The Attitude Media Model Portfolio
All of this begs some very important life questions; how much time, and mental energy, do you want to spend on your investments? A typical Attitude Media reader has a demanding full time job, outside creative interests or hobbies, and family commitments. For such a person with an interest in long term investments, the following type of model may make a lot of sense.
There are opportunities to add value through alternative investing; for instance, by buying an old house, fixing it up, then renting it out or selling it. But this sort of thing is quite different than investing in public markets:
- • Cash in checking account or money market for emergencies/sudden opportunities / unexpected expenses equal to 6 months of your normal spending
- • Balance of liquid assets in low-cost total stock market etf or index fund
- • If you own your home, that’s your real estate investment. If you’re renting, consider buying. But by no means should you feel that home ownership is some sort of imperative.
This approach is extremely simple, requires very little time or expertise, is tax friendly, involves almost no fees, and is easy to implement. If you take this approach, it is highly likely that your overall, net long term returns will exceed that of more complicated, sophisticated approaches. But perhaps most important, as many of our readers are self-employed professionals or business owners, this approach will lessen distractions and allow you to focus your energies on your primary endeavor, where you can really create value.
You’ll notice that the Attitude Media Model Portfolio is missing a big component that would form the foundation of many investment plans: bond investments. That is for the very simple reason that bonds are paying extremely low interest rates, and we believe you can get better returns from stock dividends or elsewhere. Also, as interest rates rise, bond prices fall, and we believe that, in the long run, rates will rise very significantly, and the price of most types of bonds, both government and corporate, will fall sharply.
You may not like the stock market. You may think that many CEOs are thieves. You may have all sorts of objections to investing in stocks, and in many cases you will be right. But the fact is that, in the long run, a generalized stock market index fund is most likely to outperform other types of investments you might make.
Most people don’t follow an approach like the one we suggest above. In fact, even we have often not followed it. Why?
- • It’s human nature to think we can do better than other people; this is especially true among better educated, more affluent, more successful people, and these are just the types who tend to be investors in the stock market. If you’re smart enough to be a successful professional, you’re smart enough to beat the market, right? Wrong.
- • As we describe in Business as the Ultimate Sport, business in general, and investing in particular, appeals to our sense of gamesmanship. It’s an interesting game, a form of entertainment, to try to beat the market. Anyone can play, it doesn’t really take much money to get started, and there are a million people telling you how to do it. But investing is a game most people will lose if they’re playing against the market. Think you can beat the house in Vegas or Macau over the long run? You’re probably wrong. Think you can do better than a stock market index fund? Wrong again.
- • It’s extremely difficult not to get caught up in the tides of mass emotion. When the market is rising, and all the commentators are saying it will keep rising, it’s almost impossible to avoid the pull of greed, although this is typically when you should be selling. Conversely when the market is falling, and talking heads are urging you to take money out of the market, it’s very difficult to have the emotional discipline to stay invested and take a long term point of view, knowing how difficult it is to time the market. As Warren Buffet has said, “I’m greedy when others are fearful, and fearful when others are greedy”; much easier said than done.
One approach is not to fight some of these natural tendencies, but to limit the amount of money, and time, to which you devote to active investing. For instance, you might want to invest the bulk of your assets using our model above, but keep some percentage reserved for a more active approach to satisfy the natural human inclinations outlined above. It’s fine to gamble, as long as your losses are not more than the entertainment value you gain from your gambles. But when most people gamble in the stock market, they lose money and also they find the experience frustrating, or worse.
You might also wish to reserve a certain portion of your portfolio for making investments that you find interesting for other reasons; perhaps you wish to support a creative person trying to raise money on kickstarter.com. Or you want to lend money to a struggling farmer in the developing world using a site like kiva.org. We also hope you’ll consider investing in one of Attitude Media’s ventures.
There are all sorts of different motivations for investing; the important thing is to clearly understand your own motivations, objectives, and risk tolerance. Here at Attitude Media we have a long history of investing in start-ups, real estate, conventional stock and bond markets, and a wide variety of other alternative and exotic investments. If your concern is purely with financial returns, your best investment is probably in the traditional publicly traded stock and bond markets, or some variation of the Attitude Media Model Portfolio. If you have other motivations, you should consider other types of investments.