Dallas County Living Well Magazine May/June 2020

has super-hot, new-fangled funds like cybersecurity, biotech, cloud comput- ing, and emerging China. There may also be a few individual stocks in in- dustries where no niche fund exists yet. These are investments that make us OOH and AAH! Next is the icing. Here we find a complex swirl of quantitative funds designed to capture style premiums like small-cap, value, momentum, and other sophisticated strategies. We may also find emerging mar- ket debt funds and bank loan funds mixed into the frosting. This is com- plex stuff. Don’t try it at home. Now let’s dig into the cake itself. This is the bulk of the portfolio and its function is to keep up with the returns of the markets. There’s a di- versified mix of large-cap stocks that are typically divided among U.S. and international companies, and an assortment of investment-grade bonds spread across treasuries, in- vestment-grade debt, and perhaps some mortgage exposure. Here’s the secret that no highly paid adviser wants you to know. The cost to invest in a basic portfolio––the cake it- self––is ridiculously cheap, and you don’t need an adviser to do it. You can invest in a balanced index fund such as the Vanguard Balanced Index (Symbol: VBINX) or iShares Core Balanced ETF Portfolio (Symbol: XBAL) that have fees less than 0.20 percent per year. Van- guard also has a series of Life-Strategy index funds where you can pick your mix between stocks and bonds. These funds are well-managed, affordable, and don’t require ongoing maintenance by you or a paid adviser. Advisers claim their special reci- pes are better than balanced index funds, but there’s no academic evi- dence supporting that claim. After paying higher fees for a highly dec- orated complex portfolio, the results are almost always below a balanced index fund. Having an esthetically pleasing birth- day cake is important for a once-a- year birthday ritual, but it’s not worth paying high fees for investment dec- orations that don’t result in extra gains. Being a successful investor isn’t about bright candles and being mesmerized by artful decoration, it’s about being smart. Learn about low- cost index funds and balanced index funds and invest in them, and then you’ll be able to afford the biggest and fanciest birthday cake you can imagine. DALLAS COUNTY Living Well Magazine | MAY/JUNE 2020 43

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