Boring Investments for maximum gains (IRA/401K)

Boring investing

For the last several years, I loved being part of the action as I interact with my friends, colleagues, watched news about Tesla, GameStop, Bitcoin etc. They made big gains on some these investments and I dealt with FOMO like most of us. I made some interesting investments which provided me with huge investment returns and others pulled me down.

In January of 2019 right after the passing John Bogle, founder of Vanguard, I started to to read up on his ideologies and  investment philosophies. His book on Common sense investing intrigued me and I started to do some research on that topic.

In summary here's what I found. 

1. On an average most hedge funds under-performed the S&P 500 returns over the last 30 years

Chances are you will have better returns long term if  you simply invested on the S&P 500 index.  We all like to chase the glamorous individual stocks, hedge funds, IPO's and other investment strategies and don't do boring stuff like just invest in a index fund like the S&P 500. Yes, that's true, boring gets you best returns. Just invest and wait  patiently on the sidelines. If possible, invest regularly to average out the entry points for your investments (monthly, quarterly etc.)  I would recommend using Alpha and Beta to evaluate the performance of your portfolio

Alpha vs. Beta: What's the Difference? (investopedia.com)

So why does anyone pay the large fees for the expensive hedge funds or pick individual stocks and do all that work when we have low cost S&P tracker funds easily available to maximize our gains?

2. Good things comes in three's. 

3 primary colors, 3 macro nutrients, past-present-future, traffic light colors, third time's a charm, so on and so forth...

Similarly US investment portfolios also have primarily 3 components. Most retirement portfolios I have seen have 3 components namely US equities, bonds and International exposure for US investors. You just play around with these ratios depending on the risk appetite and how far you are from your retirement. These days you can diversify into REIT's for some exposure to Real estate or the Crypto market  as well. There are many popular portfolios depending on the ratio's of your asset allocation. This provides a good hedge against the volatility in the markets over long periods of time. Please, do remember that these portfolios work over longer periods of time and are not typically used for short term investments.

Big shout out to Tyler on how much work he has done to provide investors with tools and information for building the right portfolio that works for them. I am a data guy and like to back test all my strategies and philosophies and his tools gave all that and more.

Portfolio Charts – Find a portfolio to love 

Before you pick one that suits your personality and investment goals, make sure to back test their historical performance at least over the last 30 years, so you have taken into account some of the bull and bear phases of the markets and how these allocations weathered them. 

A couple of examples. 

1. 90/10 Portfolio - Warren Buffet

90% in S&P 500 tracker funds

10% in short-term government bonds

2. No Brainer Portfolio - Bill Bernstein

25% Bonds

25% European Stocks

25% US Small Cap Stocks

25% S&P 500 tracker funds

In conclusion, build an asset allocation that suits your investment style and goals, invest regularly to average out your entry points and stay invested even when the market is in the correction/bearish phase as no one can perfectly time and predict the market trends. Also, there are several low cost ETF's and funds that have retirement target date or the asset allocation you may like. 

I am a individual investor and not a financial advisor. All opinions here are my own and have risks associated with it. Please consult your financial advisor before making any investment decisions.