Beginning Investors
It is not unusual to read or hear someone say – “I don’t understand what you are talking about.” When I pick up on these writings or statements I know it is about time to go back to a 100 level course and lay out some basic ideas about investing. One book I recommend everyone read is The Elements of Investing by Burton G. Malkiel and Charles D. Ellis. The book is about the size of The Elements of Style and as easy to read. It will take you an evening or two. Put the book aside for a month and then read it again.
After you have read the book, and it emphasizes passive investing, you are ready to start saving by following The Golden Rule of Investing. But then what do you do? To begin, set up a Strategic Asset Allocation Model as follows.
Basic Asset Allocation Model: Concentrate on the percentages with the white background as those are the target percentages. Different investors will set up different percentages, but the following Dashboard is a good starting point. Beginning in the upper left-hand corner and proceeding toward the lower right-hand corner, here are ETFs that will serve you well.
- VTV – 3%
- VOE – 7%
- VBR – 5%
- VTI – 20%
- Cash or SHY – 1% One almost always has some cash lying around in a portfolio.
- For Bonds and Income (19%) use BIV or a combination of JNK, HYG, AGG, TLT, TIP, and/or BND.
- VEA – 10% for Developed International Equities
- VNQ – 10% for Domestic Real Estate
- VWO – 7% for Emerging Markets
- DBC – 3% for Commodities
- RWX – 5% for International REITs
- PCY or BWX – 5% for International Bonds
- GLD – 3%
This is a good starting point for building a portfolio.
After you have a Strategic Asset Allocation portfolio launched and operating, consider starting a second portfolio using the Dual Momentum Model. With help from the Kipling spreadsheet, this model looks like the following. We first lay out the Main Menu where the variables are put into place. This worksheet is familiar to Platinum members.
100% of the portfolio is invested in one ETF at a time. Currently, we are totally invested in VTI. By itself, this single ETF provides diversification as it contains over 3,000 individual stocks.
Dual Momentum Recommendations: To learn more about the Dual Momentum Model, do a search for the term and read a few blogs to learn how this model operates. If there are any questions, please ask. These two portfolio models will get investors started on the right track.
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Hi Lowell Very nice little piece. Very simple and down to earth. The average person searching the web for some place to follow in regards to investing world find it welcoming. In my estimation ITA needs many more of these simple little pieces. They encourage people to want more.
I would encourage you and HedgeHunter and your advanced colleagues to remember that you have been operating this approach for nearly 200 years now and little by little have made it more and more complex. Einstein is quoted to have said “make it simple but not simplier” . An occasional simple piece, just like this one, is just what the doctor ordered. John
John,
Thanks a bunch. Since this blog is designed to be both educational and profitable, I put similar blogs up from time to time. You can find more under either the Beginning Investor or Critical Material categories. You likely found those sources already.
Lowell
always enjoy your writings on seeking alpha . keep them coming. . charles ellis is an ikon. , as is john bogle . as was louis rukheiser on tv. aaii as an entity the same. all care about the individual investor.. keeping expenses low often brushed aside .
Michael,
Interesting that you mention Charles Ellis. I know Ellis’ brother and did not make the connection until a few years ago. Outstanding family.
Wall Street Week was a must see on Friday evenings, even though it was more entertainment than financial advice.
Lowell