I am in the position that I know enough about investing to understand that I should do it, but not enough to know how to do it well; consequently I am poorly diversified. I would like to remedy this in 2013.
That goal is in quotes because I am aware that it is a silly phrasing; part of the goal is to clarify what I should want to do.
Being well-diversified is a good goal here. The best way to do that is to invest in a portfolio of low-cost index funds. Target date funds are a great way to do this, because they automatically re-balance for you (caveat: some of them are expensive, although there are plenty of low-cost ones available).
If you’re American, a good approach is to:
Invest as much as you can in your 401k and IRA. It’s usually (but not always) best to max your 401k first, then Roth IRA if you qualify, and finally traditional IRA if you don’t qualify for a Roth account. All of these accounts get massive tax breaks, so take full advantage.
For your 401k, see if there are low-cost (expense ratio < 0.20%) target date funds available. If there are, put everything into whichever one best matches your expected retirement date. If there aren’t, look for whatever low-cost index funds are available. How much of each you should get depends on the specific funds, but basically you want to mimic the general allocation of a target date fund.
For your IRA, once again, a target date fund is generally a good idea. I don’t know enough to say which is best, but Vanguard is probably a reasonable choice.
If you max these out and have additional money to invest, put it in SPY (an ETF that tracks the S&P500). It’s certainly not a perfect solution, but it’s reasonably diversified, low-cost and has the tax advantages of an ETF. I use Scottrade as my broker, and they’re good enough that I don’t find it worth seriously investigating alternatives.
I am in the position that I know enough about investing to understand that I should do it, but not enough to know how to do it well; consequently I am poorly diversified. I would like to remedy this in 2013.
That goal is in quotes because I am aware that it is a silly phrasing; part of the goal is to clarify what I should want to do.
Being well-diversified is a good goal here. The best way to do that is to invest in a portfolio of low-cost index funds. Target date funds are a great way to do this, because they automatically re-balance for you (caveat: some of them are expensive, although there are plenty of low-cost ones available).
If you’re American, a good approach is to:
Invest as much as you can in your 401k and IRA. It’s usually (but not always) best to max your 401k first, then Roth IRA if you qualify, and finally traditional IRA if you don’t qualify for a Roth account. All of these accounts get massive tax breaks, so take full advantage.
For your 401k, see if there are low-cost (expense ratio < 0.20%) target date funds available. If there are, put everything into whichever one best matches your expected retirement date. If there aren’t, look for whatever low-cost index funds are available. How much of each you should get depends on the specific funds, but basically you want to mimic the general allocation of a target date fund.
For your IRA, once again, a target date fund is generally a good idea. I don’t know enough to say which is best, but Vanguard is probably a reasonable choice.
If you max these out and have additional money to invest, put it in SPY (an ETF that tracks the S&P500). It’s certainly not a perfect solution, but it’s reasonably diversified, low-cost and has the tax advantages of an ETF. I use Scottrade as my broker, and they’re good enough that I don’t find it worth seriously investigating alternatives.