Personal Investment Style

I am starting to concote my own personalized investment style after reading various books. Much of the pieces are from Frank Armstrong’s investment strategy.

• Dual Horizon – Have two time horizons. In the short run I will have assets that generate steady cash-flow and in the long run I will have assets that produce growth of capital and income. That way I don’t need to sell assets at depressed prices to meet needs. To do this, i will set aside the equivalent of at least five to seven years’ worth of income needs in the very short-term bonds and money-market funds. The balance can be set aside to grow. Thus, in a bad year, I can liquidate the short-term bonds to provide for income needs. In a good year, the stock-market funds can be reallocated back to bonds to get to the right allocation percentages. In a bad market, the bonds allow me to “live off the fat of the land” while the stock market recovers. This would allow me to truly implement a long-term investing strategy.
• Rebalance Portfolio – Following the prior footsteps, I will rebalance my portfolio once a year or after there are major market swings that create 15% change in portfolio, whichever is sooner.
• Asset Allocation – Some things to know about investment return/risk: Small caps generally have more risk & return than large caps. Value generally has more return with same risk as growth. Foreign stocks have more risk & return than domestic stocks. Short-term bonds have about same return with lower risk than long-term bonds. Thus, for me I would like to get a variety of mixes to take advantage of diversification.
• Dollar Cost Averaging & Index Investing – Definitely implement this through incremental purchases of various indices to avoid market timing, lower risk, and lower taxes/fees.

Overall, I will be putting money into these various allocations:

• 30% – International
• 30% – Short-Term Bonds
• 20% – Small Cap
• 20% – Large Cap

Now if I can break this down even further for my mutal funds (I can’t do that for my current 401(k) so that will use the above allocations):

• 30% – International
• 30% – Short-Term Bonds
• 9.25% – Small Cap Value
• 6.25% – Small Cap Growth
• 9.25% – Large Cap Value
• 6.25% – Large Cap Growth (S&P 500)
• 8% – REIT

Related posts:

• The More You Know – Investing
• The Permanent Portfolio
• Tax Efficiency
• A Picture’s Worth
• Retirement Blueprint – Part III