Best investment diversification for a trust?

Question

I'm looking for something in detail, ways to invest with a limited amount of risk. I prefer to invest in stocks, bonds, mutual funds, CDs, real estate, and possibly other areas, and I'm wondering is there something close to a formula (percentage of each type) that will work best for someone who only wants to put in about 20 hours per week on the work associated with the investments.

Answer 1

Asset allocation is what you are talking about. See if you've got Warren Bitters' The New Science of Asset Allocation (Glenlake Publishing, 1997). There is also David Martin Darst's The Art of Asset Allocation. So you spend a couple of days reading the books, comparing notes, comparing to your investment objectives, and cook some numbers. After that, you just need to spend a few hours periodically to keep things on path. If you are spending 20 hours a week on one trust, then things are considerably more complex than you are letting on. I could manage periodic purchases of, say, the top 100 most profitable companies on the S&P500, the four most profitable REITs, and ten best offshore ETFs, and the balance in a spread of jumbo CDs and not spend 20 hours a week in an on-going average over the year. If you have periodic payouts, then budget them first from CD interest payments and dividends plus your pre-determined liquidity needs, and let the rest ride to do their work. Obviously, there are items to factor that are bigger than you could explain. Read the books, adjust your allocations, pick some places with value and check periodically to see that they are on track. Good luck.

Answer 2

The most commonly cited rule of thumb is that you should favor relatively risky investments when you're young (stocks) and shift money towards safer investments as you get older or closer to a major expense (retirement, buying a house, etc).

The simplest way to invest in stocks is to buy exchange traded funds or mutual funds-- this allows you to own a little stock in a lot of companies easily, which is relatively safe and saves you the trouble of researching individual stocks. For example the iShares fund (IVV) or the SPDR fund (SPY) hold stock in each of the 500 stocks in the S&P 500, which make up something like two thirds or three quarters of the stock market. Buy either one and you should have a good long term return.

Answer 3

An index fund sounds like it may cover all the bases.