Investing money between 1989 and 2000 was such a disappointment because the markets kept rising.

I started my investing (1989) in the middle of history’s longest stock market rise and, in retrospect, I see how unfortunate that was.   I kept adding money to the markets, but the markets kept getting more and more expensive.

Metaphorically, I was grocery shopping in a store that got 17% more expensive every year.

Fortunately for young people investing today, the markets are much more favourable.  The stock supermarket sells its goods at a much more reasonable rate, and from time to time, we’ve had some generous storewide sales.

Sure, the world’s stock markets have averaged (as an aggregate) roughly 10% per year for the past 100 years, but that ride has never been smooth.

Sometimes (as with the time period from 1982-2000) the market grows ridiculously expensive.  At other times (1965-1982, for example) the market takes a breather, allowing much more reasonable prices for investors.

If you’re young, and you celebrate market rises, then you really don’t understand how the game works. And unless you change your thinking, it’s going to cost you plenty of money, as you succumb to the giddiness of buying high and feeling depressed by the prospects of buying low.

Yesterday I took advantage of the recent market drop, adding 1000 shares of the first world international stock market index (VEA).

Unlike most people’s investment accounts, my bank in Singapore doesn’t allow me to automatically reinvest dividends.  The dividends collect in the cash portion of my account over time.

Last night, I noticed that the collected dividends had grown to roughly $25,000 USD, so I added the proceeds to my investment for the month, allowing me to buy the heavily discounted international stock market index.

I own just three indexes (ETFs):

  1. The Canadian bond market index (XSB)
  2. The U.S. stock market index (VTI)
  3. The first world international stock market index (VEA)

You might think I can do better.  You might wonder why I own one index over another.

The bottom line is this:  these intellectual questions aren’t going to be your biggest challenge as an investor. If your account is diversified and low cost (as mine is) then quibbling over which specific index to buy is going to be the least of your future challenges.

Your biggest challenge will come from how you think about the stock market.

I receive countless emails questioning me about why I made a specific purchase.  After this post, the most commonly emailed question will be:  “Don’t you know about the troubles in Europe?”

Here’s a tip for those asking that question:  you will NEVER get a decent price in the stock market if you invest where the scenario is rosy. 

My investment decisions are simple.  I look at the stock market once a month, shortly after getting paid.  My goal allocation is as follows:

  • 40% Bonds (XSB)
  • 30% U.S. Stock Market (VTI)
  • 30% International stock market (VEA)

If the stock markets drop, giving me a disproportionate percentage of bonds, I put fresh money in the stock market indexes.  If the stock market rises, giving me less than my goal allocation of bonds, then I add fresh money to my bond market index.

Great investing won’t come from which index you choose.  Nope. It comes from being diversified, keeping costs low, and having the guts to enjoy stock market drops while abhorring the rises.

Can you do that?  Most people can’t.

But I’m hoping that you won’t be “most people.”