Invest Like a Pro

Text in black are quotes; text in green are my notes. I sometimes write in Spanish.

• In the end, just like your day feels wasted if you don't have clear tasks to accomplish, your investments can easily be wasted if there's no specific target to reach. If you don't have a specific investment goal in mind, you likely 1) won't get started, 2) won't invest enough and 3) won't continue. #

  • Lo primero que tienes que tener en mente antes de invertir, incluso antes de tener un fondo de emergencia, es un objetivo. ¿Para qué quieres invertir? ¿Qué harás con el dinero invertido?
  • Tener un claro objetivo de inversión te ayudará a motivarte a empezar y mantenerte en el camino. Y más importante aún, te ayudará a determinar cuánto dinero necesitas invertir para lograr tu objetivo.
  • No es lo mismo invertir para comprar una casa que invertir para retirarte y tener una vida de rico.

• (Note: a quick way to figure out how long it would take to double your invested money, is to divide 72 by the rate of return you're getting. It's not totally accurate, but it's good enough to give you a ballpark to work with. If my rate of return is 8%, my money will double in (72 / 8 = 9) nine years.) #

• My favorite investing option, Betterment (this is the one I use personally, except for our company 401k) also charges a management fee of anywhere from .15 to .35 percent. That fee is dramatically less (about one tenth) than what a financial advisor would charge you, but Betterment is able to charge less to the individual because they can serve more people. #

• Have you ever noticed how people don't talk about their "investments" in their online savings accounts? That's because those are predictable, boring, stable, insured conversation-killers. That's how your investing should be. As boring as an online savings account. #

  • Si tus conversaciones sobre inversiones te provocan ataques de adrenalina, algo estás haciendo mal.
  • Tus inversiones deben ser aburridas. Tan aburridas que no querrás hablar de ellas en una fiesta. Tan aburridas que solo te tomen un par de horas al mes administrarlas.

• So you sell $2,000 of your stocks, and purchase $2,000 of bonds. You've now sold stocks when they were high, and bought bonds when they were low. It's very true that stocks may still continue to rise, and bonds may continue to fall, but as you hold your ground on this principle over the long haul, and as long as the market rises over the long-term, you will end up buying low, and selling high. Its fancy name is dollar-cost averaging. #

• Since you cannot successfully time the market or select individual stocks, asset allocation should be the major focus of your investment strategy, because it is the only factor affecting your investment risk and return that you can control. #

  • Es casi imposible para el inversionista promedio poder predecir el mercado o ser exitoso eligiendo acciones individuales. Justo por esta razón es mucho más importante tener una buena asignación de activos. Es lo único que está bajo tu control, y por lo tanto en lo que más te debes enfocar.

• Asset allocation is in your control, and it's important. #

• Index funds are mutual funds that automatically invest in all of the companies in an index, or list. #

• Index funds are, in my book, a great way to passively invest. And passive investing, in my book, is a sure-fire way to outperform almost every other investor out there. #

• "Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals." - Warren Buffet, 1997 #

• The best way to own common stocks is through an index fund. #

• Exchange-Traded Funds (ETFs) ETFs are also mutual funds, but they're traded like stocks, and have some very attractive advantages that normal mutual funds just can't beat. #

• My recommended way to invest in stocks, is through ETFs. #

• The best investment type for diversified, passive investing, because of its tax efficiency and extremely low expenses, is ETFs. #

• Make sure you're not 100% in stocks. Find an investment option that lets you follow a broad bond index as well. One very quick and dirty option is to allocate your age as a percentage of bonds, the rest should be in stocks. I'm 31, so I should be at 31% bonds, and 69% stocks. #

• I wrote an extensive review of Betterment on the YNAB blog a while back, and that still stands. #