The phrase “diversify my portfolio” has always made me giggle. An old friend of the family, who was quite proud of his highly blue-collar attitude and lifestyle, came into a large amount of money. He had a financial advisor invest it for him and teach him a little bit, and so he’d stand there, wearing a trucker hat and a blue shirt with his name on it while swilling an Old Milwaukee, and announce to all of us with a toothy grin that he was going to go home and “dee-vers-e-fy my pote-fow-lee-oh.”
Anyway, as I mentioned before, I recently bought into the Vanguard 500, my first mutual fund purchase. Given my natural aversion to risk, I bought this fund because it seemed to be the best way to minimize risk in a first purchase in the stock market.
As time goes on, however, I plan on creating a diversified portfolio, mostly to reduce risk, but also to allow me to dip my toes in some riskier things. Let’s look at my goals for my portfolio, at least for the intermediate term. Hopefully this will provide a realistic picture of what a beginning investor without a lot of capital can do – as well as invite discussion with more experienced investors.
What are the goals? I’ve basically decided on eventually acquiring a 3/3/3/1 split between a large cap index fund, a small cap index fund, an international fund, and treasury notes (as a safety, of sorts). I already have the large cap fund with the Vanguard 500, so here’s my plan:
Over the next six to twelve months, I’ll save up enough to buy into the (NAESX). I’ll buy into this with the same initial amount that I used to buy into the Vanguard 500. This will definitely inject some risk into my portfolio, but I am comfortable with that.
After that purchase, I’ll save up enough to again buy into a fund, this time the (VGTSX). This is something of a hedge against potential weakness in American stocks, as my inexperienced gut feeling is that both Europe and Asia are going to be strong in the coming decade (I read The Economist too much, I think).
After this, I’ll split my monthly investment into a 3/3/3/1 split. Yes, I’ll essentially be doing dollar cost averaging for a while. Each of the larger shares will go into each stock fund, while the smaller share will be saved for purchasing a ten year treasury note in order to give my portfolio some stability. Once I’ve saved enough, I’ll buy a treasury note and just let the income from the note roll over for more notes. I’ll keep doing this with the small share of the investment for the near future.
As I grow older, I’ll eventually start moving more of my investment allotment into treasury notes as I prepare for my retirement. Eventually, I hope that the treasury note income will eventually provide a good deal of my living expenses in retirement, as I strongly prefer stability in my living expense income.