Building My Portfolio: Disclaimer and General Philosophy

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I am starting a new series of posts that describes how I will reconstruct my current investment portfolio from scratch, from general theory to the actual purchasing of specific mutual funds. Here I want to reiterate the point of this blog – This is how I am thinking of investing my money, not necessarily how I think you should do it. In other words, I don’t claim to be an expert, I just think sharing is fun and hopefully there will be a good debate and overall knowledge will be increased. You don’t really often get to see someone juggling a real portfolio across a multiple Roth IRAs, 403bs, 401k, and taxable accounts. It will also keep me organized and motivated as I’m been putting this off 🙂

General Philosophy
Here are some quick insights into how I approach investing. You’ve all read this ominous phrase before:

Past Performance Does Not Guarantee Future Results

Well, you know what? All we have is past performance. The important thing is to look back at all the data available, and try to extract useful information that has the greatest chance of persisting into the future. This won’t be easy, and there will be eternal debate as to how where we draw the line between “likely to persist” and “unlikely to persist”.

Based on this life expectancy chart, if I’m lucky I’ll have another 50 years of investing ahead of me. However, much of the data I read about in studies only dates back no further than 1975. Even the really far-reaching ones only date back to 1926. So I’m supposed to use at best 80 (and often only 25) years of data and extrapolate that out for another 50 years? That doesn’t seem like a huge mountain of evidence, especially considering events like World War II which had huge consequences and occurred only 50 years ago. Wouldn’t it be nice to have something like 800 years of investment data to make decisions upon?

As a result, I will try to keep my portfolio simple and stick to things that I believe are the most reliable, including supporting articles and data. Most of this will come from my readings of books and various studies.

Read more: Index of Posts On Building My Portfolio

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  1. This looks to be a great series of posts. Portfolio theory is hotly debated especially when you start looking across generations. Thanks for once again opening up your finances so we can all learn more from each other.

  2. Ron Haynes says

    Hey Jonathon,

    You might try reading Rule #1 by Phil Town. He recommends individual stocks, but his ideas and the rules he sets up are transferable to mutual funds as well. He uses moving averages in a similar way to Ben Stein in Yes You CAN Time the Market.

    Phil has a website and a blog, too. Both are really good.

    Love your blog. I subscribed a few days ago and have been reading through it. Good job!


  3. Our portfolio is a mess! we have 401k’s, 403b, 457, IRA, brokerage account and savings accounts.

    Can I just hire you to manage it all for me!?!

  4. Our Debt: don’t be afraid of using many tools for investing. I don’t think there is One True Way to correctly handle your assets. It’s called diversification for a reason 🙂

    I am _so_ looking forward to this series 🙂 I’ve recently started really crunching numbers for building mine, it’ll be great to have more insight.

    (typo: “eternal debate as to how where we draw the line”)

  5. Let's Discuss Money says

    Good stuff, I’ll look forward to reading future posts.

    My portfolio’s doing very well but sometimes I wonder if I should just go long of oil after the next pullback and hang on to it for 50 years until oil runs out 🙂

  6. Keep in mind that the “life expectancy” tables are AVERAGES (forgot if these were median ). Anyway, you KNOW these will increase as medical advances continure so I would aim HIGHER than the table shows. Gauge based on your health lifestyle and genetic background….. I guess I would think you have to target to live at least to 90 if not 100…..

    I also think everyone will have to figure in an annuity or two in their financial plan in order to allow for the best-case/long-life plan (I guess that is good news AND bad news….) .

  7. Are you going to cover your reasons for re-constructing your portfolio?

  8. Ted Valentine says

    My portfolio general philosophy:

    1. KISS
    2. If it sounds too good, it is.
    3. Educate yourself.
    4. Know yourself: needs and behaviors.
    5. Pick a good plan and be satisfied.
    6. The efficient frontier is only knowable in the past.
    7. Keep costs down.
    8. Stick to your guns.
    9. Don’t Panic. Don’t get cocky. Don’t follow.
    10. Automate.

  9. The table used looks like one for the general population. For fun you can get other estimates
    Look at–lifeevents–longevity_game
    on this site I get 94
    on this site I get 89

    However, life expectancy is only the average expectation for a very large group of people. You might live to 100, but you might die from a brain tumor before 50 (one of my best friends from college did 2 years ago). It’s a crap shoot.

  10. Jonathan, this is a coincidence. I recently read an article in Smart Money about mutual funds that I wanted to send you. And then I read your post today where you state that you’re going to start from scratch and pick some funds. I really want to send you the article. Here’s a bit: “There are three basic types of stock funds. The first uses people to pick stocks. The second uses computer models. The third doesn’t pick stocks at all (or so we’re told), but rather hews to an index . . . . In my opinion, you don’t want any part of choice No. 1, and No. 3 is really No. 2 in drag, but not as good.” Let me know how to send it to you.

  11. We all have our own beliefs but I’ll leave you with my 2 cents. If you are going to go long, and I know you probably will, invest in future trends: reliance on renewables (solar/wind) is only going to increase in the future, companies that go green save green in cost cutting, and most of the great growth will come from emerging markets!

    that being said, I can say one thing I knew for certain: water. There isn’t enough drinking water in the world so invest in water treatment and desalinization. a good ETF is PHO. The US alone will need 300 billion in infrastructure investments over the next 30 years just to update our current pipe system.

  12. This is good, I am into equities, no mutual funds, no debt instruments no money market. It would be good to learn the principles along with you.

    I know most of the things i won’t be able to understand as I am from india and most of the producs you are into and non-existent in Indian market… still it would be a good opportunity to learn.

  13. Ummm… 60 years ago, Jonathan. But 50 years for the post war boom. 🙂

    I’m interested in your new series. My wife and I combined our finances a year ago, and have gone through a few other major life changes – career and otherwise. It’s reaching the point where we need to rebalance our portfolio as well. I look forward to your observations.

  14. This is all interesting and very helpful information. I’m very “green” when it comes to investing so I’m way behind many of the discussions that I have read. I’ve spent the majority of my time building my business (self-employed attorney) and have been fortunate to have some cash to invest. So, “better late than never” is applicable to my situation.

    I feel a bit overwhelmed from the information. With the exception of my SEP IRA (which I max yearly) my equity investments are very minimal. I’ve got a fair amount of cash that I know I need to invest into various funds but where to start seems difficult. Should I just got to a money manager and call it a day? Any thoughts.

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