Allocation

I bring up this subject (yet again) because the TAG enrollment deadline (January 4 2008) arrives next week. And you should think about it.

"Where should I invest my money?" is a constant question. My one-word answer is "diversify." But that means zip to most people, so here's a think-piece off the global web that covers the diversification puzzle succinctly. I extract the simplest of its examples:

Andrew Tobias' Three Fund Lazy Portfolio:

- 33.3% in Vanguard Total Stock Market Index Fund

- 33.3% in Vanguard Total International Stock Index Fund

- 33.3% in Vanguard Inflation Protected Securities Fund

There are other more complex asset allocation models that might be slightly better or somewhat worse in the returns they give you. But for simplicity, for ease of use, this portfolio covers 90.1% of the bases.

You just have to remember to rebalance the three accounts back to 1/3, 1/3, 1/3 every twelve months. And resist the temptation to chase hot returns.


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