The New Savage Number: How Much Money Do You Really Need to Retire?

Chapter 9. BEYOND THE BASICS

The core of your long-term stock market investments should be a mutual fund that holds a diversified portfolio of large company stocks, such as an S&P 500 index fund. But as you learn more about investing, you'll want exposure to other areas of the market—perhaps small company stocks or international stocks—to further diversify your holdings. You might want to add gold or real estate to your holdings, or place a special emphasis on energy or biotech, or on shares from one foreign country or another specific sector of the market. And maybe you don't want all of your investments denominated in dollars.

While you might seek diversification through some of these opportunities, your investments may not always be made through the choice of individual stocks or traditional mutual funds. Instead, you might choose a different vehicle, such as an exchange-traded fund (ETF) as described next.

You could use options instead of stocks to own shares for a limited period of time. Options have multiple uses, even allowing you to gain income and protect your investments in a market decline—or to profit from your belief that the market will fall.

If you're willing to accept more risk, you could even decide to trade futures on commodities and financial trends, such as interest rates or currencies. Futures give you more leverage—the chance to make more money on the upside, or to lose more on the downside. There are even options on futures!

If you're thinking that investing has ...