We are not all born with gifts to analyze the stock market. There is no magical power to become the next Warren Buffet. He is just one of a kind. We do have an opportunity to create wealth for each and every one of us. It is often a subject of a disagreement with people. There are people that hate investments and there are those that love them. For me, I love them, and I try to keep things simple by using the KISS( Keep It Simple Stupid) Method to create a lazy portfolio.
The KISS Method
You all may be wondering what I am talking about. There is so much information out there that people can get a bit of information overload. They will have analysis paralysis.
The information is so much they will do actually nothing, which means with our great intentions of investing we will fail to take that first step to invest.
I have devised a plan to help make things simple. Actually, I did not devise this plan at all. Jim Collins who wrote the book “The Simple Path to Wealth” came up with a great simple plan to achieve great wealth.
He originally wrote letters to his daughter, which became blog posts on his website, then into a book to teach how to simply invest. He likes the KISS method just as much as I do.
How to Start
Let's start off with the beginning of what we should do. First of all, you should open up some sort of brokerage account. If you are in the States, open up a Roth IRA or IRA. If you are abroad and you are an American, open up a taxable account. For Non-Americans, just open up an account in your country.
You can do this with various different places. I prefer Vanguard. They are a company owned by the people that invest their money there. The great John Bogle created the company to help average people save money on fees, and create wealth through Index funds. It is an American Brokerage Account just like Schwab, Fidelity, or Robo advisors like M1 Finance, Betterment or Robinhood.
What to invest in?
Choosing your investments can be quite hard. I think of “What do I want to invest in?” Great question. That is why we will keep it easy.
I prefer the stock market. When I invest I like to get all of the stocks in the stock market. It gives me a wide range of diversification and I will have a piece of every major company on the exchange.
The best way to do this is to own a Total Stock Market Index Fund. A Total Stock Market Index Fund is a type of Mutual Fund that has a low expense ratio and tracks the whole stock market.
If the whole stock market goes down the fund will too. If the whole market goes up, the fund will go up as well. This will help insure that you match the returns of the entire market.
The Total Stock Market returned on average 11.9% from 1975-2015. It will not always do this, but we always hope that it will return 5% over inflation, which is around 7%.
My favorite fund would be VTSAX. It is the Vanguard total Stock Market Index fund. You will own up to 3500-3600 companies. It is great. When one company fails another will take its place. It is like a self cleaning fund. There are no managers making buys and sells; it just tracks the entire market.
Safety in Bonds
Most people would also say to have some money in Bonds. That is quite true, but if you are young and have time you might as well go 100% into stocks. This way you can maximize on the gains.
As you get older and your portfolio gets larger you can add Bonds to help hedge against crashes and corrections that happen in the market.
Let’s not be too conservative. Warren Buffet has suggested that when he dies that his portfolio be invested into a SP 500 Index Fund at 90% and 10% into bonds for his wife.
Lots of people that are retiring may just put their portfolios into more bonds than stocks. As the Trinity study shows for the 4% rule to work you will need to have 75% stocks and 25% bonds to help make sure your money can last for 30 years.
Easy enough you can just invest into a Total Market Index Bond fund as well. Vanguard has one as well called VBTLX. It has a great bunch of bonds in the fund to help track the index.
Here we have two funds. VTSAX and VBTLX.
3-Fund Portfolio
The Bogleheads, who are followers of John Bogle, came up with a 3- fund portfolio. It would be VTSAX, VBTLX, and an international total stock market fund, which is VTIAX.
This will help you have a piece of every major international company like Samsung, Toyota, Taiwan Semiconductors, and Nestle. These three funds are an easy way to make a KISS Portfolio.
3-Fund portfolio:
- VTSAX (Total U.S. Stock Market)
- VTIAX (International Total Stock Market)
- VBTLX (Bonds)
You can find these funds in ETFs as well. VTI is the ETF of VTSAX, BND is the ETF of VBTLX, and VXUS is the ETF of VTIAX. Three funds to help you achieve wealth.
3-Fund Portfolio with ETFs:
- VTI
- VXUS
- BND
Invest Simply with M1 Finance. You can easily set up a 3-Fund portfolio and automate everything. Make life simpler.
My Lazy Portfolio
As an American, it would be best to have most of your money in American stocks. So the way I do this is that I have 85% in VTI and 15% in VXUS. That number happens to be 100%.
Right now, I am young, I have time, and I am trying to accumulate wealth. Once I get a bit older I will start to invest more in bonds. Since I have time, I will do my best to accumulate wealth through a 100% portfolio in stocks.
Tell Me More
I hope this helps with creating a portfolio. If you ever want to read about some of these things more in depth you can check out the book:
” Spend less than you make, stay out of debt, and invest the rest”
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.
