Investing is Easy!

Let’s say you have come upon some money and would like to invest it. You may be thinking that you are in need of professional advice. You may be thinking that if you need professional help to get the sink unclogged, you’d certainly need a certified financial analyst to make sure that you don’t flush your money down your recently unclogged drain.

With all due respect, I am here to tell you that you are … nuts! You’d have to be certifiable to spend any money on the advice of a certified financial analyst. You can definitely do it yourself. There’s loads of evidence that simple—even-a-child-can-do-it simple—investment strategies work at least as well as the strategies of most so-called experts on Wall Street. If you don’t believe me, read The Smartest Investment Book You’ll Ever Read by Daniel R. Solin, Penguin, New York, NY, ISBN-13: 978-0399532832.

Here’s how to do it, in a few easy steps:

1. Find out how much money you have. Let’s call it M.


2. Let’s say you are A years old. Calculate A percent of M. This is simply A ÷ 100 × M. For example, if you are 19 years old, calculate 0.19 × M.


3. With this money, buy one of the bond index funds in the table below. If you are nineteen and have $1000 to invest, you should spend $190 on a bond index fund. You’ll have $810 left. By the way, you can do all your investing online.


4. Calculate 70% of whatever is left. This is 0.70 × [M – (A ÷ 100 × M)]. With this money, buy one of the domestic stock index funds in the table below. In our example, 70% of $810 is $567. After buying a domestic stock index fund with this money, you’ll have $243 left.


5. With the remaining money, buy one of the international stock index funds in the table below. Done!

Mutual Fund Ticker Symbols
	Bond Index Fund	Domestic Stock Index Fund	International Stock Index Fund
Vanguard	VBMFX	VTSMX	VGTSX
Fidelity	FBIDX	FSTMX	FSIIX
T. Rowe Price	PBDIX	POMIX	PIEQX

Warning: Like all mutual funds, these funds charge fees. But, in general, the ones listed here are low-fee funds. Also, these funds have minimums. Follow the Web links to find out more. It is also a good idea to call and ask for more info; all three companies tend to have well-staffed phone banks. Their toll free numbers are: 877-662-7447 (Vanguard), 1-800-fidelity (Fidelity), and 1-800-225-5132 (T. Rowe Price).

Another warning: There is nothing sacrosanct about the strategy outlined above. You can choose different funds instead of those in the table; each of the three companies has numerous funds in each category. Just remember to stick to index funds. You may even choose to go with mutual fund companies other than the three in the table. Daniel Solin has deliberately been very specific, not because there are no other valid choices, but because he wanted to emphasize the simplicity of investing. When you no longer need his training wheels, you can experiment all you want.

The three key points to keep in mind are:

1. Wealth invested in stocks tends to grow faster on average, but there is a higher risk of a big loss of wealth. Wealth invested in bonds tends to grow slower on average, but there is a lower risk of suffering a big loss.


2. The older you are the bigger should be the percentage of your wealth that is invested in bonds. This means that you need to periodically—say, twice a year—adjust the money you have invested in the three index funds to conform with the strategy described above: that is, you need to ensure that the percentage of your wealth in bonds remains approximately your current age, and that, of the wealth invested in stocks, 70% is in domestic stocks and 30% is in foreign stocks. (Actually, to be quite honest, you should feel free to stray from the 70-30 split between US and foreign stocks; there’s nothing really wrong with 60-40 or 50-50.)


3. Whether you want to buy stocks or bonds, buying index funds is way better than buying individual stocks or bonds. Nobody knows how to pick the right stocks or the right bonds. So, buy index funds instead.

That’s it. Happy investing!