It's summertime, and if you're like most people, just about the last thing you want to deal with is your money. But I have great news -- it's time to employ the KISS method of financial management . . . you know, K-I-S-S or, in unvarnished language, "Keep It Simple, Stupid!"
KISS is the perfect mantra for summer finances. Start with savings: If you're putting away $50 dollars a month, bump it up to $60 dollars -- that's an automatic 20 percent increase.
If you are still chipping away at your debt, do the same thing: Increase the amount of money you are putting toward your outstanding credit card balance and/or auto loan, so you can pay them down faster.
Next up, once and for all, automate your banking. Have all of your income directly deposited into bank accounts; establish automatic bill pay for recurring bills; and pay the rest of your bills online. The time you save can be better spent outside, enjoying summer.
For those who just aren't going to take the time to create a diversified asset-allocation plan, here's your summertime shortcut: Subtract your age from 110, and put that percentage of your investments in risky assets, like U.S. stocks, international stocks or commodities. The remaining amount represents the percentage that can go into less volatile assets like cash and bonds.
If you are still an active participant in a retirement plan, you may have the option to auto-rebalance, which will keep your allocation in line on a periodic basis -- and choose quarterly rebalancing to make your life that much easier.
Please know that this formula is not my preference, but I am willing to acknowledge that you may not be in the mood to get down to business right now. If I am wrong, and you are ready to get to work, a recent white paper from Vanguard outlined six key components to creating a diversified portfolio. But since it's summer, I can boil it down to four:
Define investment goals and constraints Most investment objectives are straightforward, like "save for retirement" or "preserve assets for heirs," but when there are multiple objectives, this step gets trickier. However, it is important to prioritize your goals, which is where many people run into roadblocks.
This gets especially thorny if you and your spouse have different ideas about whether to save for retirement or help your kids or grandkids pay for college. For the record, I am a fan of securing retirement before saving for college.
Create a broad strategic allocation Broad allocation does not mean a lot of different stock mutual funds; it means putting a plan together that encompasses various asset classes, such as stocks, fixed income, commodities, real estate and cash. Studies have shown that asset allocation is responsible for the vast majority of a diversified portfolio's return patterns over time.
Further delineate allocation with sub-asset allocation within classes Within the broad categories, investors should include both U.S. and international stocks, mid- or small-capitalization stocks, as well as different types of bonds. Pay attention to whether you are selecting assets for a taxable or a tax-advantaged account when choosing the sub-assets.
Allocate to indexed and/or actively managed assets For regular readers of this column, you know that I prefer index funds or index exchange-traded funds (ETFs) to actively managed funds or to individual securities. The reason is clear: It is very difficult to beat the index after factoring in costs and fees, and it's awfully hard to build a portfolio of individual securities that is properly diversified.
The good news on this front is that you can skip Vanguard's step of selecting individual managers, funds or securities to fill your allocations.
Building a diversified portfolio is definitely not as much fun as building sand castles, but if you have the energy to do it, what you create will last well beyond the next high tide.
Jill Schlesinger, a certified financial planner, is a CBS News business analyst. She welcomes emailed
comments and questions.