after all my investments escapades I've learned to keep it simple. Invest in ETFs only. It is easy and tends to come with higher rewards.

KISS Applied to my investments 3


Here’s why I’ve invested in the past and are currently still heavily invested: I wanted to build a nest egg. Not to buy a bigger car, bigger boat or bigger house on the water. I wanted to feel financially secure and not have to worry about any financial calamity that can come our way.

We did it did I and certainly would recommend for anyone to do. How you spend that nest-egg is up to you. Even how you get your nest-egg is up to you but you may want to read this and take some lessons from what I have done.

I think the biggest hurdle of starting a nest-egg, an emergency fund or practically any other financial goal is where to start. Following questions come to mind:

  • I have crippling debt, how do I even begin building a nest egg?
  • We’re living from paycheck to paycheck, where do I find the money to save or invest.
  • What the heck do I know about investing? I hear it is a risky and complicated endeavor.

Debt, especially crippling debt we never had, so I didn’t tackle that one. What I can tell you is the answer to the first question of “how do I even begin?”; you don’t. You will first need to deal with your debt before trying to get into saving or investing. Your 9% returns on your $10,000 investment won’t do you any good if you’re paying 19% (or more) on your $30,000 credit card debt. If you are in that situation I recommend you check out my posts on budgeting, it won’t solve your all your problems but it may get you started on your way out of debt.

Living from paycheck to paycheck is also something we never had to do but for those that do, there might be hope. For some of you it might be crippling debt and the enormous monthly interest payments your making, for some of you it may be your lifestyles that can possibly be adjusted. In either case, it might be time to start a budget and see if you can stop living paycheck to paycheck. To make you feel a little better, you’re not alone; living paycheck to paycheck is not just reserved for the working poor of America. There are plenty of high income families out there that also live paycheck to paycheck. By creating a budget you will be able to point out where you are spending money every month. Chances are you are spending it where you don’t absolutely have to. Once you know where, you may be able to act on it. If you are able to stop some of the bleeding you will now have money you can save and/or invest.

If you do have money left over to build a nest-egg, inevitably you will learn that putting it in savings is not going to do much for you. There will be no growth other than the money you put in. At the current interest rate environment you will actually start losing money as inflation will probably outpace any interest you receive on your saving accounts.

Investing is probably the best way to make your nest-egg grow. Which leads to the last question: what the heck do I know about investing? Valid question as you hear and read how investing is not all that simple. You should read all the prospectuses and do a lot of research on each and every one of the companies you invest in. You have to know how to time the market, Buy low, Sell high (I’m sure you’ve heard).

I’ll be the first to admit it; I don’t know how to research a company. Even if I did know how to read their balance sheets, I wouldn’t be able to tell bad management from good management. Not as an outsider at least. And while we’re at it, it sounds like most money managers (those that do supposedly know how to research companies) don’t do a good job at it either. A majority of mutual funds is not able to consistently (or ever) beat the S&P 500. I have something to say on that in my article on pay yourself first.

So it sounds pretty daunting to be investing. The good news is it doesn’t have to be; apply KISS: Keep It Simple, Stupid. I’ve learned (somewhat the hard way) over the last 15 years. It shouldn’t and doesn’t have to take 15 years for you to find out. Investing can be simply. And better yet, the simpler you go the more effective and rewarding it gets.

I’ve invested in all sorts of companies over the years, some with success and some with losses. Some small losses and some not so small losses. If you’re truly interested in all my investing escapes I invite you to read my book (you’ll learn a lot more than this post will show you).  One investment of mine went so bad, I lost over $60,000. I’ve also lost out on opportunities because I wasn’t patient enough to hold on (i.e. timing the market is really not my strong suit either). I’ve dabbled in option trading and again with some successes but some with losses (of all premiums in some cases).

There is one investment that has been rock solid for me though; my investments in SPY or also known as the SPDR Trust Series. SPDR stands for Standards and Poor’s Depository Receipt. You probably already know but just in case you don’t, the SPY is an ETF (exchange traded fund). It tracks the performance of the S&P 500 index. You can buy it like you buy any other share on the stock market. The price reflects very close to 1/10 of the S&P 500 index. So if the S&P 500 index stands at 2114 then the SPY price per share will be very close to $211.40.

For my 401(k) I invest in something similar called the Vanguard Institutional Index Fund Institutional Shares (VINIX). It too, tracks the S&P 500. There are many other funds out there but as I have pointed out in my post on pay yourself first, few of these other funds manage to consistently beat the S&P 500. So why not go with something that has a proven track record for many years?

Why am I so convinced that this investment strategy of KISS is sound? Well I could point to John c. Bogle, the founder and retired CEO of the Vanguard group, who preaches pretty much the same, but instead I’ll look at hard numbers. I will apply this strategy to my exact trading history and see where it lands.

Let’s look at reality first: I currently have a stock portfolio that hovers very closely around the one million dollar mark. Half of that portfolio sits in our 401(k)s and IRAs, the other half is held in after tax stock accounts.

As an experiment I’ve taken every deposit and every withdrawal from my stock accounts and pretended I only bought and sold shares of SPY. So when I deposited $5000 on Dec 18 2000, I pretended I bought 38 Shares of SPY at $132.06 (the price of SPY on that day). When took out $49,000 in September of 2008 I pretended I sold 378 shares at $129.47 (the price of SPY that day). I repeated this for each every deposit and the very few withdrawals over the last 17 years.

In this experiment I also reinvested every quarterly dividend (some 2% a year) back into SPY. The following chart represents both my actual trades and the simulated trades in SPY

Stock_vs_SPYIn the chart above the black line represent my actual portfolio value for all my after tax accounts since 1998 up till the date of this writing.

The Green line represents every trade I’ve ever made substituting whatever company it was I bought with shares of SPY at the price it was at on that day.

The difference at the day of this writing (with SPY is trading at $211), the experimental portfolio would be at $568,035.00 which, compared to my current portfolio (of taxable accounts only), is $118,096.66 more!!!

I would have had whopping $118,096.66 more today by just sticking to a simple investment strategy, buying SPY only. No fancy research, no examinations of prospectus, simply buying SPY and when dividends are paid buying some more.

I fully realize and so should you, that investing does come with risk, but without risk there wouldn’t be any reward. So if you are willing to take the risk of investing in SPY (which btw, has only gone up in the long run) then this strategy would be much safer than trying to invest in individual companies. I’ve done that and been there. During the great recession I lost half the value of my portfolio, the investment in SPY came back and it came back with a vengeance. My investment in solar company Energy Conversion Devices didn’t come back at all. They went belly up and that money is gone.

So, if you want to take a lesson from my past behavior, stick with KISS. Keep it Simple, Stupid.

Buy into and keep buying into an ETF, like SPY (QQQ which follows the NASDAQ and DIA which follows the Dow Jones are similar ones) and hold.

Did I mention the “holding” part? Be patient and let compounding  take care of the rest (another little known secret I wrote about).

Good luck reaching your financial goals.


 

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About Maarten van Lier

Maarten came to this country with a suitcase and a diploma. He created a financial plan and goal to become a millionaire in 10 years. He successfully turned his financial goals into reality, wrote a book about it and now blogs actively in hope of inspiring other to do the same.


3 thoughts on “KISS Applied to my investments

  • Derek @ Tools 4 Retirement

    Great application of the KISS principle. Over the past couple years we’ve shifted about 70% of our nest egg to broad market index funds (mostly tracking S&P). The peace of mind from being vested in very low fee index funds is wonderful.

    • Maarten van Lier Post author

      Thank you, the peace of mind combined with increased returns makes it even more attractive.

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