A break from rivers and reminiscings – investment reminders during rocky times

A brief break from river dreamland to remind all those of us who will depend on the money contributed to our 401k plans the simple measures to maximize our chances of having enough money to pay the bills and maybe even take a trip or two along the way:

(1) Develop an asset allocation plan – develop an IPS (Investment Policy Statement) that details the investments, their proportions and rebalancing triggers – do not deviate from this plan unless your financial circumstances change and warrant a change in the IPS.

(2) Contribute at least enough to a 401k to receive any employer’s match (free money)

(3) max out Roth IRA

(4) Max out 401k contributions

(5) invest any additional money in low-turnover, low fee stock mutual funds or other appropriate tax-conscious funds that are consistent with one’s asset allocation (to avoid excessive taxes)

(6) Do not let emotion guide investing – investing should be an automatic process dictated by one’s IPS – tune out the media and it’s endless financial porn.

Portfolio tips:  Seek to develop an all-indexed (or low-turnover, low fee funds), well-diversified portfolio of stock mutual funds and bonds that encompass the major global asset classes.  DO NOT TRY AND TIME THE MARKET.  The benefits of a fixed allocation will mandate a buy low – sell high approach as the portfolio is periodically rebalanced – don’t sell low and buy high.  Remember that few actively managed mutual funds actually beat the market over longer time periods and choosing these funds in advance is impossible.  Most investors fall well short of market returns while trying to “beat the market.”  This is a losing strategy – develop a plan and stick to it – you will likely come out far ahead of the market timers.

Recommended reading:

Bernstein, W. J.  2001. The Intelligent Asset Allocator.   (this is a slightly technical book – but a highly influential piece of work for do-it-yourself investors)

Markowitz, H. M. 1952. Portfolio Selection. Journal of Finance 19 (3): 425–442.


Now back to our regularly scheduled blogging.

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