Since this is my first post to this blog I feel compelled to say that I don’t particularly enjoy writing and that I am doing this more or less to have a neat public place to document my investments, ramble about random thoughts on any topic, and perhaps answer any questions anyone may have. I may not enjoy writing, but I do enjoy debate, poking fun at conventional wisdom (ignorance), and good conversation. So please feel free to comment, disagree or whatever!
As a non-professional investor I have had many successes and many failures (I prefer to call them “Learning experiences” haha) and from what I have seen nobody is worth the huge fees that some of these so called “advisors” charge. Even if you are not inclined to do the work (6th grade math) I discuss below, you still don’t need an advisor. There are numerous online services that allow you to systematically save for your retirement in a low risk low volatility way that I would be happy to recommend. Most advisors are in the client count building and assets under management building business, not investing or stock market out performance business. Thats why they constantly ask you for referrals. Why send your money to an “advisor” that is just going to in turn send your money to the same funds you can invest in yourself. Its like paying someone 2% of your pay check to take your check and deposit it in your bank account for you. Its all a big scam they use to confuse and scare people into thinking they are too stupid or uninformed to invest their own money. One last thought for now, what I am describing below isn’t predictive at all, its reactive to what “IS” happening, not what I think is going to happen or not what I think should happen. Basically own funds when they are going up and when they stop, don’t own them. Simple right? Thats why I say a sixth grader can do it.
I believe that a 6th grader can produce investment returns just as well as most money managers. They can do this just by applying a few techniques and rules any 10 or 11 year old can understand. I am not talking about outperforming Hedge Fund gurus like Ray Dalio with risk capital, derivatives, and advanced option trading, I am talking about long term, relatively low risk, low volatility investing and saving that most of us should be doing. There are a few other websites that employ this type of strategy I just have added a few of my own rules to it. Here are the skills needed to determine the investments I would make or stay in on January 1st.
1. Chart reading
2. Division and figuring out averages
3. Basic Microsoft Excel use
Keep in mind all 6 of these investment recommendations have not changed since October 2014 and have returned 5.66% thru 12/31/2014, but for the purposes of this blog we will start where December left off and start with a $100,000 portfolio. We will also not factor in costs of the trades. There are numerous discount brokerages out there that change a mere $6 per trade as opposed to broker assisted trades that can run $50-$100. (Again, if you go online to a discount broker and make a trade you pay $6, if you call your broker and ask them to make the trade for you, they charge $50-$100, don’t do that! :)) We re-evaluate monthly so at the end of January we will revisit these recommendations. This will also give me some time to discuss the 6th grade math necessary to come to these conclusions. Here’s what should be invested in right now and I will use their 1/5/2015 closing prices to establish our starting point. Buy the first six in equal amounts, so if you have 100k, its 16666.66 of each.
|ETF INVESMENT CHOICES|
|Symbol||Description||Rank||Avg Returns||Position||Closing Price 1/5/2015||Amount Invested||Monthly Return||Value 1/31/2015|
|VNQ||Vanguard REIT Index ETF||1||14.33%||Invested||82.7||16666.66||0%||16666.66|
|MTUM||iShares MSCI USA Momentum Factor||2||11.80%||Invested||67.07||16666.66||0%||16666.66|
|VGLT||Vanguard Long-Term Govt Bd Idx ETF||3||6.84%||Invested||79.66||16666.66||0%||16666.66|
|VTV||Vanguard Value ETF||4||5.95%||Invested||82.96||16666.66||0%||16666.66|
|VBR||Vanguard Small Cap Value ETF||5||5.58%||Invested||103.68||16666.66||0%||16666.66|
|VBK||Vanguard Small Cap Growth ETF||6||2.57%||Invested||123.97||16666.66||0%||16666.66|
|VCIT||Vanguard Interm-Tm Corp Bd Idx ETF||7||2.19%||Not Invested||TOTAL $$||99999.96||99999.96|
|VGIT||Vanguard Interm-Tm Govt Bd Idx ETF||8||1.83%||Not Invested|
|IGOV||iShares International Treasury Bond||9||-3.20%||Not Invested||PORTFOLIO RETURN JANUARY||0.00%|
|IAU||iShares Gold Trust||10||-3.53%||Not Invested||PORTFOLIO TOTAL RETURN SINCE INCEPTION||0.00%|
|VWO||Vanguard FTSE Emerging Markets ETF||11||-3.55%||Not Invested|
|VEA||Vanguard FTSE Developed Markets ETF||12||-5.96%||Not Invested|
|GSG||iShares S&P GSCI Commodity-Indexed Trust||13||-27.54%||Not Invested|
A couple final thoughts. Remember this account is set up with funds slated for systematic retirement and savings generation and accumulation. I would be happy with 7%-8% annual returns with very low volatility in this portfolio. In a perfect world one would have VERY minimal debt, zero credit card debt, be living BELOW their means, and have minimum 2 months expenses in cash which should also be about 7% of your annual income. That means a person making $75,000 per year would have $10,500 in cash in the bank and be spending about $5250 per month total. This should leave about 16% of your annual income for savings. Do that for 5 years and you would have a $100,000 portfolio. Lastly, I actually “think” this portfolio is too heavy on stocks considering where the market has gone over the last five years, BUT the whole point of this technique is not to “think” or “predict”, just follow the 6th grade level rules. There’s probably more but I think I’ve written enough for one day. In my next post I will discuss how we applied that 6th grade math to arrive at our investment choices.