Our Stock Picks From Now Till... Forever.
"When should I start investing? When should I start!?" You may be thinking by now.
My advice to you -- start now. (As long as you’re got your f– money ready!) Here’s how:
Call an investment management company. I highly recommend you use Vanguard. Vanguard is owned by the funds themselves. Therefore it’s owned by the investors themselves -- owned by you, like a cooperative. It is not owned by the stock analysts and brokers who make money off of your fees. And the founder, Jack Bogle, is the creator of the index fund, the head-honcho of the fun-hogs.
Oh, look. Here’s their phone number: 877-662-7447. So you can do it, like, now. Once you are on the line tell them you’re brand new to this whole gig. Give them that cute, nervous newbie giggle. They will laugh back and be excited to talk to you!
Once you get set up with an account, you’ll need to choose which index funds to invest in.
At this point your are beginning the first of two simple financial phases in life. You are starting your Wealth Accumulation phase – growing your stash!
It's obviously from the secret to investing that we are going to leverage the fun hog's secret weapon -- index funds. The way that index funds differ is by which market they relate. Index funds can relate to the total US stock market, US small capital stock market (the US’s smaller publicly traded businesses), the total international stock market, total US bond markets or even something like all cloud computing companies in the stock market, etc.
In my post about the savings ratio I mentioned a couple who’ve built their own home in Colorado and hit Financial Freedom at age 30. They used a portfolio composed of 100% stocks index funds (stocks) and 0% bonds index funds (bonds) as their ship that sailed them to financial independence.
This portfolio weight (100 // 0) will cause the lows to be a bit lower, but it will also cause the overall long term return to be greater. That's what you're looking for anywhere. We're playing the long game.
The only thing you need to do to take advantage of this greater long term return is simply not leave the market during its lows! During it's lows you simply keep adding your monthly stash amount.
This is great because you know that market lows/crashes will happen multiple times during your lifetime. And hell, you are even excited by market crashes! For you know that: 1) You now get a better price for your shares, 2) Your job is producing your spending money. So there is no reason to leave the market (sell) because you don't need the money, 3) And you know that human ingenuity will always drive the recovery of the market.
Here's a portfolio that would do the job. To make your purchases simply invest your savings ratio amount in these proportions every paycheck/month:
VTSMX (70%) - Vanguard Total Stock Market Index Fund
VXUS (30%) - Vanguard Total International Stock Market Index Fund
VTSMX is a fund that owns all the stocks in the United States. Here you are purchasing a small portion of every sized company in the US. So that means all the stiffs from the cashiers to the CEOs are working for you! And the expense ratio is incredibly small at .05% which is great!
The only other fund, VXUS, holds a the same thing, but for all the international companies (excluding the United States). This holding is part of the portfolio to act when the United States markets slow. For example when the United States and all major industrial countries were dropping during the 2008-2009 Financial Crisis, China which was still developing its underdeveloped western and central regions continued to grow. This diversifies your portfolio across markets.
I recommend the 70% US and 30% international equities holdings because they have produced the best returns with the least volatility over the last about 30 years. Here check it out:
And that's it! You simply do this through your Wealth Accumulation phase until you hit your financial freedom number (25 times your yearly spending!). Then you move into the only other phase in your financial life, your wealth preservation phase.
So once you hit financial freedom you can convert to this 80% stocks, 20% bonds portfolio structure dubbed The Core Four. This portfolio structure is used by the couple of Fun-Hogs who’ve reached financial freedom and are traveling South America with no worries of ever working again.
All you're doing here is converting 20% of your portfolio to contain this bond fund portfolio, VBMFX, holds 30% corporate and 70% government issued bonds of all maturities. When you purchase this bond index fund the money is being lent to the corporate and governmental entities (not one, like hundreds or thousands!) involved with the fund. They are borrowing the money for different lengths of time (short, medium, long-term maturities) to fund hundreds of different projects and activities. They then pay it back at variable (changing) interest rates.
The bond index is part of the portfolio during Financial Freedom to grow when stocks are going down in theory. History has shown that as interest rates rise -- stock prices rise and bond prices fall. As interest rates fall -- stock prices fall and bond prices rise. With this bond index you are diversifying your index fund based portfolio across asset classes (stocks // bonds).
This 80 // 20 split is a sensibly conservative approach for most investors. The reason being is that bonds are less volatile than stocks. So by having 20% of your portfolio invested in bonds you are protecting your portfolio from taking as steep a drop as the market when the market takes its dives. (Which, duh, the market will.)
Helping your portfolio combat these drops becomes a bit more important after you reach financial freedom. Reason being that at this point your portfolio is producing your spending money which is empowering you travel, surf, start a fun small business, join a band, etc.
Ok, you’re ready to invest! Seriously like more prepared than a huge population of the US. So feel confident. Go! Start! Seriously!
If you’re not set with that 4 months of savings in your stash yet, we’re going to dig into epic ways (cars, food, exercise, travel, etc!) to boost your savings ratio so you can be soon!
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