I need to create a written investment strategy. I've kind of gone back and forth between investing in a single total stock market fund and trying to break things down into smaller sector funds. Whenever I use an online advisor (FutureAdvisor or Voya's retirement guidance) they bark at me because I have zero bonds, missing REITs, or I'm not diversified in whatever ratio they think I should be today. I'm a 33yr old who has no intention of retiring for at least the next 10 years, so what do I need bonds for? Bonds may have done well this year beyond belief, but can that continue another year? I don't think so. I don't want to buy at the top. Same with REITs. I just don't feel like they add that much to my portfolio. Why take a risk in something when I'm already buying diversified ETFs? Here are the things I'm currently investing in:
You don't need a complicated portfolio to be a good investor. Advisors seem to add a ton of funds to make it look like they are doing something worth the cost they are charging you. You really just need 3 funds:
Total US Stock Market (which can be multiple funds if you use S&P 500 + extended or small/mid-cap funds)
Total International Stock Market
Total US Bond Market
But then some people say why bother with bonds? I'm one of those and it sounds like you are too. So you really just need 2 total stock funds...US and International. Just remember that with no bonds, your portfolio will drop farther during bad years. DO NOT SELL low...use that as an opportunity to buy more. If you have total stock funds, then you already hold REITs, small-cap value, and emerging markets at their market allocation. Any additional allocation to those is just tilting and hoping they outperform in the future.
So here's what I suggest...
Pick your allocation of US and international stocks. Usually an allocation of 20 to 50% of stocks in international is the way to go. Personally, I'm 40% international (was 30% but recently added more exposure to REITs and Emerging Markets...shifted my allocation to something I could stick with for the long term).
So lets say you decided on the following:
70% US Stocks
30% International Stocks
Now do you just want to do 2 simple funds and go US Total Stock Market and International Total Stock Market? If you are happy with that, go for it! It will be simple and keep your costs extremely low. If you want more, do your research (to understand why you are adding them) and spice up your portfolio with any or all of the following:
Small-Cap or Small-Cap Value
REITs
Emerging Markets
etc.
Once you decide on your final allocation. Write something up. My plan lists my investment goals, investment order, and what to do with a windfall. Then I also list each investment account and the allocation I want to hold in each one. Lastly, I list what I want to do with my emergency fund (basically where and how to invest it) and in what order to come up with funds to pay for emergencies (after emergency fund runs dry).
Once you have a plan, you can refer to it anytime you are tempted to do something else.