As simple as possible, but no simpler

Here are a few recent headlines from some of the most highly respected English-speaking publications such as the Wall Street Journal, the New York Times, the Globe and Mail, the Economist, the Washington Post, the Financial Times….and we haven’t even touched on German, Italian, French, Chinese, Russian, Indian business publications.

There are hundreds. Every day. You could spend every waking hour, every day, reading them and still only get through a fraction of what is out there. All are interesting.

None will improve your investment results!

So, how can the Monday Morning Millionaire Program promise to show you how to make more money before breakfast on a Monday morning than you ever did in your best week during your career?

Heaton et al* have shown that passive index investing as promoted by the Monday Morning Millionaire Program outperforms most actively managed portfolios. Writing in the academic literature which only publishes evidence-based papers, many other authors have shown the same to be true.

*Heaton, J.B. and Polson, Nick and Witte, Jan, Why Indexing Works (May 10, 2017). Applied Stochastic Models in Business and Industry 33 (6), 690-693. Available at SSRN: https://ssrn.com/abstract=2673262 or http://dx.doi.org/10.2139/ssrn.2673262

Practicing the habits of highly effective investors, Monday Morning Millionaire Program members outperform over 90% of actively managed portfolios. To repeat again, the habits of highly infective investors follow.

1: HAVING AN EARLY, DISCIPLINED SAVINGS PROGRAM

Unless this habit is in place, the other five don’t matter. Except for our savings rate and asset allocation, we have no control over the forces which influence our portfolios. Accordingly, increasing our savings rate is the best investment that we can make.

2: SELF-DIRECTED (DO-IT-YOURSELF) INVESTING

We need advisers for tax planning, mortgages, record keeping, incorporation, estate planning, debt reduction, trusts, annuities, etc., etc., etc. but not for investing. After subtracting their fees, only a tiny percentage of advisers can beat the simple act of buying and holding an exchange-traded fund which mirrors the S&P 500 index. We can easily do that ourselves and save a year’s income over the course of an investing lifetime.

3: BUYING THE ENTIRE U.S. MARKET IN LINE WITHIN ONE’S ASSET ALLOCATION

That is, don’t pick stocks. Each stock transaction has two sides to it (buy or sell) only one of which can be correct. Princeton University economics professor Burton Malkiel stated, “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” By buying and holding an exchange-traded fund which mirrors the S&P 500 index, we are buying shares of the strongest economy in history.

4: BUYING AND HOLDING

Investors who have this habit do not try to time markets; they do not trade. They know that over the long run, investors, professionals included, even people who use a vast array of technical indicators, almost never outperform the market over the course of a market cycle because they have timing skills.

5: BUYING LOW, SELLING HIGH

This is an issue of rebalancing our portfolio to our personally determined asset allocation. 50/50 is common. 50% of the portfolio is in a market index exchange-traded fund (ETF) and 50% is in a U.S. money market fund or cash. Depending on investors’ risk tolerance, the allocation can be 60/40, 70/30, 40/60, 30/70 and so on. Anytime that this relationship is thrown off balance by 5% to 10%, either by market growth or by market decline, investors can rebalance their portfolios and grow rich.

6: AVOIDING COMPLEXITY

No one has ever shown that investing in structured notes, principal protected notes, master limited partnerships, collateralized mortgage obligations, equity-indexed annuities, non-traded REITs and other hard to understand “products” can outperform the simple act of buying and holding an exchange-traded fund which mirrors the S&P 500 index.

A lifetime of practicing the habits described above will certainly result in happiness being a matter of disposition and not of circumstance!

 

 

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Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me

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