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One sentence jumped out at me: ”I really get a lot of enjoyment out of these types of post that require putting together a spreadsheet, imputing some interest rate formulas, and analyzing large amounts of historical data. Maybe it is the scientist in me that enjoys this!”
How about you all? What type of investing strategy do you employ? Have you ever looked in to the Valuation-Informed Indexing approach to investing? If so, what did you think?
Share your experiences by commenting below!
Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.
- Great article here Rob! Thanks again so much for sharing it with us.
- I did thoroughly enjoy comparing Valuation-Informed Index Investing with the various fixed asset allocation passive investing portfolios in the post on my site a while back. Thanks also for all your great comments and feedback on that post!
- @ Clarification between the “passive investing” (what I currently do) and “Buy-and-Hold” strategy labels –
- There’s really only one thing I want to add to this article, and that is some clarification about the nature of several of the investing styles mentioned above – “passive investing” and “Buy-and-Hold“.
- I’ve noticed over the past year and half of blogging that sometimes, there is confusion about passive investing and Buy-and-Hold being the same thing. While this could just be personal preference in how different individuals define things, I just wanted to write some clarification here to let everyone know how I interpret this subject.
- To me, Buy-and-Hold is an ineffective strategy involving buying shares of a single asset-class index mutual fund and holding them indefinitely (or until retirement), hoping they will go up. For example, Buy-and-Hold would be if you were to purchase one share of an S&P500 mutual fund and hold on to it through thick and thin until you retired.
- Passive investing, on the other hand (again in my interpretation), is something entirely different. In passive investing, I elect a target asset allocation (25% fixed income, 75% equities is my current asset allocation) and then initially buy index mutual funds to obtain this asset allocation.
- As market fluctuations occur, instead of holding indefinitely (as in Buy-and-Hold), I actually rebalance through buying and selling shares as needed to maintain my target asset allocation levels. To do this, I review my portfolio once per month, and rebalance if I am outside of a +/- 5% band.
- And, as I age through different stages of life, I change my target asset allocation to a more conservative level (higher fixed income percentages).
- While this strategy is far from perfect, it’s the most convincing strategy I’ve found to-date.
- So, as you can see, in my opinion, Buy-and-Hold’ing is much different than passive investing.
- There is, however, a time when Buy-and-Hold and passive investing (in my definitions) would overlap. This would be when someone chooses to purchase a single solution asset allocation mutual fund or investing option that holds both fixed income and equity securities and handles rebalancing for you. Examples of this would include Target Retirement Date Funds and services like Betterment.com.
- Since the fund handles rebalancing for you, you can actually buy-and-hold these shares without worrying as much that you bought “too low” or “too high”.
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