This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

International Diversification

As you saw in the box, there are a vast array of funds offered by Vanguard in some places.  However, you’ll only need one or two of these funds to achieve all the share market diversification you need, plus perhaps a bond index fund as discussed earlier.  Ignore all the weird and wonderful specialty funds. 

Should you diversify your shares by investing in overseas stock markets, or stick with those in your own country?  For example, take Steve, an Australian investor.  Should he invest entirely in the Australian Shares Fund (which tracks the ASX 300), or should he also have some exposure to the International Shares Fund (which tracks several major indexes for overseas stock markets)?

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Why Index Funds are Good

An index fund, sometimes called a ‘passively managed fund’, is another type of mutual fund like an actively managed fund except that instead of a hopefully clever human, an algorithm does the investing for you.  It blindly invests in the whole market, attempting to track a stock market index . . .

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Ethical investments

There are some managed funds that endeavor to match your values.  These are generally known as ‘ethical investment funds’. 

Some avoid investing in things you don’t like such as weapons, tobacco, abortion services, alcohol, gambling, carbon-emitting industries, genetically engineering crops, or whatever.  This is called ‘negative screening’.  Others actively seek out companies doing things you approve of like developing clean energy or being socially responsible.  This is called ‘positive screening.’ [i]  There are some funds that do both.

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Edit: Book-exclusive content discusses what percentage of your money might go towards cash, bonds and shares depending on your personality and risk profile. What follows are concrete examples to show how that can work.

Some Sample Asset Allocation Strategies

This is for someone who has recently started working, is not risk averse and who is saving for retirement in the distant future: