Introduction

My investment strategy is pretty simple. Invest in broad stock market indexes, especially when they are low. Over time, they have always gone up, and in the short term, they are volatile. The way to make money in any investment is to buy low and sell high.

In my 401k, I invest enough to get my full company match; no more, no less. If I had no match I think I'd still invest something in the program but I haven't had to cross that bridge.

I am somewhat afraid of mutual funds. Obviously the Bernie Madoff scandal doesn't help this, but even a sound manager costs money that comes out of my earnings, and I don't even know for sure if the manager has the same investment philosophies I have. Plus, mutual fund managers are under tremendous pressure to please the "herd" and as an investment contrarian that is the exact opposite of what I do. I don't have the option of investing in individual stocks in my 401k plan, except my own company stock, and that is ok with me. It is difficult to find the time to investigate individual companies. I don't trust these "target date" funds either. I'm sure they are well managed but I have a hard time believing that they will match the market. I don't fully understand the behavior of bond funds. I know in theory bonds are supposed to be safe, but it turns out they are not really and I don't have the same certainty that they always go up over time as I do with the stock market. I could see myself someday having some bond investments if I can learn more about them. That day has not come yet.

So, I stick with what is familiar... the boring old stock indexes. I invest in a large cap index fund which mimics the S&P500, and a small/mid cap index fund which mimics the Russell 2500. The two of these make up about 60% of my portfolio. I think I would do just fine to invest only in these, but in order to call myself more "diversified" I also invest in an all-world stock index fund, a pacific stock index fund, a european stock index fund, and just for fun my own company stock. I've noticed that all of these pretty much go up and down together, so really if I wanted to be diversified I'd have to invest in something besides stocks. I guess I don't really want to be diversified that badly. I do use the "stable value fund" as a sort of cash-storage device and keep up to 10% of my portfolio invested there depending on market conditions. That way if stocks drop, I have some money beyond my bimonthly contributions to put back into stocks while they are low.

It is worth nothing that essentially the same thing can be accomplished by simply investing 90% of contributions in stock funds, 10% of contributions in the stable value fund, and then rebalancing as often as allowed to keep that ratio. This would automatically buy low and sell high; in fact many accounts will literally do it automatically at the time interval you choose. But its not as much fun as doing it manually. I like to actually go heavier on stocks when they're low, and lighter on stocks when they're high. If doing it manually is not fun for you, you should probably just do the automatic rebalancing and you'll probably do about as well and save a lot of time.

It seems the majority of people tend to buy high and sell low. It is the only way the extreme ups and downs of the market can be explained. This is good for contrarians like me, and you could argue I should leave well enough alone, but I have personally met so many people who have lost money or at least haven't made any in their retirement accounts that I felt compelled to share my strategies which seem to be working so far, although there is no guarantee I won't someday crash and burn. Either way, the ride will be revealed here. My actual gains and losses (by percent, not dollar amount) will be reported, so I cannot be accused of reporting theoretical gains "had I done such and such". These are the actual numbers. I only have the numbers from 2009 to the present. I am not trying to hide the fact that I lost a lot in 2008... it was probably 20% or 30%. I just wasn't keeping track back then, nor had I yet fully developed a strategy. I was 100% invested in stocks at the time, and my only regret about that is that I didn't have any cash to re-invest in stocks while they were low. Suffice it to say I kept buying (using my new contributions) all through the downturn, even during the drop, and that by mid-2009 I had recouped all my losses since the peak in 2007. If there is another crash, I'll have temporary losses again, but as with the crash of 2008, I'll end up profiting because I'll be buying low through the downturn (IF I can manage to stay employed that is, but that is not a matter for this blog).

For the sake of example, here is a pictorial view of my investing strategy over the year of 2010. Open up the S&P500 chart and on the lower right of the chart enter a date range of January 4, 2010 to December 10, 2010. This is a graph of the stock market over a one-year period as represented by the S&P500 stock index. Notice there are two major low periods, one in February, and another from May to October. My year-to-date returns were negative during both of these periods, and I was in full "buy" mode, which means 100% of my paycheck contributions were going toward stocks, and I was rebalancing toward stocks roughly once or twice a month, about 1% of my total portfolio each time. How did I know the market had reached a bottom? I didn't. All I knew was that the market was low as compared to recent history. After that, dollar-cost averaging takes over. The market could continue to go down, but thanks to averaging, I could not possibly miss the bottom, and I did not miss. I did small amounts of selling in April where there is a high. Again I didn't know where the absolute high would be and didn't need to know since dollar-cost averaging works the other way as well. I also rebalanced 1% into stocks during that brief low on November 16. On December 16 we were hovering around 2-year highs and I rebalanced out of stocks by 1% to lock in the gains. I may do this again once more before 2010 is over if stocks do not drop much.

I have no method of predicting the future. I read all the articles on internet news sites about finance, and it seems no one else really knows how to predict the future either even though they are paid to try. So, I do not speculate on whether the markets will go up or down at any given time. I tend to look at what the S&P500 has been doing over a one-year period (I have trained myself to follow this broader index and not the Dow, although in the end it doesn't matter much; they go up and down together). If it is at a low for the year, I buy, if at a high, I tend to hold or sell (putting my contributions into stable value instead of stocks), all while attempting to keep a balance of 90% stocks, 10% stable value plus or minus 10%. Meanwhile, the all-time history of the S&P500 is in the back of my mind. Currently it is around 1200, and it has been as high as 1500 in 2007 and I do fully expect it to get there again someday, and then go beyond. Really, the only way this could not be true is if the world as we know it comes to an end, in which case none of our investments really matter anyway (though admittedly the ones who invested in gold, guns, and canned food will be better off than me if that happens).

This brings me to my final point, which is that I don't actually plan to ever retire in this life. As a born-again Christian, I have an eternal retirement plan far better than any earthly one and so there isn't much reason to try to create a heaven on earth. If I do stop working for a paycheck, it will be to work full time in ministry. At this time, I don't feel called to that so I keep working and give what I can to my local church and other ministries so that others can have this eternal retirement plan as well, and donate my time as I am able. So really, in my earthly retirement plan I am just doing what I can to make sure I'm not a burden to others when I am unable to work, and maybe even be able to help others even when my body fails. God could have other plans for me and I could still end up being dependent, but at least it will not be for lack of stewardship if that happens.

I plan to update regularly. I'll try to highlight posts where I report actual activity, which at most will be every other week (my pay period). Other posts will be commentary on investing in general. I hope you can learn from me and that you'll comment so I can learn from you.