An End-to-End Strategy
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Board: IV Portfolio and Options Strategy
Out of almost morbid curiosity after the market's recent tumble, tonight I took a look at some Quicken reports that I don't normally look at. One of the reports I checked out was a "net worth vs. year ago" report.
Purely from an investing/return standpoint, that report doesn't tell you much, as it incorporates new contributions, debt paydowns, money socked away as savings, etc. Also, we don't include the value of our home, cars, or any other 'use asset', or the value in the 529 college accounts we've got set up for our kids in that net worth tracking, but we do include the mortgage and would include other debts if we had them.
Still, from a 'sanity check' perspective, it can be a valuable report, as it does tell us how we're doing in general and how we're doing based on financial assets & liabilities that we have reason to believe we should be able to keep around 'for the long haul.' (knock on wood)
As it turns out, that net worth report shows us as 'up' vs. this time last year. We've got more cash, less debt, and a higher portfolio balance than we did this time last year, in spite of a lousy economy and a market that has essentially treaded water over that time.
Some of it has to do with luck -- no question about it. But mostly, I'm convinced that it has to do with having a strong end-to-end financial strategy that encompasses both investing and cash flow management.
Because we live below our means, we've been able to put cash away. Because we've been able to put cash away, we've got a 4-month emergency fund plus savings for anticipated purchases. Because of that 4-month emergency fund plus savings for anticipated purchases, we've been able to continue investing, even throughout this mess.
And because our investing strategy is based on the teachings of Benjamin Graham, we've been able to take advantage of some of the bargains that the market's volatility has served our way. But even without that, it's the act of being willing and able to invest -- and following through with it -- even when the market and economy have been doing what they've been doing, that has made the biggest difference.
And that follow through I can credit to Graham's Intelligent Investor and our Dividends, Value, and Diversification strategy that it inspired.
Over the long haul, Value investing has proven itself so consistently that even the people who believe in efficient markets carve out a "Value anomaly." Over time, compounding dividends creates a force to be reckoned with. In the near term, those dividends provide both cash for new investments and a concrete assurance that there's still a legitimate business behind that all too often volatile stock. And of course, diversification means that I can make the occasional boneheaded investment mistake and still wind up OK (and yes, I have made more than my fair share of mistakes).
All the parts working together -- from the living below our means through to the Graham-inspired investing strategy -- is what made it feasible for us to consistently keep on plugging along. And had it not been for that "keep on keeping on" attitude, we almost certainly would be in a worse financial state today.
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