“Continue the process of dollar cost averaging,” said my mentor, “through a globally diversified portfolio of no-load, low expense ratio, low turnover ratio, registered investment company securities. Over time, as you invest with discipline and patience, you’re more likely to realize a net profit from dividends and capital gains than if you attempt to beat the market.”
“When do I sell?” I asked.
“The short answer is when you need the money,” he chuckled. “More precisely, the process we’ve discussed includes systematic rebalancing of your strategic asset allocation. For example, if we presume that you’re a prudent investor seeking to preserve capital and produce income, then your model portfolio is approximately sixty percent equity investments and forty percent fixed income instruments. Through dollar cost averaging, you invest ten percent of your earnings in these broad asset classes through investment company securities. Each fund has a portfolio manager whose strategy is to allocate your money, along with other investors, in securities indexed to the investment objective you choose. We classify equity investments as domestic or foreign, large or small, developed or emerging. These equity investment styles each have risk parameters that we remain aware of by reading the prospectuses, annual and semi-annual reports, statements of additional information and other filings with the United States Securities and Exchange Commission.”
I continued writing in my journal, reflecting on my mentor’s words, recalling lessons from my professors, books I’ve read, and conversations with my colleagues.
“Likewise, we classify fixed income instruments by domestic or foreign, municipal or corporate, short-term or long-term.”
I surmised, “Without this knowledge, buying and selling in the capital markets would be futile guesswork,” I spoke with a new sense of understanding.
“You’ve got it Chris,” my mentor said with a smile, “continue this process for a month or two, and we’ll pick up then.” We shook hands, gave each other a man hug of respect and admiration, and then left the coffee shop saying “good bye” to our servers who responded likewise.
Chris Bryant is an American financial advisor.