Investing doesn't have to be complicated, and it doesn't take hundreds of stocks to form a solid portfolio. In fact, doing so can sometimes end up being counterproductive. If I wanted to begin investing and had to start from scratch today, I'd focus on three broad investments.

You can't go wrong with this trusty investment

Anytime someone is looking to begin investing, I always point them in the direction of the S&P 500. This index tracks the largest 500 public U.S. companies by market cap, and it should be a staple in every investor's portfolio. There's a reason none of the stock market benchmarks are as followed as the S&P 500 -- its performance is often synonymous with the stock market's performance as a whole.

Historically, the S&P 500 has returned around 10% annually long term, outperforming many mutual funds that are handpicked by professional investors. For perspective, investors averaging 10% annual returns can more than 10x a one-time investment in 25 years, thanks to compound earnings. Past results don't guarantee future results, but there's no reason to believe the S&P 500 won't continue to be a rewarding long-term investment.

There's little to no difference between S&P 500 index funds, but both the Vanguard S&P 500 ETF (VOO 0.02%) and iShares Core S&P 500 ETF (IVV -0.01%) are great choices because of their low costs. Each one has a 0.03% expense ratio ($3 per $10,000 invested).

Don't forget about smaller companies

They shouldn't be the bulk of most investors' portfolios, but any well-rounded portfolio should include small-cap stocks (those with a market cap between $300 million and $2 billion). Due to their smaller size, small-cap companies are less stable and more prone to volatility, but it's also this size that can make them rewarding investments. Small size means lots of room for growth, which can be lucrative for investors.

The Russell 2000 index tracks the smallest 2,000 stocks in the Russell 3000 index. Similar to how the S&P 500 is the benchmark used for large-cap companies, the Russell 2000 is the benchmark normally used for small-cap companies. If you're looking to invest in small-cap companies but want to lessen some of the risks, look no further than a Russell 2000 index fund.

The Vanguard Russell 2000 ETF (VTWO -0.66%), for example, contains companies from all 11 major sectors, covering both value and growth stocks.

Get your hands on some land

Real estate investing can be great, but it involves many logistical challenges that investors don't encounter with stocks. Luckily, there's a way to get your hand in real estate investing without dealing with such logistics: a real estate investment trust (REIT). A REIT is an investment company that buys real estate for the purpose of producing consistent income (usually by charging rent).

The excellent news for REIT shareholders is that legally, REITs must pay at least 90% of their taxable income to shareholders in the form of dividends.

To get the benefits of REITs while also being diversified within real estate, I'd focus on an ETF such as the Vanguard Real Estate ETF (VNQ -0.83%). It's an index fund that invests in REIT stocks, companies that purchase commercial property, and other real property. The allocations within the fund include:

  • Specialized REITs: 38.70%
  • Residential REITs: 14.40%
  • Industrial REITs: 11.90%
  • Retail REITs: 11.40%
  • Healthcare REITs: 7.90%
  • Office REITs: 5.60%
  • Hotel and resort REITs: 2.70%
  • Diversified REITs: 2.70%

Getting exposure to real estate and diversification simultaneously is a way to kill two birds with one stone. Add in the lucrative dividend payouts, and it's a win-win.

How I'd break it down

To begin, I'd make sure not to invest the full $20,000 at once. I'd use dollar-cost averaging -- which involves making regular investments at set intervals -- to break it down into four $5,000 investments. Within those four investments, I'd organize it like this:

  • S&P 500: 60% ($3,000)
  • Russell 2000: 20% ($1,000)
  • Real Estate ETF: 20% ($1,000)

Using dollar-cost averaging helps investors avoid trying to time the market or wait until the "perfect" time to invest. This is not only an excellent strategy to use when you have a lump sum to invest, but it's also an excellent strategy to use in general. By remaining consistent, investors can set themselves up for long-term financial success.