Everything you need to know about Personal Investing…. According to Dilbert

One of my favourite books: Dilbert and The Way of The Weasel, by Scott Adams. Adams talks about how once he wanted to write a book about financial advice for the young first-time investor, but realised that he could say everything on one page. I like simplicity and minimalism, so here it is:

  • Make a will

  • Pay off your credit card balance

  • Get term insurance if you have a family to support

  • Fund your company 401K (company pension) to the maximum

  • Fund your IRA to the maximum (personal pension)

  • Buy a house if you want to live in a house and can afford it

  • Put six months expenses in a money market account

  • Take whatever is left over and invest 70 percent in a stock index fund and 30 percent in a bond fund through any discount brokerage company and never touch it until retirement

  • If any of this confuses you, or you have something special going on (college planning, tax issues etc), hire a fee-based financial planner, not one who charges a percentage of your portfolio.

Nice and simple and I largely agree with it. I guess the difference with my trend-following strategy is that I am spreading my investments across a greater number of asset classes (stocks, property, gold, commodities and bonds) to spread my risk and return. The other difference is that I am using a rules-based trend-following technique in an attempt to minimise draw-down (the amount by which my investments fall in value at any one time). If I had all of my investments in shares, and there was a 50% drop in the markets, could I stand it and stay in the market? Possibly not. The problem then would be the risk of exiting the market at exactly the worst time (the bottom).

Furthermore, just because the markets have behaved the way they have over the last 80+yrs, does not mean that they will continue to behave in the same way in the future.Will my 5-pot technique with timing approach fare better than Adams 2-pot buy-and-hold technique over the next few decades? No-one knows.

If you are interested in my views of the different asset classes and how they are doing this week, then here is the video:[embedyt] https://www.youtube.com/watch?v=sEE0eyXzyzs[/embedyt]

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