5 Step-Lazy Investors Asset Allocation Guide
“Trying to consistently pick investments that are going to beat their benchmarks is like trying to win a marathon wearing muddy boots. There is a lot of drag, and your odds of winning are very low. The high costs associated with attempting to beat the market will almost guarantee sluggish results.” ― Richard A. Ferri, All About Asset Allocation, Second Edition
Who doesn’t want to amass a lot of money for retirement?
Of course you want build a big nest egg. But if you’re like most people, you’re not sure how much to save or where to invest. The Lazy Investors Asset Allocation Guide will help.
This article’s important if you:
- Don’t want a lot of muss and fuss in your investing approach.
- Want good, market-matching investment results.
Don’t be confused, this guide is a ‘lazy asset allocation’, but it’s not ‘easy’. Like anything of value, even the lazy investors asset allocation guide requires a degree of discipline and the commitment to make life trade-offs.
As Richard A. Ferri infers in the opening quote, trying to beat the market is difficult if not impossible. With so much information online about tricks and strategies to make boat loads of money with investing, you’d think it would be a snap. Yet, the average individual can end up overwhelmed, confused and immobilized. Additionally, it’s very difficult to assess who to follow and which approach makes the most sense.
This article gives you a lazy approach to build a high 6 figure retirement portfolio, no matter how old you are.
Budgeting > Investing-The Lazy Investors Asset Allocation Guide
I started reading Jane Bryant Quinn’s finance writing before many of you were born. In an early investing book of hers, the title long forgotten, taught me one of the most important investing concepts. This is so simple it borders on insulting, so those of you who already practice this strategy, just bear with me a moment.
This wealth tip requires no budgeting or planning. It’s actually a total retirement planning approach without having to create a budget. You don’t need a budget if you follow Step 1-Lazy Asset Allocation, inspired by Jane Bryant Quinn.
Step 1-Lazy Asset Allocation
Set up an automatic transfer directly from your paycheck (or bank account) into a savings/investing account. This ensures your financial future is secure (unless you subsequently withdraw the money). You don’t see the money in your checking or savings account, so you don’t spend it. It is growing for your retirement and other far off goals.
Here’s the budgeting part-you can spend whatever is left your account, knowing that your future is secure. No budget is necessary. When your spending money is gone, that’s it, you are done spending.
Step 2-Lazy Asset Allocation-How Much to Invest?
How to reach $787 355 by retirement?
It’s not enough to transfer money into an investment account. You have to diversify your investment dollars among stock and bond investments. The stock investments must be invested in your home country and internationally, for the greatest diversification benefit.
Following is the monthly amount you need to invest each month, assuming a 7% annualized return, in order to have $787,355 at retirement age 66.
Step 3-Lazy Asset Allocation-Where to Invest
Where to invest to reach $787,355 by retirement?
Invest a larger percent of your monthly allocation into this diversified all world stock index fund: Vanguard Total World Stock Index Fund-Investor Shares (VTWSX) or the related ETF (VT).
To increase diversification and reduce volatility, invest a smaller percent of your monthly contribution in a widely diversified bond fund such as iShares Core US Aggregate Bond (AGG).
With just 2 funds, you can create a diversified asset allocation.
In the lazy investors asset allocation example we used a 7% annualized rate of return. This is a hypothetical example and your return over time may be higher or lower based upon market returns going forward.
Your future return will depend on how the world stock markets perform over the upcoming decades. It will also depend upon how the bond markets perform in the future.
Finally, you personal future investment return will also be dependent upon what percent you allocate to the stock portion and the bond portion of your investment portfolio.
In general, a higher percent invested in stock assets leads to higher long term returns with accompanying greater price swings. The younger investors can afford to tilt their portfolios more heavily toward stock investments because they have a longer time horizon in which to make up any losses.
Step 4-Lazy Asset Allocation-What Percent to Invest in Stock vs Bond Fund?
Money Magazine recently suggested a new rule of thumb for asset allocation. Subtract your age from 120 and that is the percentage of your total investments you should hold in stock assets, with the balance in bond investments. According to this rule, a 50 year old should have 70% (120-50) in VT and 30% in AGG.
Try the CNN Money asset allocation calculator to help fine tune your personal asset allocation!
Step 5-Lazy Asset Allocation-The Guarantee
There is no guarantee that you’ll reach your goal! But if you start investing regularly now, it’s likely that you’ll reach your investment goal and amass $787,355.
Please be advised that this is not a recommendation to buy or sell any specific investments, for personalized advice, please consult your own investment advisor, I am not a registered investment advisor.
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