Knight Kiplinger’s Investor’s Manifesto
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I digitally subscribe to Kiplinger’s Personal Finance Magazine through the Zinio Reader (affiliate link but I really do love it!) and there was a pretty good article by the magazine’s founder, Knight Kiplinger. In this article, he outlines what he calls his investor’s manifesto or rules he lives by in his investment life. Here they are, with some of my own comments added.[ad#tdg-embedded]
Click to EnlargeI am an investor. I do not trade my assets frequently. That’s speculation, not investing.
I am also a saver, fueling my investments with continuous savings from current income.
I am an investor. I do not trade my assets frequently. That’s speculation, not investing.
I know that every kind of asset entails risk — even cash, which can be eroded by inflation.
I know that higher returns entail higher risk, in every kind of asset.
I accept those risks, but I mitigate them by owning a diversity of assets.
I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.
I have an investment plan and a plan for asset allocation, in consultation with a financial adviser.
I invest regular amounts every month, in both rising and falling markets. I know I cannot gauge market tops and bottoms. If I receive a windfall — a bonus, bequest or gift — I gradually feed it into my regular investment mix.
I don’t pour more money into hot markets nor completely cash out of plunging markets.
I spread my investments among several asset classes, in a mix fitting my age and risk tolerance.
My share of bonds roughly equals my age. I will allocate to stocks a declining portion of my financial assets as I get older.
I rebalance my portfolio every quarter. If the stock market plunges, pushing my stock allocation way below its target percentage, I sell bonds and use my cash to buy stocks.
I force myself to sell high and buy low by periodic rebalancing-just what is temperamentally difficult for most investors to do.
I know that stocks are risky in the short run, so I hold in equities no money for which I have a likely need in the next three years.
But stocks are not too risky in the long run. They have outperformed all other commonly traded assets over periods of 15 years and longer.
Foreign stocks account for at least 15% of my stock allocation. I believe that developing economies will enjoy much higher growth than the U.S. in the decades ahead.
I never borrow against my stocks. Margin calls could force me to sell good assets at a bad time.
I stick with my game plan. I do not check the value of my investments every day or even every week.
I try to keep my cool when other folks are losing theirs.
I remind myself often: I am an investor.
Let me know what you think about this list – do you agree with it all?
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12 Comments on this post
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ObliviousInvestor said:
Very cool list.
(Especially the part about not checking your portfolio everyday or week.)For me the biggest change would be annual rebalancing instead of quarterly, but that’s not that huge of a difference.
Also, if it were my own list, I’d add something about “I minimize my costs, knowing that one of the more surefire ways to improve return is to reduce investment costs.”
June 10th, 2009 at 5:48 am -
Mark Wolfinger said:
An acceptable set of rules for a long-term investor who believes that commonly accepted advice truly works: Specifically that asset allocation and diversification are sufficient to control risk.
But I’d add the need to control risk by much more effective methods: using collars, or similar risk-reducing option strategies. This would require a few option trades once per quarter – just after the portfolio is rebalanced. But to me, that extra protection is worth the little time it takes to enter those few trades.
An investor does not have to be blind to current risk just because long-term investing has been a winning approach. Winning strategies can be improved.
June 10th, 2009 at 6:41 am -
Frog of Finance said:
The one thing I disagree with is the proposed formula for the amount of bonds in my portfolio. An investor with a longer horizon may want to start with less bonds than his/her age.
Personally, being in my late 30s and with about 20 years before my retirement, having that much bonds in my portfolio just feels wrong. This is a question of risk tolerance, of course, but I would submit that having 10% in bonds until age 40, and then increasing 2% for each year after that will suit me better.
I completely fails at “not checking my investments every day”.
PJune 10th, 2009 at 7:24 am -
Jae Jun said:
I consider myself an investor but with the companies I look at (small and micro caps) I find that I do trade more frequently than my larger long term holdings. Fees do add up but the outsized gains to offset it by a large margin.
Good list though.
June 11th, 2009 at 3:20 am -
David said:
Thanks for this – I printed it out, to have it next to my computer for “tough” days. I pretty much agree with all of it. My non-US stocks are probably closer to 40% of my portfoltio.
June 11th, 2009 at 1:24 pm -
Bender said:
It was great right up until: “But stocks are not too risky in the long run”.
I’m not saying people shouldn’t invest in stocks. The average non-retired investor probably should, but they need to understand and appreciate the risks. Most people’s thinking about risk is too simplistic, and such statements only perpetuate such mistakes.
June 12th, 2009 at 9:26 pm -
misanthropope said:
you could read everything on investing and finance in your local library and never see any evidence that “higher return entails higher risk”. intuitively, the idea makes sense, but reality seems to fail to conform to intuition, sometimes.
asset turnover may _correlate_ with speculative temperament, but they are by no means the same thing. if the price of a holding exceeds your assessment of fair value, PLUS my transaction costs (which, including taxes, are considerable), it isn’t praiseworthy to hold.
July 10th, 2009 at 11:00 pm -
misanthropope said:
honestly, the injunction against margin should have been much stronger- it is more important than all the others put together. practically all investors who go broke do so because of leverage.
July 10th, 2009 at 11:03 pm
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