Before we go step by step in design & constructing your own personal
investment temple, I think it would be helpful to summarize the principle themes that I have introduced &
discussed on this website. And
I’m going to make it easy to remember the core concepts presented on New
Investor Tool Kit. Just think “SMART”
S: stocks are the best long-term wealth creation
vehicle ever created by mankind. DRIPs
are an improved way to buy individual stocks due to lower cost and partial
share ownership permitted; particularly for small investors. And make sure you choose the bluest of blue
chip stocks for your DRIPs.
M: manage this stuff yourself! In other words, aim to pay little or no
fees for professional management on your
money. As we have seen, fees destroy the
amazing power of compounding and you will easily pay 50% in returns to mutual
fund managers who are, most likely, underperforming the general stock market
while taking no personal risk themselves.
That's a pretty good deal for them.
But a really bad one for you.
automate your investments monthly or quarterly or annually. Do this by setting up a separate bank account
to pay yourself first!
R: reinvest those dividends - remember, you may
want dividend income when you are retired.
But when you are amassing wealth, the 'fire & forget' approach works
You need time – oodles of it – to amass large amount of wealth via
regular, disciplined and automated investing in stocks.
One last point to make that is entirely consistent with both SMART
investing and building and maintaining your own Investment Temple. Ownership.
This is your wealth building
activity. Own it. Because,
ultimately, you are the one that will have to live with the results.
Ready? Good, let's go!
There are three principle decisions you’ll need to make in the temple
design phase. And whereas you are to
apply the SMART criteria to the foundation, columns and roof of your temple, in
effect you already start with S, R & T completed, as these are the bedrock
assumptions in the Investment Temple approach (namely, Stocks, Reinvest & Time).
So you need to tack on M and A, not necessarily in that order, as
you’ll see below:
How much to invest? Decide how much investable cash you can
invest every month or every quarter.
Remember, the whole objective here is to ‘pay yourself first’ so that
you don’t even see this money in your normal bank/checking account. Set up another account and automatically
transfer your decided amount once you get a paycheck or other inflow of cash. Congrats, you've just added the “A” in SMART
How to invest? Decide which type of investor you are: Fire & Forget, Occasional Glancer or
Hobbyist (for a refresher on the types, click on the names).
Essentially the key determining factors should be how much you like investing and how
much time you want to commit to this activitiy.
This choice will drive only slight differences in my recommended
approach. And now we have the “M”, completing the spelling of SMART.
Where to invest? Decide your intended portfolio allocation (i.e.,
asset allocation) of your investment capital.
This third step is a function of steps 1 & 2 above; namely, how much
investable cash do you want to devote to your long-term wealth creating
activity and how much time you are willing (and interested) to commit.
The below matrix
can act as a guide for you, but use your own judgment and other ‘gut’ feelings
to modify, tweak and/or adjust.
A few comments to
accommodate the investor matrix above:
will notice a priority towards DRIP investments. As I’ve made abundantly clear in the DRIP
believe DRIPs are the most cost-effective, compounding return-enabled
investment products available to the individual investor.
DRIPs will begin to provide some level of diversification
in an ETF for larger accounts provides excellent, comprehensive portfolio diversification.
commodity account (i.e., gold & silver) is up investor preference;
but, I believe, it prudent to allocate a small percentage per month to this
value preserving asset class.
stock account for the Hobbyist who can devote more than $500 / month in
investment capital allows for active trading of stocks, in addition to the core
account of DRIPs plus an ETF or two.
So then the next natural question is, how to allocate the actual money amongst these
asset classes? A range of suggestions per
investor type is included below. Again,
use your judgment as this it your
money. However, these below
allocations have served me well in the past as I have slowly increased my
monthly investing from very small to incremental larger amounts over time:
A few comments to accommodate the investor matrix allocations above:
mentioned, these allocations have worked for me as I, personally, progressed
from the fire-and-forget to hobbyist investor.
commit monthly amounts to gold & silver investing as a hedge against paper
currency devaluation and as an insurance product against market/country turmoil
stock account is an option for the hobbyist but beware for the uber-hobbyist –
make sure you adhere to your monthly allocation because you may be prone to
slide down that slippery slope of ‘DRIPs are boring so I’ll put more of my investable
cash in the stock account and make a killing!’.
Remember, very, very few of us can consistently beat the market (I’m
certainly not one of them either). But
what I have found is that I
can do very well, relative to the general stock market, if I stick to my chosen
professional field (energy).
More times than not, I can outperform the general market with energy
investments as I have a very good understanding of what drives value. You, too, may have an ‘insiders’ view on the
sector where you work that enables you to make above-average educated investments. But I caution you, this is your retirement nest
egg so it is best to put strict controls on how much you allocate to this
active trading account.
stock account is also where the more sophisticated investors can create the
Exotics column. Sometime in the future I
may add some ideas to the Top Tips section to better demonstrate this potential.
you have followed the methodology up to this point, you are now ready to put it
into actual practice. Take a deep breath (and a bow) and press here to continue.