Our investment philosophy

Because negative memories are far more powerful than are positive ones, we want to “do something” when the market drops. But being proactive rather than reactive can help protect and even build your net worth over the long term. Do you really have any control over your stock market results? Yes! You have the power. Here are some tips on how to use it:

What you should have in your portfolio I don’t recommend investing in individual stocks except limited amounts (capped at 10%) in employer stock incentive plans. There is just too much information the average investor is not privy to.

That story in Forbes titled “10 Stocks Set to Explode” in the next year (or decade) gives you only the good – not the bad or ugly. For the average investor, picking a stock is like betting on a random number at the craps table.

And don’t fool yourself into thinking your stockbroker has secrets you don’t; as Warren Buffett said, “With enough insider information and a million dollars, you can go broke in a year.” That’s not to say you’ll always lose money, but if you have the stomach to keep track over time, it’s unlikely you’ll be ahead. Kind of like playing craps.

Walk away from the craps table and pull up a stool at the index fund soda stand. Stay away from the exotic flavors, though; in mutual funds, vanilla is exquisite. In the stock market, it’s good to be average.

Since 1926, large-cap mutual funds have returned about 10% on average, not including dividends. Small-cap mutual funds have returned about 12%. Wouldn’t you be happy with an average return of 10 – 12%? Just remember – enjoy the vanilla.

When to buy and sell We invest only for the long term and mostly in equity index funds. Short term trading (either buying or selling) is pure speculation. Your plan should allow enough cash for short term needs (defined as 5 years or less), including emergency funds.

So, when should long term investors buy and sell? Before you read further, please make sure that you can set aside a few minutes to absorb this complicated theory. Ready?

  • You should INVEST – whenever you have money to save for the long term.
  • You should LIQUIDATE – whenever you need money and have no better options.

Most other reasons to buy and sell are irrelevant. Our buy/sell rules work no matter the age of the investor, as long as it’s for the long term. Even retirees need to grow their wealth to manage the cost of living out a 30-year inflationary retirement.

Who you should and shouldn’t listen to My husband, “The Bobfather”, has a saying: “Believe nothing you hear and only half of what you see.” I agree. And if it’s in the financial media, be like the Three Wise Monkeys: see no news, hear no news, and speak no news. Here are a few folks that we do listen to:

  • Warren Buffett – not for his stock predictions (since we don’t invest in stocks) but for his homespun financial wisdom. Another gem: “Do not save what is left after spending, but spend what is left after saving.”
  • Jeremy Siegel – Stocks for the Long Run. This classic, updated every five years or so, is the bible for equity investors. The newest edition was released January of this year.
  • Burton Malkiel – A Random Walk Down Wall Street. Thumbing through my 1990 version, I found a great section title: “A Gaggle of Other Technical Theories to Help You Lose Money”.
  • Nick Murray – Simple Wealth, Inevitable Wealth. SWIW focuses on behavior and puts a nice bow around everything financial. It is not sold on Amazon so we buy it in bulk directly from Nick to give to our clients.
  • Fee-Only financial planners – A fee-only planner has no financial incentive in any client recommendations, meaning you get totally unbiased advice. Fee-only planners don’t sell anything, charge commissions, or accept referral fees. Learn more at napfa.org.

Leftovers Our portfolios hold large-cap growth, LC value, small-cap growth, SC value, international funds and REIT funds. We keep an eye on fund managers and we rebalance annually.

We invest for  clients the same way we do for our own families. This is kind of a retro, pre-CNBC way of doing things, but it works. As you can see, constructing a portfolio is not that difficult. In fact, what really matters how you manage it.

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