I almost never write about plain old investing. For one, pretty much everyone else already does. Then there’s the fact that it’s rather boring. Add on to that it’s oftentimes nowhere near the most important part of your financial life and BAM! no blog posts.
But it’s never unimportant. And sometimes it’s very important. And there are definitely good ways and bad ways of doing it. There’s never a “best” way (except in retrospect), but there’s a variety of “reasonable” ways and there are definitely “Oh good lord No” ways.
Here’s how I approach investing in my practice. Feel free to rip me off egregiously and do it for yourself. I do not see any of the stuff I’m about to say as “special sauce” or particularly “value add.” They’re just reasonable table stakes.
In short: I am a passive investor. I pick a balance of stocks and bonds. I invest in index funds and ETFs. And then I stick to that. Here’s a bit more detail:
A (Somewhat Arbitrary) $100,000 Threshold
If you have under $100,000 in invested assets (retirement plus investment accounts), I don’t want to touch your money. Not because I’m snooty, but because I don’t think I can add enough value to your investing to warrant charging money for it. There’s simply not enough complexity or room for fancy maneuvering to warrant much effort. On my part OR on yours.
$100,000 is fairly arbitrary. But if you’ve got assets around there or under, really, consider a set-it-and-forget-it fund, either a balanced fund or a target-date fund. Yes, yes, you have no control over how you’re invested and can’t play any fancy tax tricks or anything like that…and I bet you you’ll still come out ahead because you can’t shoot yourself in the foot trying to be smart.
I think there’s a strong argument to be made for maintaining this extremely simple approach to investing for pretty much ever. The financial blogger Oblivious Investor in fact has all his retirement savings in a Vanguard LifeStrategy fund, and explains why here. Again, the Lake Wobegone Above-Average Investor in us thinks that we’re clever and can do better when we’re in control. But all the studies show us otherwise.
How I Invest My Clients’ Money
When I do invest money for my clients (not just tell them what to pick in their 401(k)), the portfolio is extremely simple. I use 5 “models” and I assign each client to one model. Sounds boring? Yup, you got that right. That’s kind of the point. When it comes to investing, we’re not really all special snowflakes.
My value as a financial advisor (and your value as a personal investor) certainly will not lie in selecting this year’s winning investment. It’s going to lie in choosing a reasonable balance of stocks and bonds at a low cost and then sticking to it even when it’s scary or when you’re greedy. Discipline is what makes a successful investor, not stock or fund picking.
Make an Investment Policy Statement
The first thing I do with clients, who have already gone through a comprehensive financial plan with me, is create an Investment Policy Statement. An IPS is a document that describes how and why I’m going to invest my client’s investments. Not specific funds, but the balance of asset classes (types of investments, like US stock, or bonds), why we chose that balance, the risks we’re taking, and how I will bring the portfolio back in balance if it gets out of whack.
When it comes to picking a balance of stocks and bonds, your “asset allocation,” remember one of my favorite saying (attribution unknown to me): “The best asset allocation is the one you can stick to.”
My clients read it, understand it, sign it (which is not just a legal CYA for me…it makes it more meaningful to clients), and then we both stick to it when the markets do insane things. It’s a plan we make in rational times so that we don’t have to figure out what to do in irrational times.
We review the IPS annually to make sure it still makes sense. About the only time we would change it is when events in the client’s personal life have changed. Not when our opinions of the market have changed. That’s called market timing, my friends.
If you’re managing your own investments, I highly recommend you make your own Investment Policy Statement. The helpful folks over at Bogleheads (don’t let the UI put you off. They’re an intelligent, helpful, dedicated bunch) provide a template. The Bogleheads are a group of people dedicated to simple, low-cost, diversified DIY investing, inspired by Jack Bogle, founder of Vanguard.
What Do My Portfolios Look Like, Exactly?
Each client is invested in a model portfolio, and each model portfolio contains 5 asset classes:
1. US Stocks
2. International Stocks
3. US Real Estate
4. US Bonds
5. Inflation-Protected US Bonds
And then I have one low-cost broadly diversified fund to satisfy each asset class. For example, I use the Vanguard Total Stock Market ETF (VTI; 0.05% annual cost) for US stocks and Vanguard REIT ETF (VNQ; 0.12% annual cost) for US Real Estate.
I have two bits of fanciness I can employ:
- I can use tax-exempt bond funds if my client has a high-income.
- If I’m managing both retirement and taxable accounts, I can concentrate tax-inefficient funds (primarily, the real estate) in the tax-advantaged accounts, and I can concentrate the tax-efficient funds (like US stocks) in the taxable accounts.
But that’s the only fanciness, and probably not worth you getting worked up about.
I use more or less of each asset class depending on the risk I want in the client’s portfolio. Are they in their 20s and an employee? Probably going to use 85% risky assets. Are they saving for a house in 5 years? Probably 25%. Are they in their 50s and planning to work until 69? Probably 70%.
Eventually the stock market does well enough or poorly enough that 70% risky assets becomes 80% or 60% of the portfolio. And I will then sell (or buy) risky assets and buy (or sell) low-risk assets in order to bring the balance back to 70/30.
Asleep already? Not even 1000 words in, my friend. In the spirit of Cliff Notes lovers everywhere, a cheat sheet for you:
Set-it-and-forget-it funds, like balanced funds and target-date funds, as long as they’re inexpensive (say, under 0.50% annual fees), will probably beat most other investment strategies. If in doubt, just use one of these. And then, really, forget it. (Roboadvisors also fit in here.)
If you do want to get your hands a little dirty:
- Draft an Investment Policy Statement for yourself and review it annually. Most importantly, review it before making investment decisions and obey it!
- Use a small handful of low-cost, broadly diversified funds. Try the Bogleheads 3-Fund Portfolio, for example.
- My website lists a couple easy to read investment books about the basics (3rd question down in the FAQ). They should be plenty.
If you’ve got significantly more than $100,000 invested, and you’re not the DIY type, by all means, consult a professional. But make sure you understand and agree with how they invest. And be sure to understand how much they charge and how that will impact how much money you end up with.
Question: What makes you worry about investing your own money? You can leave a comment below.
Do you want someone to make sure your money is being properly managed without a lot of bewildering mumbo jumbo? Do you want to understand your investments? Reach out to me at or schedule a free 30-minute consultation.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner and/or an accountant for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.