How I’d Invest $20,000 Today if I Had to Start From Scratch

One of the biggest hurdles new investors need to overcome is the question of “where do I start?” And while there isn’t any perfect way to start investing that applies to everyone, there are some general guidelines that could be helpful. So, for the sake of this article, I’ll pretend that I’m starting my investment portfolio today and have $20,000 to put to work.

To be perfectly clear, this isn’t personal financial advice, and what is an appropriate investment plan for me might not be appropriate for you. Having said that, if I were to start investing today and had $20,000 to deposit into a brokerage account, my general strategy would be:

  1. 50% into low-cost index funds
  2. 40% into rock-solid stocks
  3. 10% in cash

Let’s unpack each of these.

Index funds (50%)

I own about 40 different stocks, so I clearly believe in the potential of investing in individual businesses. However, I also think that it’s a good idea to form a solid backbone to your investment portfolio, and allocating some of your money to low-cost index funds is a great way to do it.

My personal favorite is the Vanguard S&P 500 ETF (VOO 1.46%), which simply tracks the performance of the S&P 500 benchmark index. Over the long term, the S&P 500 has produced total returns of about 10% annually, so index funds based on it can be a great way to build wealth while still allowing you to sleep at night.

Great starter stocks (40%)

While I have around 40 different stocks now, not all of them would make excellent “starter stocks” if I were just getting my portfolio together. You can add some more adventurous stocks later, but for new investors, the best candidates are time-tested businesses with excellent track records of success, and room to grow in the future.

Looking at my own portfolio, I can give a few examples of great stocks to get started with. Berkshire Hathaway (BRK.A 0.75%) (BRK.B 1.27%) is a conglomerate that’s designed to be a wealth-building machine and has done exactly that for investors for nearly 60 years, since legendary investor…

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