Index and a Few

The “index and a few” strategy is a way to use the index fund strategy and then add a few small positions to the portfolio. For example, you might have 94 percent of your money in index funds and 3 percent in each of Apple and Amazon. This is a good way for beginners to keep to a mostly lower-risk index strategy but add a little exposure to individual stocks that you like.

Advantages: This strategy takes the best of the index fund strategy – lower risk, less work, good potential returns – and lets the more ambitious investors add a few positions. The individual positions can help beginners get their feet wet on analyzing and investing in stocks, while not costing too much if these investments don’t work out well.

Risks: As long as the individual positions remain a relatively small portion of the portfolio, the risks here are mostly the same as buying the index. You’ll still tend to get around the market’s average return, unless you own a lot of really good or poor individual stocks. Of course, if you’re planning on taking positions in individual stocks, you’ll want to put the time and effort into understanding how to analyze them before you invest. Otherwise, your portfolio could take a hit.