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“It is easy. You just chip away the stone that doesn’t look like David”

–Michelangelo Buonarroti’s answer to a question of how difficult it was to create his most famous work–David.

By Steve Schullo

 

Anyone with common sense can manage their money successfully. Michelangelo’s thinking offers an excellent metaphor. In this blog post, I share what I did to begin to “chip away” the superfluous and confusing financial information that “doesn’t look like” an easy to understand portfolio.

Michelangelo said it was “easy” to create David by knowing what to “chip away.” He was also so skilled that he was (and still is) one of the world’s most famous artist. However, extensive skills are unnecessary in the personal finance world. In these days, millions of regular people with common sense knowledge are now do-it-yourself (DIY) investors managing their own portfolio. We have it easier than Michelangelo. All we have to do is locate the completed pieces of a simple portfolio.

Stocks and Bonds

My portfolio begins with two fundamental investments that are in most portfolios—stocks and bonds.  They have been used by pensions, foundations, endowments, insurance companies, banks and millions of DIYers for over a century. So, let’s start with what these prestigious financial firms already use, stocks and bonds. They are the barest of essentials to discover my David.

Once we know what we are looking for, all we have to do is identify and locate the important pieces. All of my money is invested in two giants of the personal finance industry, Vanguard and Teacher’s Insurance Annuity Association (TIAA). I discovered their investments options were already diversified and investment costs low. How nice that they created the broadest and cheapest stock and bond mutual funds in the world (mutual funds are groups of company stocks already grouped by industry or size, how perfect).

To monitor my portfolio, online giant, Morningstar.com, came to my aide. In three mouse clicks and 15 seconds I can see how my portfolio is performing, day or night.

I chipped away all the distractions from financial advisers and financial media “excesses” and discovered my “David,” a simple B.D.F. plan:

1. Balance your portfolio between stocks and bonds. The general rule of thumb is the percentage of bonds equals age (32% stocks/68% bonds from Wall Street. I am 70 years old and thus I have approximately 70% in bonds)
2. Diversified your portfolio across hundreds of industries and by company size (Vanguard and TIAA offer many low cost broadly diversified funds)
3. Pay low Fees (I pay .07% total cost) Note: Vanguard and TIAA have never charged commissions in their history

Ignore all the financial media noise

My portfolio is boring. But boring is good as it does all the heavy lifting. I don’t have to think about it, in fact, I rarely make changes except to rebalance (rebalancing will be discussed in a later chapter). Ninety-five percent of the time, I don’t know nor do I care what the TV financial talking heads are recommending. The financial media panel of “experts” talk endlessly about individual companies and their stocks. Nothing of substance can be derived from these discussions.

I chipped away individual companies out of my plan. I also chipped investment sectors such as technology, precious metals, real estate investment trusts (REIT) or commodities out of my portfolio (mutual funds and sectors are groups of individual companies in similar industries). Sectors and individual stocks are also gambling and speculative with their mindless acronyms and dangerous volatility. I already own all individual companies’ stock. I currently own technology, precious metals, real estate and commodities with 3,300 other companies in my metaphorical “David” –Vanguard’s Total Stock Market Index.

After I discovered the barest of portfolios, the balance between stocks and bonds, I begin to fill in some of the details. With the assistance of Vanguard and TIAA, I completed the next step to my “David.”

Note: The empty pie pieces are additional Vanguard funds. They were left out to maintain focus on the first stage of my portfolio construction.

A simple portfolio starts with your common sense. Once you break through the inertial thinking that we can never manage money without an adviser, the rest of the plan will fall into place. Remember, the financial industry does not make money on common sense. You do. The industry makes money by deliberately keeping their superfluous distractions between you and your “David.” Your common sense will lead you on the right path by putting the pieces of a simple portfolio together and letting the world economies work for you.

 

This chart shows my entire portfolio as of March 31, 2018.

 

Author’s bio

Stephen A. Schullo, Ph.D. (UCLA ’96) taught in the Los Angeles Unified School District (LAUSD) for 24 years and UCLA Extension teaching educational technology to student teachers. Steve wrote investment articles for the United Teacher-Los Angeles (UTLA) newspaper for 13 years. Thrice featured retirement plan advocate in the Los Angeles Times and U.S. News and World Report. He co-founded an investor self-help group 403bAware for teacher colleagues and wrote 7,500 posts in three investment forums since 1997. Frequently quoted by the media, testified at California State legislative hearings and honored with the “Unsung Hero” award by UTLA for his retirement planning advocacy.

For the last twelve years, he serves on LAUSD’s Investment Advisory Committee as a “Member-at-Large” and former co-chair. The committee contains collective bargaining reps from the unions and monitors the district’s tax-deferred retirement plans, 457b/403b, of 55,000 former and current LAUSD employees, worth $2.5 billion in total assets.

He started this blog in 2012 to help all PreK-12 public school educators nationwide, especially his Los Angeles Unified School District colleagues. He belongs to a small national group of 403(b) advocates (mostly teachers) who want close attention to the annuity monopoly of the 403(b). During the last 20 years, over 30 newspaper articles have been published and each one says the same thing, TSAs (Tax Sheltered Annuities) are terrible plans and the salesperson gets the benefit from lucrative commissions and high costs. Nobody in the educational establishment reads these articles NOR talk about the proper place for annuity products publically. We come together at 403bwise.com. Come on over if you want to join us so we can help our colleagues avoid these self-conflicted retirement plans, TSAs.