ETFInvestor (94.83)

My Investing Approach

November 10, 2008 – Comments (0) | RELATED TICKERS: GWX , RWX , VNQ

To summarize my perspective from previous posts:

How I try to think

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=105679&t=01004383011409764257

I don't try to predict the future, I try not to let the immediate screaming news affect my actions, and try not to make bets based on how I think events will play out.

I ignore the gurus

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=105697&t=01004383011409764257

Where will the S&P 500 be in a year?  What stocks are great picks at the moment?  What are the top fund managers doing?  Since I have no idea whether you are lucky or good, I don't pay attention to any of this prattle.  

So, Fool, what do I do?

As you may have guessed, I follow an asset-allocation approach with ETFs.  Specifically:

1.  I select a broad base of "uncorrelated" (more on this later) asset classes and attempt allocate a certain amount of my portfolio to them. 

2.  I assign asset classes based on diversification and my life situation (primarily years until I need the money) and the coverage of that asset class by ETFs.

3.  When asset classes rise or fall in value I add new money to the ones that are lower and I rebalance the allocation once a year.   

4.  I havest capital losses from my ETFs for tax purposes.

Key to my strategy - and the reason for explaining "how I try to think" and why "I ignore gurus" - is that I make the allocation and reblanacing decisions based on information unrelated to whatever I or somebody else is guessing about the future.   

Instead I consider unrelated factors such as:

a.  Is that asset class available in ETFs?

b.  Do the ETFs have enough volume and reasonable fees?

c.  Can I find more than one ETF for that asset class to use for tax-loss harvesting purposes?

d.  Does this allocation strategy meet with my life goals and risk tolerance? 

There are a lot of good books on this subject, but so far the best source I have found is David Jackson's essay on Seeking Alpha which was originally written on tech uncovered and called "A Better way to Invest".  It is now available at http://seekingalpha.com/article/15134-the-seeking-alpha-etf-investing-guide.

So is that it?  I just read this guide and now managing my money is on perpetual auto-pilot?

I wish.  I'll cover the challenges that I'm encounting and why I'm reaching out to you, dear Fools.