There’s a huge bargain in stocks these days, but you’re unlikely to hear much about it.

I’m not talking about individual stocks, but rather a globally diversified portfolio of stocks and bonds, which is the way you should be investing.

Bad odds

Much of the financial media focuses on identifying “mispriced” individual stocks, but this is largely a fool’s errand.  You could get lucky, but the odds are against you.

All information about publicly traded stocks is instantly disseminated to millions of traders all over the world.  The price of stocks reflects this information.  Consequently, it’s a fair price.  What will affect the price of stocks is tomorrow’s news.  No one knows what that news will be.  That’s why stock picking makes no sense.

Diversify inexpensively

You can easily diversify away from the substantial risk of owning individual stocks.  The easiest way to do so is by purchasing an index fund or exchange-traded fund that owns a large number of stocks.  You’re in luck if you want to follow this prudent strategy because there’s a price war among the big fund families.  You can be the beneficiary.

Here are some great “buys”:

You can own a basket of 2500 of the largest publicly traded U.S.  companies at a cost of only 0.03%, by purchasing Schwab’s US Broad Market ETF (SCHB).

Do you want more diversification that gives you exposure to both U.S. and international stock markets?  Then consider Vanguard’s Total World Stock ETF (VT).  It tracks a market-cap-weighted index of global stocks covering 98% of the domestic and emerging market capitalization.  Its expense ratio is only 0.11%.

Are you looking for one fund that will give you a globally diversified portfolio of stocks and bonds.  Consider one of Vanguard’s LifeStrategy Funds. You can choose from a range of asset allocations, suitable for conservative, moderate risk or aggressive investors.  These funds automatically rebalance.  The average expense ratio is a modest 0.14%.  

For many, one of the LifeStrategy funds is the only investment you’ll need to make.

Focus on asset allocation

Of course, no one knows whether the stock market will take off or tank (although many claim this ability).  Buying the funds recommended here won’t protect you in a downturn.  That’s why you need to be sure you have a well thought out plan you can stick to through the ups and downs of the market.  The most critical aspect of your plan is your asset allocation (the division of your portfolio between stocks and bonds).  Be sure you have enough bonds to mitigate volatility and to provide liquidity so you don’t have to sell stocks at a loss.

Ignore the noise and frenzy touting which stocks to buy or short.  Instead, keep your costs low by taking advantage of these sales of funds that will provide you with a diversified portfolio of stocks or a balanced mix of stocks and bonds.

Resource of the week

This article on Investopedia discusses the benefits of balanced funds.