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The Short Answer

How to Build a Simple, Low-Stress Portfolio

Time-tested strategies again prove their relevance in uncertain markets.

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It has been about a year since subprime contagion swept the nation, and what a year it's been. We've seen a gold rally, fast and deep interest-rate cuts, and oil prices that remain stubbornly near all-time highs. The uncertainty has taken its toll on stock markets: From May 2007 through April 2008, the S&P 500 lost about 4.7%. Much of the pain came in this year's first quarter, the index's worst in more than five years.

This return of heightened volatility in both stock and bond markets has prompted a lot of worried questions from our readers regarding what kind of overhaul might be appropriate for their portfolios. But making big adjustments to your portfolio based on short-term market news is rarely a good idea. Instead, investors attempting to get their sea legs amid all the volatility should focus on building simple portfolios that can withstand market ebbs and flows.

Two Assumptions
I made a few assumptions as I went about suggesting simple portfolios. The first is that investors have fairly long time horizons of 10 years or more and are comfortable weathering the periodic ups and downs of equity investing. The portfolios therefore have fairly aggressive asset allocations: 50% to 60% in U.S. equities, 30% to 40% in international equities, and 10% to 20% in bonds.

Andrew Gunter does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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