Popular Investment Strategies

[I am He]

You're very young and on the right track with wanting to buy it right before you invest.

Most gurus state there are plenty of decent portfolios and no "right" ones. The prevailing sentiment is to only buy what is needed and have the intention that you will never change course. Buy, keep buying, close your eyes and buy some more until you retire. Selling is the enemy as you'll always want to sell and buy something else. Just accept the return of whatever you buy.

One thing that is not mentioned is if this is in an IRA or taxable as those two buckets make a big difference as far as changing anything at all will cost you if it's a taxable event.

Personally I'd always pile into something like a 500 or total fund as well as some international (if you want more diversification [not because you expect higher returns]) and maybe into the smaller/value caps. I'd not go over 50% into the smaller stuff but there's nothing wrong with starting slow with just a total/500 fund and add into the fringe things later on. Or maybe start with 10% small/value and see if you're willing to continue holding it even if it doesn't appear to be the winner.

Zero bonds to start assuming you've got a lot of working years left. Personally I've never sold a bond to buy a stock but that's what we're told to do by rebalancing. If you have no bonds, you know you don't need to debate should you or shouldn't you?

I think Bogle said over 10 years, it's random luck as to how any portfolio does whether it's large or small, value or growth. Over 30 years, you might come out ahead with the portfolios that tilt small/value. Might. And that assumes you ride it out along the way and not sell or buy at the inopportune times. Only holding the 500 or total market will guarantee you match the actual return of the market (less fees). One's a guarantee and all else are bets.

 

[imnontrad]

Look at the investment strategies by Paul Merriman (including the two fund portfolio) al l have been developed using decades of past data.

 

[Closet_Gamer]

OP -

Before we get to portfolio allocations, a question: do you have a solid emergency fund in case you get laid off or something similar? Warren Buffett is a juggernaut of wisdom and one of his points I've always kept to is that "if you might need the money in the next three years, it shouldn't be in the stock market."

A big part of being able to stick with any investment strategy is the ability to ride out volaitility without freaking out. It is much easier to do this if you have very firm foundations under you.

So, first: I'd suggest a solid foundation in cash/CDs/similar. 6-12 months of expenses. This will also help you avoid getting into consumer credit if things get weird. (Do you have kids? Make sure you have term life insurance.)

I'll hop off that soapbox now.

In terms of the portfolio, I've used a "moderately aggressive" portfolio as a reference over the years. Different brokerages will give you a slightly different mix of assets in their models but roughly:

40% large cap
20% small cap
20% international
20% bonds

You can dispense with the bonds if you're willing to ride the volatility.

You can accomplish the above in any number of ways, but four index funds or ETFs would do it. Reasonable people can also disagree about the merits of the international component. I've always kept it but most of time regret that decision ... and then I keep it for all the reasons I've kept it in the past.

Hope that is useful.

 

[Crabbyjerry]

Magellan

Thirty or forty years ago my brother came to me with about $50k. At the time I knew absolutely nothing about investing and just randomly thew a dart and picked.........Fidelity Magellan Fund. I knew nothing about it and did no research. But......

My accountant at the time, recommended looking into a retirement plan and the first fund I ever owned was the Magellan fund back when Peter lynch was just getting ready to exit. I’ve kept a small token amount because that was the baby that got me into the fund game.

 

[thatbrian]

Hello everyone,
I have started to research well-known investment strategies. I have come across various very different strategies, such as:

- The Two-Fund Portfolio: (50% Vanguard Total World Stock Index Fund (VT) + 50% Vanguard Total Bond Market (BND))
- Warren Buffett's 90/10 portfolio: (90% Vanguard S&P 500 ETF (VOO) + 10% Vanguard Short-Term Treasury ETF (VGSH))
- The Three-Fund Portfolio: (33% Vanguard Total World Stock Index Fund (VT) + 33% Vanguard Total Bond Market (BND) + 33% Vanguard Total International Stock Market Fund (VXUS))
- Four Corners Portfolio: (25% Vanguard Growth Index Fund Admiral Shares (VIGAX) + 25% Vanguard Value Index Fund Admiral Shares (VVIAX) + 25% Vanguard Small-Cap Growth Index Fund Admiral Shares (VSGAX) + 25% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX))

- etc.

Do you use one of these strategies? Or do you use other well-known investment strategies? If so, why do you use this specific strategy?

[MOD EDIT]

I would like to test which strategies work how well against the S&P500. Since I would like to decide on a strategy.

I thank you in advance!

It's simpler than that: Either a total US market, or S&P 500 etf is all most people need. When you close to retirement you can add a treasury or CD ladder

 

[kgtest]

Strategy? I think the best strategy someone gave me on this forum was calling me out as a young investor who should NOT be holding bonds. I needed to take more risk, but I was admittedly clueless.

Somehow folks on this forum got me sorted out and I went to 100% equities for high growth outcomes sometime around 2012 ish probably. And back then, I didn't know much so I had an old 401k that was doing terribly compared to the indexes and did not have a very large selection of funds to choose from.

I eventually rolled all my old 401ks (I think I had 2) into a Vanguard Rollover IRA. Then I started contributing to a roth...and then broker...and HSA...and 529.

What I've learned through the years is you really need to maximize your investment opportunities. This is much more important than picking the exact pin point strategy you think you should have.

When you are young, you can afford to take more risk. When you are old, you've run out of time.

Save as much as possible, as early and as often as possible. But also, maximize the investment choices you have. My DW has a 403b and has been at the same company her whole life. They have literally like 1 maybe 2 decent funds to pick from.

You need to eliminate restrictions to wealth building, by creating the absolute best opportunities possible. Invest in yourself.

Some of the biggest risks I took in life, that paid the largest return on invesstment, cannot be measured by equity allocations.

Hint...marry the right girl, get a good job, work hard, save some for later, have a family, raise them up to be decent people, and enjoy your grandkids as that rocking chair you have pointed west on the front porch starts rocking a little slower.

I put most of our money in Vanguard. Early on it was at Fidelity and Etrade.

Seasons change, don't be caught with your pants down in winter. Be ready.

 

[target2019]

A lazy portfolio is a set-and-forget collection of investments that require little or no maintenance. Most portfolios consist of a small number of low-cost funds that are easy to implement and rebalance. Lazy portfolios are designed to perform well in most market conditions, making them the perfect choice for long-term investors. Here you can find a list of the most popular lazy portfolios implemented with ETFs. https://portfolioslab.com/lazy-portfolios

The S&P500 portfolio is down the list, and simple to compare to other portfolios in the list.

 

[qwerty3656]

Well, here we go. I know people here HATE dividend investing, but it is a popular investment strategy and one I follow. So bring on the rage posts.

https://youtu.be/MPq-F7ZuX_c?si=H9qbzzg8Jf2YwmLR

 

[ncbill]

Well, here we go. I know people here HATE dividend investing, but it is a popular investment strategy and one I follow. So bring on the rage posts.

https://youtu.be/MPq-F7ZuX_c?si=H9qbzzg8Jf2YwmLR

It's a fine SWAN approach but sub-optimal compared to total return.

Be careful of sector concentration.

 

[qwerty3656]

It's a fine SWAN approach but sub-optimal compared to total return.

Be careful of sector concentration.

just to poke the bear alittle. I agree 100% that if you're trying to grow your wealth (e.g. young and still working) that total return is the way to go. Now that I'm retired, if I didn't own a portfolio of high quality dividend stocks, I would own a big chunk of bonds (e.g. 60/40 portfolio). Instead I owns a small emergency cash position and then all the rest is in dividend paying stocks. My total returns are not sub-optimal compared to a 60/40 portfolio.

 

[ncbill]

just to poke the bear alittle. I agree 100% that if you're trying to grow your wealth (e.g. young and still working) that total return is the way to go. Now that I'm retired, if I didn't own a portfolio of high quality dividend stocks, I would own a big chunk of bonds (e.g. 60/40 portfolio). Instead I owns a small emergency cash position and then all the rest is in dividend paying stocks. My total returns are not sub-optimal compared to a 60/40 portfolio.

you're taking more risk (all equity) so you would expect a higher return.

 

[target2019]

just to poke the bear alittle. I agree 100% that if you're trying to grow your wealth (e.g. young and still working) that total return is the way to go. Now that I'm retired, if I didn't own a portfolio of high quality dividend stocks, I would own a big chunk of bonds (e.g. 60/40 portfolio). Instead I owns a small emergency cash position and then all the rest is in dividend paying stocks. My total returns are not sub-optimal compared to a 60/40 portfolio.

Yes, once you assemble the portfolio, you're good to go. Here's one Lazy Portfolio with just 10 stocks. It's a poor representative for a dividend strategy as you can see. I think you'd need at least 40-50 companies. Do you agree with that?

This portfolio consists of 10 dividend-paying stocks that could generate constant money flow in the long term. https://portfolioslab.com/portfolio/dividend-paying-portfolio

 

[Koolau]

Diversify across as many sectors as possible and as cheaply as possible. That's why index funds are so useful. Not sure what info is still available, but years back, the Scott Burns' "Couch Potato" portfolio was popular in these forums. It had two or three Index Funds IIRC.



Keep it simple, keep it cheap and keep it spread out. That's the Ko'olau portfolio. I'm no expert so YMMV.

 

[qwerty3656]

Yes, once you assemble the portfolio, you're good to go. Here's one Lazy Portfolio with just 10 stocks. It's a poor representative for a dividend strategy as you can see. I think you'd need at least 40-50 companies. Do you agree with that?

Yes - or own something like SCHD. I own a bunch of stocks, but am slowly building a large position in SCHD (SCHD wasn't on my radar when I started buying stocks).

 

[target2019]

Yes - or own something like SCHD. I own a bunch of stocks, but am slowly building a large position in SCHD (SCHD wasn't on my radar when I started buying stocks).

I'm pretty sure that SCHD appeared on my radar here.

 

[Dabbler]

I'm pretty sure that SCHD appeared on my radar here.

or how about SPYD?

Per Morningstar (today)

ER . .Ticker TTM . .SEC
.06% SCHD 3.49% 3.67%
.07% SPYD 4.66% 4.86%

 

[target2019]

or how about SPYD?

Per Morningstar (today)

ER . .Ticker TTM . .SEC
.06% SCHD 3.49% 3.67%
.07% SPYD 4.66% 4.86%

My Rx is 4 parts SCHD, 1 part SPYD.

 

[WhenIsItTime]

Strategy? I think the best strategy someone gave me on this forum was calling me out as a young investor who should NOT be holding bonds. I needed to take more risk, but I was admittedly clueless.

Somehow folks on this forum got me sorted out and I went to 100% equities for high growth outcomes sometime around 2012 ish probably. And back then, I didn't know much so I had an old 401k that was doing terribly compared to the indexes and did not have a very large selection of funds to choose from.

I eventually rolled all my old 401ks (I think I had 2) into a Vanguard Rollover IRA. Then I started contributing to a roth...and then broker...and HSA...and 529.

What I've learned through the years is you really need to maximize your investment opportunities. This is much more important than picking the exact pin point strategy you think you should have.

When you are young, you can afford to take more risk. When you are old, you've run out of time.

Save as much as possible, as early and as often as possible. But also, maximize the investment choices you have. My DW has a 403b and has been at the same company her whole life. They have literally like 1 maybe 2 decent funds to pick from.

You need to eliminate restrictions to wealth building, by creating the absolute best opportunities possible. Invest in yourself.

Some of the biggest risks I took in life, that paid the largest return on invesstment, cannot be measured by equity allocations.

Hint...marry the right girl, get a good job, work hard, save some for later, have a family, raise them up to be decent people, and enjoy your grandkids as that rocking chair you have pointed west on the front porch starts rocking a little slower.

I put most of our money in Vanguard. Early on it was at Fidelity and Etrade.

Seasons change, don't be caught with your pants down in winter. Be ready.

As you know the forum is big on diversified, low cost ETF's for equity position. Are you essentially referring to risk in asset-allocation (broad equity ETF's vs. bonds/CD's)? Or, did you go individual stocks or other investment vehicles.

I think the context is useful for characterizing the risk level.

 

[ERD50]

Well, here we go. I know people here HATE dividend investing, but it is a popular investment strategy and one I follow. So bring on the rage posts. ....

... Now that I'm retired, if I didn't own a portfolio of high quality dividend stocks, I would own a big chunk of bonds (e.g. 60/40 portfolio). Instead I owns a small emergency cash position and then all the rest is in dividend paying stocks. My total returns are not sub-optimal compared to a 60/40 portfolio.

I don't think it's fair at all to say people "HATE dividend investing", or that you should expect "rage" responses to your post.

I do however, object to things being misrepresented and/or confusing the issue. So, without 'rage'...

First off (and I'm sure I've said this before), "total return" is not a 'strategy' or 'approach' - it is arithmetic. It tells us the value of our portfolio (including distributions), and that is all that matters (after taxes and after applying a 'risk/volatility' adjusted basis to keep it more apples-apples).

Second - Whether income is received from dividends (which is essentially 'forced selling') or from targeted selling (done when and how much the owner decides) is largely immaterial, though the forced selling will mostly incur increased taxes (if held in a taxable account). And divs that are taxed are taxed on 100% of that income, while only the capital gain portion from selling is taxed. And targeted selling is more flexible (you may want to lump gains/losses in a specific tax year), divs and cap gains are done when they are done. No control.

Third - regarding performance, and div stocks acting like bonds... Here's an analysis with a conservative 3.3% Inflation Adjusted WR with 100% SCHD against SPY/BND since inception (so we only get 12 years of data)... But, I'll use SCHD, as you posted:

.... am slowly building a large position in SCHD (SCHD wasn't on my radar when I started buying stocks).

First, here you can see that SCHD was only slightly less volatile than SPY, and SPY slightly outperforms (pretty much expected). However, for Apples-to-Apples, we don't need a 60/40 - that is *way* overstating the stability of the div payers. And even though Bond Funds did pretty badly over this period, it only takes a 5% added bonds to bring SPY volatility below that of SCHD, and SPY_95/5 provides higher return.

________Volatility _ CAGR _
SCHD: _____ 13.73% _ 10.48%
SPY: ______ 14.30% _ 11.36%
SPY_95/5: _ 13.67% _ 10.73%

NOTE: The above includes the annual withdrawals, so actual return is higher.

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=3WL6lqRuoRdwccmgWHP0vO

I tried to sub a Money Market for BND, they only offer CASHX, but very similar numbers:

No return data available for symbol: SPRXX (Fidelity MM). Use CASHX for cash/money market returns (t-bill returns).

Bottom (rage-less) line? The numbers are pretty similar, SCHD is not as stable as some seem to think, buffering SPY with just 5% Bond Funds or cash reduces the volatility to below SCHD, and the blend outperforms SCHD.

So what is the attraction? I know, you'll say that you don't need to figure out what to sell (once a year, when you rebalance - takes a couple minutes). But unless your spending exactly matches your dividend stream, you'll either need to sell, or buy (reinvest those unspent divs rather than let the cash pile up), or change your lifestyle? So what is the attraction?

From your linked video: "one really popular goal for soon to be retirees is to be able to live off the dividends from their retirement accounts from their savings accounts it's a super powerful strategy". It's "super powerful"? That's the kind of hype that just doesn't seem to stand up to scrutiny.

The div fans are often just over-selling the approach. Hey, if you like it fine, your decision, but I have yet to see any of the reasons offered hold any water at all. But if you want to say it's better, and characterize those with different opinions (and data) as "raging", you'll need to provide some non-cherry picked data of your own.

Is that a rage from me? Looks to me like some facts and observations.

-ERD50

 

[ERD50]

A follow up data point, as you mentioned a 60/40 portfolio.

After you add enough bonds to an SCHD portfolio to have a lower volatility than a 60/40 SPY/BND blend, the SCHD/BND lags in performance (it's all very close though). But no way you need to go to a 60/40 SPY/BND to match the volatility of SCHD. As shown previously, just a 5% blend of BND does that.

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=7eAT0r9eI7jDrGXldroqdE

-ERD50

 

[VanWinkle]

As 100 year old Taylor Larimore would say, "There are many roads to Dublin".

VW

 

[Phroig]

As 100 year old Taylor Larimore would say, "There are many roads to Dublin".

VW

Indeed. I do mainly index funds with a side of dividend growth funds.

The concern with the popular indexes (frequently expressed by some here) is they are increasingly dominated by a handful of large companies. The indexes therefore do well when those few stock prices pop; this was the case in 2023.

Just out of curiosity, I used the link above to run PV on the three portfolios through December 2022 rather than 2023. BTW, this yields numbers we'd have seen if we'd been having this discussion a year ago. The CAGRs are 11.15% for SCHD and 10.24% for SPY. The balanced has an even lower return, but also continues to have the lowest volatility.

If some folks want to use dividend funds, perhaps for behavioral reasons, no harm in it.

 

[ERD50]

... If some folks want to use dividend funds, perhaps for behavioral reasons, no harm in it.

I agree there is no/little harm in it, the numbers come out fairly close (and of course, specific time periods could show slightly different results).

But as I said, I just don't like to see things over-hyped and/or confusing the picture.

Now, maybe someone could be harmed by assuming their div portfolio really was only as volatile as a 60/40 broad-index portfolio? It just isn't helpful when inaccurate statements are bandied about as fact.

Hey, maybe my numbers are messed up somehow - but I haven't seen any challenge to them. And if they are messed up, I sure would appreciate a clarification, I don't want to be under a wrong impression either, that does me no good.

-ERD50

 

[qwerty3656]

ERD50 - thanks for the response. I guess a few more thoughts. My view is EVERYONE de-risks their portfolio somehow in retirement. Some use a 3-bucket strategy, some buy annuities, some have a 60/40 allocation, some invest in dividend stocks, etc. But on this website, it's only dividend investors who are treated like "flat earthers".

- As I was approaching retirement, interest rates were basically 0% and only fools were buying bonds.
- When the market collapsed because of covid, my portfolio value dropped like everyone else's, but my dividend income didn't drop at all.
- Most of recent growth of the S&P 500 is because of 7 stocks (that appear to me to be grossly over-valued).

One clarifying question - does your volatility analysis assume you re-invest dividends?

 

[kgtest]

Buy and hold. That's always a good strategy.

DCA - Dollar Cost Average

and my own personal strategy...save AS MUCH, AS EARLY, and AS OFTEN as possible...buying the whole market with a tilt towards US tech sector and Mega Cap.

Prenumps are a good strategy...according to many divorce lawyers and divorcees.

Real estate is good if you can get a good location.

Buy low, sell high is another favorite of mine.

Anywho, I digress.

The best strategy is to invest in yourself though. The best thing I ever did was take investing serious and decide to self-manage.