A Simple Portfolio Is All You Need

So many investment choices, so many potential portfolio decisions. The inventory of stocks, bonds, funds and other financial assets for sale is big enough to fill a big-box store. But there’s a downside to shopping at financial supermarkets: It injects complexity into the investing process.

That can lead to portfolio miscues, such as chasing highfliers that have already run up in price, investing in assets you don’t understand or buying a bunch of funds that own many of the same stocks (which means you’re less diversified than you think). “The more complex your portfolio is, the easier it is to get out over your skis,” says Matt Fleming, a wealth adviser at Vanguard Personal Advisor Services.

The good news? You can play it simple and build a portfolio using just one to three funds. If you choose correctly, you’ll get a low-cost, diversified mix of stocks and bonds that’s easier to track and manage. Here are three ways to build a slimmed-down, simple portfolio. (Returns and other data are as of September 10.)

One-stop shopping. If stock picking or fund selection isn’t your strong suit, consider a target-date fund, a single-fund portfolio that holds stocks, bonds and sometimes cash in various combinations. The beauty of these savings vehicles, found in most 401(k) plans, is that the fund (which typically holds other funds) makes the investment decisions for you, including periodic rebalancing to make sure your mix of holdings doesn’t get out of line with your risk tolerance.

The fund managers determine how aggressive or conservative the fund’s asset mix should be based on how many years you are away from retirement (or another savings goal serving as your “target”). All you have to do is fund the account. “It puts your portfolio on autopilot, but pros are in the cockpit,” says Jeffrey Wood, an investment adviser at Lift Financial.

The closer you get to your golden years, the less risky your target-date portfolio becomes. The fund dials back more-volatile stock holdings and boosts the weighting in tamer bonds as your hair turns gray. If you’re 40 and want to retire at 65, you might consider a fund with a target date of 2045. T. Rowe Price Retirement 2045, for example, held roughly 90% in stocks and 10% in fixed-income investments at the end of the second quarter, according to fund tracker Morningstar. In contrast, retirees who own T. Rowe Price Retirement 2020 have just 51% in stocks and 49% in bonds.

A fund’s “glide path” (or how its portfolio transitions from aggressive to conservative over time) varies by fund firm. Over the long haul, a target-date series that has a larger stock allocation will likely post bigger returns but carry more risk.

A top target-date fund series to consider is T. Rowe Price Retirement, with expense ratios ranging from 0.53% to 0.64%. The series includes portfolios with holdings among more than two dozen other T. Rowe funds, including Small Cap Value, a member of the Kiplinger 25, the list of our favorite no-load funds. We also like Fidelity Freedom (0.59% to 0.75%). The series gives you access to top managers, such as Joel Tillinghast, of Fidelity Low-Priced Stock, and Steven Wymer, of Fidelity Growth. The Vanguard Target Retirement (0.13% to 0.15%) series of funds provides sweeping exposure to stocks and bonds in the U.S. and overseas by filling portfolios with a handful of lower-cost total-market index funds, such as Vanguard Total Stock Market Index, which owns virtually every publicly traded U.S. stock.

A balanced approach. The old-school balanced port­folio of 60% stocks, 40% bonds is another option to consider, as the bond portion provides diversification, income and a smoother ride with fewer wild price swings. Today, balanced fund managers have some leeway to tilt their portfolio weightings beyond the traditional 60-40 split depending on their market outlook; many balanced funds now have equity weightings of 70% or more. If stocks wobble, bonds will provide ballast. Balanced funds invest in growth-oriented and dividend-paying large-company stocks, as well as bonds ranging from U.S. Treasuries to investment-grade corporates.

“Going with a balanced approach is always a good idea,” says Josh Simpson, investment adviser at Lake Advisory Group. “Steady growth should always be the goal. People get in trouble when they try to hit home runs.” One downside, however, is that even with wiggle room to tweak their allocations somewhat, these funds may hold too few stocks, and as a result be too conservative for young investors with a very long investment time horizon.

Still, a good option to consider is Fidelity Balanced (symbol FBALX, 0.52%), which in the past year returned 27.6%, topping 88% of its category peers. According to the most recent report, the fund held 72% of its portfolio in stocks and 28% in fixed income; top holdings included Microsoft and Apple. Another solid choice is Dodge & Cox Balanced (DODBX, 0.53%), which delivered a 32.3% one-year return, topping 93% of peers, and had 68% in stocks and 32% in bonds at last report. The fund’s largest stock sector weighting was financials, which made up 24% of the portfolio and included top holdings such as Wells Fargo and Charles Schwab.

The whole market in three funds. This strategy, popularized by “Bogleheads” (investors who embrace the low-cost, index-fund approach espoused by the founder of Vanguard, the late John Bogle), includes investments in three asset classes: U.S. stocks, inter­national stocks and U.S. bonds. The portfolio consists of index funds or exchange-traded funds that charge rock-bottom fees and invest in baskets of securities that cover an entire investment universe.

A popular approach is to buy one fund that invests in the total U.S. stock market, one that tracks the total international stock market and one that covers the total U.S. bond market. “It gives you exposure to everything,” says Simpson. Using Vanguard Total Stock Market Index (VTSMX, 0.14%), Vanguard Total International Stock Index (VGTSX, 0.17%) and Vanguard Total Bond Market Index (VBMFX, 0.15%), you’ll gain exposure to the equivalent of some 3,900 U.S. stocks, 7,500 foreign stocks and 18,000 U.S. bonds. (ETF versions of the funds are also available.) Building a similar portfolio using total market funds offered by providers such as Fidelity and iShares is just as easy.

To make this strategy work, make sure your target weightings of U.S. stocks, foreign stocks and bonds remain in line with your risk tolerance. And it’s on you to rebalance the port­folio periodically. Also, remember that the best you can do with index funds is match the gains of the index, minus any expenses. You won’t beat the market. But that’s okay. “Being average is fine, because so many people’s returns are below average,” Wood says.

One last piece of advice: For a simple portfolio to succeed, you must stick to the plan. “Even simple solutions fail if you bail at the wrong time,” says Vanguard’s Fleming.

Source: kiplinger.com

Dear Penny: How Do I Stop an Eviction When My Landlord Is My Mom?

Dear Penny,

Not wanting to freeload, I suggested that my mom charge me rent. She seemed surprised, and said she’d get back to me on that. 

Sometime later, she appeared in a rather formal outfit, and said she was now my landlady. She spelled out my rental rate and terms; it was higher than I had planned on, but she conveyed such an air of authority that I didn’t argue. Later, when she was back to her normal self, I told her the rate was too high. She stepped out and returned as the “landlady,” and asked what the problem was. 

I explained that the rate was more than I could afford. She told me I could either pay it or find somewhere else to live. I decided to forget about rent and hope my mom would also. However, I have now received notices of late rent and eviction. 

Not caring to interact with her alter-ego, I haven’t tried to talk with my mom about this. She is normally loving and supportive, but I’m afraid she will transform into the “landlady” and kick me out, or possibly sue me for the rent and late fees I already owe. 

Should I pass my mom a note explaining that I love her but I don’t like her alter-ego. I’d tell her that I can’t afford the rate she is trying to charge me, I would have trouble finding another place to live, and I regret ever mentioning rent. Anything else I should include?

-Rent Regrets

Dear Regrets,

Regardless of whether you have a face-to-face conversation or write a letter, I think your message is off. 

The problem is that it’s all about you and your needs. (Read back what you want to tell your mom: I don’t like your landlady alter ego. I can’t afford the rent you’re charging, but I can’t afford to live anywhere else. I wish I’d never mentioned rent.) That message won’t resonate with a landlord or a loving and supportive mom. However you choose to communicate, start by expressing gratitude to your mother. You don’t get to complain about your mom’s landlady alter-ego if you’re living at home rent-free. What you can say, though, is that you want to talk to her as her child, rather than her tenant.

Money would be a fine thing to include if you write a letter. Maybe you can’t afford the full amount your mom wants you to pay. But giving her some cash for your living expenses would show that you’re serious about carrying your weight.


I’m not sure whether a letter is the way to go here. If your mom is serious about her landlady role, she’ll be more than happy to communicate with you in writing. It creates a handy paper trail. You could come home to find an eviction notice taped to your bedroom door.

So talk to her instead. Say that you’re serious about wanting to contribute. Tell her you have some money for her, albeit not as much as she’d like, and you’re hoping that will show your commitment to helping out. I think the mom in her will respond positively if you embrace responsibility. And doing so makes you a much more appealing tenant if she’s determined to maintain the landlady schtick. 

Try making a budget that includes a contribution for household expenses, plus a monthly savings goal so you can eventually get your own place. Since you can’t afford your mom’s rental rate, think about ways that you could make her life easier. For example, maybe she’d agree to a lower rate if you could take care of making dinner, cleaning or mowing the lawn. 

If you’re able to work out a lower rent, commit to paying it on the same day each month. Don’t make your mom ask for it. Landlords hate having to chase down tenants for rent.

I’m guessing that your mom isn’t actually going to evict you. The landlady routine sounds like her way of teaching you an adulting lesson while having a little fun with it. You may find it annoying, but I hope you’ll learn from it. Ignoring bills won’t make them go away. Consider yourself fortunate to have learned that lesson from your mom, rather than a real-life landlord.

Robin Hartilll is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].

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Source: thepennyhoarder.com

Here’s How to Create a Christmas Saving Plan

Don’t you want to scream when you see Christmas displays in the stores before Halloween? Or when “It’s Beginning to Look a Lot Like Christmas” is stuck in your head for two months because it starts playing in early November?

The Christmas creep can be annoying, but there’s at least one good reason to start thinking about the holidays before the leaves start changing color: It gives you more time to save.

With all the decorations, food, parties and gift giving, celebrating Christmas has become synonymous with spending money. The National Retail Federation found that consumers spent a collective $798.4 billion during the 2020 holiday season, up 8.3% from the year prior.

Waiting until November or December to prepare for these expenses means you’ll often end up charging your purchases and paying them off — plus interest — well into the new year. Instead, establish a Christmas savings plan to avoid debt and overspending.

Create Your Christmas Savings Plan

To save enough money to cover all your holiday expenses, figure out how much you plan to spend and divide that by the number of weeks you have until it’s time to start shopping. That will tell you how much money you need to save per week to build up your Christmas fund. In the personal finance sphere, we call this setting up a sinking fund.

To estimate your overall savings goal, first make a list that includes who you’ll be shopping for and how much you’ll spend on each person. It may be helpful to refer to what you spent last year. Or you could research the prices of items you plan to purchase for each person and total them up.

Heads up: Your Christmas savings plan needs to cover more than gifts. So add estimated costs for decorations, food and holiday events to your shopping list. Between special events where you contribute a bottle of wine, gifts for your kids’ friends or an office Secret Santa, plus the bounty of food on the actual holiday, these “extras” can really add up.

Total everything and divide it by the amount of weeks left until you’ll hit the stores. Unless you’re a fan of last-minute shopping, this means giving yourself some wiggle room before December 25.

To make things easier, we’ve laid out how much you need to save per week over a 12-week period to come up with anywhere from $200 to $1,000 in extra money for the holiday season.

A graphic that shows how much money you should save in a period of twelve weeks for your Christmas Sinking Fund. If you want to save $200, you’ll need to save $17 per week. If you want to save $250, you’ll need to save $21 per week. If you want to save $300, you’ll need to save $25 per week. If you want to save $350, you’ll need to save $30 per week. If you want to save $400, you’ll need to save $34 per week. If you want to save $450, you’ll need to save $38 per week. If you want to save $500, you’ll need to save $42 per week. If you want to save $600, you’ll need to save $50 per week. If you want to save $700, you’ll need to save $59 per week. If you want to save $800, you’ll need to save $67 per week. If you want to save $900, you’ll need to save $75 per week. If you want to save $1,000, you’ll need to save $84 per week.

If your Christmas budget is $450, you’ll need to save $38 per week for 12 weeks. If you want to save $800 to meet your Christmas savings plan goals, you’ve got to put aside $67 per week for 12 weeks.

Another tactic for holiday saving is to determine how much money you’re able to save and create your holiday budget based on that. For example, if you’re only able to save $25 a week to go toward your Christmas savings, you’d save $300 in 12 weeks. That would be your limit for all your holiday spending.

If you think you’ll need more money to pay for all your Christmas expenses and still emerge debt free, you’ll need to start saving earlier so you have more weeks to save up. In fact, you can implement your Christmas saving plan anytime during the year.

As you start saving for Christmas, it’s good to keep your holiday savings apart from the rest of your money so you don’t accidentally spend your stash on everyday expenses. If you use a sub-savings account at your bank or credit union, set up automatic savings transfers each week to ensure you stay consistent.

If you take the cash envelope route, make sure you have an envelope exclusively dedicated to holiday expenses and not other short-term goals. Set weekly calendar reminders to nudge you to put the money aside.

Tips to Help You Save Money for the Holiday Season

Trimming the fat from your weekly spending is a good way to find extra cash to put toward Christmas gifts. Take out your budget and highlight all the nonessential recurring expenses. Identify a few — like fast food dining or trips to the nail salon — that you can give up until you’ve finished your holiday shopping.

If you want to increase your savings fast, try a no-spend challenge. Or cut your grocery budget by doing the pantry challenge and do meal planning with what’s already at home.

Saving money for the holiday season isn’t all about making cuts. You can temporarily increase your income by getting a part-time holiday gig (bonus if you get a company discount) or doing odd jobs on Fiverr or TaskRabbit. Make room for the new gifts you’ll get by cleaning out your closets and selling stuff online.

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How to Spend Less on Gifts During the Holiday Shopping Season

In addition to a Christmas savings plan, you also need to set a Christmas budget that’s financially comfortable for you.

Here are six ways to spend less this holiday season:

1. Make Your Own Gifts.

Get crafty and DIY some Christmas gifts for your friends and family. Try one of these  12 DIY Christmas gift ideas.

2. Shop Early and Take Advantage of Sales.

Rather than wait until you’ve reached your Christmas savings goal, you can use the money you’ve been saving up to buy gifts early whenever you catch something on sale. Bonus if you’ve saved any coupons.

3. Use Old Gift Cards.

It’s easy to forget about gift cards you’ve gotten long ago that still have a balance. Dig out your cards and check the balance. Buying presents with your gift cards will free up cash to use for something else.

4. Cash in Your Credit Card Rewards.

If you get cash back or points for swiping your credit card, save those up in order to use them for your holiday spending. Just be responsible with your credit card so you can triumph in a debt-free Christmas.

5. Implement the Four-Gift Rule.

Save money by restricting the amount of presents you give your kids. The four-gift rule focuses on getting each kid just four things: something they want, something they need, something to wear and something to read.

6. Comparison Shop Online.

Do your holiday shopping online and compare prices to get the best deal. Some browser extensions will even do the work of saving for you. Be aware of shipping costs when shopping online. These stores offer free shipping with no minimum order.

Nicole Dow is a senior writer at The Penny Hoarder.

Source: thepennyhoarder.com