What are the attributes of a world-class investment portfolio
that even Warren Buffett would bless?
Buffett's 2013 letter to Berkshire Hathaway shareholders gives
us a clue:
"The 'know-nothing' investor who both diversifies and keeps
his costs minimal is virtually certain to get satisfactory
results. Indeed, the unsophisticated investor who is realistic
about his shortcomings is likely to obtain better long-term
results than the knowledgeable professional who is blind to even
a single weakness."
Instead of instructing people to build a portfolio of
hand-picked individual stocks, Buffett - like he has in previous
shareholder reports - recommends that people start with a plain
vanilla S&P 500 index fund (Nasdaq:VFINX).
Although an S&P 500 index fund or ETF (NYSEARCA:IVV) might
be a good place for exposure to U.S. stocks, it's only one
component, among many others, for constructing a truly diversified
A few years ago, I gave up on dull diversification pie charts.
Instead, I've been illustrating portfolio diversification as the
various beef cuts of a cow. (See below)
At a very minimum, the diversified portfolio should also include
other major asset classes like real estate (NYSEARCA:RWO), global
treasury inflation protected securities (NYSEAARCA:GTIP), and bonds
In my latest
, I explain the concept of a low cost index-based portfolio
consisting of core investment holdings and how the major asset
classes in my cow illustration integrates with that strategy.
I also analyze the role of non-core investment portfolios and
what types of assets are held in them.
Index-based ETFs that are low cost and diversified pass the
smell test for both sophisticated and unsophisticated investors
alike. And making this the foundation of your serious money
investments is a portfolio strategy that even the great Warren
Buffett would approve.
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