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A good portfolio in three easy pieces

Q: I am 67, retired and trying to build a simple portfolio that I can use for the next 20 to 25 years. I am looking to put my money into index funds and to rebalance yearly. Wondering if this makes sense: Fidelity Spartan Total Market Index Fund, 40 percent; Fidelity Spartan International Index, 20 percent; and Fidelity Spartan US Bond Index, 40 percent. All investments would be in their very low expense Advantage shares.

A: Yes, it makes sense. What you are proposing is to use the major home-grown index funds at Fidelity to build a traditional balanced, 60/40 equities/fixed-income portfolio at very low cost.

By reducing domestic equity holdings from 60 percent to 40 percent and substituting 20 percent international equities, you are getting some diversification that you would otherwise not have. That said, the portfolio would still be considered a U.S.-centric portfolio since domestic equities are overweighted relative to developed country international equities.

Will it be a top-of-the-scale, world-beating portfolio? No, but its very low expense level will put the performance wind at its back. With an average expense just under 0.1 percent, most of the return on your money will be going in your pocket.

One advantage you will enjoy by managing your own portfolio of three funds is that you’ll be able to make annual rebalancing buy-and-sell decisions that will help you avoid selling depressed assets at low prices.

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