Occam's Razor

Developed by William of Occam in 14th century England, Occam's razor reads entia non sunt multiplicanda praeter necessitatem, or in near literal translation entities must not be multiplied beyond necessity.  The principle can be more popularly stated as "when you have two competing theories that make exactly the same predictions, the simpler one is the better."  How does this apply to investing?  Let's attempt to formulate an investment portfolio that provides maximum diversity and covers the major classes of investments in the simplest way.  Asset classes I'm interested in include large, mid and small cap domestic stocks, large, mid and small cap foreign stocks, emerging markets, domestic bonds, and foreign bonds.  It includes a classic 60/40 split between stocks and bonds, and a 60/40 split between domestic and international.

My sample portfolio looks like:

Fund Name	Symbol	Asset Class	Target
Vanguard Total Stock Market	VTI	LCB	36.00%
Vanguard FTSE All-World ex-US	EUV	INT'L LCB	24.00%
Vanguard Intermediate Bond Market	BIV	INTER BOND	24.00%
iShares S&P International Treasury Bond Fund	IGOV	INT'L BOND	16.00%

This simple portfolio is merely an example, not a recommendation, but illustrates how easy it is to achieve diversity by investing in worldwide economic growth, hedging currency risk, individual security risk and individual country risk.  Each individual will have to determine the optimum mix of assets for their portfolio.  But the simpler the portfolio, the more likely to investor is to stick with the investment program through both good and bad times.