Keeping Your Investment Simple

Sometimes, simpler is better.


High School Reunion Gone Unexpectedly


I recently went to my 20th year high school reunion (ugh) and ran into a former classmate who is “semi-retired” because he began investing back in high school. It made no sense to me – this guy was never particularly bright and I found it hard to believe that had any special insight into the market.


And it turns out, he didn’t; he just kept his investing simple and let time and the market work its magic. While he’s no Jack Bogle, the legendary founder of Vanguard group, Jack Bogle would approve of his strategy.


Here’s Jack’s investment strategy condensed into four points: Here's his advice condensed to four points

  1. Focus on costs

  2. Diversify broadly

  3. Allocate prudently

  4. Stay the course


Focus On Costs


According to Bogle, "If your annual expenses are only 0.2% in a market that returns 8%, each $1 you invest will grow to more than $20 over 40 years. If you pay 2.5%, each $1 grows to only $8.50."


Costs can rip apart investment gains that deserve to be in your account. Even though the percentage of costs seem low, a 1.3% increase will more than halve your returns.


Diversify Broadly


Diversification is important because no one knows what the future holds. It is hard to pick what sector or style will outperform within 10 years, so rebalancing will keep your emotions and ego in check.


Diversification is holding different financial instruments that have different correlations and will lower your portfolio risk. Rebalancing is when you realign the weights of the holdings in your portfolio to the original structure.


For example, if you have 60% equities and 40% bonds, to rebalance to a 50/50 weighting, you would sell 10% of the equities and use the funds to buy 10% bonds.


Allocate Prudently


Bogle says, "A very general rule of thumb is that your bond allocation should equal your age minus 10 (i.e., a 40-year old investor would own approximately 30% bonds, 70% stocks).


Asset allocation involves the types of holdings in your portfolio; this can range from stocks, bonds, real estate and other investments. Diversification is more about the number of those assets within your portfolio.


Stay The Course


Your portfolio will not always be at all-time highs. Part of the investment journey is dealing with drawdowns and not getting caught up in the euphoria. Drawdowns is when your account is not at its peak and the value is going down. Euphoria is when everyone and their neighbor is getting rich and easy money is everywhere. Maybe your neighbor bought bitcoin and became an overnight millionaire.


Of course, easier said than done. So, start by downloading our app, Portfolio Shepherd, to help you allocate prudently.


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