Long-Term Investing

Asset Mix II: Find Your Balance

1. The first step is to Figure out your net worth.

I haven’t decided what to do with our condo value. Conservatively, I suppose we could just add the money we paid off against our mortgage. Or we could follow the market and assume appreciation, but that would only be paper gain, and it makes me uncomfortable (remember, only hard cash is real money!)

For the moment, I will not account for real estate in our Cash Net Worth for the purpose of investing.

2. Decide how much we’re both willing to invest.

We pool our money together, what’s mine is his and vice versa. So we have to agree on this, and since my husband is like a Depression-survivor, too, I’ll have to do some convincing.

Depending on one’s age, time to retirement, health, employment situation and annual income, there will be a percentage that is safe to keep in stocks.

Given our age and health, typical allocation recommended for us would be 70% Stocks / 20% Bonds / 10% Cash.

My personal low tolerance for risk won’t allow me to invest more than 10% of our cash, at least at the beginning. I have a feeling that the more money we have, the more conservative we will become – unless our investments are very successful. How successful? Well, I’ll be conservative and consider a success anything over 6-7% return after tax. This theoretically beats inflation and the little extra would make it worthwhile to bother investing at all. If do it for the inflation alone, why not use GIC’s (or bonds), which net 3% annually after tax right now.

3. Decide whether to invest once annually or add some $ every month/quarter.

I’m leaning towards the Lazy Portfolio – diversified index funds portfolio. Not very exciting, in fact boring, but supposed to bring good reliable results. 35% Canadian / 20% US / 35% Global / 10% Bonds (possibly, still don’t like bonds much). Diversified enough, and not completely boring.

4. Have fun

Yes, I do want to make money through investing. But I want to have some fun with it, too! So I’ll keep my Play Money fund, and will increase it to $5,000. I’ll invest that money into individual stocks.

This is the plan that took me 2 months to flesh out. Very simple, but hey, I’m a beginner at this, and if I’m to believe any of the books I’ve read, this could possibly be the way to outperform most managed mutual funds out there.