Sound Mind Investing's Just-the-Basics Strategy (And Giveaway!)

The following is a guest post from Sound Mind Investing. For more on SMI, see my review of their book and their website. Also check out the end of this post to win a free one-year subscription to their website.

Now that we've discussed the foundational steps to becoming a successful investor and explained how to make your most important investing decision, it's now time to talk about a specific investing strategy.

At Sound Mind Investing, we've developed two core strategies. Most of our readers choose one of the other, depending on how much time they want to devote to their investing.

The simpler of the two is what we call Just-the-Basics, a strategy built around the use of "index" funds. Such funds are designed to match the performance of certain stock indexes. For example, an S&P 500 fund is designed to mirror the performance of the large companies that make up the S&P 500 index.

Index funds offer a simple way to match the performance of the overall market or certain parts of the market, such as small companies or "tech" stocks. Rather than trying to "beat" (i.e. perform better) than the market, indexes offer investors a way to match market performance. 

Just-the-Basics calls for using just four specific index funds.  If you choose the right ones (we explain to SMI readers exactly which funds to choose and in what proportion), four funds is all that is required to broadly diversify across the U.S. stock and bond markets, as well as including some international holdings. Vanguard, by the way, is one of the world's largest and most respected investment management companies.

If you're a tax-conscious investor (and it is wise to be one!), you'll appreciate the tax-efficiency of Just-the-Basics. Due to its static portfolio mix, the same index funds can be held for years with only small rebalancing adjustments made once a year. This allows the majority of gains to be deferred for years, and eventually be taxed at lower long-term capital gains rates (assuming that tax laws don't change, which may be quite an assumption).

Just-the-Basics is the epitome of simplicity, taking most people less than an hour per year to administer!
And over the past decade, Just-the-Basics has more than held its own vs. the overall market (as measured by the Wilshire 5000, the broadest measure of U.S. stocks). Typically its returns are within a percentage point or two of the broad market — exactly what we're hoping for with an indexing strategy.

But suppose you want to try to do better than the market? What then? You may be a candidate SMI's Upgrading strategy — an approach that's outperformed the market in 10 out of the past 11 years. Learn more in our next post.

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FMF here again. I am giving away a free one-year subscription to the Sound Mind Investing website. Here's how the giveaway will work:

1. All you need to do to enter is to leave any comment on this post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

2. Sometime next week, I'll select the winner at random and announce the winner on this post.

3. I will email the winner, get their contact information, and arrange for them to receive their prize.

As always, the standard rules apply.

Good luck! Post a comment below for your chance to win!

Comments

[garyatk]

I love SMI! I have never been a subsciber however. I'd love to give it a try!

[TMS]

I'm in! Thank you!

[Matt]

I wasn't familiar with SMI until reading the posts here. I'm definitely interested...

[Anthony]

I would like to try SMI out!

[Bruce Olson]

I want to win

[CJ Bowker]

I'm looking forward to hearing the upgrading strategy. I'm not an overly patient person.

[Gidjin]

Why not. I wonder if I will win.

[Josh Miller]

Thanks

[JH]

I am in.

[Brendan]

Sounds very interesting, I really like the idea

[Crystal]

Sounds good.

[John]

I've been doing the simple approach for years, even thought I spend more than an hour a year. I use Vanguard funds but have chosen a few different types, some growth, some value, some just regular 500 index. Overall, I think I've done at least as good as the general market. Of course I'd like to do better. Please sign me up to win a free subscription ;-)

[Eugene Krabs]

If it's retirement, "just the basics" can be done with something as simple as Target Retirement type funds. Select the age-appropriate fund and buy that.

As for upgrading, well... I don't know what's involved because it requires subscription (which I don't want to pay), but anytime you start talking about perhaps out-performing the market, and you're talking about some pretty dangerous stuff. This is doubly so if you're trying to sell the idea to beginner and/or passive investors for real money.

But who knows, maybe I'm just being too skeptical without taking a good look. But as a fellow passerby who is not trying to sell anything, please remember the well-worn phrase, "Caveat Emptor". Even the brightest minds and best of intentions is not always enough to out-perform the market.

[Jclimber]

I'm in!

[CPA Abroad]

I am in.

[Robd]

Many times simple is better!

[TriWyo]

me too.

[Claudia Jane]

I am also in. Thanks for the opportunity!

[billy]

Thanks for the chance

[SONIA]

I really need to revise my investments since I am now in retirement

[Larn]

Yes, please.

[billyjobob]

OK...sounds good

[Jim]

SMI is a great source for solid financial advice.

[Taryn]

Thanks so much- I would appreciate this.

[Josh Stein]

I win the internets!

[stoihi]

I'm in.

[Eric]

Thanks!

[Ron Couey]

I'd like to win

[Joel]

Count me in again.

[Jennifer E]

Thanks.

[finco86]

The 'Just-the-Basics' portfolio sound a lot like the Second Grader's portfolio from Alan Roth. I have been using that as a blueprint for about a year now. I caught the market at the bottom when I moved my money around to do this and the returns last year were great. I will be interested in how it does going forward.

But I like the idea of someone looking at my mix and giving me advise, so count me in for the giveaway.

[George]

Help, I know I'm way too conservative, and could use some objective guidance. And if its written for a 2nd grader all the better.

[Anastasia]

I'm in!

[Jerry Cowles]

I,ve subscribed in the past and found SMI to be excellent.

[Chris]

I'd like to see that upgrading strategy.

[Benny]

would be neat to try out

[Brian]

I'd like to try this

[Lea Fournier]

The newsletter sounds like a great strategy.

[Hope McCollam]

Would love to win this!

[FMF]

This giveaway is now closed.

The winner is CPA Abroad who posted on January 19, 2010 at 12:12 PM

CPA please email me (see: http://www.freemoneyfinance.com/2005/04/free_money_fina_4.html ) and we'll arrange to get you your prize. Congrats!