Do It Yourself-DIY APPROACH/STRATEGY:

If you believe that you can be a DIY investor, then this site provides information to help achieve this objective.  Although this approach will save you costs and expenses, there will be costs related to your time commitment.  You also need to consider how you will handle the inevitable market downturns that will happen from time to time.  To begin, you need a Personal Investment Philosophy that specifically addresses key decisions:

-You need to start with your philosophy related to passive and active investments.  See Active/Passive.  We strongly recommend usage of low-cost passive index funds for the core of your portfolio.  As time passes, and as you gain greater investment knowledge, you can add asset classes, make tactical adjustments, etc.

-You need to determine your Investment Objective for your long-term assets and preferably for your short-term and intermediate-term assets as well.  See:  Individual Investment Objectives

-You need to determine your strategic portfolio that matches your Investment Objective and determine if you want to incorporate tactical asset allocation.

-You need to determine which custodian that will hold your assets.  Initially it is best to start with one custodian that has a broad slate of funds.  We recommend Charles Schwab.

-You need to ensure that you have a diversified portfolio and that you have rebalancing capabilities.  See:  Terminology-Rebalancing

-Don’t let your Investment Philosophy change with market gains and losses.  Your investment strategy shouldn’t be based on short-term headlines or volatile market moves.  We call this a Hoping & Wishing strategy and it doesn’t work.

-Start with high-quality investments.  High Quality has delivered solid returns over time.  Meanwhile, astute investors have made good money with Junk, but they have taken it from those uninformed.

-A DIY strategy should incorporate your tax situation into your investment strategy.  Your objective needs to be to maximize your after-tax portfolio performance, not tax minimization.  For example you don’t want to sacrifice $100 of after-tax performance to save $50 in taxes.  Key tax strategies include Tax Location and a tax strategy and tax loss harvesting significantly impact after-tax performance.  See:  Taxes

 

DIY Simplest Option:

The simplest DIY approach for smaller portfolios is to utilize asset allocation funds.  These asset allocation funds are also called strategy funds, lifestyle funds, balanced funds etc.  Target date funds are another option.  These funds are generally comprised of a mix of other funds and are structured with varying risk/return profiles from aggressive growth to conservative income.  As a result, a fund can be selected that is aligned with your own investment objective.  They are broadly diversified, and they are systematically rebalanced.

Asset Allocation Funds:  Your investment strategy can be implemented quite simply by purchasing an asset allocation fund.  These funds provide low costs and they handle the essential diversification and rebalancing tasks so that individuals can take a relatively hands-off approach.  They can also be a good way to make monthly contributions.  These funds are good for starting out, but they lack flexibility as the portfolio gets larger and needs become more complex.

Asset Allocation Funds take on a number of different names, but they are all structured to maintain a relatively stable asset allocation mix to meet specified risk/return profiles.  For example, moderate asset allocation funds are generally structured to hold approximately 60% equities and 40% fixed income.  These funds incorporate a broad mix of equity and fixed income securities in a single mutual fund.  There are also more aggressive asset allocation funds that hold a larger proportion of equities, and there are more conservative funds that hold a larger proportion of fixed income.  Asset allocation funds have a static/fixed risk profile.  This is in contrast to target date funds which become more conservative over the course of time.  It is important to select an asset allocation fund that matches your personal investment objective.  Both Schwab and Vanguard maintain solid asset allocation funds with low expense ratios.  Cornerstone prefers Schwab to Vanguard based on Schwab’s superior client service.  It is important to note that asset allocation funds may be too inflexible for larger portfolios or more complicated situations.

To summarize, you can get started investing by simply buying the appropriate asset allocation fund as listed below.  You will need to determine your risk profile and then purchase the appropriate asset allocation fund.  Since the diversification and rebalancing are handled by the fund, you do not need to be heavily involved.  These asset allocation funds also provide a means to getting started without an adviser.  (As discussed throughout this website, there are many reasons to use a good adviser as your circumstances become more complicated.)

 

Schwab asset allocation fund examples:

1. Schwab MarketTrack All Equity-SWEGX-100% Equity  (Most aggressive.)

2. Schwab MarketTrack Growth-SWHGX-80% Equity

3. Schwab MarketTrack Moderate Balanced-SWBGX-60% Equity

4. Schwab MarketTrack Conservative-SWCGX-40% Equity  (More conservative.)

 

Vanguard asset allocation fund examples:

LifeStrategy Growth-VASGX-80% Equity.  (Most aggressive.)

LifeStrategy Moderate Growth-VSMGX-65% Equity.

LifeStrategy Conservative Growth-VSCGX-42% Equity.

LifeStrategy Income-VASIX-20% Equity.  (More conservative.)

Vanguard- Other balanced fund examples:

1. Vanguard Balanced Index Admiral-VBIAX-60% Equity

2. Vanguard Star-VGSTX-A Fund of Funds-60% Equity.

3. Vanguard Tax-Managed Balanced Admiral-VTMFX.  50% US Lrg & Mid Cap Equity, and the rest is municipal bonds.

4. Vanguard Managed Payout-VPGDX.  Targets 4% annual distribution rate.  9 asset classes.

5. Vanguard Wellesley Income-VWINX and Vanguard Wellington-VWELX are active Balanced funds.

 

Target Date Funds are described as a “set it and forget it” product.  They look at your expected retirement date, and then they start with a more aggressive portfolio and then make the portfolio more conservative as you approach retirement.  These funds essentially establish a so-called glide path to lower risk/return.  It is important to note that the fund companies have a wide range of risk/return during the glide path time line and also in retirement.  These products also use the “house brand” of investments rather than a potentially better choice from the whole universe of investment opportunities.  Finally, they treat everyone in an age group the same, regardless of unique circumstances.  Nevertheless, Target Date Funds can provide a good solution.

Examples of target date funds for retirement in 2025 are as follows:

Schwab Target Date-2025-SWXDX

Vanguard Target Date-2025-VTTVX

You will obviously need to select the appropriate target date fund based on the number of years to your planned retirement.

 

DIY-Other Options:

An alternative DIY approach is to use the so-called robo-advisor investment offerings.  Robo Advisers :

Another DIY approach is to use Cornerstone Models.  These models offer greater flexibility, but they require more time and discipline. Cornerstone Models  .