What is a typical investment portfolio made up of?
Most people carry a diversity of stock, bond, and commodities in their portfolio.  The ratio and types of these investments should be based on your goals and risk tolerance.  I personally choose to manage mine through mutual funds which combine the three, but ETFs are also becoming popular. As for where you keep your portfolio, it depends on what you're investing for.  If you're investing for retirement you are definitely best to keep as much of your investment as possible in 401k or IRAs (preferably Roth IRAs).  Many advisers suggest contributing as much to your 401k as your company matches, then the rest to IRA, and if you over contribute for the IRA back to the 401k.  You may choose to skip the 401k if you are not comfortable with the choices your company offers in it (such as only investing in company stock). If you are investing for a point closer than retirement and you still want the risk (and reward potential) of stock I would suggest investing in low tax mutual funds, or eating the tax and investing in regular mutual funds.  If you are going to take money out before retirement the penalties of a 401k or IRA make it not worth doing. Technically a savings account isn't investing, but rather a place to store money. Paying off the high-interest debt is a good first start. Paying interest, or compound interest on debt is like paying somebody to make you poor. As for your 401k, you want to contribute enough to get the full match from your employer. You might also consider checking out the fees associated with your 401k with an online fee analyzer. If it turns out you're getting reamed with fees, you can reduce them by fiddling with your investments. Checking your investment options is always a good idea since jobs frequently change them. Opening an IRA is a good call. If you're eligible for both Roth and Traditional IRAs, consider the following: Most financial institutions (brokers or banks) can help you open an IRA in a matter of minutes. If you shop around, you will find very cheap or even no fee options. Many brokers might try to get your business by giving away something for ‘free.' Just make sure you read the fine print so you understand the conditions of their promotional offer.  Whichever IRA you choose, you want to make sure that it's managed properly. Some people might say, ‘go for it, do it yourself’ but I strongly disagree with that approach. Stock picking is a waste of time and market timing rarely works.  I'd look into flat fee financial advisors. You have lots of options. Just make sure they hear you out, and can design/execute an investment plan specific to your needs At a minimum, they should: Hope this is helpful. "An investment portfolio is typically divided into three components: All three of those can be accessed through mutual funds or ETFs. A 401(k) will probably have a small set of mutual funds for you to pick from. Mutual funds may charge you silly expenses if you pick a bad one. Look at the prospectus for the expense ratio. If it's over 1% you're definitely paying too much. If it's over 0.5% you're probably paying too much. If it's less than 0.1% you have a really good deal. US stocks are generally the core holding until you move into retirement (or get close to spending the money on something else if it's not invested for retirement). International stocks are riskier than US stocks, but provide opportunity for diversification and better returns than the US stocks. Bonds, or fixed-income investments, are generally very safe, but have limited opportunities for returns. They tend to do better when stocks are doing poorly. When you've got a while to invest, you should be looking at riskier investments; when you don't, you should be looking for safer investments. A quick (and rough) rule of thumb is that ""your age should match the portion of your portfolio in bonds"". So if you're 50 years old and approaching retirement in 15 years or so, you should have about 50% in bonds. Roughly.  People whose employment and future income is particularly tied to one sector of the market would also do well to avoid investing there, because they already are at risk if it performs badly. For instance, if you work in the technology sector, loading up on tech stocks is extra risky: if there's a big bust, you're not just out of a job, your portfolio is dead as well. More exotic options are available to diversify a portfolio: While many portfolios could benefit from these sorts of holdings, they come with their own advantages and disadvantages and should be researched carefully before taking a significant stake in them." Don't over think about your choices. The most important thing to start now and keep adjusting and tuning your portfolio as you move along in your life. Each individual's situation is unique. Start with something simple and straight forward, like 100 - your age, in Total Stock market Index fund and the remaining total bond market index fund. For your 401k, at least contribute so much as to get the maximum employer match. Its always good if you can contribute the yearly maximum in your 401k or IRA. Once you have built up a substantial amount of assets (~ $50k+) then its time to think more about asset allocation and start buying into more specific investments as needed. Remember to keep your investment expenses low by using index funds. Also remember to factor in tax implications on your investment decisions. eg. buying an REIT fund in a tax advantaged account like 40k is more tax efficient than buying it in a normal brokerage account.
Very rarely would an investor be happy with a 4% yield independent of anything else that might happen in the future. For example, if in 3 years for some reason or other inflation explodes and 30 year bond yields go up to 15% across the board, they would be kicking themselves for having locked it up for 30 years at 4%. However, if instead of doing that the investor put their money in a 3 year bond at 3% say, they would have the opportunity to reinvest in the new rate environment, which might offer higher or lower yields. This eventually leads fixed income investors to have a bond portfolio in which they manage the average maturity of their bond portfolio to be somewhere between the two extremes of investing it all in super short term/ low yield money market rates vs. super long term bonds. As they constantly monitor and manage their maturing investments, it inevitably leads them to managing interest rate risk as they decide where to reinvest their incremental coupons by looking at the shape of the yield curve at the time and determining what kind of risk/reward tradeoffs they would have to make. "An emergency fund is very well defined, both on this site and across the web.  An emergency fund is a cash account where you keep money for emergencies so you don't need to take on debt like a loan or credit cards. Car breaks down? emergency fund can help pay that. Lose your job? The emergency fund is there to pay rent and for groceries until you're back up an running. There are several schools of thought on how much money should be in your emergency fund, but it boils down to how high your risk assessment is. Typically, the average is to have 3 months in cash available at all times (like in a savings account). It'd be better to have more, but that's a typical goal. You're also asking about investments in the comments. An emergency fund should be readily available. If you already have $10K in savings, set aside what you would need to cover a few months of bills into a cash-ready savings account, then invest the rest. Investments sometimes take time, or have penalties, if you withdraw them. Additionally, as @JoeTaxpayer so correctly pointed out, getting into the habit of maintaining a separate emergency fund helps protect your other investments from becoming a crutch and instead used to save up for larger things like a house or, especially, retirement.  See also: What expenses should be covered by an emergency fund What should I reserve ""emergency savings"" for? What expenses do most people not prepare for that turn into ""emergencies"" but are not covered by an Emergency Fund? Less than a year at my first job out of college, what do I save for first?" "To answer your question directly..  you can investigate by using google or other means to look up research done in this area.  There's been a bunch of it Here's an example of search terms that returns a wealth of information. effect+of+periodic+rebalancing+on+portfolio+return I'd especially look for stuff that appears to be academic papers etc, and then raid the 'references' section of those.  Look for stuff published in industry journals such as ""Journal of Portfolio Management"" as an example. If you want to try out different models yourself and see what works and what doesn't, this Monte Carlo Simulator might be something you would find useful The basic theory for those that don't know is that various parts of a larger market do not usually move in perfect lockstep, but go through cycles.. one year tech might be hot, the next year it's healthcare.  Or for an international portfolio, one year korea might be doing fantastic only to slow down and have another country perform better the next year.    So the idea of re-balancing is that since these things tend to be cyclic, you can get a higher return if you sell part of a slice that is doing well (e.g. sell at the high) and invest it in one that is not (buy at the low) Because you do this based on some criteria, it helps circumvent the human tendency to 'hold on to a winner too long' (how many times have you heard someone say 'but it's doing so well, why do I want to sell now""? presuming trends will continue and they will 'lose out' on future gains, only to miss the peak and ride the thing down back into mediocrity.)  Depending on the volatility of the specific market, and the various slices, using re balancing can get you a pretty reasonable 'lift' above the market average, for relatively low risk. generally the more volatile the market, (such as say an emerging markets portfolio) the more opportunity for lift. I looked into this myself a number of years back, the concensus I came was that the most effective method was to rebalance based on 'need' rather than time.  Need is defined as one or more of the 'slices' in your portfolio being more than 8% above or below the average.  So you use that as the trigger. How you rebalance depends to some degree on if the portfolio is taxable or not.  If in a tax deferred account, you can simply sell off whatever is above baseline and use it to buy up the stuff that is below.   If you are subject to taxes and don't want to trigger any short term gains, then you may have to be more careful in terms of what you sell.  Alternatively if you are adding funds to the portfolio, you can alter how your distribute the new money coming into the portfolio in order to bring up whatever is below the baseline (which takes a bit more time, but incurs no tax hit)  The other question is how will you slice a given market?  by company size?  by 'sectors' such as tech/finance/industrial/healthcare, by geographic regions?" "I don't like buying individual bonds for my own portfolio.  I actually used to buy long-term government strip bonds (Canadas or provincial bonds) but I stopped.  Here are some reasons why: My broker allows me to purchase bonds via their web application.  However, to sell a bond, I had to call in to the fixed-income trading desk.  That was inconvenient.  (But your broker may be different.) Bonds don't typically trade on a formal exchange.  So, there's no cheap & easy way (as far as I know) to get an independent quote for a bond's value – I had to trust what my broker said my bond was worth when assessing my portfolio performance.   I asked my broker once how they arrive at the ""market value"" shown – i.e. whether it was last bid, ask, or actual trade – and I was told they use a third party bond quotation / valuation information provider for the data, and that quotes are an estimate of what the bond would be worth, based on similar bonds.  I quickly learned that wasn't the value I could actually get when selling it: When you're dealing with your broker to buy and sell bonds, you're likely dealing with theirs or a related investment bank which makes a market for specific issues of bonds.  While I wasn't being charged an explicit commission to buy or sell bonds, it was evident the broker makes money off the spread:  That is, the difference between what they would be willing to sell a bond for and what they would be willing to buy that same bond for.  They will buy your bond back from you cheaper than what they could turn around and sell it to somebody else for.  That's why they don't charge an explicit commission... it's built in and hidden! Anyway, when I finally discovered my broker would seldom actually offer me the ""market value"" quoted for my bonds (typically, it would be bought back for a few percent less than it were theoretically worth), I gave up.  I don't think bonds simply are liquid enough, nor the costs transparent enough for retail investors.  (Or maybe it's just me :-) However, I do think bonds remain an important part of a diversified portfolio:  Bonds ought to be represented in a diversified portfolio using low-cost bond index mutual funds or exchange-traded funds.  Since these funds buy & sell bonds in large quantities, they get a better deal on the spreads.  So, while you do pay an explicit management fee for a fund, you are probably saving since you're not getting shafted on the spreads." "Modern portfolio theory dramatically underestimates the risk of the recommended assets.  This is because so few underlying assets are in the recommended part of the curve.  As investors identify such assets, large amounts of money are invested in them.  This temporarily reduces measured risk, and temporarily increases measured return.  Sooner or later, ""the trade"" becomes ""crowded"".  Eventually, large amounts of money try to ""exit the trade"" (into cash or the next discovered asset).  And so the measurable risk suddenly rises, and the measured return drops. In other words, modern portfolio theory causes bubbles, and causes those bubbles to pop. Some other strategies to consider:" A classic text on growth stock picking is Common Stock and Uncommon Profits By Philip Fisher, with a 15 point checklist.  Here is a summary of the list that you can check out. "There are probably 3-4 questions here.  Diversification - A good index, a low cost S&P fund or ETF can serve you very well. If you add an extended market index or just go with ""Total market"", that might be it for your stock allocation. I've seen people with 5 funds, and it didn't take much analysis to see the overlap was so significant, that the extra 4 funds added little, and 2 of the 5 would have been it. If you diversify by buying more ETFs or funds, be sure to see what they contain.  If you can go back in time, buy Apple, Google, Amazon, etc, and don't sell them. Individual stocks are fun to pick, but unless you put in your homework, are tough to succeed at. You need to be right at the buy side, and again to know if, and when, to sell. I bought Apple, for example, long ago, pre-last few splits. But, using responsible a approach, I sold a bit each time it doubled. Has I kept it all through the splits, I'd have $1M+ instead of the current $200K or so of stock. Can you tell which companies now have that kind of potential for the future?  The S&P has been just about double digit over 60 years. The average managed fund will lag the S&P over time, many will be combined with other funds or just close. Even with huge survivor bias, managed funds can't beat the index over time, on average. Aside from a small portion of stocks I've picked, I'm happy to get S&P less .02% in my 401(k). In aggregate, people actually do far worse due to horrific timing and some odd thing, called emotions." Depends on the fund. If it's a Target Date fund, which is inherently diversified, this comes down to how much you trust the investment house to not go belly-up. If it's another kind of fund, you need to manage your own duversification and occasional rebalancing.  Most of my money is in index funds (details elsewhere), but that's five or six very different indexes to cover the investment space with the mix of investment types I've selected. And most of it is in a single family of funds, which might be argued to be higher risk than desirable but which has been convenient.