Beginner Investment Strategies to Maximize Long-Term Gains
Posted on July 17, 2023 in guide
Long-term investments are the best way to realize real financial growth over time. The sooner you can get started investing for the long-term, the more you'll benefit. For legal purposes, the following should not be considered financial advice. For personalize financial advice, please find a personal financial advistor.
Investing can be a daunting task, especially for beginners. There are so many different strategies to choose from, and it can be hard to know where to start.
If you're looking for a simple and effective way to invest, you may want to consider a 3-fund, 4-fund, 5-fund, or target-date fund investment strategy. These strategies are all based on the idea of diversification, which means investing in a variety of assets to reduce your risk.
The 3-Fund Strategy
The 3-fund strategy is one of the simplest and most popular investment strategies. It involves investing in three different asset classes: domestic stocks, international stocks, and bonds.
Domestic stocks represent companies that are listed on U.S. exchanges. International stocks represent companies that are listed on exchanges outside of the U.S. Bonds represent debt securities issued by governments or corporations.
By investing in these three asset classes, you can reduce your risk and improve your chances of achieving your financial goals. For example, if the stock market takes a downturn, your bond investments may help to offset your losses.
The 4-Fund Strategy
The 4-fund strategy is a variation of the 3-fund strategy that adds a fourth fund to the mix: an international bond fund. This can help to further diversify your portfolio and reduce your risk.
International bond funds invest in bonds issued by governments or corporations outside of the U.S. This can help to reduce your risk by providing exposure to a different market.
The 5-Fund Strategy
The 5-fund strategy is another variation of the 3-fund strategy that adds a fifth fund to the mix: a real estate investment trust (REIT) fund. REITs are companies that own and operate income-producing real estate.
Adding a REIT fund to your portfolio can help to further diversify your portfolio and provide exposure to the real estate market. Real estate can be a good asset class to own during times of inflation, as the value of real estate tends to increase with inflation.
Target-Date Funds
Target-date funds are a type of mutual fund or ETF that is designed to help investors reach their retirement goals. Target-date funds automatically adjust their asset allocation as you get closer to retirement, becoming more conservative over time.
This can help you to ensure that your portfolio is appropriately diversified and that you are taking on the right amount of risk for your age.
Which Strategy is Right for You?
The best investment strategy for you will depend on your individual circumstances and risk tolerance. If you are a beginner investor, the 3-fund strategy is a good option because it is simple and effective. However, if you are looking for a more diversified portfolio, you may want to consider one of the other strategies mentioned above.
Here is a table that summarizes some of the key differences between the 3-fund strategy and some of the other similar strategies:
| Strategy | Number of funds | Asset classes | Risk level |
|---|---|---|---|
| 3-fund strategy | 3 | Domestic stocks, international stocks, bonds | Moderate |
| 4-fund strategy | 4 | Domestic stocks, international stocks, bonds, international bonds | Moderate-to-high |
| 5-fund strategy | 5 | Domestic stocks, international stocks, bonds, international bonds, REITs | Moderate-to-high |
| Target-date fund | Varies | Domestic stocks, international stocks, bonds, cash | Varies |
Conclusion
The 3-fund, 4-fund, 5-fund, and target-date fund investment strategies are all good options for investors who are looking for a simple and effective way to build a diversified portfolio. The best strategy for you will depend on your individual circumstances and risk tolerance.
It is important to do your research and understand the different strategies before you decide which one is right for you. You should also consider working with a financial advisor to get personalized advice.
Check out Rob Berger's Retire Before Mom and Dad for a deeper introduction into long-term investing.