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Why a simple low cost portfolio strategy is better in some cases

This blog discusses more on active management strategies. However, aside from honing and building the skill to manage an active portfolio, identifying individual stocks, when to sell and buy, a simple strategy for the average folk is what I hope to uncover.

And in some situations, a passive investing strategy may be more applicable than stock picking an active portfolio.

Andrew Hallam, of Millionaire Teacher fame, shared with us in this article on his fight with bone cancer at age 38 years old. Of particular interest is one of the main reasons he shifted to using a passive investing strategy:

When I was diagnosed with cancer, my wife and I had a relatively complex investing portfolio shaped by my investing enthusiasm. But she wasn’t interested in the stock market. If I did have a magic formula for investing (something I seriously doubt) she wasn’t keen on learning it.

Recognizing that she might outlive me, I sold $700,000 worth of individual stocks and added the proceeds to the exchange-traded index funds I already owned. Then I taught her how to rebalance the portfolio in a few minutes once a year. If I die before my wife, I’ll rest better knowing that she won’t be paying somebody to underperform the market.

[The globe and mail | How I triumphed over bone cancer and reshaped my investing strategy |read here] 

It’s a good article to read for those that are around his age (me included) and its amazing to know he can still run like hell and 33 pull ups (I struggled with just 22).

This has seldom cross my mind. The active management right now needs me in order for it to work. The best person to manage should something happen to me would be my brother (who has good acumen and understand investing much better than me). But it would be much easier if its more mechanical and simpler.

It also makes it easier for average folks holding a 9 to 5 job to save during the capital appreciation stage of their life.

For the folks who are interested in this subject, there are resources at Vanguard’s site that educates investor on this. Else I have some articles written that deals with passive investing strategy:

  1. The permanent portfolio – the holy grail of investing
  2. Ray Dalio’s All Weather Portfolio – How Investor’s should set up their portfolio
  3. Investors favor Vanguard’s low cost index and etf funds
  4. Keep Investing Simple and Portfolio Rebalancing
Keeping Investing Simple and Portfolio Rebalancing
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Ling Ling

Tuesday 2nd of April 2013

Hi, I enjoy the articles and write-ups you have in your blog. They have been informative and makes me think more about how to improve my wealth or retirement planning.

I would like to ask if you invest in ETFs? What are some of the SGX listed ETFs that you would consider?

Thanks!

Kyith

Wednesday 3rd of April 2013

Hi ling ling,

My portfolio is not based in etf but will form one with a part of my money for a certain purpose.

In Singapore lyxor and deutsche bank are the large etf distributors.

But the most popular etf is still the sti etf that tracks the Singapore sti index. There is also a few others that tracks the sti index.

Do note that when evaluating etf for a passive strategy the quality of etf and cost of etf is important.

While etf in Singapore is cheaper than unit trust, they ate on an average 0.70% in expense versus as low as 0.1% - 0.3% in us. Remember returns compound but cost also compound and cost are a certain loss versus the returns so hence the need to minimize cost

Some singapore investors invest in a portfolio made up of us based etf. If you want to learn about etf you should go to the vanguard website as it is very educational

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