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MFI

THE MODEL PORTFOLIO
The #1 Armchair Investing Strategy
It's simple, it's logical, and it will make you a millionaire

After all of their discussions, John has concluded that Lewis and Lynette are perfect candidates for the #1 Armchair Investing Strategy.

So, what is the #1 Armchair Investing Strategy? It's a simple approach that uses just three mutual funds. Each of the funds is a stock market fund (also known as an "index fund") that is designed to be representative of a particular sector of the market. The three funds that are used in the strategy are:

Any mutual fund that mimics the Standard & Poor's 500 Index (also known as the S&P 500).
Any mutual fund that mimics the Russell 2000 Index of small-cap stocks.
Any mutual fund that mimics the Morgan Stanley EAFE Index (pronounced "eefah"), an index of stocks in Europe, Australia and the Far East.

How much money is invested in each fund? That's the simplest part of the #1 Armchair Investing Strategy -- an equal portion in each! For every $1,000 that Lewis and Lynette invest in the #1 Armchair Investing Strategy, they put $333.33 in each market fund.

John: I love the term "Armchair Investing" because it accurately describes how simple it is to implement #1 Armchair Investing Strategy. What it fails to do is capture the amount of data, academic research, and long-term success that lies behind this basic strategy. Without exception, when I tell people what the #1 Armchair Investing Strategy is, they are underwhelmed. But they become totally satisfied as time goes by.

What could be easier?

Questions:

What is the asset allocation strategy suggested in this article? Is it likely to lead you to an optimally diversified portfolio? Why or why not?
How would you modify this strategy to make it more diversified?
Will this strategy lead to a portfolio that has lower "risk" or greater "risk" than a portfolio that invests only in the S&P 500? Explain.