107 Mutual Funds: The Simple Choice
Mutual Funds: The Simple Choice
If you know about determining your asset mix, then you already know about the importance of setting your portfolio's weightings in the three basic asset classes: stocks, bonds, and cash. You also know if your portfolio will have any small-company or foreign-stock assets. Now, you need to fill in the specifics by choosing actual investments.
Things To Know
- Mutual funds are well diversified and are less volatile than individual securities.
Investors seeking simplicity often go directly to mutual funds—as in, do not pass go, do not collect $200, and do not buy stocks and bonds directly.
The reason why
Why? Funds generally require less monitoring than individual securities do. Further, funds are well diversified—one fund can own hundreds of securities. As a result, they're less volatile than individual securities are.
Moreover, simplicity seekers should think only in terms of core holdings. Basically, all you really need are core holdings. The rest is often frills.
Things to consider
For your U.S. stock exposure, low-cost index funds can be a great choice. To kill two birds—your large- and small-company U.S. stock exposure—with one stone, choose a fund that invests in the entire U.S. stock market.
For foreign stocks, consider the foreign-stock category picks, such as those in the foreign large-blend category. Here again, an index fund that provides inexpensive market exposure in a single shot can make a solid core foreign-stock fund choice, as can an actively managed fund that provides geographically diversified exposure.
For bonds, focus on the options that favor high-quality intermediate-term bonds and carry low expenses—no need to take on extra interest rate or credit risk for a shot at a modestly higher return. If you're in a high tax bracket and investing in a taxable account, consider a municipal bond fund, because income from munis is typically exempt from federal and in some cases state income tax.
