Simple Stock Market Portfolio


There are lots of sensible ways to invest in the stock market. Here is one way that's simple, conservative, and easy to understand:


  • Put 1/3 of your money into totally safe assets, like short term US government bonds

  • Put the other 2/3 into a US Total Stock Market ("TSM") index fund.


You then rebalance this portfolio as needed, to keep the value of the two pieces in the same 1:2 ratio.

Here are some excellent low cost index funds you could use for this plan:


Provider Safety TSM
Vanguard (ETFs) VGSH VTI
iShares (ETFs) SHV ITOT


You would invest in the first two rows by opening an account with Vanguard or Fidelity, respectively. You would invest in the ETFs by opening an account with any stock broker (see below).


Many Roads to Rome

There are some obvious ways you might choose to modify this ultra-simple portfolio:


  • You could vary the amount of the safe assets, depending on your risk tolerance. For example, you could start out with less than 1/3 in safety when you're young, and gradually increase it as you approach retirement.

  • You could try to get some growth into the safe slice, by including longer term government bonds, TIPS, and CDs.

  • You could divide the stocks portion into US and International, using global ex-US funds. (The reason this isn't absolutely necessary is that US companies do much of their business abroad; when you invest in the US, you automatically invest in the whole world.)

  • You could slice and dice the stock allocation, by including small value and emerging market index funds.

  • You could add other asset classes, such as corporate bonds, real estate, commodities - you name it!


So which of these is best? (Shrug.) You can hear smart people arguing for and against all of the above. There is no one right answer. Like it or not, you have to make a judgment call:


Pick a portfolio that makes sense to you, so that you'll have the confidence to stick with it, even when the stock market crashes.


Note that the market really will keep crashing periodically, and you probably won't see it coming. (By Murphy's Law, it will probably crash right after you put some money in.) The good news is that rebalancing after a crash will let you buy stocks cheap.


Some Low Cost Stock Brokers for ETFs

Merrill Lynch 30 Free trades per month with a minimum balance. (details.)
Vanguard Free trades on Vanguard ETFs. (details.)
Fidelity Free trades on iShares ETFs held more than 30 days. (details.)
Charles Schwab Free trades on Schwab ETFs. (details.)
Capital One
TD Ameritrade
Generally low cost.

Note that pricing can change - this list can't be guaranteed to be current!



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Investing 101


Also See...

List of Index Funds

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