A reader writes in, asking:

“I am getting my financial house in order for the first time. I have no debt and a good income, but have not paid much attention to investing until now. A friend directed me to your blog and to the bogleheads website, but I am finding it all to be overwhelming. Do you have any suggestions for which topics to read about/focus on first?”

The Bogleheads forum is filled with investing enthusiasts. As such, there are several advanced topics that get a lot of discussion there, which most people can safely ignore. For example:

  • Should you use international bonds?
  • Should you use “smart beta” funds?
  • Should you tilt toward small/value/momentum/profitability?
  • Should you include corporate bonds in the portfolio? A TIPS fund?
  • Should the bonds be short-term, intermediate-term, or long-term?
  • How often should you rebalance to your target allocation?

When getting started, most people should ignore all of the above topics and simply start with a “three fund portfolio,” or possibly even a low-cost “all-in-one fund” (e.g., a Vanguard Target Retirement fund).

In fact, most people should never spend any time thinking about the above topics, because:

  1. There’s a limited amount of time that they’re willing to devote to financial planning, and
  2. There are other financial planning topics that are much more important.

For example, all of the following financial planning to-do items are more important than the asset allocation questions listed above.*

  • Basic insurance planning (i.e., making sure you have appropriate health insurance, life insurance if anybody is dependent on you for income, disability insurance unless you’re retired, etc.)
  • Budgeting (i.e., selecting a spending/saving rate that’s appropriate relative to your income/assets)
  • Basic portfolio allocation (i.e., stock/bond allocation, as well as making sure there isn’t too much in one single stock)
  • Basic estate planning
  • Basic tax planning
  • Social Security planning (if near retirement)
  • Minimizing portfolio costs (i.e., making sure to use funds with low expense ratios)

It’s only after taking care of all of these items that it would make any sense to think about things like whether or not your portfolio should include “smart beta” mutual funds. And even for people who have taken care of these other financial planning to-do items, there’s still no need to spend time thinking about all of those advanced asset allocation questions. In nearly all cases, it’s perfectly fine to stick with that simple “three fund portfolio” — or even the single all-in-one fund in some cases.

*I’ve attempted to order this list roughly from highest to lowest priority. The exact order of priority will vary from one person to another though. For example, if you’re unmarried and have no kids, estate planning would be a lower priority than it would be for somebody with children. And estate planning would be an especially high priority for a married couple who each have children from a prior marriage.