Keep It Simple for a Smart Investment Strategy

Physician's Money Digest, January15 2005, Volume 12, Issue 1

Kiplinger's

Keep it simple, that's what thisage-old expression advises us todo as investors. You work hardfor your money, but you shouldn't haveto work hard at investing those funds. Infact, according to an article in, the more hoops you have tojump through, the less likely you are tocarry through with an investment plan.

And, as physician-investors have foundout since the end of the 1990s, when muchof investing was a spectator sport, successfulinvesting takes time and requires hardwork. With a career and family to consider,it's difficult at best to make that time commitment.Here are some simple investmentplans that will allow you to handle yourown investments without having to devotecountless hours to the process.

Broad Index Funds

Kiplinger's

The first step, according to thearticle, is to consider investingin index funds. They are the broadestcategory of simple investments. A reviewof the S&P 500, which measures large-companyperformance, and the Russell2000, a small-company index, shows solidreturns over the long haul. And, becauseindex funds tend to trade stocks onlywhen the index changes, your tradingcosts are kept to a minimum.

As for which index fund to choose,the article suggests physician-investorsconsider Vanguard's Total Stock MarketIndex. The fund charges only 0.2% a yearin fees. And since it mirrors the Wilshire5000 index, you're mirroring virtually theentire US stock market—large cap, smallcap, growth, and value. To round outyour portfolio, a solid bond fund is anappropriate choice.

One Fund, Period

If you really want to keep things simple,consider target-maturity funds. Thesefunds regularly adjust the asset allocationin your portfolio based on your time andinvestment horizon. For example, as youdraw nearer to a goal, such as retirementor college funding, the mix becomesincreasingly more conservative. There's noneed to worry about whether or not youneed to rebalance your portfolio.

Most of these funds are relativelyyoung, so there's not much of a trackrecord to point to. They are, however,becoming increasingly popular withinvestors who value their retirementassets but don't have much time todevote to managing them. Vanguard'sTarget Retirement 2025 fund and the T.Rowe Price Retirement fund are twopopular investment vehicles in this categoryworth considering.

Managed 401(k)s

If you really crave simplicity, you'll behappy to know that managed 401(k)accounts are also becoming popular.According to the article, these retirementaccounts offer "a turnkey savingssolution that does all but spend themoney for you."

To take advantage of a managed401(k), simply check the box on yourenrollment form, supply some informationabout assets and retirement plans, andyou'll be automatically invested in a diversifiedmix of funds that match your goals.With some managed 401(k) accounts,contributions can be set to automaticallyincrease each year up to a preset maximum.Then, as your retirement drawsnear, your investments automaticallyturn more conservative.

Perhaps the best news is that the costof these managed accounts runs anywherefrom 0.1% to 0.8% of assets.Compared with the 1% of assets thatmany private money managers charge,that's a bargain.