9.5. Asset Allocation Made Ridiculously Easy

In Chapter 5, you learned how index funds are a low-cost way to diversify your portfolio among all sorts of investments. They provide instant diversification, because they own many individual investments within categories like large and small companies, industries and sectors, bonds, and geographical regions. Because they follow indexes, their expenses and turnover are low. In this chapter, you've learned how allocating your money to different types of investments is the biggest factor in balancing the return and risk of your portfolio. Put those two ideas together, and you get the no-muss no-fuss method for successful investing: the lazy portfolio. You choose your asset allocation plan and then set up automatic purchases of index funds (mutual funds or ETFs) for each asset class. That's it! No need to peruse every inch of the Wall Street Journal or to hide in a cave when the markets turn ugly. Sit back and relax while your asset allocation, investments, and time do their jobs.

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Note:

As you learn on Section 9.5.2, you revisit your portfolio and asset allocation every so often to make sure they still meet your needs.

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