When I speak about my Gone Fishin' portfolio at financial conferences around the nation, I often tell investors not to watch MSNBC, CNBC or any of the other investment networks.
Members of the audience sometimes find this comical - or even hypocritical - since I'm on these networks occasionally myself. But if you watch these channels regularly, I promise it will make you dumber and poorer.
Why? The underlying premise of these networks is that there is constant breaking news that you need to react to immediately.
Oil prices are up. What should you be buying? The Fed has cut rates a quarter point. How should you respond? Warren Buffett says the recession will last longer than expected. What should you be selling?
The financial media parades one so-called "expert" after another in front of you. Each offers different opinions on the economy and the markets. Is that because you'll profit by reacting to every government statistic, earnings release or economic forecast?
Of course not. The circus of activity is there to attract viewers. That keeps advertisers happy and the networks' bottom line growing. But as a viewer and investor, it costs you money.
Wall Street and the financial press spew out so much analysis and so many opinions each week, most investors lose sight of the big picture. And that's unfortunate…
6 Factors That Determine Your Investment Portfolio Value
In essence, there are only six factors that determine the long-term value of your investment portfolio.
- How much you save.
- How long your investments compound.
- Your asset allocation. (How you divide your portfolio between stocks, bonds and other investments.)
- Those assets' annual return.
- How much you pay in annual expenses.
- How much you pay in taxes.
That's it. Whether you're investing $10,000 or $10 million, these six factors will determine your eventual net worth.
Of all these factors, the only one you cannot control is the fourth. You cannot know with any certainty what stocks or bonds will return from one year to the next.
More sophisticated investors often say, "Well, of course no one knows for certain, but you have to guess."
No, you don't. And you shouldn't.
Rather than guessing or pretending you have answers to unanswerable questions - like what the stock market will do this year or where interest rates are going - you can use an investment portfolio philosophy that allows you to capitalize on the uncertainty inherent in the markets.
The Gone Fishin' Portfolio
For example, five years ago I created "The Gone Fishin' Portfolio" for The Oxford Club, the world's largest financial fellowship, where I serve as Investment Director.
The portfolio is breathtakingly simple. All we do is divide our money among different asset classes - like stocks, bonds, precious metals and real estate investment trusts - and then rebalance once a year to bring each class back to our original percentage.
It works like a charm. The portfolio has beaten the S&P 500 every year, while taking much less risk than being fully invested in stocks.
We also back-tested the system through the bear market of 2000-2002. Again, it beat the market every single year.
That's what you want, an investment portfolio that holds up well when the markets are down - and sprints ahead when the market is moving higher.
Since its inception, The Gone Fishin' Portfolio has compounded at 17.3% a year. And this is an extremely risk-averse approach, making it the perfect home for what I call your "serious money."
The 8 Advantages of The Gone Fishin' Portfolio
There are eight primary advantages to using The Gone Fishin' Portfolio…
- It prevents you from being too conservative or too aggressive, so your investments neither tread water nor blow up due to crazy risk-taking.
- It eliminates shortfall risk, the risk that inflation will destroy your purchasing power over the long haul. (It keeps your investment portfolio from kicking the bucket before you do.)
- It requires no economic forecasting or market timing.
- It eliminates individual security risk. (There is no chance of holding a WorldCom, Enron or any individual stock or bond that causes your investment portfolio to crater.)
- It is exceptionally cost effective. You will do a complete end run around Wall Street, paying nothing in brokerage commissions, planning fees, sales loads, or 12b-1 fees.
- It is highly tax efficient, allowing you to defer capital gains taxes each year. (That keeps your net returns higher.)
- It is based on the only investment strategy ever to win the Nobel Prize in Economics.
- And, finally, it is so simple to implement, you can do it yourself in less than 20 minutes a year. (The rest of the time you are encouraged to travel, play golf, or "go fishin'.")
How does one investment system do all these things? I don't have the space to tell you in this column. But I wrote a book - out this week - that explains exactly how it's done.
It's called "The Gone Fishin' Portfolio" - and the subtitle says it all: "Get Wise, Get Wealthy… and Get On With Your Life."
This book is the distillation of the best things I've learned in 23 years as a research analyst, portfolio manager and investment advisor. (As I sometimes tell my readers, I've made the dumb mistakes so you don't have to.) I can save you a lot of time - and a boatload of money - by showing you how to profit from my hard-earned experience.
The Best Reason For Using the Gone Fishin' Portfolio
However, I still haven't told you the best reason to use The Gone Fishin' Portfolio. The high returns and low risk are only the beginning.
You see, money is not your most precious resource. It's time. Your time is limited, perishable, irreplaceable and unlike money, cannot be saved.
The real beauty of the Gone Fishin' Portfolio is it allows you to redirect your time to high-value activities, whether it's work you enjoy, time spent pursuing your favorite activities, or just relaxing with your friends and family.
The Gone Fishin' Portfolio gives you an excellent opportunity to grow your wealth. Nothing offers better odds of long-term success.
But, more importantly, it guarantees you peace of mind and the time to devote to the people and pastimes you love.
Perhaps that is what recommends it most.