I totally agree with your thought processes, although I usually don’t fire one bullet-if I had 10 grand to add, I might add in 3-4 increments to increase my chances of not firing too early, or late for that matter. It does increase your costs slightly.

A 5% drop may seem a great buying opportunity, unless the correction hits 12 % as we seem to be doing here.

Another method for those who don’t have a lump sum is to increase your 401-K withdrawal to try to take advantage of this market decline. (Dollar cost averaging for the poor!)

I totally agree with your thought processes, although I usually don’t fire one bullet-if I had 10 grand to add, I might add in 3-4 increments to increase my chances of not firing too early, or late for that matter. It does increase your costs slightly.

A 5% drop may seem a great buying opportunity, unless the correction hits 12 % as we seem to be doing here.

Another method for those who don’t have a lump sum is to increase your 401-K withdrawal to try to take advantage of this market decline. (Dollar cost averaging for the poor!)

I would recommend to read Intelligent Investor by Benjamin Graham who are intersted in investing for the long term. The most important thing to remember is to cost-average over your time, and to rebalance your portfolios about once a year.

I would recommend to read Intelligent Investor by Benjamin Graham who are intersted in investing for the long term. The most important thing to remember is to cost-average over your time, and to rebalance your portfolios about once a year.

Hope you don’t mind if I post anonymously, since I’d rather not broadcast my investment strategy to the world.

Since May 2009, I’ve implemented an ETF version of Harry Browne’s somewhat controversial Permanent Portfolio, which advocates the following split, rebalanced annually:

25% Stocks (in a broad-based index fund)
25% LT Bonds
25% Gold
25% Cash

My specific implementation goes like this:

25% VTI
25% TLT
25% GTU/GLD
25% High-yield checking account

Since I’m a young guy who’s just starting to save, the 25% cash is really a portion of my “emergency” savings — currently a 10-month reserve. My actual “cash” amount is 80% of all my savings, so I’m contributing and rebalancing among my Stocks/Bonds/Gold portion until all four assets are in equal proportion. That’s a complex way of saying, my actual investment portfolio right now works out to a 33/33/33 split of Stocks/Bonds/Gold.

Now, when I started this a year ago, it shouldn’t have worked. Many, many pundits were certain that LT Treasury Bonds would drop in value (the Fed MUST raise interest rates) and that Gold was severely over-valued due to speculation.

And on balance, I actually agree with them.

But a principle of Harry Browne’s approach is that no one can accurately predict the future. The precipitous drop in gold has yet to happen. And with everyone running from LT Bonds, I was able to buy them up cheaply.

When the “flash crash” hit a few weeks ago, those LT Bonds shot up in value as people fled to safety. Over the past month, as the stock market see-sawed violently with the Euro-zone crisis, my portfolio has crept slowly but steadily up. Even with the recent gains in the stock market, the market value of my portfolio is in a better place than it would be if I’d invested in an S&P 500 index fund or a 60/40 stock/bond split. According to Morningstar, my personal return for the past month is 3.2%, compared to -9.58% for the S&P 500.

My experience for the past year of the Permanent Portfolio has pretty much been slow but steady returns, with the market value creeping upwards without the wild swings of the stock market. It’s actually kind of boring to watch, but it sure helps me sleep at night.

If you’d like to learn more about the Permanent Portfolio, this blog is a great resource:

http://crawlingroad.com/blog/2010/02/06/permanent-portfolio-back-to-basics/

The author is a little modest by telling you to start by listening to Harry Browne’s radio archives; his three articles linked at the bottom are actually a great starting point to introduce you to the basic concepts.

Hope you don’t mind if I post anonymously, since I’d rather not broadcast my investment strategy to the world.

Since May 2009, I’ve implemented an ETF version of Harry Browne’s somewhat controversial Permanent Portfolio, which advocates the following split, rebalanced annually:

25% Stocks (in a broad-based index fund)
25% LT Bonds
25% Gold
25% Cash

My specific implementation goes like this:

25% VTI
25% TLT
25% GTU/GLD
25% High-yield checking account

Since I’m a young guy who’s just starting to save, the 25% cash is really a portion of my “emergency” savings — currently a 10-month reserve. My actual “cash” amount is 80% of all my savings, so I’m contributing and rebalancing among my Stocks/Bonds/Gold portion until all four assets are in equal proportion. That’s a complex way of saying, my actual investment portfolio right now works out to a 33/33/33 split of Stocks/Bonds/Gold.

Now, when I started this a year ago, it shouldn’t have worked. Many, many pundits were certain that LT Treasury Bonds would drop in value (the Fed MUST raise interest rates) and that Gold was severely over-valued due to speculation.

And on balance, I actually agree with them.

But a principle of Harry Browne’s approach is that no one can accurately predict the future. The precipitous drop in gold has yet to happen. And with everyone running from LT Bonds, I was able to buy them up cheaply.

When the “flash crash” hit a few weeks ago, those LT Bonds shot up in value as people fled to safety. Over the past month, as the stock market see-sawed violently with the Euro-zone crisis, my portfolio has crept slowly but steadily up. Even with the recent gains in the stock market, the market value of my portfolio is in a better place than it would be if I’d invested in an S&P 500 index fund or a 60/40 stock/bond split. According to Morningstar, my personal return for the past month is 3.2%, compared to -9.58% for the S&P 500.

My experience for the past year of the Permanent Portfolio has pretty much been slow but steady returns, with the market value creeping upwards without the wild swings of the stock market. It’s actually kind of boring to watch, but it sure helps me sleep at night.

If you’d like to learn more about the Permanent Portfolio, this blog is a great resource:

http://crawlingroad.com/blog/2010/02/06/permanent-portfolio-back-to-basics/

The author is a little modest by telling you to start by listening to Harry Browne’s radio archives; his three articles linked at the bottom are actually a great starting point to introduce you to the basic concepts.

My investing strategy is based around the cyclically adjusted PE (CAPE) of the S&P 500 and the ASX 200. As of Tuesday the S&P 500 CAPE was sitting at 19.4 and the historic average since 1881 is only 16.4. This suggests according to this valuation method that the market is over valued by 19%.

I spend a lot of time on my blog providing updates using this measure plus also sharing my tactical asset allocation shifts based on this measure. At this moment in time I am light equities.

My investing strategy is based around the cyclically adjusted PE (CAPE) of the S&P 500 and the ASX 200. As of Tuesday the S&P 500 CAPE was sitting at 19.4 and the historic average since 1881 is only 16.4. This suggests according to this valuation method that the market is over valued by 19%.

I spend a lot of time on my blog providing updates using this measure plus also sharing my tactical asset allocation shifts based on this measure. At this moment in time I am light equities.

When people start asking this type question it means fear is heightened and it’s usually a great time to buy. Being a contrarian actually works well in the long term.

If you’re looking for a mechanical investing strategy, it’s pretty simple in concept. Determine your ideal fixed income to stock ration, say 40% bond to 60% stocks. Next determine your ideal bond allocation between corporates, treasuries, muni’s, foreign,etc. along with durations. Then determine your ideal stock allocation split between blend and value for large cap, small cap, international, emerging markets and REITS. Each person will have to determine the mix they feel comfortable with. And finally, rebalance every quarter or 6 months or yearly, whatever makes sense. That way you will mechanically sell high and buy low. That’s all there is to it. And if you want to throw precious metals or commodities into the mix, the concept still works.

When people start asking this type question it means fear is heightened and it’s usually a great time to buy. Being a contrarian actually works well in the long term.

If you’re looking for a mechanical investing strategy, it’s pretty simple in concept. Determine your ideal fixed income to stock ration, say 40% bond to 60% stocks. Next determine your ideal bond allocation between corporates, treasuries, muni’s, foreign,etc. along with durations. Then determine your ideal stock allocation split between blend and value for large cap, small cap, international, emerging markets and REITS. Each person will have to determine the mix they feel comfortable with. And finally, rebalance every quarter or 6 months or yearly, whatever makes sense. That way you will mechanically sell high and buy low. That’s all there is to it. And if you want to throw precious metals or commodities into the mix, the concept still works.

Most of my stuff has been invested for so long, I’d get killed on capital gains by moving it, so it stays where it is, unless a company is in deep trouble (hello, Citibank).

Most of my stuff has been invested for so long, I’d get killed on capital gains by moving it, so it stays where it is, unless a company is in deep trouble (hello, Citibank).

Flexo:

Follow your gut. Listen to what you just wrote.

“I would like to be able to forget about the stock market completely”

Then forget about it. Completely. The stock market is a suckers game.

My advice for anyone is always invest in what you understand and control. and nothing else ever, because then it isn’t investing, it’s gambling.

Instead, invest in something you ARE passionate about. This blog, another business, antiques, classic cars, real estate, art, collectibles. etc. There are thousands of ways to make money. The stock market is only one of them.

The wealthiest people I know did not get that way through stock market investing. They got that way through investing in themselves and their businesses. Owning income producitng real estate, etc.

Flexo:

Follow your gut. Listen to what you just wrote.

“I would like to be able to forget about the stock market completely”

Then forget about it. Completely. The stock market is a suckers game.

My advice for anyone is always invest in what you understand and control. and nothing else ever, because then it isn’t investing, it’s gambling.

Instead, invest in something you ARE passionate about. This blog, another business, antiques, classic cars, real estate, art, collectibles. etc. There are thousands of ways to make money. The stock market is only one of them.

The wealthiest people I know did not get that way through stock market investing. They got that way through investing in themselves and their businesses. Owning income producitng real estate, etc.

“I would like to be able to forget about the stock market completely, but unless I suddenly find myself with a significant windfall and can afford to take less risky investments with lower long-term returns like bonds or cash equivalents, I’ll just have to suck it up and deal.”

This is absolutely WRONG! If the market is not stable – and right now it is not – then you should go to cash or some kind of stable value fund to wait it out. Even if that means missing a short term rally of some type. I disagree with your above statement because i would much rather have my base principle + 1% savings rate interest than to lose 30, 40 or 50% of my money (which is what happened to many in 2008/09. Stick with a safe investment for right now until the government decides how it will reduce some of this crazy spending. Until then, expect volatility, but most importantly, another leg down in this market. The private sector fell in 2008 but the gov’t blocked the full collapse. Now, all that bad debt has been transferred to the public sector (i.e. govt, i.e. taxpayers) and the weight is very heavy. You should really consider a safe investment for a year, two, or three..whatever it takes..to weather the storm. Better to always have the original investment with a low (relative to years past) interest than to lose so much.

“I would like to be able to forget about the stock market completely, but unless I suddenly find myself with a significant windfall and can afford to take less risky investments with lower long-term returns like bonds or cash equivalents, I’ll just have to suck it up and deal.”

This is absolutely WRONG! If the market is not stable – and right now it is not – then you should go to cash or some kind of stable value fund to wait it out. Even if that means missing a short term rally of some type. I disagree with your above statement because i would much rather have my base principle + 1% savings rate interest than to lose 30, 40 or 50% of my money (which is what happened to many in 2008/09. Stick with a safe investment for right now until the government decides how it will reduce some of this crazy spending. Until then, expect volatility, but most importantly, another leg down in this market. The private sector fell in 2008 but the gov’t blocked the full collapse. Now, all that bad debt has been transferred to the public sector (i.e. govt, i.e. taxpayers) and the weight is very heavy. You should really consider a safe investment for a year, two, or three..whatever it takes..to weather the storm. Better to always have the original investment with a low (relative to years past) interest than to lose so much.

I’m not so sure about that, Fontaine. Stability can only be observed after the fact, and if you get out when you notice the market is unstable and come back in when you realize it is “stable,” you will certainly be selling when the market is low and buying when the market is higher. That’s a certain way to lose money. People only lost 30,% 40%, 50% or more if they sell. It’s a dangerous position for someone who needs that money on the day the stock market is down, but those who don’t see it as a buying opportunity for the long term. You might be right about hanging out to weather the storm, but selling at a low point is a bad idea unless there’s reason to believe the long-term prospects of the stock market has fundamentally changed. And again, waiting to weather out the storm is a strategy that will backfire because you’ll miss the opportunity for the upside — the upside that is necessary if you want your investments to match or beat the average stock market return.

I’m not so sure about that, Fontaine. Stability can only be observed after the fact, and if you get out when you notice the market is unstable and come back in when you realize it is “stable,” you will certainly be selling when the market is low and buying when the market is higher. That’s a certain way to lose money. People only lost 30,% 40%, 50% or more if they sell. It’s a dangerous position for someone who needs that money on the day the stock market is down, but those who don’t see it as a buying opportunity for the long term. You might be right about hanging out to weather the storm, but selling at a low point is a bad idea unless there’s reason to believe the long-term prospects of the stock market has fundamentally changed. And again, waiting to weather out the storm is a strategy that will backfire because you’ll miss the opportunity for the upside — the upside that is necessary if you want your investments to match or beat the average stock market return.

These other comments compel me to put in another word about the Permanent Portfolio.

The strategy is focused on return OF investment first, and then return ON investment. To this end, it has relatively low volatility to encourage you to stay the course. You rebalance annually (or use rebalancing bands to get a slightly better return) and FORGET IT. It’s fun to watch the portfolio respond to interesting market conditions, but otherwise, you can get on with enjoying other parts of your life.

Since the early 70s, the PP has only had an annual loss twice: -4% in 1981 and -2.5% in 1994. Remarkably, while many portfolios lost 20% to 40% in 2008, the Permanent Portfolio managed a modest 2% gain.

In deliberating whether or not to use the strategy, I used Morningstar’s Portfolio Manager to create hypothetical portfolios started in 2005 using the PP (rebalanced annually), a 100% stock allocation, and a 60/40 stock/bond allocation. As of today, here’s the total return for each:

100% stock: 0.06% (May’s been a bad month!)
60/40 stock/bond: 2.83%
Permanent Portfolio: 11.83%

Of course, historical returns do not guarantee future performance.

I know this may sound too good to be true for most of your readers, but after a year of watching my portfolio weather all these crazy market movements, I’m a believer.

These other comments compel me to put in another word about the Permanent Portfolio.

The strategy is focused on return OF investment first, and then return ON investment. To this end, it has relatively low volatility to encourage you to stay the course. You rebalance annually (or use rebalancing bands to get a slightly better return) and FORGET IT. It’s fun to watch the portfolio respond to interesting market conditions, but otherwise, you can get on with enjoying other parts of your life.

Since the early 70s, the PP has only had an annual loss twice: -4% in 1981 and -2.5% in 1994. Remarkably, while many portfolios lost 20% to 40% in 2008, the Permanent Portfolio managed a modest 2% gain.

In deliberating whether or not to use the strategy, I used Morningstar’s Portfolio Manager to create hypothetical portfolios started in 2005 using the PP (rebalanced annually), a 100% stock allocation, and a 60/40 stock/bond allocation. As of today, here’s the total return for each:

100% stock: 0.06% (May’s been a bad month!)
60/40 stock/bond: 2.83%
Permanent Portfolio: 11.83%

Of course, historical returns do not guarantee future performance.

I know this may sound too good to be true for most of your readers, but after a year of watching my portfolio weather all these crazy market movements, I’m a believer.

Hard to say, but the market has really gone nowhere in 10 years, and it would have been better investing in 4-6%, 5 yr CDs over the same time period.

It’s good to have a certain percentage always allocated, be it only 10% or 50%. Anything more than 50%, I don’t care what your age, forget about it. The best way to make money is through hard work.

Hard to say, but the market has really gone nowhere in 10 years, and it would have been better investing in 4-6%, 5 yr CDs over the same time period.

It’s good to have a certain percentage always allocated, be it only 10% or 50%. Anything more than 50%, I don’t care what your age, forget about it. The best way to make money is through hard work.

Just in reply to your last sentence — if you cannot afford to take less-risky investments, you certainly cannot afford high-risk investments. It sounds like you are saying you need the larger return of a high-risk investment; if that’s the case, then you cannot afford to lose the money you put into it in the first place and should not be making that investment.

Just in reply to your last sentence — if you cannot afford to take less-risky investments, you certainly cannot afford high-risk investments. It sounds like you are saying you need the larger return of a high-risk investment; if that’s the case, then you cannot afford to lose the money you put into it in the first place and should not be making that investment.

The only stock I have right now is stuff I’ve acquired from family from graduation and stuff. None of it is doing too well, so I’m planning on not bothering with it for awhile longer. Let’s see what happens next year.

The only stock I have right now is stuff I’ve acquired from family from graduation and stuff. None of it is doing too well, so I’m planning on not bothering with it for awhile longer. Let’s see what happens next year.

401(k)s, however, necessarily throw you into the stock market. If someone has a better idea for retirement investing that’s tax friendly, I’d love to hear it.

401(k)s, however, necessarily throw you into the stock market. If someone has a better idea for retirement investing that’s tax friendly, I’d love to hear it.

I’m close to giving up myself, but not because of the recent returns. I fully believe we’ll get out of this recession and get back to the booming returns we had before. I think the real problem is the lack of financial regulation and the lack of urgency among our politicians to make it happen. 10 years from now we’ll all be sitting on the wrong side of another market crash, wondering why we didn’t just invest in cash and CDs all along. Personally, I’d prefer to lose money relative to inflation than get ripped off by Wall Street again.

I’m close to giving up myself, but not because of the recent returns. I fully believe we’ll get out of this recession and get back to the booming returns we had before. I think the real problem is the lack of financial regulation and the lack of urgency among our politicians to make it happen. 10 years from now we’ll all be sitting on the wrong side of another market crash, wondering why we didn’t just invest in cash and CDs all along. Personally, I’d prefer to lose money relative to inflation than get ripped off by Wall Street again.

I like this philosophy, especially if you are dollar-cost averaging in and buying the “dips” in the overall stock market. I have historically been too dependent on cash and equities, while forgetting bonds and gold. This is much easier to implement in modern investing due to ETFs described in your comment. Well put.

I like this philosophy, especially if you are dollar-cost averaging in and buying the “dips” in the overall stock market. I have historically been too dependent on cash and equities, while forgetting bonds and gold. This is much easier to implement in modern investing due to ETFs described in your comment. Well put.