Whenever I conduct a survey at a webinar, or visit with a prospective client at Soundmark Wealth Management, I am always surprised at the number of investors who haven’t created a financial plan.
When pressed further, most wouldn’t even know where to begin creating one.
There are lots of things like the “Periodic Table of Asset Class Returns” with its rainbow array of scattered colors, that fascinate investors.
But when you get right down to it, while these topics might be fun to discuss, they aren’t nearly as important to your financial well-being as your own financial plan.
This Wednesday, August 24 at 6 p.m. PDT, I will present a webinar titled “Living Your Financial Plan”, The last of our popular summer series, this one hour presentation will reveal the importance of creating a financial plan, how to create one, and why your plan is the conduit between personal responsibility and the creation of a portfolio that is right for you.
While you are at it, take a moment and forward the link to someone who could benefit from the simple wisdom found at The Coffeehouse Investor!
I hope you can tune in.
There are many ways to build a Coffeehouse Investor portfolio.
One misconception that has evolved over the years is the notion that The Coffeehouse portfolio is the 60/40 allocation split of seven index funds that I highlighted when writing my weekly column in The King County Journal and other newspapers from 1999 to 2007.
A “Coffeehouse” portfolio is a philosophy on how to build one, not a specific portfolio or allocation.
This philosophy embraces a few simple concepts, including. . .
You don’t choose an investment with the purpose of “beating” a benchmark. You choose an investment because it mirrors a broad asset class.
You realize that in choosing this investment, you might buy or sell it to rebalance, but you will never buy or sell it based on underperformance or outperformance compared to a benchmark.
The funds in your portfolio are low cost and tax efficient.
You don’t stray too far from broad based asset classes. For instance, it doesn’t make any sense to own too much of an ETF index fund that represents “Oil” or “Agriculture.”
Because in choosing “Oil” or “Agriculture” you are implying that those industries are going to outperform the market as a whole. This brings you back to my first comment of not choosing an investment with the purpose of “beating” the benchmark.
For me, the above concepts are important, because over the next ten years, I anticipate that common stocks are going to generate returns at or below long term averages. I don’t want to jeopardize my chances of capturing a return far below that.
If I am going to take all the short term risk in the market on the downside, I want to make sure I capture all of its long term return on the upside.
Dear Coffeehouse Investor;
Can you substitute ETF’s for Vanguard funds in a Coffeehouse Investor portfolio? What is the range of optimum size of coffeehouse portfolio?
There are many different ways to build Coffeehouse portfolios, and yes, you can substitute ETFs for traditional mutual funds in creating a portfolio that is right for you.
Some of the different fund families to consider are
Coffeehouse portfolios can be created with as little as $500 or less, depending on where you have your account.
More on creating a Coffeehouse portfolio tomorrow.
What should be done? First, individual investors should take control of their financial destinies, educate themselves, avoid sales pitches and invest in a well-diversified portfolio of low-cost index funds, like those offered by Vanguard, which operates on a not-for-profit basis. (Even Morningstar concludes, in a remarkably frank study, that low costs do a better job of predicting superior performance than do the firm’s own five-star ratings.) Such a strategy reduces the fees paid to the parasitic mutual fund industry, leaving more money in the hands of the investing public.
Nope, that’s not me writing those words.
That is David Swenson highly regarded chief investment officer at Yale, writing in today’s New York Times.
It is a Saturday morning, and I am playing in a Juvenile Diabetes fundraiser golf tournament later this afternoon.
The outing is being held at the Useless Bay Golf and Country Club, on the south end of Whidbey Island, a pastoral setting, as you can see from the picture above. Of course it is always fun to take my golf clubs on the ferry for a short jaunt across Puget Sound.
I have a couple of hours to kill before the tournament starts, so I am sitting in the dining room, watching the PGA tournament on TV, and reflecting on the ups and downs of the stock market this past week.
From a day to day point swing, it was a wild week on Wall Street.
From a “getting on with your life” standpoint, as one week in the life of a Coffeehouse Investor, it was a big non-event.
What the stock market does over the next two weeks or next two months (or for that matter, the next two years) should be irrelevant to whether or not you reach your financial goals.
That is where your financial plan comes into play.
I am slightly amazed when someone says “The stock market’s recent decline of 12% means I am going to have to go back to work, or delay my retirement by 3 years.”
It’s as if they weren’t expecting a 12% drop in the market.
It is time to deal with reality. There will be times when the stock market experiences a correction of 10% or more. There will also be times when it suffers a bear market decline of 20% or more.
That is the stock market for you.
It is time to plan accordingly, and get on with your life.