I’ll be the first one to admit I’m no investment expert. But I know that when it comes to investing, the simpler it is, the better (well, we all know how those complex collateralized debt obligations in the U.S. turned out). I subscribe to the John Bogle (the guy who invented index funds and founded Vanguard) school of thought of keeping investing simple easy.
So I call my approach “KISS Investing” as in “Keep It Simple, Stupid.” Here’s how I do it (consult a professional financial planner before you try this at home):
- Stick to funds
Warren Buffet famously said the majority of people should do well investing in index funds instead of investing directly in the stock market on their own. In my case, I place the core of my investment portfolio (around three-quarters) in pooled funds, both mutual funds and unit investment trust funds. I get instant diversification, access to securities, and professional investment managers at a reasonable cost.
- Pick two to three funds max
To keep things simple, I only have three stock funds – both consistently generating excellent returns versus the index for at least five years. Since I’m moderately aggressive, so I don’t own bond, balanced, or money market funds. In your case, if you’re not as aggressive, you may want to throw in a bond fund to smooth out the volatility of your own portfolio.
- Buy stocks
I’ve been buying individual stocks again for the last few years, after fleeing the market during the Asian crisis. I should have gotten back to the game much earlier. In any case, I’ve taken to individual stocks with a buy-and-hold mentality (yes, you can still find undervalued stocks in this current bull run). My goal is to beat the returns of funds I’ve invested in by buying stocks with higher growth potential (and higher risk) at a good price. I invest less than a quarter of my portfolio in stocks because I am no Warren Buffet.
- Do cost averaging
Time the market? I don’t have the time and the expertise to do this, so I’ve adopted cost averaging, which works in our kind of market. I do different intervals – monthly, quarterly, and yearly. This way, I get to capture prices at various levels, ending up with a lower average cost.
- Trade
To add a little spice (because cost averaging, though effective, is pretty boring), I’ve started to learn how to trade the forex and stock markets. Since trading is a lot riskier than investing, I only place a little money I can afford to lose. Of course, my goal is to make my money make money faster by trading.
(As an update, I’ve also started investing in real estate because of the benefits of leveraging, steady capital gains, and long-term regular cash flow income.)
Photo by Chris Liverani on Unsplash
