Skip to main content

Best Investment Strategy for the New Year

In early 2020, I answered the following question posed on QuoraWhat will be the best investment strategies for late 2019 going into 2020? Here is the answer I wrote, along with comments today as an update for 2022. 

I used this strategy in 2021 and my portfolio returned 16.09% for the year. While not as much as the S&P 500 (about 30%), it did yield 5.9% in income, which was my objective, since I'm retired and looking for income). 

I don’t really change my strategy, which is long-term. I may change the allocation of my portfolio, based on current events.

While you could be in cash 100 percent right now, you would not have any earnings on your investments. In fact, you’d be losing about 2 percent annually due to inflation. So that’s not a very good strategy. (For 2022, this would be closer to 6 percent inflation).

While it is probable that there will not be a recession in the next few months, if we created a strategy that assumed the worse, we might miss the opportunities for some great earnings in the meantime. (There was a recession in March 2020, caused by an economic shutdown from Covid. It was short-lived and not the type of recession I had in mind).

So this is what I recommend as an overall strategy:

  1. Have a written investment plan that outlines your risk tolerance and how you will allocate your resources. For example, if preservation of capital is the overriding goal, go heavy on money markets and bonds. Or if your risk tolerance (or you are young), go for high-growth investments, or at least those that have the potential, such as small caps, or something along those lines.
  2. Most stock broker’s web sites will let you design your portfolio based on these factors. Schwab offers customized wizards to design a portfolio based on your age and risk tolerance. Even if you are not a client, you can access a lot of information on Schwab’s website. Start with 3 ways to build an all ETF portfolio.
  3. Always have an exit strategy, because you never know when the market will turn. Normally, the stock market will begin a downward leg into a correction or bear market before a recession actually is formally announced. Use stop orders to automatically exit your positions and sweep the funds into money market funds.
  4. Learn how to hedge your portfolio, if you think this is right for you. Again, Schwab has some advice on this: How to hedge your portfolio.
  5. Part of your investment plan should be continuing education that covers different investment topics. The more you know, the better investor you will become. I try to read at least five or six books a year on investing, economics and history. And I subscribe to different newsletters for different perspectives.

I only cite Schwab because I happen to be a client. Other brokerage firms such as Vanguard and Fidelity offer the same type of information and services.

For example, I ran their wizard for ETFs, based on “I want income stability and preservation of capital,” which is a conservative strategy. The recommendation was:

  • Large cap ETF (15%), International (5%), Fixed Income (50%) and Cash Investments (30%).

For “I am concerned about a growth and value, and have good tolerance for risk (aggressive):

  • Large cap ETF (50%), small cap (20%), International (25%), Fixed Income (0%), and Cash (5%).

Of course, there are three more strategies between those two extremes.

You would re-balance every three or six months.

However, a buy and hold forever strategy that you hear about is not what I recommend. Read Ken Moraif’s book Buy, Hold, and Sell, to get you started with this philosophy. Why would you hold during a bear market and lose 50 percent of your portfolio’s value?

Learn about trend investing, to supplement your investment knowledge.

One of the key things to remember is that most of the “prophets” and talking heads of the media are just noise. Learn enough to make your own decisions.


(For 2020, the above advice stands the test of time.)

Comments

Popular posts from this blog

California: A Model for the Rest of the Country, Part 2

Part 1 here . On Leaving the Golden State Guest Post by NicklethroweR . Posted on the Burning Platform. The fabled Ventura Highway is all that separates my artist loft from the beach where surfing first came to the United States. Both my balcony and front patio face the freeway at about eye level and I could easily smack a tennis ball right on to the ever busy 101. Access to the beach and boardwalk is very important to a Tourist Town such as mine and I can see one underpass from my balcony and another underpass from the patio. Further up the street are two pedestrian bridges. Both have been recently remodeled so that people can not use it to kill themselves by leaping down into traffic. The traffic, just like the spice, must flow and the elites that live here do not like to be inconvenienced as they dart about between Malibu and Santa Barbara. Another feature of living where I live would have to be the homeless, the insane and the drug addicts that wander this particular

Proper way to calculate CAGR using T-Sql for SQL Server

After reading (and attempting the solutions offered in some) several articles about SQL and CAGR,  I have reached the conclusion that none of them would stand testing in a real-world environment. For one thing, the SQL queries offered as examples are overly complex or don't use the correct math for calculating proper CAGR. Since most DBAs don't have an MBA or Finance degree, let me help.  The correct equation for calculating Compound Annual Growth Rate (as a percentage) is:  Some key points about CAGR:  The compounded annual growth rate (CAGR) is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. Investors can compare the CAGR of two alternatives to evaluate how well one stock performed against other stocks in a peer group or a market index. The CAGR does not reflect investment risk. You can read a full article about CAGR  here .  To calculate the CAGR for an investment in a language like VB is pretty straight

Top Five Consumer Cyber Security FAQs

Business, technology, environmental and economic changes are a part of life, and they are coming faster all the time. All of these changes and advancements can be distracting and make us more vulnerable to cyber scams. That's why protecting your credit is a critical part of protecting yourself from cyber security threats. Security researchers have reported that hackers and scammers are using any opportunity or vulnerability to target both individuals and companies. You may have already seen these attempts in the form of fake emails or calls. Here are the top five questions Equifax ®  has received about how individuals can protect themselves from cyber security threats and help to improve your credit protection. 1. How can I better protect my credit? Check your credit reports frequently. You can get free credit reports from the nationwide credit reporting agencies (Equifax, Experian ®  and TransUnion ® ) at annualcreditreport.com. Check your credit reports frequently to closely moni