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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75379  
Subject: Re: New passive investor looking 4 strategy crit Date: 2/5/2004 8:41 PM
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I recently read "Successful Investor Today: 14 Simple Truths You Must Know When You Invest" by Larry Swedroe (pub Sept 03). I found it very useful, and appreciated long term analysis used to back up its positions. If your familiar with it, I'm curious what your thoughts on it are?


Not familiar with the book.

You can stick money in your IRA/401K money in once a year....early is usually better since you have another year's worth of growth on it, but the key to 'time diversification' is that over time, the market trends up, and you want to keep buying at all points of the cycle, because you never know when it is 'low' or 'high' to time it.

It is the discipline to maintain reasonable asset allocation (and some will tell you that in taxable accounts doing too much rebalancing buys you nothing because of tax considerations (see Bernstein on this)), and not jumping from 'hot' sector to 'hot' sector chasing last year's best funds, which likely won't be this year's best fund choices, you'll do better than the average investor.

The 'average' stock market investor over the past 15% did something like 3% compounded growth. If that average investor had bought into an index fund, he would have done 10.8%.

If you want to 'play' with some stocks, take 5% of your money, set it aside for speculation, and have some fun trying to beat the other 95%. maybe you'll get lucky and find a 10 bagger (10x growth), but most folks don't even beat the index. But it takes some of the pressure off, when you have say 1 million in assets, and get the urge to 'play'. Keep 95% in index funds or sector funds, like you have done, and set aside 5% for your own ideas, maybe particular stocks or stock sectors.....that will satisfy your urges...

I've played with my 5%...some years do well....had one or two real winners...also lost on several.....in the end, would have been better off likely...but the other 95% stayed diversified. Now, if I had only sold at the peak....oh well...the story of ten million speculators lives.....

But not taking profits on some of the 5% and reaping the rewards sure beats seeing 80% drop in most of the portfolio!....

As to bonds, those with a 50/50 stock/bond fund allocation (ie, Couch Potato portfolio www.scottburns.com ) saw less than a 10% drop in total value through 2000-2003. Bonds rose 35%. Stocks fell 40%. Let you sleep a whole lot better than those who lost 80% on Nasdaq.

As you head toward retirement, you'll likely want to up your percentage in bonds.

Keep in mind that even if you retire at 50, you will likely still leave at least 60% of your portfolio in stocks for the next 20 years....so if you start in your 20s, you will be holding those stocks (funds) for 50 plus years.

t



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