You can put your investing strategy on autopilot with a target-retirement fund. But perhaps you want to manage your own portfolio. All it takes is a few hours a year with this two-step plan.
Step 1: Pick a mix First decide how you'll divvy up your money between stocks and bonds. You can use online tools to fine-tune a mix for your age and appetite for risk. But the easy way to decide how much you should devote to stocks is to subtract your age from 120. So if you're 40, put 80% of your long-term savings in stocks and 20% in bonds. If nothing else, this simple rule of thumb ensures that you'll own an ample amount of stock when you're young and can take more risk. Every year, subtract your age from 120 again and adjust the mix as needed.
Step 2: Buy index funds For an investment that doesn't require constant vigilance, the clear choice is an index fund. With a single fund, you can own virtually the entire stock or bond market.
No index fund will ever top the charts, but history suggests that over the long run they'll earn a better than average return. You can build a perfectly adequate portfolio with just two funds: a total stock market index fund and a total bond market index fund, both of which you can find at Fidelity or Vanguard.
By Kate Ashford, Carolyn Bigda, George Mannes, Walter Updegrave and Penelope Wang