Sep 28, 2012

How To Turn Down the Volume on Wall Street

One of my favorite things to do is to surf.  The rhythmic pulses that float through the water are both energizing and calming.  Sometimes a large set wave twice the size of the others will roll through the lineup, and everyone scatters trying to catch it.  Three, sometimes four people end up on a wave chasing a great ride.  I like to remain still, however, waiting for the 3rd wave in the set to come.  When the first few waves have passed, everyone in the lineup is "on the inside" well out of range of this consistent, perfect ride.  As I cruise past the other surfers on this perfect wave, a sense of joy fills my heart that is indescribable. 

This method of patient, passive surfing has worked well for me.  I take a similar approach to investing.

When the pundits on CNBC scream sell, sell, sell, I change the channel.  In fact, I don't even watch CNBC anymore.  I'd rather be surfing.

Passive index fund investing will put you in front of 85% of the investment world, and all it requires is patience.  Like my surfing style, I "stay the course" while others feverishly chase their doubtful reward.  Once a year, I spend 15 minutes rebalancing my 3 mutual funds in tax-advantaged accounts (IRA/401k) to match my written investment plan.  Then I get back to surfing.

Do you watch CNBC?  Do you follow the daily moves in the market, and check your portfolio balances daily?  Are you worried you'll never be able to stop working someday? 

Let me give you some encouragement.  Stop worrying!  Instead, get on with your life.  Have fun with your kids, take your spouse on a date.  Join a cooking class.

Also, ignore daily market swings.  They don't matter to you at all.  Instead, focus on boosting your savings rate (dollar cost averaging is key) and rebalance once a year.  That's it.

I'll close by sharing the only 3 funds I invest in, and offer an honest opinion. 

Save up 6 months of expenses and put this in an FDIC insured interest bearing account.  This is your emergency fund, and should never be touched unless a heath crisis, job loss, or other major catastrophy shows up on your front door.

  • Commit to automatically investing at least 10% of your gross income, and increase this over time to a target of 25-30%.  A nice way to do this is commit half of all future raises to increasing your monthly investment into your IRA or 401k.  
  • Put your age in bonds.  In other words, if you're 40 years old, 40% of your total investment portfolio should be in bonds.  The easiest way to do this (effectively) is to invest in the Vanguard Total Bond Market Fund.  (VTBMF)
  • Invest max possible into your tax-advantaged space.  Use VGTSM for domestic stock investing, VTIMX for internation stock investing, and VTBMF for bond investing.  A winning portfolio using a 3 fund portfolio may look like:

Age: 40
Portfolio: $250,000

VTSAX-$105,000 (70% of stocks in this domestic index)
VTIMX-$45,000 (30% of stocks in this international index)
Total Stocks (60%): $150,000

VTBMF- $60,000
Total Bonds (40%):$60,000
Total Portfolio: $250,000

Turn off the noise.  Stop chasing returns.  Do what you love.

-Gone surfing,


1 comment:

  1. When I was younger I thought I had to watch cnbc every morning to hit it bi, but after reading coffeehouse investor I began to understand why what your talking about here is important. Were better off not even knowing What's going on on wall st