May 31, 2013

Principle 7: Stay the Course Investing

The symbolism that Vanguard uses with their sailing ship logo is one of my favorites.  It's founder, John Bogle, has become a pioneer in the investing world by sharing the importance of keeping expenses low via low cost index fund investing.  He often uses the tagline "Stay the Course" in his books and interviews, and I feel this is an excellent idea to share with the aspiring investor looking to increase their net worth and beat over 80% of their fellow investors.

What Does it Mean to "Stay the Course?"

To me, "staying the course" when used in an investing context means to stick to your written Investment Policy Statement, no matter the circumstances.  An IPS will keep you out of trouble when Mr. Market tempts you to dump all of your stocks, or on the opposite end of the spectrum, it will keep you from getting too overzealous and shifting your entire portfolio into stocks.

My investment policy statement calls for "age minus 10" in bonds.  In other words, for a 30 year old individual, 20% of total investable assets would be held in a bond fund such as the Vanguard Total Bond Market Index (VBMFX), and 80% would be invested into funds made up of stocks or equities.  I split my stock investments 70%/30% into Domestic and International Stock funds such as Vanguard Total Stock Index Fund (VTSMX) and Vanguard Total International Index Fund (VGTSX).

As I get older, I will shift more of my portfolio into bond funds capping at about 65% of my portfolio at retirement.  There are outstanding target date retirement funds that do all of this for you, but I utilize several different types of accounts (401k, Roth IRA, taxable) so using the individual funds works well for me. 

Getting back to our topic, "Staying the Course" is a methodology to investing that is as close to foolproof as you can get. Time after time I hear of investors acting irrationally with their nest egg, selling it all into cash, or withdrawing it because they don't like the state of the economy.  I can't stress enough how important it is to write out a plan and STICK TO IT, ideally through the use of low cost index funds. 

So How Do I Stay the Course?

Unlike most investors, I only check my portfolio once a year, and it usually only takes about 10 minutes.  I simply review what percentage of my total each fund makes up, and adjust it back using Vanguard's simple online tools to my preffered allocation.  I'd go more into detail here, but feel its pretty self explanatory.

Special Considerations on Rebalancing

If you have several different accounts like I do, count them all as one portfolio.  For example, if your retirement assets include a $20,000 IRA, a $15,000 401(k), and $30,000 in investments not held in a tax-advantaged account, your total portfolio is $65,000.  If you decided to follow my same IPS and were 30 years old, you'd aim to include $13,000 in a bond fund, $36,400 in a total stock market fund, and $15,600 in a total international fund.

This also applies to couples that share finances.  Add up all balances in both Roth IRAs, both 401(k)s and any individual taxable accounts to identify your total portfolio balance and follow the above example.

An investment policy statement can also include your savings targets, such as 30% of gross income, or commiting to increasing your investment contributions equal to 1/2 of all future pay raises.

Calm and Turbulent Seas

Your path to retirement and wealth creation will not be easy.  Picture a sailing ship on the Atlantic in the midst of a tremendous storm.  The ship's captain is tempted by his men to turn off course to avoid a major wave, but there is risk that their course will be lost due to an unexpected power outage on the ship.  All the captain has to rely on is his trusty compass, and he manages to remain committed to staying his course by referring to his compass often. 

This same captain may have many days of calm seas, where a backwind propells his ship ahead of schedule, and the temptation to increase speed is presented by the ship's owner which seeks to make port ahead of schedule showcasing the wondrous vessel's speed.  Doing so however may cause fatal damage to the ship if at night a Titanic sized iceberg stabbed the hull. . . easily avoided had the ship been burning at a manageable speed.  But still, the captain remains steadfast and refers to his compass often.

Such should be your approach to investing.  Be the captain that looks beyond pressures of those around him, and quietly executes the the plan.  Nevermind what CNBC or your stockbroker neighbor says.  Stay the Course.  Forget the rest.

Tortoise Banker
Take Me to Principle 8:

*This post was featured on The Carnival of Wealth, thank you!


  1. I always think that when risk becomes a reality that investors start getting nervous and sell. I don't know what I would do in that situation but I can understand what you mean. I know my wife lost a few thousand in 2009 but has since recovered that money. She was told precisely what you say and that was to stay the course and so far so good. Either way you look at, it's all risk.-full stop.

    1. I think this is great advice, BUT (and you knew there'd be a "but"), we lost our asses to the tune of hundreds of thousands of dollars in the stock market twice! Now that we're 10 years from retirementand seeing what our parents have/are paying for "elderly care", we can't decide if we should take ore risks in the stock market or fewer. When we were much younger (think about your age) we invested very (too) aggressively. We're getting pretty conservative these days. When you've got a kid in college and you lose $200,000 in your investments in a very short period of time it scares the hell out of you. Hmm....

    2. Anonymous, did you stay the course? Or did you sell once you started to lose value in your investments?

  2. This comment has been removed by a blog administrator.

  3. Hello Everybody,
    My name is Mrs Sharon Sim. I live in Singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of $250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of $250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius, call/whats-App Contact Number +918929509036 via email:( Thank you.

  4. Are you in need of Urgent Loan Here no collateral required all problem regarding Loan is solve between a short period of time with a low interest rate of 2% and duration more than 20 years what are you waiting for apply now and solve your problem or start a business with Loan paying of various bills I think you have come to the right place just contact us We Are Here To Show You A Better Way To Financial Freedom !!!
    Contact Us At :
    whatspp Number +918929490461
    Mr Abdullah Ibrahim