Monday, January 15, 2007

In For The Long Haul

Well my odyssey begins this week. I have my asset classes picked out and my money moved to a money market account. My investment horizon is 30-40 years and so things should turn out well. One of the most important aspects for me is the issue of taxes. To mitigate taxes I am investing in 6 ETFs that have historically paid out little in dividends. This is important as my funds are held a taxable account. The six asset classes I am investing in are:

Large Cap U.S. 40%
Mid Cap U.S. 14%
Small Cap U.S. 11%
EAFE 20%
Bonds 10%
REITs 5%

All of these are represented by low fee ETFs that track an appropriate index. This asset allocation may seem risky to some but with my investment horizon my risk will be significantly mitigated. Even in the case of a catastrophic event my long term investing outlook is quite good. Also contributing to my choice of ETFs is that I will be investing my assets in one lump sum and will likely not be adding for the next couple years.

Being in my early 20s and having this opportunity to invest heavily is really exciting. My main source of inspiration in this whole line of investing was the advice given to me by my father. He showed me the simple ideas of investing legends such as William Bernstein and Bill Schultheis. The idea that beating the market is irrational and that approximating it is the best we can do long term is born out in much of the literature on investing. Through approximating the market with index ETFs I am able to free myself of the burden of always chasing the illusive "hot" stock. I hope others who have the chance will pick up these same simple strategies for successful investing.

Remember people, the biggest loss you will face when if you don't invest is inflation. It eats away at your money over time and is a constant risk. Mitigating this through wise investing is the key to being able to live without fear of money troubles later on. Even if you don't have a large amount of money to put away right now, a small amount a month can begin an account that will grow significantly as you age.

Investing doesn't have to be an agonizing chore. Approximating the market is well within your grasp. As Schultheis often says "Get On With Your Life!"

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