Sunday, July 13, 2008

Only Seven for Investment Diversity

Recently had a nice article entitled The Only 7 Investments You Need.

To summarize, it recommends the following categories (and representative funds with low fees and nice track records) as sufficient diversity for a family's investments.

(Blogger does not like HTML tables: my apologies, but for no valid reason you will probably need to scroll down a bit now.)

Fee 5-Year Return
10-Year Return
Blue-Chip U.S. Growth Fund
0.1 %
11.2 %
3.7 %
Blue-Chip Foreign Stock Fund
0.27 %23 %7.4 %
Small Company Fund
0.8 %14.8 %6 %
Value Fund
0.2 %13.4 %4.6 %
Bond Fund
0.19 %4.4 %5.7 %
Inflation-Protected Bond Fund
0.2 %6.6 %n/a
Money Market Fund
0.4 %3.1 %3.6 %

The first follow-up question is what percentage of your total investments should each allocated to each category. To the amateur understanding of my wife and I, the conventional wisdom seems to undervalue foreign investments. (In the order above, 10%, 50%, 10%, 20%, 4%, 3%, and 3% make sense to us for a young family.)

The second follow-up question is how often should a family recheck which fund to use to represent each category. This is less significant: a new best choice would not be very different in fee or performance.

Any advice from those who are more financially savvy?

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