Risk Categories & Just-the-Basics
Q: Why doesn't Just-the-Basics use the same risk categories as Upgrading? It seems that if five risk categories for stocks plus a bond fund is a good setup for Upgrading, it ought to be good for Just-the-Basics as well.
A: Just-the-Basics is the name of SMI's index fund strategy. As the name implies, one of its primary goals is to be extremely simple to understand and implement. In fact, once it's initially set up, we estimate it takes less than an hour per year to maintain it. The key to this simplicity is the fact that the strategy uses just three stock funds (plus a bond fund for those with a bond allocation). This is possible due to the broad stock market index funds available through Vanguard. These funds allow us to buy a single index fund that covers the large-company segment of the market, another that covers the smaller-company segment of the market, and a third that covers foreign markets. Because each of these index funds include stocks from both the "growth" and "value" investment styles 
, there's no need to diversify further. Of course, you're free to—these days there are index funds that track large/growth, large/value, small/growth, and small/value separately. But there's no reason to believe performance would be enhanced, and the simplicity that is the chief appeal of Just-the-Basics would definitely be undermined. 
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