Part 4: Putting It All Together

In Part I we discussed what to ignore in the enormous and complex financial industry and what to focus on–stocks and bonds. The proverbial “needle” in the “needle in the haystack” is found easily. Knowledge of ignoring the financial world ‘s “haystack” is the trick to finding the needle.

In Part II we discussed the six basic components of constructing a straightforward and broadly diversified portfolio. We didn’t have to search far to discover the six major asset classes that all diversified portfolios include:

  1. Large-Cap
  2. Mid-Cap
  3. Small-Cap
  4. International
  5. Bonds
  6. Cash/liquid Funds

(Note: liquidity is money that can be taken out and spent in a manner that doesn’t affect your portfolio’s diversification plan. These accounts may have check cashing privileges. Click here for more information about liquid assets. Vanguard published this article on managing cash).

Pension plans, endowments and foundations with billions of assets must include, as mandated by federal pension laws, a portion of all six. For decades, this requirement has been a positive strategy for pensioners and their families. The proposal is to use this strategy for our individual portfolios

In Part III Dan and I shared how we determined the crucial stock/bond split that was appropriate for our age and risk tolerance and how we rebalance these assets to keep our plan on track.

In this final Part IV, you will see how we constructed an individualized and simple portfolio to control costs and enjoy the average returns of the world’s economies. You too will construct a stock and bond market portfolio which grows from the labor of people working in the production, consumption, exchange, and distribution of goods and services in every developed and emerging market country on the planet. How cool is that? Let’s finish the job so you will not miss another minute of all this positive energy.

Our tasks in Part IV is:

1: Before constructing your portfolio you need to find the money by creating a powerful strategy; paying yourself first by taking advantage of your employer’s sponsored tax-deferred retirement plan; and setting up your financial goals.

And 2: Finding the specific investment companies which track each of the six major asset classes, and employing the passive investing strategy.

Paying Yourself First

To find the money in this crazy and over-the-top consumption culture, we paid ourselves first. This phrase refers to the practice of automatically making a savings contribution or investment from your wages before it reaches your wallet. Every month we invested a part of our wages in our tax-deferred savings accounts at work and spent the rest. This strategy worked to find the money to invest for the future. We were committed to saving regularly no matter what.

Your employer’s tax-deferred retirement plan is a perfect way to do this. Your 401(k), 403(b) or 457(b) plans make the task of saving for retirement convenient. The amount you choose is automatically deducted from your salary every month for as long as you desire.These programs are popular for two good reasons:

  1. they reduce income taxes, and
  2. help pay for retirement.

Fifty million working people take advantage of retirement plans offered at work (see Investment Company Institute report). Depending on your tax bracket, for every $100 contributed to a tax-deferred plan, your take-home pay can be reduced by only $75-$80 (The benefits of tax deferment explained in detail).

 Ignore Emotions (or be mindful of your resistance to save and ignore it)

This wasn’t easy at first. Early on Dan and I felt little enthusiasm for the automatic deductions from our paychecks. We knew we were doing the right thing with this powerful psychological tool of paying ourselves first. We felt it positively a few years later, when our nest egg reached several thousand dollars. Our enthusiasm emerged like a newborn chick breaking out of its shell. We committed, with enthusiasm, to increase our deduction both annually, and also every time we got a pay raise. This evolution in our thinking about living on less income, was a pleasant surprise.

Many Don’t Get It

Many Americans think that living paycheck to paycheck is the only option. Still others don’t bother to take advantage of free money offered right under their noses:  the employer-matching contribution in their retirement plans. They are up to their chins in excessive spending and debt. To put money away to qualify for their employer’s free match was out of the question. Excessive spenders need every penny. It’s difficult to believe how people get themselves into this endless spending culture. Tragically, these hard-working people don’t reach that peaceful place where they can experience less stress with little to no money worries while building a future financially free.

This Evolutionary Thinking is Worth a Second Look

There is help for the excessive spenders. Thus, I think it is worth discussing this phenomenon on how lucky people are who can save money that they will not touch until many years in the future. People can live below their means without suffering to reach financial freedom. The famous book Millionaire Next Door shows how regular working stiffs, without “inheritance or advanced college degrees,” got wealthy.

While many Americans fail to seek a positive behavior about money management, humans are capable of taking advantage of the above benefits by paying yourself first. Our turnaround from non saving to saving is evidence that human beings possess unique abilities. We can and do adjust to many things. This powerful adaptability probably originates in our DNA. Here are examples. California suffers from a severe drought. The ongoing public discussions about the drought everywhere we go forces us to look at our personal water use.

We have completed the usual water-saving efforts by transforming our backyard into desert flora, but we also did something more. We were bothered by the cold shower water going down the drain while waiting for hot water. What a waste, we thought. We started collecting that water in a one-gallon bucket and watered our small vegetable garden. Identical to our “pay ourselves first” commitment, our water saving routine is now a steady, and positive habit — one gallon at a time. Our one huge tomato plant has produced over a 150 organic tomatoes.

Bucket drought

Tomatos

Two Articles that Speak to Shifting Your Attitude towards Spending Habits

The first is a brilliant piece by financial blogger superstar Mr. Money Mustache. It is an insightful article titled What is hedonic adaptation?) The second is a prominent UCLA study on automatic retirement savings enrollment titled Save More Tomorrow. Both Mr. Money Mustache and the UCLA study show that people are fully capable of living on less money by a minute shift in attitude. The Mr. Money Mustache article illustrates that our experiences are more satisfied because a heightened sense of values emerges by doing without the new cars, expensive “toys,” nightly dinners out, buying mansions, and all of the other materialistic baggage that causes unnecessary stress and does not make us happier long-term. The UCLA study, Save More Tomorrow, reported when employees are automatically enrolled in their tax-deferred retirement plans at work, few opt out. Later, when they got a raise, their contributions were automatically increased. Once again, few opted out. These findings speak volumes to our potential adaptation. These positive adjustments are available to all, without undo suffering.

It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for. –Robert Kiyosaki

In our culture, spending is a big problem. It’s well-documented and difficult to resist the 24/7 marketing blasts. If you need a home budget as an antidote, use it (Click here for online tools to help you start budgeting. Websites such as Mint.com, BudgetPulse.com, and YouNeedABudget.com can help keep track of spending and stay within a budget). Use any strategy that will help you live below your means by spending less than you earn (saving is a virtue). It’s never about suffering, denying simple pleasures, or increasing stress. If you feel miserable because you saved or spent too much, reassess your monthly income and expenses. Make a commitment to yourself and your family to invest a part of your earnings in both long-term retirement and short-term liquid savings, and go about your business stress free. It’s ironic how we can live just as easily on 90% of our income as 100%. Mr. Money Mustache and the Save More Tomorrow study have this down to an art and a science respectively.

Goals

Your portfolio should reflect both your short-term and long-term goals (Other goals to consider, but will not be discussed here). As mentioned in Part I, short-term goals are usually liquid cash for an emergency, down payment on a house or a car, the two biggest consumer items. Most investors stash this money in bank savings or money market accounts (helpful hints on emergency planning).

The long-term goal of saving for retirement is our primary challenge in this entire 4 Part Series. How much do we need to save for retirement? Can a 30 year-old know in advance? In order to achieve this goal, how do we know how much to save? Dan and I didn’t know the exact amount for our retirement needs because we were busy working, learning and making investing mistakes and relearning as we went along. Besides, how in the heck can we predict the standard of living and tax rates years in advance?

Education is not a high paying profession. We kept saving and investing what we could, one year at a time for three decades. The annual goal was to build a nest egg by our action plan; to watch spending, and keep saving. Every year we would assess how much we saved and if possible increase our tax-deferred contributions (tax-deferred plans will be discussed next). One thing was certain–our long-term investments would not be spent until retirement. Because how much to save is a universal headache, here are four articles that provide hints to help you decide: click here, here , here and here. One secondary goal, pay off your home mortgage before retiring. Our primary point is to save something now.

Let’s Finish Our Task and Construct A Portfolio that Grows!

In this final section we will be constructing our diversified, low-cost stock and bond portfolio. We will be looking for investments that follow the six primary asset classes. Because these asset classes are so important, let’s review those asset class tables from Part II before we begin the final phase of selecting our funds.

Tables 1 2 3 asset classes

Asset Class # 6. Cash

What do we need to know before selecting an investment that tracks each of our six asset classes? Millions of investors use mutual funds. There are large-cap mutual funds that track large-cap companies, and similarily titled mutual funds for the other five asset classes. This is not as straight forward as it appears, unfortunately. Knowledge of their costs and how they are constructed, marketed and presented to investors will be discussed next.

The Mutual Fund Industry

Mutual funds have been available to investors for a long time. Since the 1920s they have grown into a multi-billion dollar industry. A mutual fund company collects a pool of investors’ money and invest their money in hundreds of company stocks. When an investor owns a share of a mutual fund company he or she automatically owns a share of each of the hundreds of companies in that mutual fund.

Build-in diversification is appealing and easy. But we have a recurring problem. Recall the initial problem we already addressed in Part II about the impossibility of deciding which of the thousands of companies to invest in. Once again, there are literally thousands of mutual fund companies and they outnumber the individual companies listed on the New York Stock and the NASDAQ Exchanges combined. Picking our mutual funds can be just as overwhelming and confusing as picking individual company stocks. Many nonfiduciary brokers or financial advisers are little help as they make the selection process complicated. Under what criteria do we choose?

Commit to memory these four terms:

  1. Load
  2. No-load
  3. Actively managed
  4. Passively managed (Indexing Strategy)

Knowledge of these terms provides giant advantages to investment costs as we zero-in on specific low-cost investment companies. Let’s discuss each next.

Load vs. No-load

The next valuable lesson Dan and I learned was to avoid investments which charge commissions. In the mutual fund industry, they obfuscate the word commission and use “load” instead. Commissions and loads are the same thing. Do not pay for either. My absolutist, hard-line response against commissions may sound insulting, but many knowledgeable individual investors defend paying commissions. There is a long and sordid history of how loads drag down your portfolio returns. Take a look at Table 4 that illustrates how costs eat into a nest egg.

Front-end loads are paid when purchasing an investment. It’s downright criminal, but 5.75% is not an uncommon commission. Ugh. For example, for every $10,000 invested, the commission is $575.00. For every $100,000 invested, $5,750 is the commission. $5,750 is just for the opportunity to invest in a fund that anybody can invest in and save over $5000. Ouch.

If you had not paid a commission going into the fund, watch out,– there may be a “back-end” commission–fees charged when money is taken out (also known as a back-end load). Commissions and ongoing annual costs in excess of 1.5% per year are terrible prices over the long-term. If you think you did not pay commissions, take a hard look at what your financial adviser or broker is doing with your account. Every time your broker trades stocks, mutual funds or bonds within your account, commissions may be charged.

Actively Managed vs. Passively Managed

We also learned that most mutual funds are actively managed. There are several problems with actively managed mutual funds:

  1. Expensive: Actively Managed funds are costly. Investors are charged for having a manager or a team of managers buying and selling stocks. Managers and the mutual fund company get paid whether the value of the mutual fund that you or I own goes up or down. We take the risk and they make money, always.
  2. Taxes: When stocks are sold at a profit, the mutual fund shareholders have to pay capital gains taxes. Capital gains taxes are not charged in tax-deferred retirement plans, however tradings costs might be charged with either after-tax or tax-deferred investments.
  3. Style Drift: If the name of a mutual fund had “Small-Cap” in its title, it is supposed to track small-cap companies right? Not necessarily. Too many actively managed mutual funds track one asset class, but end up tracking additional asset classes. For example, a small-cap mutual fund many succumb to “style drift,” meaning that the manager doesn’t want to sell the growing small-cap companies that are now mid-cap. Selling those high performing stocks which have grown from small-cap to mid-cap stocks might jeopardize the manager’s year-end bonus, when he or she is evaluated. Consequently, the investors “think” they have a small-cap investment when a portion of the small-cap stocks “drifted” into a mid-cap asset class. This is an unseen and unknown risk. It is probably okay in the short-term, but over time that small-cap mutual fund owns fewer small-cap companies. Thus, the investors portfolio which is supposed to have a dedicated mid-cap fund already, becomes over diversified with mid-cap companies. This changes the risk/return profile of the investor’s portfolio.
  4. Unknown Diversification Problems: Our diversification plan can drift out of whack and we may not know it. Of course few complain during a bull market when everything grows. When the market crashes, however, the shareholders diversification plan that grew out of whack, can put them in more risk than was originally planned. This is not good. Just as a ship or plane follows a predetermined course, your portfolio must also follow your plan’s “course.” But it’s certainly great for the manager and his or her bonus. As previously mentioned, the managers still get paid no matter what the stock market does to investors.

 Sectors

The vast majority of actively managed mutual funds invests in many parts of the stock market such as “industrials,” “retail” or “healthcare.” These are called sector fund investing. Let’s digress and talk about the following eight sectors of the S&P 500 Index.

  1. Consumer Durables/Staples: Represent big-ticket items that are not purchased frequently, cars, homes, refrigerators, washer-dryers.
  2. Consumer Cyclicals: Leisure or discretionary goods and services, hotels, entertainment, travel. Consumers spend more on non-necessary items when times are good than when times are bad.
  3. Energy: Crude oil and natural gas exploration and production firms, oil and gas firms, refiners and even drillers.
  4. Financials: banks, financial services.
  5. Healthcare: hospitals, clinics.
  6. Industrial/Basic Materials: companies involved in the discovery, development and the process of raw materials. Mining, chemical producers and forestry products.
  7. Technology: computer hardware and software.
  8. Utilities: natual gas, water, and electricity produced and delivered to homes and businesses.

The financial news pundits frequently talk about which ones of these sectors are performing well and which are lagging. It is useless information. Dan and I have extensive experience with one power house, but short-term, sector investing–technology. When Dan and I learned about mutual fund companies built-in diversification feature, we quickly transferred our five combined 403(b) annuities to number 7 above–technology sector mutual funds. These mutual funds weren’t the usual mutual funds from the six core asset classes. Twenty years ago that level of diversification was still a few years away in our learning curve. We had to experience the technology bubble and burst first. We erroneously thought that the technology mutual fund was enough diversification with hundreds of technology companies. The problem was that half or more of the companies in each technology sector mutual fund were the identical companies. So, when those companies’ stock crashed, the mutual funds technology sector and our entire portfolio crashed.

Our portfolio had three massive problems. Thus, we learned three valuable lessons:

  1. It was not diversified among the six asset classes.
  2. Our portfolio had 100% stocks and no bonds. Imagine our ignorance, as we were in our middle 50s and early 60s. We had not yet discovered the stock/bond split.
  3. We erroneously thought that 1.1% cost of our sector funds were inexpensive (today our portfolio costs .13%).

This is precisely why we believe that sector investing is speculative. Sectors are not the core asset classes that we are looking for and, in addition, can be excessively risky.

Caution: avoiding commissions and active management costs are effortless; but you will encounter investors who will argue with a straight face that paying these extra costs “provide value”–higher performance and a helpful “adviser.” Don’t believe a word of it. These unfortunate investors need an ego to feed and will argue their erroneous point with past performance. I don’t understand these overzealous and overconfident investor’s who defend paying commissions. Past data is 100% accurate, but it reflects stock market booms and busts of the past and is dangerously beside the point. Do not choose investments based on past performance. Do not take the advice of a commissioned broker, adviser, or an overconfident friend who brags at parties about his (or her) investment acumen, especially if alcohol has been consumed.

Read the Prospectus

By law every security, individual stock, bond and mutual fund must send a prospectus to potential investors detailing information about the company’s or mutual fund’s goals, risk, past performance, etc. This lengthy and complicated document has legal waivers and specifies that “past performance does not guarantee future performance.” Always be mindful that the future is all we have and is 100% unknown. Never lose your way with catchy 30-second sound bites from the high priests of finance and their 24/7 mouth piece, the financial news media machine.

We need investments which mechanically track each one of the six asset classes in our prescribed plan. The beauty of the next strategy is simplicity: broad diversification, low costs and the stock/bond split.

Introducing the Passive Strategy with Index funds

The answer to actively managed mutual funds and their loads/commissions, trading costs, capital gains taxes and style drift has been around since 1976. That’s when John Bogle introduced the now world famous Indexing strategy with his S&P 500 Index along with his new investment company The Vanguard Group. Mr. Bogle is still sharp at 85 years-old preaching his same message: invest in all available companies at low-cost and “hold them forever.” Warren Buffett, the world’s most successful investor agrees. Read on.

After years of trial and error, Dan and I have most of our money under passive management. We abhor trading. Our trades are limited to either selling some stocks to buy bonds, sell bonds to buy stocks, or selling to support our retirement. We only trade to bring our portfolio back to our original stock/bond split. We also avoid timing and competition and the fruitless effort to beat the market averages, as these have been proven by many academic reports to be losing strategies over the long-term. We manage our money with a simple and easy to understand plan that doesn’t take our precious retirement time away from the things we value: travel, writing blog posts/books, raising veggies, volunteering, enjoying the outdoors by hiking, take our dog, Sammy, for walks. For the last twenty years the active/passive debate has raged on. The active management aficionados refuse to concede that the passive strategy has the upper hand when it comes to the data to support it:

  1. Index funds make the construction of a simple portfolio even simpler
  2. Fees eat into returns
  3. Picking stocks ahead of time to beat the averages is fruitless
  4. Study after study shows higher returns with the passive strategy (See Rick Ferri’s article) and Vanguard’s outstanding article, The Case for Indexing Fund Investing).

Locating the specific investments and investment companies

After years of investing with brokerage firms Schwab and Scottrade, and no-load, mutual fund companies such as INVESCO, Fidelity, and others, and after several trial and errors, Dan and I migrated our nest egg to The Vanguard Group. We constructed our portfolio with this outstanding company for its low-cost and indexing philosophy (aka , the passive investing strategy). Way back, Vanguard was not available in our 403(b)s . (My free pdf book, Fighting Powerful Interests, discusses the difficulty in including low-cost investments in your employer’s plan).

Why We Invest In Vanguard Group

All of the portfolio asset classes discussed in detail in the four-part series are available in this one company–Vanguard Group. Vanguard changed not only how Dan and I invested, but how over 20 million individual investors did too (Click here for more information). Vanguard follows the same investment philosophy/principles of passive management, low costs, think long-term, build wealth slowly in broadly diversified investments that Dan and I value. Like us, Vanguard abhors trading to beat the market. Furthermore, our money is less volatile to bear markets because Vanguard investors, our investor colleagues, are less likely to panic sell. Investors staying put during market turmoil is, by itself, a huge advantage–less panicky investors, less volatility and the declines should be less.

The Vanguard Group has Three TRILLION Dollars in Assets!

According to the independent source, Lipper INC., the average mutual fund expense is 1.02%, but Vanguard is only .18%. Not surprisingly, the company has over $3 trillion invested for over 20 million investors. All of these people cannot be wrong. Because of these structural advantages, Vanguard is now the largest and most prestigious investment company in the world devoted to the ordinary investor. (Blackrock has more assets but is devoted to institutions).

TIAA CREF has an identical investment philosophy as Vanguard with nearly one trillion dollars in assets with no commissions charged and reasonable fees. Fidelity Investments is a large mutual fund company, but charges commissions on some of its funds.

As we have said throughout this series, the choices are overwhelming everywhere you go in the financial industry. Vanguard is no different. If you are new to Vanguard, please bare with me as I walk you through the six asset classes to construct your portfolio.

Start at this introductory page to begin your search. Vanguard has over 100 investment options and with several different accounts available. No matter what your choices are in your employer sponsored plan, your asset allocation and the stock/bond split with the lowest cost funds will remain the goal. Unfortunately, I cannot elaborate for those folks who have Fidelity Investments, TIAA CREF or Blackrock in their employer plans. However, the search for the six asset classes remains the same no matter which investment company your employer has made available to you.

Asset Class # 1

Let’s start with the Large-Cap asset class. At the Vanguard search page, as you type “Large-Cap,” the following choices should drop-down in the search window:

·         Vanguard Large-Cap Index Fund Investor Shares (Ticker: VLACX) Min: $3,000, .23% Cost.

·         Vanguard Large-Cap Index Fund Admiral Shares (Ticker: VLCAX) Min: $10,000, .09% Cost

·         Vanguard Large-Cap ETF (Ticker: VV) .09% Cost. (ETFs or Exchanged Traded Funds are fine choices. FAQs about ETFs). The primary differences between the three choices are price.

Do not fret about the additional “Large Cap Value” or “Large Cap Growth” Funds. We are keeping with the theme of simplicity. “Growth” and “value” investing is beyond the purposes of this beginning article. Here is a link for further reading for growth vs. value investing.

Asset Class # 2

Next, let’s search for the mid-cap investor share class, admiral shares and an ETF:

·         Vanguard Mid-Cap Index Fund Investor Shares (Ticker: VIMSX) Min: $3,000, .23% Cost.

·         Vanguard Mid-Cap Index Fund Admiral Shares (Ticker: VIMAX) Min: $10,000, 09% Cost.

·         Vanguard Mid-Cap ETF (Ticker: VO), .09% Cost.

Asset Class # 3

Here are the small cap asset class choices. I found them for you:

·         Vanguard Small-Cap Index Fund Investor Shares (Ticker: NAESX)  Min: $3,000, .23% Cost.

·         Vanguard Small-Cap Index Fund Admiral Shares (Ticker: VSMAX) Min: $10,000, .09% Cost.

·         Vanguard Small-Cap ETF (Ticker: VB) .09% Cost.

Lets broaden our search for the International Stock Markets of the world’s economies:

Asset Class # 4

Here are the International asset class choices:

  • Vanguard Total International Stock Index Fund Investor Shares (VGTSX) Min: $3,000, .22% Cost.
  • Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) Min: $10,000, .14% Cost.
  • Vanguard Total International Stock ETF (VXUS), .14% Cost.

Asset Class # 5

Bonds can be complex. Thus, to get you started, there is one bond fund that contains two or the three bond categories shown in Table 3 above. The total bond market index invests in United States domestic government treasuries and corporate bonds. I would not be concerned about international bond exposure at this time. Here is the Vanguard Total Bond Market Index:

  • Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) $3,000, .20% Cost.
  • Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) $10,000, .07% Cost.
  • Vanguard Total Bond Market ETF (BND), .07% Cost

The Vanguard Total Bond Market Index allocates 30% in corporate bonds and 70% in U.S. government bonds of all maturities (short-, intermediate-, and long-term issues). Click on these links for an explanation of bond maturities and duration.

Asset Class # 6

Finally, our last asset class is CASH. Dan and I have used the Vanguard Prime Money Market Account for years.

  • Vanguard Prime Money Market Fund (VMMXX), .16% Cost.

This account offers check cashing privileges, so it can work like your bank or credit union checking account. We use it for large purchases: house remodel, trips aboard or auto purchase. Our credit card and checking accounts are located at our nearest Credit Union. Credit unions usually charge the lower service fees than the big banks.

Portfolio Examples of Vanguard’s Six Asset Classes

Below are two portfolio examples for an older and a young investor. The portfolios between these two extremes should be adjusted to your bonds-by-age rule, as illustrated in Part III (Stock/bond split).

Portfolio example 75 year old

Portfolio example for 25 year old

I hope you found this four part beginning investing series helpful. All of the ideas in this series have been replicated, used and recommended by many financial professionals. In the reference section is a list of financial authors and their websites that I read to learn about investing.

Be Patient

Our final comment on this series cannot be taught. Humans have a difficult time with patience. We want things now, no exceptions. Exercising and practicing patience and persistence are powerful skills of the mind and attitudes that result in reaching your goals, whether those goals are educational, professional, financial or as the Buddhists say, to become enlightened.

We know people who have attempted short-cuts in life. They almost always were disappointed. When it comes to money and investing, slow growth over a working career is almost always superior over the get-rich-quick schemes. There are now and never have been over night get rich quick schemes that worked consistently. Sure, there are a few lucky people who win big in the lotto but there are articles and books on how 70% of lotto winners end-up losing all of their winnings. How can that be? One of their major problems is not knowing how to manage a windfall and dealing with family demands of a share of the winnings.

The biggest advantages of building wealth slowly is that the mistakes and missteps taken along the way can be addressed. As we slowly build wealth, we learn many ancillary skills, such as knowing with confidence, that you money will grow over time and discerning which people in your family knows how to handle money.

Frugal living reduces stress. Going on vacation instead of worrying about two new car payments or a house too big for your means makes a huge difference in your quality of life. The last thing you want to have is a house and car that owns you, rather than you owning them. Stress over money can takes a huge toll on your physical health and well-being, but it can be addressed with some effort. For Dan and I, it was a no brainer. We valued our trips aboard for relaxation and education. We valued our 403(b)s way more than owning trendy expensive cars parked in the garage that required pricey maintenance, premium gasoline, hefty insurance premiums and annual registrations.  Our used cars got us from one destination to the other for years and the money saved was astonishing.

Additional Assistance

If you need a financial professional to help you get started after reading this series, there are two sources for choosing a professional to assist you with setting up  your plan or modifying your current portfolio.

  1. Call Vanguard and let one of their advisers help you. They can help you transfer your money to Vanguard from any other company.
  2. Or hire a fee-only financial planner in your neighborhood from either of these two professional organizations:
    1. Garrett Planning NetworkNational
    2. Association of Personal Financial Advisers (NAPFA).

More Resources and Information to Help You Learn More.

“Lazy” or “Couch Potato” Portfolio Concept

Couch

(Cartoon reprinted with paid permission)

“Investing should be dull, investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.” –Nobel Economist Paul Samuelson.

“Indexing may not be fun or exciting, but it works.” Charles D. Ellis, author: Winning the Loser’s Game.

Lazy Portfolios are exactly what Dr. Samuelson’s and Mr. Ellis’s quotes advise—each is an unexciting portfolio sans micromanagement. As we said throughout this four-part series, excitement is not part of the slow-as-you-go investing experience. Dan and I were excited when our portfolio grew a half million dollars in four months at the height of the dot com bubble.  Excitement during a bull market is not always a good thing. In fact, if your portfolio is making over-the-top returns (much higher than the averages) it should be a warning to take a look at your stock/bond split. You may be taking too much risk that you will later regret when the market crashes.

Lazy Port­fo­lio Authors’ Websites for additional Portfolio Samples

http://fundadvice.com

http://www.coffeehouseinvestor.com

http://www.scottburns.com

http://www.investmentadvisornow.com/

http://www.daretobedull.com/index.asp

http://www.efficientfrontier.com/

http://www.portfoliosolutions.com/who-we-are-2/staff-bios/

http://crawlingroad.com/blog/

http://david-swensen.com/

http://www.investorsolutions.com/

Check out John Bogle’s Followers: Affectionately titled “Bogleheads”

Bogleheads.org: The epitomy of do-it-yourself investors. This website lists all of us who follow John Bogle’s investing philosophy of low costs, diversification and slow-growth over a lifetime. The discussion forum has over 42,000 registered individuals and 1.5 million views a month. There are plenty of savvy people who will answer your questions. It is one of the most popular investment focused websites in existence. You don’t have to register to lurk and read as much as you want. If you want to post, however, you will have to register. It’s all free. Please join this wonderful group of dedicated people from all walks of life to continue Mr. Bogle’s principles and learn to construct a low-cost portfolio for yourself.

This link will take you to bogleheads’ favorite lazy portfolios: http://www.bogleheads.org/wiki/Lazy_portfolios

Be Wary of K-12 School District 403(b)s

K-12 school districts’ 403bs are rife with conflicts of interests and excessive costs. Read my 3-part interview with fiduciary attorney, W. Scott Simon, published on Morningstar Adviser and the free pdf down-loadable book, Fighting Powerful Interests before starting a 403(b) plan.

Los Angeles Unified School Districts Award Winning 457(b) Plan

Read LAUSD’s Teacher, Larry Shoham’s guest article on the Roth option that might be Launched in 2016: http://latebloomerwealth.com/retirement-planning/a-case-for-the-roth-457b-at-l-a-unified-school-district-or-your-employer He needs support. Any LAUSD employee can reach him through a special email he created: roth4lausd@gmail.com Please email him showing your support.

Be Wary of 401ks too

401ks may also charge excessive fees if you aren’t paying attention. See PBS Frontline documentary: The Retirement Gamble for an in-depth study of these plans.

Additional Reading

Click here for a series of articles by Forbes discussing financial literacy in the United States.

Successful Investing: http://dunbarfinancialservices.com/dunbarfinancialservices.aspx?MyMenu=Submenus/ArticlesInv&MyPage=articles/Universalarticle.asp?myCategory=6&myArticle=12&SessionID=434139406

After your plan is up and running: http://www.marketwatch.com/story/why-bogle-and-buffett-tell-investors-to-ignore-market-noise-2015-06-04

Kristof on dividend paying stocks: http://www.chicagotribune.com/business/sns-201505141100–tms–kplngmpctnkm-a20150601-20150601-story.html

Online Investing Tutorials and Articles for the Beginner:

 

Waiver: Dan Robertson and Steve Schullo are not licensed financial or investment advisors, and the information and experiences shared as do-it-yourself investors contained herein is for informational purposes only and does not constitute financial advice. Throughout our blog, we share our experiences with finances as a couple of ordinary consumers, not as professionals. Do not start, change or modify your portfolio based on the information in this blog post alone. Any ideas, investment strategies, links to fee-only professional advisers and particular investment companies discussed in this article or in our blog are a reflection of our experiences and should not be construed as a recommendation. Consult with a tax or financial professional.

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