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Your Single Most Important Investment Decision

By Dr. Steve Sjuggerud
Tuesday, September 9, 2008

Fannie Mae was taken over! Stocks are soaring!

But what will happen tomorrow? Is it time to buy... or sell?

This is what most investors are thinking about. But that kind of thinking doesn't get you rich...

Want to get rich from your investments? Six factors affect the long-term value of your investment portfolio, according to my good friend and fellow newsletter writer Alex Green. That's all.

Let's take a look at these six factors... Then we'll whittle them down to the most important of the six: your single most important investment decision.

The six factors that determine the long-run value of your investment portfolio are:

1) How much you save.
2) How long your investments grow.
3) Your mix of investments.
4) Your investment returns.
5) How much you pay in expenses.
6) How much you pay in taxes.

Only one of the six is out of your control. Surprisingly, it's what most people concentrate on: your investment returns.

You control how much and how long you save. You also control your mix of investments. You control how much you pay in expenses on your investments (you can now choose low-expense exchange-traded funds instead of mutual funds, for example).

You also can control your tax hit... using retirement accounts or using tax-advantaged index funds in your taxable accounts.

In his new book, The Gone Fishin' Portfolio, Alex writes, "Of these five factors we can control, the most important is your asset allocation. It's your single most important investment decision."

According to Alex, asset allocation (your mix of stocks, bonds, commodities, etc.) accounts for 90% of the total return of a diversified investment portfolio over the long term.

That's not just Alex's opinion – it's the opinion of the Financial Analysts Journal, based on two sophisticated studies of the long-term performance of pension funds. The studies found that which stock or bond you pick isn't so important... What matters over the long run is how you mix your assets among stocks, bonds, and commodities.

In his book, Alex shows you the 10 investments you should make to spread your money around... and how to readjust your portfolio once a year. It's simple. Anyone can do it.

Since 2003, Alex's simple strategy has returned 17.3% a year compounded, beating the market every year. This is no accident... While it may not beat the market every single year going forward, this strategy will work over the long run – for decades to come.

Until this book came around, I didn't have a good recommendation for people getting into investing. But now I do. I know they need to read this book first, before they do anything else. Even for investment professionals, it's a great reminder of what's important, what works in investing.

As Alex argues, what works is focusing on your asset allocation. So instead of spending all your time worrying about whether it's time to buy or sell, spend some time on what matters... Spend time tweaking your asset allocation to the proper mix.

If you make the time, you'll avoid ending up like folks who had a ton of their retirement savings in a losing stock like Enron... or a losing asset class, like real estate over the last two years. You avoid huge risks.

Remember, that's your single most important investment decision over the long run. 

Good investing,

Steve

P.S. Alex Green's new book shows you exactly where to invest to profit from the things you CAN control in your investments. It should lead to maximum profits with minimum effort over the long run. To learn more, click here.




Market Notes


THE WORST DOWNTREND IN THE WORLD RIGHT NOW

The downtrend in Russia is getting downright ugly.

As we've mentioned in the past few months, the Russian stock market is one of the world's great "boom and bust" markets. The country holds incredible amounts of oil, natural gas, timber, precious metals, and base metals... so its economy is sensitive to commodity prices. Russia is also home to incredible amounts of government and corporate corruption.

These two drivers are clobbering Russian shares right now. Oil has fallen $40 a barrel in the past two months. Natural gas has fallen 44% in the same time. Gold, silver, nickel, platinum, and palladium are all declining. The invasion of Georgia makes the country look like a gang of thugs.

Today's chart is a picture of this clobbering. It's the past year in the Templeton Russia Fund (TRF). This basket of Russian stocks is down 40% since June. If there is a bigger decline in the ETF world right now, we haven't seen it. 


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