EP 58 - Investment Strategies - Dogs, Best and Balanced
Today's episode is another break from equity compensation and as an added bonus, it will also be a short episode. I'm going to spend a couple of minutes talking about a few popular investment strategies that I recently read about in an article.
I get asked on a regular basis what the best investment strategy is and the short answer is...one you will stick to. While that sounds trite, it is true. I've had clients over the years who constantly shifted their investment strategies based on a variety of reasons like news coverage, gut feelings, and conversations with family or friends were the most popular. It’s hard to make progress toward any goal when things keep shifting. So pick a strategy and stick with it.
You will want to hear this episode if you are interested in...
- What is the “Dog” strategy? [1:35]
- What is the “Best” strategy? [1:51]
- What is the “Balanced” strategy? [2:15]
- Dog strategy findings [3:15]
- Best strategy findings [4:08]
- Balanced strategy findings [2:15]
- This week’s FLASHBACK [6:01]
The three strategies
The Dog strategy is to put your entire portfolio into what was the worst-performing asset class the year before?
The next strategy is the complete opposite. It's to take 100% of the portfolio and invest it in the best-performing asset class of the previous year.
The final strategy is a simple balanced portfolio or what I call boring investing. A portfolio made up of 60% large-cap US stocks and 40% in investment-grade bonds. Pretty simple, pretty boring.
How the strategies performed after 10 years
The dog strategy was just that...it was a dog. It brought up the rear with performance. The $10,000 turned into a whopping $10,812 after a decade. That's less than 1% a year in growth which means it lost purchasing power if you factor in inflation.
The opposite strategy of buying the best came in second place for performance. The $10,000 turned into $17,387. Definitely, a better number as the overall growth was about 74%.
Finally, the simple two-holding strategy did the best. $10,000 turned into $25,414. Growth more than doubled the second-place finisher with total growth of 154%.
This week’s FLASHBACK: Avoiding kitchen’s with carpet
The first Thanksgiving my wife and I hosted after we were married were while we were living in a tiny apartment in the middle of Greenville, Michigan. My wife's family came up from out of state for Thanksgiving and we decided to buy a fresh turkey from the local rotary club fundraiser. The turkey was massive, but it was great tasting since it was fresh from a local farm. Everything went off without a hitch. Until some time after Thanksgiving. We had this terrible smell in our apartment, we couldn't figure out for the life of us where the heck it was coming from. Finally, our noses sourced the smell. It was our vacuum! When prepping for dinner, we had made a mess with lots of stuff on the floor, since it was carpeted, we hit it with the vacuum. It never dawned on us that we had raw food in our vacuum bags slowly rotting away! Lesson learned if you use a vacuum to suck up food, be sure to empty it. Oh. And try to avoid kitchens with carpet!
Resources & People Mentioned
- For the link to the article click here to email me
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.