It’s okay to be an average investor. Try to do better and you’ll do far worse. Some will take the challenge and learn enough about investing and be magnificent enough to truly beat the market. Those are the exceptional few. Many others will also take the challenge and let their emotions or intellect get the best of them, only to fail like so many before them. Sometimes it pays to be average. Investing is one of those times.

For the adventurous, you can have a piece of each pie. The common practice is to allocate 90% of your investment money to safe, diversified investments. The other 10%? Speculative ventures. If you’re in the group that believes you can beat the market, use that 10% for 10 years to discover how you fair. You’ll know then if you should reallocate and change up your overall investment strategy. Otherwise, keep to the 90/10 ratio.

Part two of The Lazy Person’s Guide to Investing discusses the “six laziest strategies” to “find more time for the important things in life.” Each strategy is discussed in a separate chapter. The discussions include examples that clearly demonstrate the effectiveness of each. The six strategies discussed are:

1. Market timing: avoid it.
2. Saving and frugality.
3. Compounding: there is no greater power known to man.
4. Diversify. Yes, it’s okay to be average.
5. Buy and hold. And hold. And hold. And hold.
6. Do it yourself.

The investment aspect of personal finance really comes down to just a few simple steps. Research index funds for investments that you would like to hold forever (and only draw out of for retirement). Save as much as is comfortable for the investments. Do it regularly; every paycheck, or every month, and make investing automatic. And start now. Like, right now.

You can read more about my thoughts while reading The Lazy Person’s Guide to Investing on Day 1.

Sunlight flowing through a sun scorched leaf.

Introduction

The Lazy Person’s Guide to Investing, “a book for procrastinators, the financially challenged, and everyone who worries about dealing with their money.” I’ll refer to The Lazy Person’s Guide to Investing from now on as TLPGTI. TLPGTI was written by Paul B. Farrell, J.D., Ph.D., a columnist for CBS MarketWatch. This day 1 post covers part 1 of the book (chapters 1-4).

Investing is very, very easy

TLPGTI teaches us that “investing is very, very easy.” The first part of the book is dedicated to “America’s three laziest portfolios”:

1. The Couch Potato Portfolio
2. The Coffeehouse Portfolio
3. The No-Brainer Portfolio

I’ve long been looking for a book with straight-up investing advice. Individual stock recommendations are a bad idea, but index funds? YES! Diversity and proper asset allocation make smart (and lazy) people rich (slowly, and in the long run). Too many parenthetical notes? Maybe. (Index funds are cool.)

The point that TLPGTI makes is obvious: investing is simple. Don’t make it complicated. Start now if you aren’t already. And if you already are “investing” and you have a complicated portfolio of common stock and you’re constantly worried about the value of each? There’s a simple little acronym I subscribe to: KISS (Keep It Simple Stupid). Get out of your stocks (when it makes sense to) and learn a little about no-load index funds as discussed in TLPGTI and referenced in the portfolios below.

The Couch Potato Portfolio

The Couch Potato Portfolio was created by Scott Burns, a syndicated financial columnist with the Dallas Morning News.

1. 50% — Vanguard 500 Index (VFINX)
2. 50% — Vanguard Total Bond Market Index (VBMFX)

Introduced in 1991, the Couch Potato Portfolio was back-checked from 1973 through 1991. During that time, it performed with a 10.29 percent average annual return, an incredible return given the 1982 bear market and the crash of 1987. From 1991 to 2001, it continued to perform at basically the same rate with a 10.37 percent average annual return.

If want to be more aggressive in your investments, the Sophisticated Couch Potato Portfolio may be what you’re after. Invest 75% in the Vanguard 500 and 25% in the Vanguard Total Bond Market. Less aggressive? 75% in bonds, 25% in stocks. Or, use other similar percentages depending on your situation. It’s damn simple.

The Coffeehouse Portfolio

The Coffeehouse Portfolio was created by Bill Schultheis in 1998. Bill is a former Salomon Smith Barney broker turned financial adviser. He wrote a book on the coffeehouse investing strategy, titled The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life.

1. 10% — Vanguard 500 Index (VFINX)
2. 10% — Vanguard Large-Cap Value Index (VIVAX)
3. 10% — Vanguard Small-Cap Index (NAESX)
4. 10% — Vanguard Small-Cap Value (VISVX)
5. 10% — Vanguard International (VGTSX)
6. 10% — Vanguard REIT Stock Index (VGSIX)
7. 40% — Vanguard Total Bond Market Index (VBMFX)

The Coffeehouse Portfolio returned an annual average of 11.42 percent from 1991 to 2001. While having the highest rate of return among America’s three laziest portfolios, it has the steepest of investment minimums with an amount of $30,000 dollars (more on that later).

The No-Brainer Portfolio

The No-Brainer Portfolio was created by William Bernstein, a financial adviser to high-net-worth individuals, SmartMoney columnist, and author of two books, The Intelligent Asset Allocator and The Four Pillars of Investing. He also happens to be a physician and practicing neurologist.

1. 25% — Vanguard 500 Index (VFINX)
2. 25% — Vanguard Small-Cap Index (NAESX)
3. 25% — Vanguard European Stock Index (VEURX)
4. 25% — Vanguard Total Bond Market Index (VBMFX)

There is also the Coward’s No-Brainer Portfolio (more conservative asset allocation):

1. 40% — Vanguard Short-Term Investment-Grade (VFSTX)
2. 15% — Vanguard Total Stock Market (VTSMX)
3. 10% — Vanguard Small-Cap Value (VISVX)
4. 10% — Vanguard Large-Cap Value Index (VIVAX)
5. 5% — Vanguard European Stock Index (VEURX)
6. 5% — Vanguard Pacific Stock (VPACX)
7. 5% — Vanguard REIT Stock Index (VGSIX)
8. 5% — Vanguard Small-Cap Index (NAESX)
9. 5% — Vanguard Emerging Markets Stock (VEIEX)

Thoughts

There is a small problem in a beginning investment strategy with Vanguard index funds: a $3,000 minimum investment per fund. There is a $6,000 up-front cash need to even begin with the Couch Potato Portfolio.

If you happen to have $30,000 sitting in a bank account that you’re ready to invest, go straight for the Coffeehouse Portfolio. But, if you’re like most people and don’t have a dime invested, here’s how I would begin if I had to start all over:

Save. Don’t be stupid and stuff cash under your mattress. Put your savings in a bank, and not just any bank, and not just any account. Place your savings into a high-yield earning savings account. ING Direct is a wonderful choice.

After saving enough to make the minimum investment into the 50/50 Couch Potato Portfolio, set-up an account with Vanguard and make the investments. Set-up your accounts to invest as much as you can towards your Vanguard accounts automatically each paycheck.

My plan is to transfer my current Roth IRA account to Vanguard when the time is right (I believe I will have to sell off my current investments within the Roth IRA first). When everything is sold off, I’m going to start my Vanguard investments with the Couch Potato Portfolio, at 75% VFINX, 25% VBMFX. I will continue automatic investments into the funds every two weeks — that’s 26 times a year (next year, 2009, the maximum for Roth IRAs will hopefully be greater than $5,000, so this won’t be an issue). Once I have enough money to reallocate according to the Coffeehouse Portfolio, I will do so, selling off portions of VFINX so I can re-invest in the other funds as well.

Over the past couple of years, I’ve spent countless hours searching for the best methods for learning a foreign language, as well as the best materials for a selection of languages I would eventually like to learn. The single and simple truth I have discovered: the more concentrated exposure to the language you want to learn, the better.

Visit the language section of this site for more information, or jump right to lists of recommended learning materials for Spanish, Italian, and Brazilian Portuguese.

I have a love-hate relationship with “higher education.” One of the things I love is the environment and the written plans for degrees. I sat down the other night to come up with my “degree plan” for my Personal MBA. Here is my plan:

The business page will include a compilation of all posts related to my experience with the Persnoal MBA, as well as this degree plan.

This is day 2 of my time with Lead the Field. If you haven’t already, you may want to read day 1.

Chapter 2, Acres of Diamonds

If we’re talking about acres of diamonds, then we must look to Russell Conwell. Russell Conwell is responsible for the well-known speech entitled Acres of Diamonds. In Lead the Field, Earl Nightengale sums the moral of the story well. I’ll provide a summary too, but this is the type of lesson most people need to listen and think about many times before they finally fully understand. I know I’m one of those people.

The grass is always greener on the other side, right? Has it ever crossed your mind that it’s because that grass is getting better care? We must fully explore what opportunities lie right before us, else be lost in this world, continually chasing one opportunity to another. We need to take the time to thoroughly explore the working in what we’re now engaged, and to explore ourselves — we may find everything we’re looking for right there.

You can download Acres of Diamonds on Project Gutenberg.

I submitted this photograph to the Leaf in Hand theme for JPG Magazine. Getting published in JPG Magazine is definitely a goal of mine. Will this particular photograph make it? No idea, and I don’t care. The goal is mostly there to keep me on task, to keep me motivated. I ultimately want to continue improving my photography, and not having an ongoing project kills my productivity. JPG Magazine happens to be a great resource for photographic ideas, and until I find a photographic project I’m all giddy over, working on the open JPG Magazine themes is it!

Lead the Field

Introduction

Lead the Field by Earl Nightengale is an audio program about human potential, a how-to on developing yourself into a more successful person with a more fulfilling life. The audio program is part of the Quick Start section of the Personal MBA.

Chapter 1, The Magic Word

Attitude. The magic word is attitude. It is our attitude towards life that determines how we experience the world in which we live. Success or failure is not a matter of luck, fate, or who you know. You determine your own success from your attitude.

Unfortunately, most people act as chameleons. They respond to external stimulus, waking up in the morning with a neutral attitude, only to be swayed from good and bad moods from daily events experienced throughout the day. If something bad happens, they respond with a good attitude. Something bad happens, and they respond accordingly.

But does it really have to be this way? Can’t we just control our own attitude? It should be possible to work through bad events with a good attitude, shouldn’t it?

According to Earl Nightengale, yes, we can control our attitude. If the world you experience is a reflection of your good attitude, then bad events aren’t all that bad, and good events are even better. But how in the world are we supposed to control our own attitude?

Mr. Nightengale gives us an interesting test at the end of the chapter: treat every person with whom you come in contact as the most important person on Earth.

Thoughts

How do we control our own attitudes? How do we accomplish anything that requires skill? I believe the answer is in Mr. Nightengale’s test. Practice!

Ever since I can remember, I’ve never believed much in luck. If luck is what happens when preparedness meets opportunity, then it’s no wonder that I’ve never believed in sitting around, just waiting for things to happen. What I do believe: you are ultimately in control of your life — so get to work and make great things happen.

If we ultimately get what we expect, expect great things. Expect to be successful. Expect to be whatever good thing you want to be. It can’t hurt — not with a good attitude.

ALL UTIL. INCLUDED!!! THIS IS THE ONE YOU’VE BEEN WAITING FOR!!

Hehe.