My stock market investment strategy is pretty basic. I use a combination of three simple strategies to invest for the long term.
- Low cost index fund/ETF + dollar cost averaging. Over time, the market will go up and the index funds are proven to perform better than 80% of the actively managed fund. Dollar cost averaging ensures that we are not paying a lower cost per share over time.
- Asset Allocation. Here is my target asset allocation.
- 40% large cap US
- 10% small and medium cap US
- 15% foreign stocks
- 15% emerging market
- 10% bond
- 10% cash/saving/CD
These three strategies should work well for me because my investment horizon is 25+ years. My retirement funds are made up entirely of low cost index fund/ETF and I don’t plan to withdraw until I’m at least 65.
To make sure our investments are diversified, I also invest in foreign funds/ETF. I mostly stick with Vanguard and invest in emerging market (VWO) as well as a region specific ETF such as VPL (Pacific.) Now, I’m thinking more about investing in country specific mutual funds as well. My parents live inThailandand sometime my dad urges me to invest in Thai stocks. When the market is down, it’s a good time to invest. I’m lucky that I have connection inThailand, but I also want to invest inSouth America.
Brazilis a big part of the emerging market, and I’m interested in Argentinaas well. It is difficult to research other countries though, when you don’t know anyone there. Fortunately there are market intelligence experts out there who can help you make decisions as to whether a particular country is too risky. It is essential to do some research before you invest in other countries. Index funds in developing countries are more volatile than index funds in theUS and you also need more risk tolerance.
With these three strategies, I expect that my investments will grow slow and steady over time. I’m comfortable with the level of risk at this time, but I will probably have to increase the bond allocation as I get older.