My Current Investment Strategy

Posted on Wed 24 November 2021 in Money • 5 min read

3 Core Investment Principles

Megan and I started investing money for our retirement in 2010 after reading about how we really should start putting money aside for long-term goals. Trying to figure out an investment strategy as a dumb 20-something (who just had become aware that you actually have to pay off credit cards) was challenging, since there's quite a lot of knowledge that you feel like you have to have so you don't lose what little money you've got. This was right after the financial crises of 2007-2008, so a big market dip was fresh on our minds.

I don't think we became experts, but we found a nice balance of knowing enough to make the best decisions we could with the knowledge we had. The strategy we settled on has done well for us from both financially and mentally. Here are the main principles we use:

  1. Broad index funds (instead of individual stocks)
  2. Automate as much as possible
  3. Don't change the plan in a panic

Broad Index Funds

I have no idea what stocks are going to do well today. I have no idea what sectors are going to do well today. I have no idea what new companies are going to take off, and what old companies are going to adapt to the modern world. Sometimes I read about companies that have consistent quarter-over-quarter growth, but since it wasn't as much as what some people thought it would be, the stock price goes down. There are people who can post a tweet from their phone and cause stock prices to change rapidly. There are companies with no revenue, but have very high stock prices.

My point with all of this is that I don't want to put all my money into one stock, or a few stocks, or even a few sectors or types of stocks. I want a tiny piece of as many stocks as I can. A lot of people want to beat the market, but my feeling is that if I can match the market with zero effort, then I'll be doing just fine. The worst-case scenario for this is if the market is much lower in 30 years than it is today, but in that scenario then we all likely have bigger problems to deal with and no one will be doing any better than me.

The idea of a broad fund also applies to bonds. We have a small bit of bonds as a part of a Vanguard Target Retirement Date fund, which is a mix of stocks and bonds that automatically rebalances over time. This leads to the benefits of bonds as a part of our overall portfolio without having to think about which bonds to buy.

Automate As Much As Possible

When we opened our IRAs, we set it up to automatically deduct our budgeted amount every month and invest in our chosen fund. We also set up automatic 401k investments from our paychecks into the best fund offered by our 401k providers. This automation made it so we didn't have to remember to invest or deposit at any point, which is a good thing if you're forgetful like me.

The other benefit of automation is that it removed the temptation to see what the market was doing on the day of deposit. We didn't even allow an opportunity to try to guess if the market was going to go up or down over the next few days. The money being deposited was done no matter what, and we didn't have to think about the money or what else we could do with it or if we should just hold on to it for a few days in case something happens. This may not be financially optimal, but it was the correct choice for our peace of mind.

Don't Change The Plan In A Panic

The common saying around investments is to "buy low, sell high". As noted above, I have no idea whether today is a low or a high when compared to tomorrow, let alone next year or 10 years or 30 years. During our accumulation phase, our motto has been "buy low, buy high". Just keep buying and never sell in a panic. Buy and hold has worked well for us, because we anticipate any "all-time high" points of the market to be broken at some point over the next 30 years. If the market will be higher later than now, then it's a good time to buy.

Any changes to our plan should be made with a clear mind and not based on short-term guesses by others. Our changes are more likely to be based on how many years we have left before retirement, as that might affect our risk tolerence and timelines. Responding to short-term panic has been shown to be a bad thing, mostly because you can't be sure if any dip or spike will end or continue on any given day. My favorite quote around this is from Paul Samuelson: "The stock market has forecast nine of the last five recessions."

Without going too much into "alternative investments" like Bitcoin or gold bars, the idea of not changing the plan in a panic holds up. There are currently plenty of stories of self-made millionaires from crypto or NFTs, which causes a different kind of panic around missing the boat. My current perspective on this is that not many people write articles about losing money on their bets in these areas, because the root of the value seems to be convincing other people that it's worth paying you more for it than you paid for it. I'm not convinced that this is worth changing our investment strategy at this time.


Here are some links that helped shape my view on investing: