Many people are as absorbed in investing as they are in a game of football. They monitor their stocks daily or hourly, master exotic options strategies and attempt to outsmart all the smart traders who are attempting to outsmart one another. Then they trade stocks the way they trade players on their fantasy teams.
Not me. I learned to invest for the same reason I learned to cook: I like to eat.
In this era of do-it-yourself retirement plans, I figured that knowing how to make my money work for me would mean that I could eat well—and regularly—in a safe and comfortable environment before and after I quit the workaday world. My goal was not to become rich, but to be calm and comfortable. It was not to retire, but to be free.
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As a result, I invest much like I make a meal—simply and in the least amount of time possible. I buy high-quality products (preferably on sale) and don’t tinker much. As one wise food blogger said recently, “The best Italian cooks use fresh ingredients and get out of their way.” And that, basically, is my formula for investing: Buy quality companies and mutual funds and keep them until they spoil.
The strategy has its fans. My book, Investing 101, remains a strong seller 11 years after it was first published and has been translated into Chinese and German. Besides, my approach is really just a personalized version of the formula embraced by far wiser investors, such as Warren Buffett and his mentor, the late Benjamin Graham.
Kathy's Practical Investing Project
Of course, you don’t have to be a cynic to ask the obvious question: What’s your record? That, I’m afraid to say, is something I can’t answer. I have noted the rise in my accounts over the past decade, but I haven’t paid close enough attention to know how much of that growth is a result of my gains and how much is the money I’ve added over the years. I have three times more in invested assets than I did in 2002. Even with regular contributions to my accounts, I think that suggests strong performance. But I haven’t done the exhaustive research necessary to figure out the annual average. And even if I did have the numbers, you’d have to take my word for it.
But now that I’m writing about stocks (among other things) for Kiplinger’s, I think accountability is important. So I made a pitch to editor Janet Bodnar: I would take $200,000 of my own money and divide it into two equal pieces—half would go into Vanguard Total Stock Market Index Fund (symbol VTSAX), and the other half would go into individual stocks that I select. It’s essentially a demonstration project aimed at answering the question: Can a wise but moderately lethargic investor beat—or at least equal—the stock market? Each month, we’ll compare the results of the two portfolios with real numbers that reflect trading costs and taxes, describe my mistakes and my coups, and divulge new additions to and subtractions from the portfolios. (I plan to focus on U.S. firms, but I may occasionally invest in foreign stocks.)
Although I’ll be recommending stocks, this column will be as much about the process of what makes an investment worth buying, as well as the dozens of other practical questions that arise when you invest. For instance, how can you save on trading costs? When should you sell? What are the tax implications of both selling and holding stocks that pay dividends?
Along the way, we’ll talk about other issues important to the practical investor, such as how much you ought to have in an emergency fund—a question I’ve answered differently at various stages in my life. And how should you divvy up assets among different investment classes—not to mention wise moves to make when the market is being pummeled on a seemingly daily basis (sound familiar?). If you have other topics you’d like me to address, shoot me a note at practicalinvesting@kiplinger.com. I hope you enjoy the column.
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