Quick Recap of Episodes 5 and 6 where we talked about investing:  Make sure you are learning from the right resources

  • Independent resources: i.e – John Bogle, Burton Malkiel, Charles Ellis, William Bernstein, Larry Swedrow, Daniel Solin, Rick Ferri, David Swensen, Frank Armstrong III, Warren Buffett
    • Avoid the salespeople and being careful on how much media you tune into and listening to family and friends
  • Did you take a look at your investments and any debt you have out there?  Factor in opportunity costs
  • Remember to keep your emotions at bay (Fear, Greed, Overconfidence)
    • Recent market events
  • Review the terminology I included in the show notes on episode 5 (recency bias, reversion to the mean, alpha, loss aversion, expense ratio, cost basis, asset allocation, negative correlated assets, rule of 72, rebalancing, efficient market hypothesis, modern portfolio theory

In this episode we will cover:

  • Importance of asset allocation and what it is
  • How to get your ideal asset allocation
  • Rebalancing method(s)
  • Historical returns of cash, bonds, stocks, real estate – plus and minuses of each of those investments

 

Show Notes:

  • How you allocate your investments will play the most important role above all else in your return on investment over time.  Consider keeping at least 30% in stocks on the low end and 90% in stocks on the high end.
  • Big returns come with big risk, there is no way of getting around this issue. If you want big returns (returns beyond inflation and then some) you MUST assume more short-term risk with your money.
  • Questions need to be answered prior to deciding on the right asset allocation (investment policy) for you. What is my time horizon? What are my goals? What is my risk tolerance? Finally, what is my tax situation?
  • Focus your efforts on owning broadly diversified no-load index funds that provide you exposure to entire markets and continents. 
  • Rebalancing is easy to explain, but hard to do.
  • Markets go up and down. Accept the volatility.
  • The daily craziness should be ignored.
  • Knowledge reduces fear and increases confidence.
  • Self-awareness helps avoid overconfidence. 
  • Push the greed gene out of your life.
  • Understand bubbles and herd behavior.

 

Resources:

Fame and French.

Historical Averages based on different asset allocations.