Investors who decide to pursue passive equity index strategies still have a few very important strategy decisions to make. They can choose to buy the whole stock market or to adopt a “strategy skew,” when choosing stock index investment funds.

If an investor buys the whole stock market, they seek the market’s return without selecting any particular subset of the market or any investment strategy skew. Doing so is consistent with investment theory and the research evidence. The total stock market is expected to deliver an optimal risk-adjusted return less, of course, whatever minimal costs are associated with the passive broad market index funds chosen to implement this total market strategy. When winners are not identifiable beforehand, this strategy is optimal and efficient.

Without the details, certain factors or investment skews have been demonstrated in the research literature to have the potential to improve modestly upon the market’s risk-adjusted return. Sometimes known as the Fama-French factors, these investment strategy skews are:

• value versus growth,
• large capitalization versus small capitalization, and
• momentum.

These factors may enable investors to improve upon the risk-adjusted performance of the overall market and deliver slight to modestly improved returns. However, to implement these skews or strategies is not costless, and therefore the incremental costs and taxes associated with these strategies also need to be taken into consideration.

A section below will address the value versus growth and large-cap versus small-cap factors or skews. This is because it is practical for passive index investors to adopt such skews through index funds, if they wish and if they are willing to take on the additional risk and costs associated with these skews.

Momentum, which is the sometimes slight tendency of stock price trends to persist, cannot practically be invested in by individuals. If there is any persistence or price momentum, professional traders with very low trading costs, substantial capital, and ample computational resources are the only market participants who are likely to be able to capture this factor economically.

Selecting a broadly diversified investment portfolio WITHOUT any investment strategy skew

The first step in achieving a fully diversified investment portfolio is to choose from among only very broadly diversified and low cost mutual funds and ETFs. The second step is to choose a mix of investment funds that tends to approximate the broadest markets. The funds lists provided in my “Low Cost Mutual Funds and ETFs” book focus entirely on broadly diversified, low cost investment funds.

Various market participants and advisors advocate that investors favor one or more of a multitude of investment selection factors, when assembling an investment portfolio. Unfortunately, these selection factors often involve higher costs, lower diversification, greater risks, and more activity – without a reasonable assurance of improved total returns net of taxes and investment costs.

I suggest that investors own a proportional share of the global public securities markets by buying and holding passive, low cost, and very broadly diversified investment fund vehicles. To do so you would make investments in proportion to the capitalization or total market value of individual securities within the markets.

This is known as capitalization weighting. You can easily assemble a capitalization weighted portfolio by buying low cost, no load index mutual funds and ETFs. Such fund track broad market indexes closely by buying and holding securities in proportion to the capitalization-weighted strategy of the benchmark index. This is where you will also find investment funds with rock bottom fees and costs.

Selecting a diversified investment portfolio WITH an investment strategy skew

To adopt a portfolio skew toward some alternative portfolio weighting factors will require paying higher fees, trading costs, and taxes. To the extent that you “skew” you portfolio or deviate from a very broad and very low cost capitalization-weighted strategy, you should ask whether you are likely to be compensated on a risk-adjusted basis for the added costs of an alternative “skew” to your portfolio. Are you likely to be compensated with sufficient “excess” performance that is disproportionately higher than the additional investment risk that you will incur – after costs and taxes are taken into account?

My reading of the investment literature makes me skeptical on this point from the point of view of the individual investor. In general, the lowest cost and most broadly diversified investment strategy tends to have a better opportunity to come out ahead.

However, as an overview, the following are brief summaries of major skews that a portfolio might have:

 
• “Value versus Growth” — In general, value strategies beat growth strategies over the long-term, although there can be extended periods (think years) when one or the other is in relative ascendancy or relative decline. A growth or value skew can lead to results that deviate unpredictably for sustained periods from the overall market return during the course of market cycles. Furthermore, growth and value investment vehicles often have substantially higher costs. Therefore, I suggest that people select total market investment vehicles with the lowest costs that cover the broadest range of securities.
   
  • If you feel compelled to adopt a value or growth skew to your investments, the investment research literature supports implementing a value skew rather than a growth skew in a portfolio. If you are willing to accept sustained deviations from market index returns, a value skew tends to win over the long-term. Since the costs of value strategy can be significantly higher than a passive full market, capitalization weighted strategy, adopting and managing a value skew might turn out not to be worthwhile.

   

  • Simultaneously, you need to be prepared to maintain faith in your value strategy and accept deviations from a market return. Value strategies tend to win when things get ugly or the markets move laterally. The hardest periods for value investors are when everything seems peachy and the stock market is rocketing ahead, because that is when value strategies tend to trail the broad market and growth strategies.

   

  • While it is beyond the scope of this book, you should also note that discussions about how to implement stock selection methods for passive value strategies have become more heated recently. For example, the best method to select a value-based subset of stocks from the universe of stocks is not clear. Nevertheless, the greater the investment management cost differential, then the higher the cost hurdle that a value strategy must overcome. This is a primary reason that I suggest simply sticking to whole market funds without any particular skew.

   

  • Note that, while the name “growth” may sound good, the actual long-term results of a growth skewed investment strategy might not be as appealing. This is akin to the naming of the “delicious” apple. Many people are under-whelmed by the taste of delicious apples, and they prefer the flavors of many other apple varieties. However, naming apples delicious is a great marketing strategy. The same might be said about growth investment strategies – good naming, but better long-term risk-adjusted out performance? Not so much.

 

• “Large versus Small Capitalization” – Investors gravitate toward investments in large companies, while perceiving them to be less risky. Perhaps the securities of larger firms are somewhat less risky, but small capitalization stocks sometimes have exhibited better returns historically.
   
  • In general, if you chose to invest across all sizes of firms and you can invest at very low costs and in proportion to securities market capitalization, then you will be more broadly diversified and you can participate is the relative ascendancy and relative decline of all size groups. (However, you should also read the section in the chapter above on diversification that is entitled: “Choose the broadest available, whole market diversification.” Skewing your portfolio toward small or large companies is not a reliable recipe for gaining superior risk-adjusted returns when compared to a passive, whole market investment strategy.)

   

  • Within the US equity securities markets, large capitalization stocks, measured by the S&P 500 represent about 70% to 75% of total market capitalization. Roughly speaking, “mid-cap” stocks represent 15% to 20% of total market capitalization and “small-cap” stocks represent 5% to 10% of market capitalization. This information is provided for those who wish to assemble a US equities portfolio using large-cap, mid-cap, and small-cap investment funds in rough proportion to overall market capitalization.

 

• “Domestic versus International” The total market capitalization of non-US equities markets is now greater than 60% percent of total world markets. If you hold at least 50% international equities in proportion to the capitalization of equities securities markets across the world, then you are also quite diversified from a global geographical standpoint.
   
  • Note that when you hold both domestic and international equity mutual funds, for some years you may see relatively dramatic, even double digit percentage increases or declines in the value of international stock holdings. This does not necessarily mean that there is a similarly large disparity between domestic and international economic growth rates or local stock market returns.

   

  • When you own international stock holdings, returns are denominated in a wide variety of foreign currencies, which must be converted back into US dollars for investment fund reporting purposes. Currency exchange rate fluctuations can amplify or dampen returns percentages both positively and negatively. To understand what really has happened, you need to compare stock market return percentages denominated in local currencies prior to the exchange rate conversion of foreign returns into the local currency of the investor.

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Another risk reduction objective should be to achieve the broadest possible securities market diversification within your overall portfolio holdings. Whenever several low cost investment funds are available, I suggest choosing the fund with the broadest market coverage. This reflects a preference for owning the entire market. Such funds are often named “whole market,” “total market,” or “multi-cap” funds.

Funds that invest in company size-based subsets of the market are usually known as “large-cap” versus “mid-cap” versus “small-cap” stock mutual funds or stock ETFs. Overall, it is important to hold all different sized equities roughly in proportion to the market capitalizations of these company size groupings.

The investment research literature indicates that investors in funds with portfolios that are skewed by company size will experience greater volatility. Over time, as demand shifts from large-to-small or small-to-large capitalization companies, these portfolio are more variable compared to the returns of the overall market.

Thirty years ago, research indicated that small capitalization stocks delivered excess returns that were disproportionately high even in comparison to the presumably greater risks of smaller firms. Research that is more recent suggests that this argument is much less conclusive today.

In addition, there are also many more mid-cap and small-cap investment funds, and vastly more assets are deployed to exploit this supposed small-cap company investment advantage. Such is the nature of investing. Apparent advantages often disappear as more assets move in to exploit suspected advantages.

Other more hidden problems might arise, when investing in company size-based market subsets rather than in the overall stock market. Some stock market indexes are mechanically defined, and changes in the list of company constituents of an index may be anticipated. As companies are added or are withdrawn from the company size sub-indexes, some market participants may attempt to profit by anticipate these sub-index changes and by accumulating long and short trading positions in advance.

When company size-based benchmark indexes change, the index funds that track those benchmark indexes must buy or sell to reflect these changes in their portfolio holdings. Changes in demand for particular stocks can create a potential advantage to traders who have anticipated these changes. This “front-running” could be detrimental to the performance of these company size-based  index investment funds. Note, however, that adjustments have been made in the past decade to make this type of index change front-running much more difficult for traders.

Whether or not this is a potential problem when one chooses funds based on sub-indexes of the market that are skewed by company size, it is not a problem when one invests in index funds that span the entire market. When an investor holds low cost, passively managed index investment funds that represent all sizes of companies, it will not matter if individual stock prices change somewhat as companies are added or subtracted within subsets of the overall market.

Price fluctuations due to sub-index membership changes will be neutralized overall. The total market index investor holds all the stocks, including those that might increase modestly in value by being added to a sub-index and those that might decline slightly in value by being removed from a sub-index. By owning the whole market, these potential hidden cost problems related to redefining sub-indexes just disappear.

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This article looks at asset allocation strategy in light of the recent credit crisis. The credit crisis was a systemic, global financial event that affected any financial or securities instrument influenced by debt and borrower credit worthiness. In short, the credit crisis affected everything.

During the credit crunch, many investors sought liquidity at the same time, because they either had to do so to meet their cash flow obligations and/or they feared greater losses and sought “safer” places for their money. Presto — the result was a global valuation downdraft that affected all asset classes. While some — but not all — classes of bonds did better relative to other asset classes, the real beneficiaries were those who already held bond positions before broader groups of investors got into a panic.

Whenever you are already there and invested in an asset class, it is more likely that you are already following a passive asset allocation strategy. While tactical asset allocation strategy advocates will suggest that you can anticipate the crowd and take action, these assertions not verified by studies of flows-of-funds into and out of investment mutual funds.

While a very, very narrow segment of investors might have some skill in anticipating trends and can actively pre-position their investments relative to the movement of the crowds, most people already have their money invested in an asset class, because they have chosen strategically to be invested in that asset class for the long-term as a buy-and-hold investor. Flow-of-funds studies show that almost all tactical asset allocation fund flows are late money flows that chase performance after valuations have already moved. On average, this tactical asset allocation money is late money and these investors get inferior returns.

At the end of the first decade of the new millennium, huge cash flows into bond funds still continued relative to flows into other asset classes, such as stocks. This is a trend that was almost three years in the making. We have not seen similar disproportionate fund flows into bonds since the 1984 to 1987 period, when interest rates were much higher than today’s paltry yields. In succession during the past decade, we have experienced a technology bubble market crash, a housing bubble crash, a credit crunch, and a resulting global economic/business cycle crash. Barring a total global economic depression, which we seem to have skirted and avoided, what will happen to the bond markets when interest rates inevitably rise? Stay tuned for whether bonds are the next sector bubble crash.

Recently, there has been more advocacy of “tactical” asset allocation strategies by certain financial advisors.

The logic goes as follows. Broad passively-managed asset class diversification strategies seemingly did not work during the credit crisis. Even broadly diversified investor portfolios went down, although not as much as portfolios that were more exposed to particular asset classes that had suffered the worst percentage declines. Therefore, buy-and-hold strategic asset allocation apparently did not work and should be thrown out. As a replacement, these financial advisors advocate that it is time to employ tactical asset allocation strategies that “could” get better risk-adjusted portfolio returns in the future. You know, start moving things around to get ahead of the crowd and be there before the crowd arrives to drive up valuations.

Unfortunately, tactical asset allocation strategy advocates do not offer anything to back up their claims that tactical investment activity will actually be superior to a passive asset allocation strategy in the future. Tactical asset allocation strategies have not been superior in the past. Advocacy for tactical asset allocation strategies flies in the face of the broad body of investment research. This research has consistently shown that low-cost, broadly diversified, passive buy-and-hold asset allocation strategies tend to yield superior long-term risk-adjusted portfolio returns.

Broad portfolio diversification has never meant that a portfolio could not and would not experience short-term losses at the portfolio level.

When you have an investment banking industry that finds clever ways to repackage smelly sub-prime mortgages as gilt-edged, investment grade derivative mortgage securities and resells these stinkers in vast quantities to other “smart money” financial professionals across the banking and investment world, then we just might all have a problem. When doing this over and over gets a lot of clever investment banking types some very large bonuses, then there is a lot of motivation to keep that gravy train moving along.

While you might question the ethics of these clever investment bankers, you should not forget that they sold these toxic mortgage securities to other willing professional buyers in the global banking industry. Those professional banker purchasers, in turn, tucked these gilt-edged derivative securities into their banks’ capital asset portfolios — the very capital portfolios upon which the banks ran their leveraged loan operations. When the music stopped and all the emperors had no clothes, bank capital evaporated and so did their ability and willingness to make loans. Of course, this was all compounded by tens of trillions of dollars in CDOs (credit default obligation swaps) that tried to pass the buck on the ultimate repayment responsibility for bad debts. Hot potato. Hot potato. But, wasn’t that a golden potato just yesterday? Did the investment bankers also make some sweet bonuses on the multi-trillion dollar CDO swaps market? You betcha!

Without your taxpayer dollars via the TARP bank bailout, the US and the rest of the world would all be in the financial black hole of a long-term global financial depression. In that event, most people would not have had to worry about short-term paper losses on their investment portfolios. Instead, many would have liquidated their portfolio holdings at cents on the dollar to meet living expenses after their jobs vanished.

If you have been following the chatter, you might remember hearing that most TARP funds have been paid back and some TARP loans to the banking industry have been reasonably profitable. Of course, this supposed profitability is only positive from a very narrow perspective. Taxpayers are not normally in the business of making bailout loans to the financial industry. While unfortunately necessary, it is difficult to argue that TARP loans were profitable to taxpayers, when you consider the vast global economic destruction that resulted; the job losses and the millions unemployed and under-employed; and the un-reimbursed hole that many still have in their personal investment portfolios.

So, when a huge and systemic toxic asset problem exists in the financial system, and the credit house of cards begins to fall, why would or should a diversified strategic asset allocation strategy prevent a short-term loss at the portfolio level? Moreover, why would tactical asset allocation be a superior replacement strategy? To the contrary, higher cost, less diversified, active investment strategies will do what they always do, which is lead on average to inferior risk-adjusted returns at the portfolio level. Even in a dire financial crisis, you should not lose sight of the long-term and forget the lessons of financial history. Broadly diversified, passive, low-cost, buy-and-hold strategies have been superior in the past, and they are much more likely to beat tactical asset allocation strategies in the future.

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A significant portion of a portfolio may sometimes become concentrated in a single investment entity, which dramatically increases the overall risk of the portfolio. While generally undesirable, there sometimes are unavoidable reasons for investment concentration. Unavoidable reasons for lack of diversification can include owning a private business or being a key member of a company management team who is required to own company stock by an employment agreement with the company. In such circumstances, you should seek expert guidance on possible ways to mitigate the risk associated with your concentrated investment position.

Nevertheless, for 99.9+% of investors, there is absolutely no good reason to maintain any high level of concentration in any individual security. Immediate steps should be taken to reduce the exposure to under 1% of a personal portfolio.

How many failed public companies like Lehman Brothers, Enron, and WorldCom do investors need to see crash and burn, before they realize that excessive concentration often does not pay and can lead to very significant personal financial peril?

Of course, multiple millions of people think that they work for a “good company” with a stock that will become more valuable, and they want to own a part of their employer. For some of these loyal employees, this has worked out, but for others it has not turned out so well. Of course, this could not happen to you and to your company, right?

Well, look at this list of the largest US bankruptcies over the last twenty-five years. “Largest bankruptcy” is determined by gross assets and/or total employees, when the bankruptcy was filed:

• Allied Stores,
• AMR/American Airlines,
• Bank of New England,
• Calpine Corp,
• Chrysler,
• CIT Group,
• Conseco,
• Delphi,
• Enron,
• Financial Corp. of America,
• General Motors,
• Global Crossing,
• IndyMac Bancorp,
• Kmart,
• Lear Carparts,
• Lehman Brothers,
• Lyondell Chemical,
• New Century Financial,
• Pacific Gas and Electric,
• Refco,
• Sun Healthcare,
• Texaco,
• Thornburg Mortgage,
• United Airlines,
• Washington Mutual,
• Winn Dixie, and
• WorldCom.

Do you think any of these bankrupt companies above had employees who held a substantial part of their investment assets and/or retirement assets in the company issued their paycheck? What do you think happened to their personal portfolios? Do you remember the stories of the people who “supported” their company and held almost all of their retirement plan assets in company stock? What happened to their secure retirements?

In addition, by the way, what else tends to happen to companies in a bankruptcy? During bankruptcy proceedings, the value of an employee’s pension plan may be slashed dramatically, if the pension plan was not properly funded before the bankruptcy filing. When a company is sliding downhill toward bankruptcy, what is your guess about the odds that the company is fully funding its employee pension plan? (Yes, only a minority of all workers now have defined benefit pension plans, but many of the bankrupt firms above did have employee pension plans.)

Have I not listed enough bankrupt companies yet for you to think seriously about avoiding a concentrated investment position in the same company that pays your paycheck right now? Okay, here are some smaller companies that have filed for bankruptcy. Do you recognize some of these names?

• Aloha Airlines,
• America West Airlines,
• Appalachian Oil,
• ATA,
• Bally Total Fitness,
• Bed, Bath and Beyond,
• Bennigans,
• Blockbuster,
• Circuit City,
• CompUSA,
• Continental Airlines,
• Covad Communications,
• Delta Airlines,
• Downey Financial,
• Excite@Home,
• Exodus Communications,
• Fremont General,
• Hawaiian Airlines,
• Help-U-Sell,
• Hollywood Video,
• KB Toys,
• Lenox Group,
• Levitz Furniture,
• Lillian Vernon,
• Linens N Things,
• Lyondell Chemical,
• Mervyns,
• Midway Games,
• NorthPoint Communications,
• Northwest Airlines,
• Pan Am World Airways,
• Sharper Image,
• Shoe Pavilion,
• Skybus,
• Smurfit-Stone Container,
• Steak & Ale,
• Tribune Company,
• Tropicana Entertainment,
• Trans World Airlines,
• Trump Entertainment Resorts,
• US Airways, and
• Whitehall Jewelers.

Do you think these additional bankrupt companies also had employees who suffered as a result? Also, remember that the company lists above only contain companies that went bankrupt. In addition, there are a horde of public companies that have under-performed very low cost, passive broad market index funds over the long-term.

In fact, the majority of public companies have under-performed the broad market. Why? Because only a small percentage of all firms will have stock values that grow 10 times, 100 times, or even 1,000 times in value over time. These few mega-growth firms eventually represent a disproportionate share of total stock market value.

Moreover, sorry to say this, but these mega-growth stocks are only recognized by most people in retrospect. It is almost always the nature of mega-growth stocks to look too expensive to buy along the way. Lots of people will think they are working for a company that eventually will have a stratospheric stock price. However, the majority of these loyal employees will find out too late that their company will not have a shooting star stock. If they ever do a comparison against a passive benchmark, the majority might have some regrets for taking on so much undiversified risk, while simultaneously under-performing passive market index funds.

Delta Galil Industries Briefing

Delta Galil Industries, a public textile firm HQed in Tel Aviv, sells $700M per year, is NASDAQ traded, and has about 10,000 employees across the world. Delta Galil makes private label apparel for men, women and children, including leisurewear, nightwear, knitted fabrics, underwear, socks, and baby clothing. Customers include Calvin Klein, Hugo Boss, JC Penny, Kmart, Marks & Spencer, Nike, Pierre Cardin, Target, and Wal-Mart. They manufacture textiles and apparel for the Barbie, Maidenform, Nicole Miller, Tommy Hilfiger, Wilson, and other brand names.

Delta Galil has grown since 1975 through organic expansion and through acquisitions such as Russell Newman Brands and sleepwear brand KN Karen Neuberger. In addition, management has made commitments to the company. CEO and director Isaac Dabah purchased 23% of Delta Galil stock, saying “I’m a huge fan of the brand and I’m confident in its continued success with Delta Galil.” Delta Galil’s manufacturing network includes facilities in Israel, Egypt, Mexico, China, and Bulgaria, effectively spanning the globe with operations by more than 30 subsidiaries worldwide.

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Less diversified active strategies tend of be sub-optimal, involving greater portfolio volatility and risk accompanied by higher costs in term of expenses, taxes, time commitment, and stomach acid. The best investment strategy is to seek complete market diversification at the lowest investment cost using passively managed and globally diversified index mutual funds and ETFs.

Nothing that has happened in the credit crisis changes the value of broad market diversification. Some uninformed post-crisis commentary has questioned the wisdom of diversification, which only indicates a failure to understand what diversification can and cannot do for you. Diversification across a portfolio can and does mitigate volatility over time.

However, when systemic factors across asset classes are in motion in the securities markets, then there is nowhere to hide, as occurred with the credit crisis. As over-leveraged investors (professional speculators “managing” other people’s money amped up with borrowing – AKA hedge funds) across a variety of asset classes scrambled for liquidity, selling pressure increased broadly and asset values crashed generally, albeit, not uniformly. Those who were very broadly diversified felt less pain, but they still felt pain.

If you really like the potential for a lot more pain, then don’t diversify. Sooner or later, that pain is much more likely to come to an ill-diversified investor’s portfolio compared to the portfolio of a broadly diversified investor. Of course, ill-diversified investors chasing tactical and active strategies are always hoping for outsized returns for the added risk.

Sadly, only a minority of active investors will get lucky, and it is largely luck (of the lack thereof) that is at play here. The percent of the lucky minority achieving excess returns tends to diminish with time — as excessive fees and taxes eat away at illusory excess returns — proving the foolishness of active strategies.

Diversification is really not an option, if your goal is optimized, risk-adjusted personal investing.

Diversification is not an optional part of family investment strategy, if that family wants to sleep well at night. When you are less than fully diversified, every day that you wait exposes you to investment risks that the securities markets tend NOT to compensate through better returns. When you are less than fully diversified, your investment portfolio risks are higher than they need to be without a reasonable expectation of getting any likely additional returns.

When you:

• chose an active management strategy versus a passive one,
• try to time the markets versus staying put,
• buy individual securities versus funds,
• favor certain economic sectors versus full domestic and international diversification, etc.,

then you are much more likely to lose than to win. This is simply because the road you are taking is unnecessarily rough and unnecessarily winding, and you have less certainty that you will reach your goals.

You might overshoot in performance, if you are lucky. However, you are much more likely to under-perform, because of the various higher expenses and costs that continually drag down active strategies. The longer your time horizon is, then the greater the chances that you will fall behind a passive, lowest cost, market investment strategy.

A passive strategy targets a market return and can still be a bumpy ride — especially if you are not fully diversified globally and you have not adopted an asset allocation that is appropriate to your tolerance for investment risk. Nevertheless, the attendant risks are lower and potential variations are narrower than active strategies.

Furthermore, passive strategies that drive down investment costs and expenses to the bare minimum are not continually burdened by repeatedly having to pay the financial services industry a much larger and undeserved share of your returns. It is hard enough to finish a marathon without carrying water for the financial securities industry at the same time.

Full global investment diversification using the broadest, cheapest, most passive index mutual funds and exchange traded funds (ETFs) is the most optimal strategy for the individual investor.

Few in the industry will tell you this, because a lowest cost, global and passive diversification strategy is the least profitable to the financial services industry. The securities industry looks upon you as a naive “retail investor.” The industry trains its representatives to sell to you the most profitable products that it can at “retail” prices. If you tell a commissioned financial advisor that you want to pursue such a strategy, expect to be told directly or indirectly why you are an idiot.

Through visible and hidden fees and other costs, “retail” financial services product prices are heavily marked up to compensate the industry and its very highly paid sales force. Who do you think is paying for all those tall buildings, brass fittings, mahogany tables, woolen suits, and expensive silk ties? Who pays the industry’s huge salaries and bonuses? Does the money just come out of thin air, or does it come out of your investment assets and your investment returns?

Few will tell you this fundamental truth about the superiority of cheap, passive, fully diversified broad market investing. Everyone in the industry gets paid somehow, and there is far less profit in promoting a low cost, fully diversified investment strategy. However, there is real money in it for you. In the end, you will tend to save more money, to save more time, and to save yourself from emotional consternation, when you use a very low cost, fully diversified passive investment strategy.

Complete investment diversification has become an axiom of personal investing, because the specific risks of businesses and other investment entities can be reduced or eliminated with a fully diversified portfolio without reducing your expected returns.

A fully diversified portfolio is an absolute investment necessity. Increased diversification reduces portfolio risk without a corresponding reduction in expected portfolio returns. Diversification is genuinely an investment “free lunch,” and it is a key contributor to improved investment risk management. A very high degree of diversification can be achieved through investing in a variety of low cost passively managed index mutual funds or exchange-traded funds. Such investments are also among the lowest cost investment vehicles available to individual investors in the financial markets. Given that this alternative is easily and cheaply available, the relevant question is never whether a portfolio should be fully diversified. Your investment portfolio should always be as diverse, as is economically practical.

Through investments in broad-based index mutual funds and exchange-traded funds, diversification is relatively easy and inexpensive to achieve. Attempting to become broadly diversified through the self-assembly of a portfolio of a large number of individual securities is far more difficult and much more costly. It is a simple shame that millions of investors listen to the hot stock recommendations of brokers their whole lives, when their brokers cannot know what will actually happen in the future.

Portfolio self-assembly is much more likely to result in higher risk with returns that lag the market. Buying individual stocks and bonds instead of diversified funds provides you with no advantage whatsoever. The industry likes it, because individual securities trading generates fees and keeps the charade of beating the market going. However, when you buy individual stocks and bonds, you are less than fully diversified, and you are exposed to more risk. Plus, you also get to waste your money and time for nothing. Pay more and get less. What kind of value added is that? Ignore that kind of investment counseling and financial advice.

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Investors who are more risk-averse are more satisfied with a less risky investment asset allocation – regardless of lower expected investment returns or the related need to save more to achieve their lifetime financial plans. The reverse is true for investors with a greater tolerance for investment risk, since they can stomach greater market price swings without panicking. Historically, investment results for more risk tolerance investors have allowed them to achieve higher returns and to save at lower rates in pursuit of the same financial goals as more risk averse investors.

Nevertheless, all sane investors are risk averse to some degree, and that is what normally keeps current securities market prices down relative to expectations about future securities values. The key question is what kind of investor are you from an investment risk tolerance standpoint? This important answer is a direct driver of the asset allocation percentages of your personal portfolio. Your asset allocation percentages determine the greater or lesser degree of exposure that your personal investment portfolio has to investment risk and the opportunity for higher investment returns.

Trivial financial industry investment risk tolerance questionnaires often use just a couple of leading questions that quickly categorize you along some part of the range from “conservative investor” to “aggressive investor.” Sadly, these simplistic investment risk tolerance questionnaires are just a way for securities industry sales people to push you forward through a well-honed process of selling you overly expensive investment securities products that will drive up their sales commissions and bonuses and the profits of their financial services company employer. However, from the point-of-view of your best interests, it is very important to measure much more carefully your risk tolerance regarding the expected investment risk versus reward composition of your portfolio’s asset allocation percentages.

There is an inexpensive way for you to get a much better assessment of your risk tolerance than you would from a simple conservative versus aggressive financial industry investor questionnaire.

You can complete an investment risk tolerance assessment survey online, and you do not have to work with any financial industry intermediary or financial advisor to do so. Furthermore, by doing this investment risk tolerance analysis yourself, you can separate the process of assessing your investment risk tolerance from the financial industry’s product sales process. By doing so, you can give yourself the alternative of buying very low cost and broadly diversified index fund investments directly from low-cost mutual fund vendors. Industry intermediaries tend to sell only high cost investments that pay them high fees and/or high commissions. Often associated with high pressure securities sales efforts, these higher fees and commissions come out of your pocket and can really damage your long-term finances. You pay more and get less. Click here to learn about: Investment Fees

If you want to do an online survey to assess your personal investment risk tolerance, you can do so at MyRiskTolerance.com, which is a product of Finametrica. Their website explains it all, so I will not repeat their materials here.

Finametrica has a scientific process for the assessment of personal risk preferences. Their survey has some sound economic and social science behind it, plus they have a growing dataset of other survey respondents against which your responses are compared. This is one of the more tricky parts about personal risk preferences and setting an asset allocation strategy.

The objective of personal investment risk tolerance analysis is not just to measure one’s desire to avoid risk, because almost all people are risk averse investors. The goal of proper investment risk tolerance analysis is to assess your personal risk preferences against the backdrop of a representative sample of other investors.

Finametrica has a database of tens of thousands of other investors who have already completed the questionnaire from major developed, English speaking countries around the world, including the US, UK, Canada, New Zealand, and Australia (where they are based). (There also is a French Canadian risk tolerance questionnaire available.)

You should note that there is absolutely no business relationship of any kind between this MyFinancialFreedomPlan.com website and Finametrica’s MyRiskTolerance.com website. This not a paid review or recommendation of any kind, and this website will not receive compensation of any kind, if you decide to use Finametrica’s investment risk tolerance questionnaire.

Here is a durable link to this survey that we maintain on The Skilled Investor website: Investment Risk Analysis Just click this investment risk analysis link and you will be redirected to the investment risk tolerance survey on the MyRiskTolerance.com. When you get to the MyRiskTolerance.com website, read the page and then just click the link entitled “Click here to do your FinaMetrica Risk Profile online” near the bottom of the text in that page. If you want to learn more, follow the links in the blue horizontal bar that will lead you to other information on their website.

Here are a couple of hints as to how to do this online investment risk tolerance survey. If you decide to go ahead with the MyRiskTolerance.com questionnaire, remember to use an Internet Explorer browser, because the IE browser works with the WorldPay system that they use. The company is based in Australia, and they do not use PayPal. The survey costs $45 in US dollars for one or two people to use. (Obviously, Finametrica’s prices are subject to change without notice, and they set their own prices. Survey prices are different for other countries.)

If two people are going to complete the survey, then each person should fill out the survey separately and then compare results, after both have completed their investment risk survey independently. From a process standpoint, the first person orders and completes their survey, and then Finametrica will send a token via email for the second person to log in to the website and complete their survey. Remember to save off a printable copy of each person’s survey results to your home machine.

The personalized investment risk tolerance analysis profiles that you get after you complete the questionnaire are detailed and very informative. They explain your results and compare them to the responses of others who have completed the survey before you. When the particular answers that you give differ from the responses of other investors who have a similar investment risk tolerance profile to yours, these differences are explained to you.

With your personalized risk tolerance analysis, you can do a better job of determining your portfolio asset allocation percentages. Then, you can buy the needed low cost, broadly diversified, passively managed index funds to fill out the asset allocation of your portfolio directly from the lowest cost vendor or via a discount broker.

Assessing your investment risk tolerance is vital to developing a fully personalized plan for long-term financial success

Our free financial freedom plan web site provides essays about how to generate a personally customized financial planning strategy. These articles can help you in developing a lifetime financial plan for your family. To generate a comprehensive long-term investment management strategy also depends upon using a high quality financial software with the best investment planning software and the best personal financial planning software combined. The home page of this website helps you to find the best do-it-yourself financial planning tools, including the top financial retirement planning program, the top home budget calculator, and a very high quality lifetime investment calculator for your self-directed life long personal financial planning.

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The best individual financial planning and investment rules and practices are enduring and should not change due to market cycles or a financial crisis. This article looks at asset allocation strategy in light of the recent credit crisis.

The credit crisis was a systemic, global financial event that impacted any financial or securities instrument influenced by debt and borrower credit worthiness. In short, the credit crisis affected everything. So many investors sought liquidity at the same time, because they either had to do so to meet their cash flow obligations and/or they feared greater losses and sought “safer” places for their money. Presto — the result was a global valuation downdraft that affected all asset classes. While some — but not all — classes of bonds did better relative to other asset classes, the real beneficiaries were those who already held bond positions before broader groups of investors got into a panic.

Whenever you are already there and invested in an asset class, it means that you probably were already following a passive asset allocation strategy. While tactical asset allocation strategy advocates will suggest that you can anticipate the crowd, this is not verified by studies of flows-of-funds into and out of investment mutual funds. While a very narrow segment of investors might have some skill in anticipating trends and does actively pre-position their investments relative to the movement of the crowds, most people already have their money invested in an asset class, because they have chosen strategically to be invested in that asset class for the long-term as a buy-and-hold investor. Flow-of-funds studies show that almost all tactical asset allocation fund flows are late money flows that chase performance after valuations have already moved. On average, this tactical asset allocation money is late money and these investors get inferior returns.

At the end of the first decade of the new millennium, huge cash flows into bond funds still continued relative to flows into other asset classes, such as stocks. This is a trend that was almost three years in the making. We have not seen similar disproportionate fund flows into bonds since the 1984 to 1987 period, when interest rates were much higher than today’s paltry yields. In succession during the past decade, we have experienced a technology bubble market crash, a housing bubble crash, a credit crunch, and a resulting global economic/business cycle crash. Barring a total global economic depression, which we seem to have skirted but avoided, what will happen to the bond markets when interest rates inevitably rise? Stay tuned for the next sector bubble crash.

Recently, there has been more advocacy of “tactical” asset allocation strategies by certain financial advisors. The logic goes as follows. Broad passively-managed asset class diversification strategies seemingly did not work during the credit crisis. Even broadly diversified investor portfolios went down, although not as much as portfolios that were more exposed to particular asset classes that had suffered the worst percentage declines. Therefore, buy-and-hold strategic asset allocation apparently did not work and should be thrown out. As a replacement, these financial advisors advocate that it is time to employ tactical asset allocation strategies that ‘could’ get better risk-adjusted portfolio returns in the future. You know, start moving things around to get ahead of the crowd and be there before the crowd arrives to drive up valuations.

Unfortunately, tactical asset allocation strategy advocates do not offer anything to back up their claims that tactical investment activity would actually be superior to a passive asset allocation strategy in the future. Tactical asset allocation strategies have not been superior in the past. Advocacy for tactical asset allocation strategies flies in the face of the broad body of investment research that consistently has shown that low-cost, broadly diversified, passive buy-and-hold asset allocation strategies tend to yield superior long-term risk-adjusted portfolio returns.

Broad portfolio diversification has never meant that a portfolio could not and would not experience short-term losses at the portfolio level. When you have an investment banking industry that finds clever ways to repackage smelly sub-prime mortgages as gilt-edged investment grade derivative mortgage securities and resells these stinkers in vast quantities to other “smart money” financial professionals across the banking and investment world, then we just might all have a problem. When doing this over and over gets a lot of clever investment banking types some very large bonuses, then there is a lot of motivation to keep that gravy train moving along.

While you might question the ethics of these clever investment bankers, you should not forget that they sold these toxic mortgage securities to other willing professional buyers in the global banking industry. Those professional banker purchasers, in turn, tucked these gilt-edged derivative securities into their banks’ capital asset portfolios — the very capital portfolios upon which the banks ran their leveraged loan operations. When the music stopped and all the emperors had no clothes, bank capital evaporated and so did their ability and willingness to make loans. Of course, this was all compounded by tens of trillions of dollars in CDOs (credit default swaps) that tried to pass the ultimate repayment responsibility for bad debt hot potatoes around. Did the investment bankers also make some sweet bonuses on the multi-trillion dollar CDO market? You betcha!

Without your taxpayer dollars via the TARP bank bailout, the US and the rest of the world would all be in the financial black hole of a long-term global financial depression. In that event, most people would not have had to worry about short-term paper losses on their investment portfolios. Instead, many would have liquidated their portfolio holdings at cents on the dollar to meet living expenses after their jobs vanished.

If you have been following the chatter, you might remember hearing that most TARP funds have been paid back and some TARP loans to the banking industry have been reasonably profitable. Of course, this supposed profitability is only positive from a very narrow perspective. Taypayers are not normally in the business of making bailout loans to the financial industry. While unfortunately necessary, it is difficult to argue that TARP loans were profitable to taxpayers, when you consider the vast global economic destruction that resulted; the job losses and the millions unemployed and under-employed; and the unreimbursed hole that many still have in their personal investment portfolios.

So, when a huge and systemic toxic asset problem exists in the financial system, and the credit house of cards begins to fall, why would or should a diversified strategic asset allocation strategy prevent a short-term loss at the portfolio level? And, why would tactical asset allocation be a superior replacement strategy? To the contrary, higher cost, less diversified, active investment strategies will do what they always do, which is lead on average to inferior risk-adusted returns at the porfolio level. Even in a dire financial crisis, you should not lose sight of the long-term and forget the lessons of financial history. Broadly diversified, passive, low-cost, buy-and-hold strategies have been superior in the past, and they are much more likely to beat tactical asset allocation strategies in the future.

Click here for a more extensive article on personal Investment Asset Allocation

This free financial information site publishes articles on how to develop a self-directed personal financial planning program strategy

The financial and investment planning articles on this free website supply important ideas to families and individuals about personal finance plan issues that they should take into consideration. These essays help in developing a lifetime family financial planning strategy. A fully personalized lifetime financial plan also depends upon using the best financial planning tool you can get. On our front page, you to find the best all-in-one lifetime financial planning calculator, including the top financial retirement plan program, a high quality personal budget planner, and the leading investment projection calculators for your personal finance planning.

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Whenever you invest in multiple mutual funds and ETFs, you may wonder how broadly and appropriately diversified your aggregate portfolio might be. Have your investment holdings and mutual funds that you have chosen increased the global diversification of your personal financial asset portfolio? Do they just duplicate what you already own?

There is a free on-line tool that you can use to measure your portfolio diversification, and better understand the relative contribution that each of your investments makes to your goal of holding a broadly diversified global investment portfolio. On the Morningstar website, you can find their “Instant X-Ray” tool. Go to the Morningstar site at http://www.morningstar.com/

Click the “Tools” tab in the horizontal bar, select the “Morningstar Tools” pull down menu, and then choose “Instant X-Ray.” To go directly to this tool, use this URL:

http://portfolio.morningstar.com/NewPort/Free/InstantXRayDEntry.aspx

To use the Instant X-Ray Tool, just enter the ticker symbols for all of the mutual funds, ETFs, and individual securities that you own or intend to own with the dollar value of each holding. Then, click “Show Instant X-Ray” to see a summary of your overall portfolio.

Note that when you enter only one mutual fund or ETF ticker symbol or only one stock or bond holding into the Instant X-Ray Tool, the summary provides data for that single fund or security. This can be very useful, as you evaluate individual investment funds and investment securities. When you enter multiple funds, you will get an overview that blends all the funds and securities in proportion to the dollar values that you enter for each holding.

This free Instant X-Ray summary provides a variety of data about your overall portfolio. The overview allows you to evaluate how diversified your portfolio is on a variety of dimensions, including the major dimensions that are summarized in the other articles on this website about selecting a broadly diversified investment portfolio. (See the Sitemap for these articles.)

Incidentally, if you click on the other views that are offered with the Instant X-Ray tool, then Morningstar will try to get you to sign up for a “Premium” subscription. The information provided by this free summary overview in the Instant X-Ray tool is sufficient, and you are not required to pay for a premium subscription.

Note that there is no relationship between this website and Morningstar, and this website did not receive any form of consideration, financial or otherwise, to write this article. The “Instant X-Ray” is a useful financial tool for individual investors, and that is why we have provided this article.

High qualityinvestment planning software is necessary to generate a fully personalized family financial strategy

Our free “financial freedom guide” personal financial planning website publishes write-ups on how to produce do-it-yourself personal financial plans

The financial and investment planning postings on this free information site supply important ideas to households about personal finance plan topics that they should consider. These essays help in establishing a lifelong personal finance planning strategy. Furthermore, to generate a fully comprehensive plan for financial success requires that you use a first-rate financial planning calculator with the top investment calculator and the top financial calculators.

Furthermore, this free financial freedom web site helps you to find a superior ALL-IN-ONE home financial software home software product with the leading financial retirement planning program, a high quality home budget planner, and a superior investment planner for your personally customized life time family financial planning.

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The complexity of personal investment management is driven by the nature of investing in securities that have uncertain and unknowable future values. Nobody — amateur or professional — has a working crystal ball that can predict future asset values. Anyone can have a more or less well-informed outlook and operate with an evolving set of theories as to what might happen.

However, it is what actually unfolds in the future in terms of positive and negative economic, technological, competitive, political, and other developments that will determine the evolution of securities values. And, even as new information becomes known in the future, the value of a particular securities will be always be an amalgamation of currently known information and a forward looking market consensus about the murky future.

In general, it is this very uncertainty that provides investors with opportunities (however unpredictable) to earn over time more or less than a market return on their invested assets. Investing involves varying degrees of risk and participants in real time securities markets buy securities at what they perceive to be a discount against their expectations for higher future values. They sell when they think current market prices exceed the future opportunity.

Thus, the uncertainty about the future drives much of the inherent complexity of investing. Everybody wants a magic system to beat the market and to do better than the other guy, but when you take the time to think about it, you realize that the future cannot be known until it arrives and that there can be no magic bullets, reliable systems, or sure bets with investing.

Nevertheless, the inherent complexity of investing is greatly exacerbated by the proliferation of investment products and services aggressively promoted by a securities and financial services industry that purports to serve your best interests. However, this proliferation of complex investment products most often seems only to serve the financial self-interests of the securities industry itself. Averaged across all retail investors, the high fees of the financial service industry dramatically reduce rather than help to increase retail investors’ net assets.

Personal investing can be simplified greatly by focusing only on valid strategies that have support in the investment research literature. This personal investment planning summary is intended to help you to understand that you can manage your investments using strategies that have a demonstrated basis in the research literature.

When one pursues strategies that are designed to focus solely on the fiduciary interests of individual investors, the vast majority of investment products promoted by the industry can simply and easily be eliminated from consideration. They cost far more than they are worth. Aggressive investment cost control is not a magic bullet to beat the market, but it is a very effective way to avoid being the rube who gets fleeced by the fast talking slick suit.

Once you have committed to a durable long-term investment strategy, you can manage by yourself relatively easily the details of investment implementation. You do not need to pay high costs for something you can do yourself.

You can build an easy-to-manage, do-it-yourself, lifetime investment strategy based upon these principles:

• To improve your long-term investment returns, move fully toward the completely passive, globally diversified, and extremely low cost end of the investment securities products spectrum. Invest only in a variety of passive, very broadly diversified, and low cost investment funds.

• Understand better your investment risk tolerance relative to the larger population of investors and decide how much you are willing to be exposed to investment risk. Your investment risk tolerance leads to your asset allocation strategy, which sets the balance of overall expected investment risk and return in your personal portfolio.

• Get invested and stay invested in the global securities markets according to your asset allocation — through thick and thin. Never attempt to second-guess the markets or to time the markets by moving assets around hoping to beat the markets. When you hold securities with an asset allocation that is commensurate with your tolerance for risk, you can ride out market panics without panicking, so you will also be in the markets when they rise toward new highs. The academic research shows clearly that nobody really knows how to time the markets and jumping in/out when you are confident/scared usually leads to inferior results.

• Buy and hold and hold and hold. When you own broadly diversified, passive index investment funds, professional investment portfolio managers will make all the needed adjustments within these funds for you over time.

• Maintain your asset allocation within the percentage policy variance that you have pre-determined. Do so in as low cost a manner as is reasonably possible. Use asset purchases during your accumulation periods and asset sales during your divestment periods to maintain your target asset allocation. This reduces the need to make changes and incur costs solely to maintain your asset allocation percentages.

• Only buy investment mutual funds from mutual fund companies that deal directly with the public. Only buy exchange-traded funds (ETFs) through discount brokers. Only a small fraction of either mutual funds or ETFs are low cost, broadly diversified, passive funds with low turnover. Buy them and ignore the rest with middling or higher fees. And, if you do not have a clear understanding of ETF trading, buy only mutual funds. After the May 6, 2010 stock market flash crash, it should be clear that naive traders fooling with ETF market orders and stop loss orders that automatically convert to market orders unwittingly could do real damage to their portfolios
• Never pay any broker or any other commissioned financial advisor another dime during your lifetime to tell you what funds you should buy. They do not know what will happen to future asset values, because they have no information to make such judgments. Instead, their high advisory costs will be extracted from your assets up front and along the way. Purchasing investment funds through an advisor is far more likely to reduce rather than increase your wealth. Investment cost are not “just a few percent.” For the average investor, average investment costs consume about one-third of average annual investment returns — year after year after year after year. The cumulative losses with even average investment costs are huge and simply horrendous across the lifetime of the average investor.

• Improve your overall net investment portfolio returns by consciously managing the asset “tax location” of your investment assets, which can reduce the investment taxes that you pay. Federal capital gains investment tax rates vary by holding period and different types of assets have returns that are treated differently under the federal tax code. Take advantage of the opportunities that you have to arrange your assets for minimal taxation.

• Focus the time that you spend on financial affairs during your lifetime on increasing your income and/or managing your consumption to increase your savings rate. In addition to reducing your investment costs, saving more is the single most effective way to accumulate assets for retirement and other personal finance goals.

• Enjoy your life and resist the compulsion to act as an amateur investment portfolio manager. By ceasing their amateur investment management activities, most people can free up substantial amounts of time to spend on far more pleasurable activities. Don’t you have other things you would rather do than spend your life playing futile investment games?

Most people waste a great deal of time on investment activities, tactics, and strategies that are more likely to reduce rather than increase their investment portfolios.

Very low cost, professional index fund managers can manage your money far more efficiently in terms of much lower costs, far greater diversification, better returns, lower taxes, and significantly less time than you can ever realistically hope to do as a personal investment portfolio manager. Do yourself a favor and decide to fire yourself as a personal investment manager in favor of a handful of index fund managers running very broadly diversified, low cost funds.

Despite these factors, some people just cannot resist the personal investment management game. If you simply cannot resist the temptation to play personal investment portfolio manager, then understand clearly that this is likely to be one of the most costly hobbies that you could have. If you are anything like the average investor (and you probably are), then your self-managed personal investment portfolio is highly likely to cost you money through inferior returns, higher costs, and inadequate diversification. Moreover, this hobby is extremely likely to waste a significant amount of your valuable time over your lifespan.

However, if you must play investment manager, then never play with the rent money, the baby’s milk money, or the money that you are relying upon for your retirement, your kids education, or other important obligations. Since investment portfolio self-management is not likely to be a value-added activity, never allocate more than 10% of your overall investment assets to this hobby. Invest the remaining 90+% in accordance with the investment methods summarized above.

In addition, learn how to track carefully and accurately your investment performance relative to appropriate passive benchmarks, so that you do not fool yourself into thinking you have more skill than you actually do. Everybody is an investment genius in a rising market, if they do not track performance relative to appropriate passive market benchmarks. Academic research clearly demonstrates that individuals most often achieve significantly sub-optimal investment results relative to passive benchmarks, while simultaneously they carry higher and unnecessarily risks due to non-diversified self-managed portfolios.

You investments should work for you rather than you working for them. Avoid all the financial industry games designed to make money off of your assets and to keep you moving assets around chasing performance gains that have already passed you by. Instead, simplify your investment program, and use your financial assets to enrich and protect your life and the lives of those you love.

OK — So How Does One Go About Doing This?

Here are some ideas to get you going:

1) On the “Retirement Investment Calculator” front page of this website, you can read about VeriPlan, which is an automated personal financial planning and retirement savings calculator software tool that individuals and families can use to do their own lifetime financial plans. This lifetime savings and investment calculator is the most sophisticated and high quality financial planning software that you can buy at a great bargain price. VeriPlan automates all of the tedious calculations needed to do fully integrated lifetime financial planning in a manner that is customized to reflect your particular financial situation, all your financial resources, and all your financial life goals and objectives.

Furthermore, VeriPlan also provides very extensive and absolutely objective personal financial planning documentation that helps you to understand the lifetime financial planning process and how to use VeriPlan’s automated and fully integrated IRA investment calculator, 401k investment calculator, mutual fund investment calculator, and saving for retirement calculator functionality. While VeriPlan hides the complexity of millions of inter-related financial investment calculator operations, it also treats you like an adult!

VeriPlan was designed with the firm belief that smart, well-educated adults need and want well-designed financial decision support tools with sophisticated future value investment calculator functionality. If you are going to invest the time needed to plan your family’s financial future, you need a financial planning software “power tool” to help you. It must be highly functional and robust, while it also provides useful and entirely objective financial information.

2) In parallel with checking out VeriPlan, you might also want take a look at this “Financial Planning Reading List.” This reading list compiles the top 60 or so personal financial planning and personal investment management articles from the many hundreds that the designer of VeriPlan has published on various personal finance websites across the web. All of these “Financial Planning Reading List” articles were personally researched and written by the designer of VeriPlan. If you want to judge whether VeriPlan could be right for you, then these articles might help you with your decision. Furthermore, the more articles on this reading list that you read, the better prepared you will be to manage your own family financial planning and personal investment portfolio over your lifetime.

3) I do believe that it is a virtue to engage in a lifelong effort to understand economics and investments, because of the significant impact of economics and investing on our lives. Personally, I believe that this knowledge provides a very long-term economic perspective and allows one to rise above the constant pressure from the industry and the media to change something – change anything – with ones investments, without any rational reason other than to generate more revenue and profit for the industry, yet not for you.

The more one learns, the less one is inclined to jump from one currently popular investment strategy to the next. Stability, constancy, passivity, broad diversification, risk control, and very low costs have been the hallmarks of the most successful personal investment programs of the past. I have found nothing that makes me believe that these viewpoints should ever change.

Given these viewpoints, I have also determined that I will not pay additionally for any “special insights” from industry professionals. Paid insights are no better that the abundance of free insights. However, since they cost more, one is likely to end up poorer for having paid.
Therefore, I have decided that I will only use free resources. Everything I do relies upon free public information or at least information that is very, very low cost. One just has to learn how and where to look. Of course using only free or extremely low cost public economic and investment information, means I may have to wade through a lot of rubbish to find things that are useful and valid. However, that is far better than wading through a lot of rubbish for which I have paid very dearly.

4) Recommended journals and books

In addition to materials that I have published, here is a short list of my investment reading recommendations concerning other sources that I consider worthwhile. The online sources are all free. You could buy the books inexpensively on Amazon.

A) Journal of Indexing — http://indexuniverse.com/index.php/publications/journalofindexes.html  Back issues can be read online.

B) John Bogle’s book “The Little Book of Common Sense Investing” Go to “John C. Bogel’s Blog.” You can read the first chapter of his book online on his blog. http://johncbogle.com/wordpress/

C) “Capital Ideas: The Improbable Origins of Modern Wall Street” (1993) or “Capital Ideas Evolving” (2007) by Peter Bernstein. These books chronicle of the intellectual development of modern investing.

D) Investment research papers via Google Scholar (To find investment research papers via Google Scholar, go to Google, click “more”, click “Scholar” and enter a search term. This takes time, but researching personal finance via Google Scholar can be very informative. For example, if you want to learn about forex trading online, just type in that phrase. With this example, you get about 2,700 research papers on foreign exchange and related forex topics. Once you get results, you can use Advanced Scholar Search to specify searching within particular subject matter categories and you can select particular authors who have many citations, among other search refinements. Look for most cited papers. Read abstracts, intros, and conclusions.)

After these recommendations, I have few additional recommendations, although I track and read a very wide variety of sources. The next book I would recommend is Ben Franklin’s Autobiography. I do not recommend many investment books, because I think that much more objective materials can be found in research papers on the websites of financial academics.

Comprehensive investment calculator and personal financial planning software is needed to develop a fully personalized family financial strategy

This free “financial freedom guide” on how to invest is just a part of our web site about how to develop a personal family financial plan. The personal finance plan essays on this free site supply important ideas to individuals and families about financial planning program and financial strategy subjects that should taken into consideration. These postings help in understanding how to establish a life time personal finance planning strategy. Also, to generate a really useful long-term money management strategy depends upon you using the best retirement savings calculator and personal financial planning software with a high quality stock investment calculator and the leading long term investment calculator software features.

Also, our financial freedom web site enables you to find the top all-in-one saving for retirement calculator software program for home PC use, and it includes the best retirement investment calculator tool, the best personal budgeting software, and a high quality mutual fund investment calculator for your personally customized lifetime financial planning. It also automates the long-term analysis of debts that you have, which could include mortgage debts, educational loans, credit card debt, business credit, or whatever other credit obligations you wish to analyze individually or jointly. Furthermore, it has an automated tool to assess an interest rate for your choice in situations where your financial assets are projected to have been exhausted, and you would use your other real estate or business assets as collateral for the personal or business credit loan you would need.

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