We have talked about the university street of investing before. We are going to see this street in a bit more detail.
1. Asset classes: According to university street, small stocks(small market capitalization), value stocks( stocks with low price/book value ratio), international stocks( developed and emerging) and real estate investment trusts are key asset classes that one should invest in. This is well described in the article here.
2. Automation: Automation is another thing that university street advises. This means automatic saving( automatic withdrawals from your salary account to your saving account), automatic stock selection( investing in index funds or ETF), automatic rebalancing ( buying and selling assets so that you have a predetermined proportion of each) and when you start withdrawing automatic withdrawals from your portfolio.
3. Asset allocation: The following are certain methods you can use –
Have a certain proportion of your portfolio in bonds.
- Amount of bonds=100-age(conservative), 110-age(aggressive), 120-age(very aggressive).
- If you are very young and understand that bear markets are good places to build your portfolio then invest 100% in equities till age 35.
- Then move 10% into bonds(aggressive) or 20% into bonds(conservative). Increase this by 5% every 5 years. Stop at 65 years( 40% in bonds for aggressive investors and 505 for conservative investors)
You could also use a target date retirement fund if you cannot make the effort and accept lower returns
You could decide how much money you are willing to lose and find your sweet spot by using this article.
Find out how much return you need to meet your long-term goals and use this article to find out how you can reach that with the least risk.
If at retirement you are spooked by the thought of investing your money in the stock market, then invest enough of your portfolio into bond funds so that the interest meets your cash flow needs. Invest the rest in stock funds and withdraw money from the stock funds only when you cannot live off the interest from your bond funds.
If you have accumulated enough assets, then scale back your risk by investing defensively.
Own a portfolio that is 60% in diversified equities and 40% in five-year government bonds. You should do well.
Keep 20% in short-term bond funds while you play the game of investing.
4. The best mutual funds: Vanguard is the one for the individual investor.
5. Withdrawing from your portfolio: This article gives you some ideas.
If you know the above concepts, you know university street quite well and will do well in investing