For an excellent investment program, use exchange-traded funds (ETFs). They're mutual funds that can be traded during the day. Over the long term, they're less costly than mutual funds.

But do not trade the ETFs I recommend. Just buy them when you get the money, rebalance every year and a day (to avoid short-term capital gains), and otherwise hold for life.

Use double diversity. At the first level, each ETF represents many individual securities. At the second level, the inclusion of different asset classes cuts the risk further. To some extent, the price movements of the various classes do not correlate. As the value of one asset class moves down, the value of another may move up, reducing the volatility of the whole. Surprisingly enough, the total return over the years will be almost as good as that of the best-performing classes, these being the stocks.

Cutting the volatility reduces the inclination to sell when stock prices fall. Nothing hurts long-term results more than moving to cash during bad times. Bad times don't remain bad. As government economic policies improve, which they're doing all over the world, the duration of unfavorable periods is getting shorter.

Here are the asset classes I recommend:

	Big Growth	15%
	Big Value	5%
	Small Growth	7%
	Small Value	3%
	Europe	10%
	Far East	10%
	Emerging Markets	10%
	REIT	20%
	Long Bonds	20%

Investors with substantial assets who don't mind the additional bother might add the following mid-caps to the U.S. stock section. I identify them here with the symbols for both the Vanguard ETFs (3 letters) and Vanguard index funds (5 letters):

	Mid-Cap Growth	VOT & VMGIX
	Mid-Cap Value	VOE & VMVIX

To make room for the mid-caps, invest the 30-percent portion of U.S. stocks as follows:

	Big Growth	10.0%
	Big Value	3.0%
	Mid-Cap Growth	7.5%
	Mid-Cap Value	2.5%
	Small-Cap Growth	5.0%
	Small-Cap Value	2.0%

To find the reasons for these choices, go to the Column section of this website. Under "Selected Columns," read the columns listed in the "Investment Strategy" box. For a more complete explanation, read my McGraw-Hill book, "Understanding Exchange-Traded Funds." You can acquire it here from Amazon. The book received five wonderful endorsements. Unfortunately, the book had room for only one of them. The Amazon website shows all five.

The brokerage firm Foliofn, whose costs are low, is well suited for buying and selling exchange-traded funds. Use the company's "Window Trading," meaning that instead of entering purchases and sales in terms of the number of shares, you enter them in terms of the amount of money. Foliofn handles fractional shares, making the orders come out to the penny. Window Trading is explained in the firm's website www.foliofn.com.

Depending on the security, Foliofn's commissions are either $4 or $5.95 (most likely the former). My recommendations call for 9 investments. Let's say you make all 9 purchases at an average of $5. That's $45. Assume you do nothing for the rest of the year. Foliofn charges inactivity fees of $14.95 per quarter for three quarters, totaling another $45. The total is $90 for the year. On a portfolio starting at $20,000, that's less than 0.5 percent. On $100,000, it's less than 1/10th of one percent. As the account grows, the commissions become less and less important.

Regular Additions

If you're investing earned income as you go along, arrange for Foliofn to pull money automatically out of your bank account monthly or quarterly. Deposit the additions in Foliofn's money market fund and use the spreadsheet to allocate the money to the various investments. But to keep the commissions under 1 percent, accumulate money in the money fund until the investments to each ETF exceed $500.

Your allocations using the spreadsheet rebalance the portfolio, making additional annual rebalancing (see below) unnecessary .

If you're just beginning and investing every month from regular additions, the commission costs may be too high. To reduce them, you might start with only two ETFs, as follows:

• Total Stock Market Fund (VTI)
• FTSE All-World Ex-U.S. Fund (VEU)

Later, as your portfolio grows, add the REIT and Bond funds. Then, broaden your stock investments into all 7 of the ETFs I prefer (more about this below).

If your portfolio is large enough, you'll save money by adopting Foliofn's "Bronze" membership, costing $199 a year. This would enable you to make all the trades you need with no additional cost.

Regular Withdrawals

If you need income from your portfolio, obtain it from the money market fund, say, quarterly. If you need more income than the dividends and capital gains supply, obtain the balance annually when you rebalance. To avoid depleting the portfolio, do not remove more than 6 percent of the portfolio's then-current value each year.

Rebalancing

If you hold the investments in your own name (not in an IRA), rebalance no more often than every year and a day. Unless you're subject to the Alternate Minimum Tax, this avoids paying short-term capital gains taxes. If you set up the account on March 8, for example, rebalance on March 9 of the following year.

Rebalancing means to bring the allocations back to the desired percentages. But unless the percentage of the current value of a sector has changed by more than 20 percent from the desired percentage, leave it alone. Excessive trading increases costs and taxes but does not improve long-term results.

For example, say the desired percentage for a fund is 10 percent. A year later, if the fund represents 12 percent of the portfolio, leave it be. If it constitutes 12.1 percent, sell 2.1 percent to bring the fund back to 10 percent. Reinvest the proceeds in funds that have been weak. Rebalancing is an automatic method for selling high and buying low.

Real estate investment trusts (REITs) and bonds pay more income than the others. Rebalancing often includes bringing those two funds back to the desired percentages.

Spreadsheets

Clicking on one of the links below brings up a spreadsheet that enables you to allocate your cash to the investments I recommend in the right proportions. It also enables you to rebalance, incorporating the 20-percent limitation. Using my spreadsheets costs you nothing.

Many thanks to John Howard, a reader of my newspaper column, for designing improvements to the spreadsheets. These were completed in September 2007.

I generally recommend that the less often people pay attention to their portfolios (except for the annual rebalancing), the better the results. But if you enjoy working with your portfolio and the investments are held in a traditional or Roth IRA, you can gain an advantage by rebalancing more often, say, every two months. You might catch a sector that has moved significantly in the short term, before it slinks back into the pack.

But remember: Rebalancing doesn't always mean to trade. Unless you're withdrawing or allocating additions, trade only when the percentage of a security has changed by more than 20 percent from the target percentage.

The first spreadsheet below applies to Foliofn investments, using Vanguard ETFs. The second spreadsheet applies to equivalent investments in Vanguard mutual funds. The second one is included here because some readers have followed recommendations I've made in the past. Both Vanguard mutual funds and Vanguard ETFs are fine. But ETFs are probably better, providing you don't trade them in and out.

To use a spreadsheet, click on one of the links below. Excel or a program that can read an Excel file should open. You can then save the file to a location of your choice.

If clicking on a link below doesn't work, try right-clicking the link. Then choose "Save Link As." This might be worded as "Save Target As," "Save Target Link As," or some such. But do not choose "Save Image As." That one won't work.

Unless you are a spreadsheet expert, I suggest you leave the formulas alone. But you may change them if you like; they're unprotected. If your spreadsheet becomes corrupted, return to this website to copy part or all of it again.

If you have difficulty with the rebalancing, hire a bookkeeper to assist.

Foliofn's website, as mentioned, is www.foliofn.com. The phone number is 888-973-7890. The Foliofn spreadsheet follows here. Since Foliofn lists the assets in its statements alphabetically by symbol, the assets are listed the same way in the spreadsheet. This enables you to update the values easily.

Here's the Foliofn link: (MS Excel 2003 format)

Vanguard's website is www.vanguard.com. The phone number is 800-523-7731. The Vanguard spreadsheet follows here. The assets are listed by fund number (not shown), which is how Vanguard lists them in its statements.

Here's the Vanguard link: (MS Excel 2003 format)