As I put together my portfolio — which is now 65 percent stocks, 30 percent intermediate-term bonds and 5 percent cash — the vast majority of everything I own is still in index funds. They are passively managed, meaning that neither I, nor the fund manager need to do a thing. No frequent trading is required.
Back in the late 1980s, when I told my father that I was investing in index funds, he was horrified.
“If you just match the benchmark, you are getting an average return. Why would you ever want to be average?” he asked.
“Well, Dad, that still would put me ahead of most active investors.”
“Yes, but certain people do outperform the averages. I plan to be in that group.”
Certainly people do outperform the market, but I don’t know of many who do so consistently. My father wasn’t one of them.
Here is what I am doing to keep from shooting myself in the foot.
While it would be nice to think I could set up my portfolio properly and then forget about it, the world is not that simple. A sudden surge in stock prices could lead me to have more money than I would like in equities, for example. Conversely, a drop in prices could result in my having too high a proportion of my money in bonds.
But to make sure I don’t fiddle excessively with what I own, which could generate trading expenses as well as taxes, I have decided I will only make investment decisions twice a year: On Jan. 1 and my birthday, July 15. (I would have made it June 30, but this way I won’t forget.)