Wednesday, December 8, 2010

How to Guarantee Long-Term Investment Success

The rules are actually quite simple.  So simple they may surprise you.  The investment industry spends a great deal of energy trying to convince people they can only succeed if they purchases expensive and exotic products. However, nothing could be further from the truth.  The keys for success are:
  1. A systematic savings plan.
  2. A long-term investment horizon (25-40 years).
  3. A highly diversified portfolio.
  4. Periodic portfolio rebalancing.
That's all it takes.  No need to overcomplicate things hopping from one hot investment to the other.  Simplify your life by owning all investment classes.  Sure, this approach won't make you rich overnight.  If you're looking for that kind of action, Vegas or Atlantic City are the places to go.  Investing should be boring like watching paint dry and grass grow.  The most difficult thing is knowing what asset classes to invest in and the appropriate allocations for your risk tolerance.  These are complicated topics, so I'll close this post by listing the major asset classes I use to determine my asset allocations:
  1. Large Cap
  2. Large Cap Value
  3. Small Cap
  4. Small Cap Value
  5. REITs
  6. International Large Cap
  7. International Large Cap Value
  8. International Small Cap
  9. International Small Cap Value
  10. International REITs
  11. Emerging Markets 
  12. Government Bonds
  13. Corporate Bonds
  14. High-Yield Corporate Bonds
  15. International Bonds
  16. Emerging Market Bonds
  17. Precious Metals/Commodities
You'll have to determine the lowest cost investment options in these areas that meet your criteria.  Many people recommend low-cost ETFs and index funds.  Rebalancing the portfolio once a year will mechanically enforce a buy low sell high discipline.  You just have to have the fortitude to stick with this plan through thick and thin, and ride out any black swan events (like 2007 - 2009).  In the end, you'll be able to retire richer than 95% of your friends.


  1. This is very pragmatic advice. It's a shame that there is so much cloak and dagger in the industry.

  2. Well put! There are a lot of places in life where people spend their whole life searching for an answer when it is right in front of them. This post answers an important question people are trying to answer.

  3. The simple way is the better way. This kind of information is kept hidden from investors because Wall Street can't make any money on it. The average investors are chasing stocks and the latest hot mutual fund. The people with this info are sitting back and enjoying the ride.