Alright, we’ve talked about some important investment principles over the last three weeks. Today, I’m going to recap these three principles, give you some insights into how I manage my portfolio, and add one more important principle.


Here are some things I think really matter when it comes to investing:

  1. Asset Allocation
    • Your mix of stocks to bonds
    • Remember, more risk means more reward
  2. Diversification
    • Owning lots of companies
    • Owning US and International stocks
    • Owning large and small companies
    • Owning growth (think Google) and value (think AT&T) companies
    • Diversifying across sectors (you don’t want to solely invest in technology companies, for example)
  3. Costs
    • Paying attention to expense ratios
    • Typically, the lower the better


As an example, let me share what I do.

My current portfolio is made up of about 83% diversified stock funds and 17% diversified bond funds. That 83/17 mix is my current asset allocation.

To increase my overall diversification I use the following funds in my 401(k):

  • 48% Vanguard Total Stock Market Index, VTSAX (3,663 stock holdings)
  • 32% Vanguard Total International Stock Index, VTIAX (5,887 stock holdings)
  • 20% Vanguard Intermediate-Term Bond Index Fund, VBILX (1,851 bond holdings)

That basically gets me invested in the global market. (Note that within a 401(k) you are limited in your investment options, based on your specific plan. Look for the low-cost, diversified fund options available to you.)

Let’s look at the expense ratios for these three funds:

  • VTSAX 0.05%
  • VTIAX 0.12%
  • VBILX 0.09%

To me, these are very low cost funds. And these low costs mean more return in my pocket and less in fees to the mutual fund company.

Remember, you can find specific information about stocks, exchange-traded funds, and mutual funds at


While I can’t say which asset allocation and investments are right for you – this is based on your age, goals, risk tolerance, options, etc. – I do hope that by sharing some specifics about how I currently invest you have more clearly seen these principles in action. For me, this is long-term money. I can’t touch my 401(k) until age 59 1/2. I’m looking for growth!


Once your portfolio is set up as it makes sense for your situation, there is one final principle that’s REALLY important:

When the markets start to drop, DO NOT SELL EVERYTHING. Better yet, DO NOT SELL ANYTHING. Keep investing. (One note: This assumes you have rebalanced and reduced risk along the way. If you’re 60 and about to retire, you probably shouldn’t be invested in 80% stocks.) But, let’s assume you’re young and the market drops. What do you do? Keep saving! Keep investing! Do NOT sell while the markets are down! Things will bounce back. The WORST thing you can do is sell when everything is down and then buy once everything bounces back.That means you’ve sold low and purchased at a premium. Not good! Instead, you want to buy MORE while things are “on sale” – while things are low.

If movement in the markets start to make you uneasy, just call me. I’ll talk you down.


Let’s imagine you invested all your money in the Vanguard Total Stock Market fund I mention above on January 1, 2006.

The close price then was $31.05**. Now, imagine you don’t check your balance again until one year later. Now, the price is $34.73. Great! Your money is growing. Alright, one more year passes and you check again on January 1, 2008. Now, the trading price is $33.21. It’s down a little from last year but no big deal; this is long-term money. Fast forward to January 1, 2009, and now the closing price is $20.00. Uh-oh! You really blew it!

No, actually, you didn’t. Keep investing!

Let’s add a few more price points:

  • January 1, 2010: $26.50
  • January 1, 2011: $32.26
  • January 1, 2012: $32.89
  • January 1, 2013: $37.61
  • January 1, 2014: $45.24
  • January 1, 2015: $50.17
  • January 1, 2016: $47.92

If you did nothing, you would have earned 54.33% (47.92/31.05) over this ten-year period (or, on average, about 5.43% annually). Not bad. And that accounts for one of the biggest dips the market has even seen!

Here’s the key: By just doing NOTHING, you earned your money back and then some in a relatively short amount of time.

If you had decided to sell everything, how do you know when to invest again? When the markets are doing well? I don’t think so. By then, you’ve missed A LOT of the growth.

Let’s imagine that you sold everything on January 1, 2009 – when you see that $20 price. So, you sell AFTER losing 35.59% of your initial investment. Then, let’s imagine you tell yourself you’ll buy back at the beginning of the first year when the markets exceed $31.05 again – the price when you initially invested. So, you buy back on January 1, 2011. Now your money grows (from 2011 – 2016) about 48.54%. BUT, you have to account for the money you already lost.

Let’s say you invested $10,000.

Option 1: Do Nothing! $10,000 grows 54.33% and you end up with $15,433 ten years later.

Option 2: Freak out and sell everything! $10,000 decreases to $6,441. Then, when you decide to buy back, $6,441 grows by 48.54%, resulting in $9,567.

See how much work and stress you added only to end up with less money than you had in the first place?

So please, please, please, don’t panic!

Succinctly put, you want to BUY LOW and SELL HIGH and STAY DISCIPLINED.

One easy way to do this is to automate your investments.

If a set amount is coming out of your paycheck and being added to your 401(k) each month – before you even see the money – you are more likely to stay the course when the market drops.

Investing is one of the few things I can think of where less work means better results, so take advantage and Let Luc!


*This example is somewhat simplified because I’m only considering the change year-over-year and not day-to-day, but the message is still the same.

**Note that I’m using January 1, though because it is a holiday and depending on which day of the week it falls, the close price I’m quoting is really the first available date in January of each year. You can view this data here.

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