I would consider myself a novice investor. I have no formal education in the finance or investing field but I’ve taken it upon myself to read financial literature, follow investment blogs and take in as much information on the subject as possible. In this regard, I’m probably more knowledgeable than most of my peers. I also realize that there is a lot more to learn and there will always be people who are more well-versed in investing than me.
Fortunately for those of us who have not pursued a financial degree, investing does not need to be very difficult. In fact, keeping it simple can be a huge advantage.
Everything should be made as simple as possible, but not simpler.
I recently read the book The Elements of Investing written by two big names in investment finance: Burton G. Malkiel, bestselling author of A Random Walk Down Wall Street, and Charles D. Ellis, bestselling author of Winning the Loser’s game. This short book adequately summarizes my current investment strategy and strongly reinforces my views on passive investing.
The Elements of Investing explains the KISS investment strategy, which stands for Keep It Simple, Stupid, (or Keep It Simple, Sweetheart, if you want to be polite about it). The KISS strategy is as follows:
1. Save regularly and start early.
I think I’ve got this one down. I started saving as soon as I started earning any money and I started investing shortly after. I’m in my mid-twenties so I should have plenty of time for compound interest to work its magic.
2. Use company and government-sponsored retirement plans to supercharge your savings and minimize your taxes.
For Canadians, this would be your RRSP and TFSA accounts. I’m contributing enough through payroll deduction to get the maximum employer contribution to my RRSP account, although this isn’t very much. So I’m also putting money away to be able to max out my RRSPs and TFSA every year when I rebalance my portfolio (see #4).
3. Diversify broadly over different securities with low-cost “total market” index funds and different asset types.
I have a portfolio of total market ETFs representing different asset classes from Canadian stocks, US stocks, global stocks, REITs, and bonds. This keeps me diversified at the lowest possible cost.
4. Rebalance annually to the asset mix that’s right for you.
I haven’t had to rebalance yet, as I haven’t held my current portfolio for a full year yet. (Like I said, I’m only a novice!) But I plan to rebalance only once a year, at the same time that I contribute to my TFSA and max out my RRSP accounts. The rest of the year the accounts should go untouched.
5. Stay the course and ignore market fluctuations; they are likely to lead to serious and costly investing mistakes. Focus on the long-term.
Easier said than done, but extremely important. This is where I have little experience since I have yet to go through any large market swing. I check my accounts probably more than I should, considering I will only be making any changes once a year. But I am focused on the long-term and I know that if I just keep up this strategy for the next 30, 40, 50+ years I will do better than most.
The KISS portfolio “gets it right” for at least 90 percent of individual investors.
-The Elements of Investing
Investing in the stock market isn’t that difficult if you keep it simple. KISS investing is an easy, low-cost and worry-free way to save for your retirement. I mean really, if I can do it, anyone can.
What’s your investment strategy? Do you keep things simple?