I spend roughly an hour a year maintaining a seven figure investment portfolio.
I don’t need to read stock market news or catch the latest fad. Sound investing is far simpler than many people think.
If it’s exciting, or taking much more than an hour a year, you’re probably doing something wrong.
On June 5, 2012, I wrote a blog post titled, Millionaire Teacher Adds $29,000 to International Index.
Unfortunately, as of today (August 5, 2012) the index I purchased two months ago has risen 10.8%. It’s represented by the blue line below.
VEA Chart Vanguard MSCI EAFE ETF ETF Chart
As a relatively young man (I’m 42) I don’t like the stock markets to rise. If you’re young and employed, nor should you.
Falling or stagnating stock markets are far better for young investors.
As Buffett himself has said, if you’re going to be adding to the stock market over (at least) the next five years, you should prefer falling stock prices to rising ones. Celebrating stock market gains is like celebrating the rising prices of groceries.
I started this series of posts, titled Andrew’s money, to offer some kind of a guide. The trick to wealth accumulation in the stock markets is to ignore the media, ignore market forecasts, and stick to a solid game plan. I’ve outlined that plan in my book, Millionaire Teacher, and I’m outlining it here as well.
You can invest very well following three simple rules:
- Buy a low cost, short term government bond index
- Buy a U.S. stock market index
- Buy an international stock market index
If you’re between 30 and 40 years of age, you could split the money evenly between the three markets above. If you’re older or younger, consider having a bond component that’s roughly equivalent to your age.
For example, if you’re 50 years old, you may want 40-50% of your money in a bond index.
Do you think that’s too conservative? I don’t.
Like me, it will allow you to sell portions of your bond index to buy into the stock market indexes when the stock market drops. I did this (as did all rebalancers) after 9/11, at the start of the 2003 Iraq war and during the economic crisis of 2008/2009.
And it will give you the power to sell some of your stock indexes, to buy bond indexes, if the stock market rises considerably, which it did from 2003-2007 and from 2009-2010. You wouldn’t be making a guess about the market’s direction.
You’d just be getting your portfolio back to its original alignment through a rebalancing process.
With enough emotional equanimity, you can profit off the euphoria and fear of others.
During periods of high volatility, rebalancing your portfolio once a year can add serious kicks to your profits. And buying the lagging index with your monthly savings ensures that you’re never joining the bandwagon of silly folks who purchase what’s currently popular.
My portfolio looks roughly like this:
- 42% Canadian bonds
- 31% International stock index
- 27% U.S. stock market index
Considering that I want my bond allocation to equal my age (I’m 42) and I want my stock market indexes to be evenly split, what should I be purchasing this month?
- The U.S. stock market index?
- The international stock market index?
- Or the Canadian bond market index?
If you require a hint (or a bit more detail) check out the following posts: