Building A Successful Investing Plan Is Like Building A Sandwich

Building a successful investing plan is like building a hero sandwich: stick with basic ingredients and don’t get too fancy.

- Anne Kates Smith and Daren Fonda

Investors sometimes think they need a secret recipe to succeed. But for most people, there’s no big secret: Adhering to a few basic principles will serve you well regardless of where the markets are headed next week or next year, or whether or not you suss out Silicon Valley’s next big thing. // When it comes to finding the best ingredients for healthy gains over the long haul, selecting the right mix of assets, for example, trumps choosing a particular stock or mutual fund. You’ll do better by keeping your investments simple and your costs low than by dabbling in more-exotic fare or chasing after the hot fund manager du jour. If you can start setting aside money when you’re young, you’ll have enough to accommodate a more sophisticated palate later. And for gosh sakes, don’t let Uncle Sam take too big a bite out of your profits.

SPREAD YOUR INVESTMENTS

Diversifying your holdings increases the chances that when one or more of your investments are struggling, others will be performing well. “If you could time markets perfectly, that would be best,” says Maria Bruno, a strategist at the Vanguard Group. “But that’s hard to do, so diversification comes into play.”

Think of your investments as a smorgasbord. You’ll want to spread your wealth among stocks, bonds and other assets, a process known as asset allocation. Although investors tend to hem and haw about whether to buy this stock or sell that fund, research shows that 88% of a portfolio’s ups and downs over time are explained by its asset allocation; only 12% have to do with security selection or market timing. With stocks, you’ll want to consider different investment styles, company sizes, industries and countries. With bonds, go for varying maturities and levels of credit risk.