- Pick an asset allocation model - This can be done inside or outside the brokerage firm you use ( assuming they offer it). The advantage of using the brokerage firm model is that everything is in one place.
- Choose investments - I prefer low-cost index funds but also allow for some individual stock investing. Either way, it is crucial to have a handle on how well diversified the portfolio is and how the investments fit in the overall allocation.
- Monitor the portfolio - Keep track of the allocation over time. This will enable you to rebalance when appropriate. The rule you use is up to you. At the outside, I rebalance automatically when the targeted allocation to an asset class is 5% away from target. Monitoring the portfolio also involves tracking performance relative to a well-defined benchmark.
How will you do performance wise? Well, no one can guarantee future results; but numerous studies have demonstrated that an approach that minimizes costs and is well diversified has outperformed approximately 80% of active professional managers over the long term, after accounting for all costs. Furthermore, the evidence shows that it is impossible to select the active managers ahead of time that will "beat the market."
There is, of course, more to the financial picture than managing investments. For the additional information, most individuals should consult with a financial planner. A good plan will run about $2,500 and will look at your insurance needs, financing college, estate planning, and even investments. It will go over location of investments, what you need to know to roll over accounts, and things like titling inherited accounts. Once a bit of complication enters your financial life, a plan is worth getting.
For many people, the best route is to pay for the plan and save on the investment management side. A couple of good books for those who like to read up on retirement planning (not a bad idea before meeting with a planner):