Our Simple Investment Strategy
About a year ago, a friend introduced me to a podcast called ChooseFI and after listening to this episode on investing, I was hooked.
The podcast creators interviewed a gentleman named JL Collins (a living legend in the FI community) and he goes over the basic investment strategy of why you should put your money in the U.S. Total Stock Market Index. His pick is Vanguard (VTSAX) and he tells the audience why it's a pretty safe bet.
The U.S. Total Stock Market Index can be described as the index that tracks nearly all the publicly traded companies in the United States. It's what it sounds like - basically the whole U.S. stock market all in one place. There is a piece of about 3000 companies in the United States shoved into one place. Though the fractions of each are not split equally, it gives you a good idea of its stability because it encompasses so many different companies. You can also think of it as the S&P 500 on a grander scale.
Despite massive stock market swings in the past, we can see that the U.S. total stock market has gone up over time. With a time horizon of about 35 years before Ms. C and I get to a normal retirement, it's safe to say our investment strategy is to pump as much money into the index as much as we can because we know that, on average, over time, the stock market will continue to go up. Another way to think about this strategy is that we're essentially betting on the U.S. economy and pray that it continues to do well. After all, if it doesn't do well and the entire economy tanks, we've got much bigger problems than losing our money in the stock market.
We have thought about how much the stock market has fluctuated in the past 10 weeks and have had to remind ourselves to compare it to the 1,820 weeks in the next 35 years. I can safely tell you that we're comfortable riding this wave and will adjust our strategy as we get closer to our retirement date. This is the 2nd major economic crisis of our lifetime and it won't be the last. We can think about it like this: when crises like this pandemic happen and we continue to consistently buy more, we will find ourselves buying the index on sale when the price goes down. We love a good sale.
I took much of this information and philosophy and combined it with my previously existing portfolio and am now satisfied with its trajectory, even in the midst of this pandemic. I've had my portfolio with Schwab before I listened to the podcast, so I found that Schwab's index for the total stock market is called SWTSX - it's essentially the same as VTSAX. I have been slowly selling off some stocks I own and buying more SWTSX because I believe this is a much better bet.
Interested in our investment strategy? Consider reading this book: The Simple Path to Wealth. Instead of linking you to an Amazon affiliate link, I decided to give full credit to Mr. Collins and humbly ask you to consider buying his book (or at least borrowing it from the library) and give it a read. You can get the gist of it from the ChooseFI podcasts that feature JL Collins: Episodes 19 and 34.
Is Ms. C on board? Why yes, she is! She read the book and it makes sense to her, so we're moving forward with the strategy together before we get married. We are continually talking about our future together and hope that we we can one day retire early (if not, then that's okay). Aside from our investment strategy, we hope to share with you our other plans to save and hustle so we can live fruitful lives. We hope you join us on our journey!
Cheers,
Mr. K
Disclaimer: Nothing in this post is meant to be taken as investment advice or is it an offer to buy/sell any stock or index. All of this should be taken with a grain of salt and you are always required to review any prospectus before investing.