If you were hoping to read an article about a hot real estate investment opportunity in Ecuador or a coffee plantation in Colombia, then you'll have to wait until the end of this article. First we have to take care of the basics. However, if you are interested in an investment plan that is not only simple, easy to maintain, and most importantly, successful, then you are in the right place. The reality of investing is that it doesn't have to be complicated. You don't need insider information and you definitely don't need a computer with eight monitors.
First, note that I am a late twenty something year-old. Your investment philosophy may vary depending on your individual financial situation and age. Please consult a professional for advice. However, I believe this philosophy is based on solid fundamentals that would be useful for anyone.
I largely follow an investment philosophy based on the ideas of Jack Bogle, founder of Vanguard. Some of the main pillars from his philosophy are:
Invest early and often and never attempt to time the market
Keep costs and taxes low
Stay the course
Above pillars taken from the Boglehead website.
Now let's go a little more in depth on each of these.
Invest Early and Often and Never Attempt to Time the Market
Unless you're the manager of a top hedge fund or some other highly compensated financial analyst, you can't time the market. Even those guys can't time the market most of the time. That guy on Twitter that says he can teach you how by reading graphs? He can't either. So what do you do? You invest early and often. Money comes in, you invest it. You don't think about the current price or where it could go because you don't know what it could do tomorrow and the short-term price movement does not matter. You're here to build wealth for the long-term, not get rich tomorrow. As the old adage goes, "time in the market is greater than timing the market."
Just as the average individual, or even above-average individual, can't time the market, they are notoriously bad at picking stocks as well. That's why the Bogle philosophy advocates for having a diverse portfolio that gives you a small piece of an entire market through index funds. Sure it's fun to own some Tesla or Apple stock, and it's okay to do a little of that, but the large majority of your portfolio should be a diversified fund.
Keep Costs and Taxes Low
By following the first two pillars, you're already on your way to keeping costs and taxes low. By not attempting to time the market, you will trade less often, and therefore incur less trading fees and capital gains taxes. By diversifying through index funds you will also keep your costs down. Index funds generally have lower expenses than actively managed funds. Another way you can keep taxes low is by using tax advantaged accounts. For more on tax advantaged accounts, read my article on the power of the IRA and 401k.
Stay the Course
This final pillar goes back to timing the market. Remember, you can't do it. Market downturns and even crashes are inevitable. You don't know when they will happen and you don't know how long they will last. However, history has shown us, that in general, over the long-term, the market continues upwards. So don't sell if you think there is a crash on the horizon, because if you're wrong, you might miss out on a year or even years of great returns. And most importantly, don't panic sell during a crash. Remember, it's not sell low, buy high. It's the other way around.
Finally, let's get to my asset allocation.
First, note that all of these positions, excluding the cryptocurrency, are largely held through diversified index funds. Now, cryptocurrency doesn't conform to the Bogle style of investing, however I believe there is too much potential upside to not risk a small percentage (10%) of my portfolio. More on cryptocurrency later.
Second, you'll probably notice that the large majority of investments (75%) are allocated to US equities. Some may consider that risky, however I have full confidence in the United States economy. The US still has the world's largest GDP and the world's largest and most innovative companies. And frankly, in the event of complete economic collapse in the US, the rest of the world would likely suffer as well. Therefore, diversifying in other countries wouldn't help much, but that doesn't mean I ignore those countries completely.
I keep another small percentage in emerging markets (10%). This is where Latin America comes in, as well as some Asian markets (Mexico, Brazil, China etc.). Emerging markets are generally more risky, however greater risk sometimes grants greater reward.
Finally, I have a rather insignificant (5%) in international equities, this would include the European Union as well as some other developed economies. I generally don't see much upside in this area, however I keep as small percentage for some extra diversification.
One app I use to in order to invest Robinhood. Robinhood has no trading comission fees and provides a clean interface to buy and sell stocks, index funds, options, and even cryptocurrencies. Click the link below and receive a free stock that could be worth anywhere from a couple dollars to a couple hundred of dollars!
The Future: Investing in Latin America
Now if you came here for something a little more exciting, this is the part for you. While I won't be investing in a coffee plantation in Colombia, I do have an exciting new business venture in Mexico coming up later this year. Check back on the site often and follow me on Twitter for more on that soon.
If you're interested to hear more about my philosophy on cryptocurrency, check out the cryptocurrency section of LATAM Capitalist.
The information on this website and in this article is provided for informational and entertainment purposes only. This article is not intended to be investment advice. LATAM Capitalist offers no guarantee on the effectiveness of the advice given on this website. Accuracy of the content cannot be guaranteed due to the ever changing nature of its subject.