Alright, time for another short and simple post. Recently, I chanced upon a portfolio named The Gone Fishin’ Portfolio, which basically champions “dividing 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.”
This is nothing new – just another opinion on what is the optimal asset allocation if you ask me. However, what I want to highlight is this particular article by the author, Alexander Green, which has two interesting points.
Factors that Determine Eventual Investment Portfolio Value
First, there is a grand total of 6 factors that determine our eventual investment portfolio value. They are :
- 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.
Out of these 6, there is only one which we CANNOT control. Do you know which one it is? Not that difficult I’d say – the answer is the number 4. I thought that this is a rather simple and elegant way of looking at what we want to achieve (even for novice investors like myself), isn’t it?
With an awareness of these 6 factors, we can look at each of them and determine what we can do to maximize our investment returns.
The Best Reason to Engage in Index Investing
In the article, Alexander Green also mentioned the best reason to employ this portfolio, which I felt also applies to Index Investing in general. I quote the relevant paragraph in the article :
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. But, more importantly, it guarantees you peace of mind and the time to devote to the people and pastimes you love.
This is the one point which I totally agree with. I have always felt that simplicity is just as important when it comes to investing. While I’m interested in the topic of investment, I would rather spend more time “fishing” instead of devoting endless hours on it.
Do you feel the same way?