STEP 6  
Diversify your stock mutual funds among
large-cap, small-cap, and international, funds; and the
mix of index funds, actively managed funds, and
individual stocks that makes sense for you:
- Large-capital funds invest in
staid, stable, large United States Companies,
small-capital funds in small U.S. companies, and
international funds in non-U.S. companies
- Actively managed funds seek to
actively beat the market; index funds are
passively set to track the market
- Surprisingly, index funds
usually outperform actively managed funds over
the long term, especially for less experienced
investors
- For simplicity, the portfolios
at right show only stocks and stock funds for
investors with long time horizons; recall that
once you turn 45, invest 2% of your portfolio's
worth each year into bonds—and a smart way
to do that would be a broad bond index fund with
a low expense ratio
NEXT
STEP
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The
index portfolio
The best choice for most people.
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The
actively managed portfolio
You believe you can find actively managed funds
that will beat the market.
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The
individual stock portfolio
You believe you can beat the market by picking
individual stocks.
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| "Indexing
is a smart way to approach investing." - Burton Malkiel, A Random
Walk Down Wall Street
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