Smart Advice for the HuffPost Investor: A Billion Dollar Idea. My Gift to the Securities Industry. Any Takers?

06/04/2008 08:25 am ET | Updated May 25, 2011

Question: Why is investing so complicated?

Answer: Because the securities industry benefits from convincing you that you need the assistance of its "investment professionals" to deal with this contrived complexity.

Smart Investing is really very simple:

Determine your asset allocation. Invest in a globally diversified portfolio of low cost index funds. I provide details in my blog, It's So Easy Your Broker Could Do It!

In my book, The Smartest Investment Book You'll Ever Read, I set forth four portfolios: Low Risk, Medium-Low Risk, Medium High Risk and High Risk. One of them is suitable for the vast majority of investors. Each one involves the purchase of only three index funds: a broad domestic stock index fund, a broad international stock index fund and a short or intermediate term bond index fund. I call these "Smart Investor" portfolios.

Based on historical data, these simple portfolios have outperformed 95% of professionally managed money.

Tens of thousands of readers got the message and made these changes to their portfolios. But they represent only a drop in the bucket of hyperactive, returns chasing investors, egged on by their "market beating" brokers and advisors.

Recently, investing just became even easier for Smart Investors.

Barclay's has launched the iShares MSCI ACWI Fund (ACWI). This fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI All Country World Index. It has a very reasonable expense ratio of 0.35%, compared to the 1.50% expense ratio of many hyperactively managed funds.

One fund. Broad exposure to the world's markets. No need to buy a domestic fund and an international fund. Now Smart Investors need to purchase only two funds instead of three.

It is not perfect. It holds only 694 stocks from the 2,736 stock index. But it provides global exposure to the world's markets in way that was previously unavailable to all but the most sophisticated investors.

Both Vanguard and Northern Trust have announced plans to launch similar funds.

While world index funds are a step in the right direction, Smart Investing is still too complex for most hard working Americans. They have to buy two or three funds, and resist the sales pitch of "investment professionals" who try to lure them into expensive, underperforming, hyperactive funds. Then they have to rebalance their portfolios periodically to preserve the integrity of their asset allocations.

Here is my billion dollar idea for the securities industry.

What if an enterprising fund family, who really cared about the financial health of its clients, marketed four Smart Investor ETFs? One would correspond to each of the four risk profiles that fit most investors.

These ETFs would consist of an all world index fund, like the iShares MSCI ACWI Fund, and a bond index fund that benchmarks the Citigroup World Government Bond Index. These Smart Investor Funds would rebalance automatically.

With the availability of these funds, investors would purchase only one fund. If their investment objectives or tolerance for risk changed, they could purchase another fund with a different risk level.

These investors would have a globally diversified portfolio of stocks and bonds, with very low expenses. Based on historical data, the returns of the average investor would increase by a whopping 200%-300% over the long term.

These funds would be bad news for "investment professionals." Their services would be redundant. No complexities to unravel.

But it would be good news for beleaguered, confused and victimized investors all over the world.

Any takers?

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein.