Your best investment is a global tax-managed mix of index funds (risk exposure) matched to your unique risk capacity.

Index portfolios that are the best long-term target asset allocations for investing and are divided among three broad asset classes: fixed income (bonds); U.S. stocks; and foreign stocks. The stocks are further divided by size and value (book-to-market ratio). For an explanation as to why Investment Policy Explains All, please read this article. This article essentially confirms that your asset allocation of a portfolio of index funds explains 100% of your long term expected risk and return.

Matching People with Portfolios

Once the above article is understood, the only decision left is where should an investor be on the risk capacity versus risk exposure line. This is very important because returns are optimized when investors are on the line. Risk capacity can be estimated using the Risk Capacity Survey and risk exposure correlates to the 20 investment policies (asset allocations of indexes).

Conversely, index portfolios with the highest expected risk and return have less fixed income and more stocks and are tilted toward small companies and value companies in the U.S., International and Emerging Market.