Investment Strategies That Keep It Brief

Morningstar's Christine Benz recently wrote about how distilling your investment approach into a few sentences can help you focus your goals and cut out some noise. Ideally, your slimmed-down strategy would fit on a 4x6 index card and would address the following points:

• Your overarching goal for your investment portfolio
• The basic parameters you'll use for investment selection and the types of investments you'll favor
• The outlines of how you'll maintain your portfolio on an ongoing basis

This week, we asked readers to tell us, in a few lines, what their investment strategy looks like.

Below is a summary of what they had to say. To read the full thread and weigh in yourself, please click here.

The Overarching Goal of Your Portfolio In answering the first part of the question, readers discussed the reasons that compel them to invest, ranging from the desire to be debt-free and comfortable in retirement, to providing an inheritance for future generations. Some readers also shared insights into their investing philosophies.

On investing generally, Darwinian shared this philosophy, which resonated with some other respondents: "I recognize the difference between risk, not having money when I need it, and volatility, changes in the prices of assets I don't need to sell now." Recognizing that sometimes the assets that yield higher long-term returns can have greater short-term volatility, Darwinian also shared a few techniques to "increase returns without increasing volatility, or reduce volatility without reducing returns." Among them: asset allocation, diversification, rebalancing, and being a contrarian investor.

In terms of specific investing goals, many readers mentioned that they strove to be financially independent in retirement, while maintaining an ample cash cushion in case of emergencies.

Already in retirement, gruntilda651 said: "I want (1) a reliable cash income stream that maintains my current lifestyle, (2) a cash safety net equal to two years of needs and (3) my financial assets to (at least) maintain their inflation-adjusted value."

"Our goal is to maintain or improve our standard of living in retirement," Thomas0594 said.

"My end goal is to create a dividend stream of $12-15,000 a year and live off 70% of our current incomes," said Wanttoretire.

GuppaZ155's goals are to "retire with income and lifestyle similar to when we both worked" and "retire debt-free."

A related goal shared by many readers (both already in retirement and still saving) including retiredgary, juris2, and hobocon, was to eliminate all debt, if they hadn't already.

"Avoid debt (you only go bankrupt when you can't make loan payments)," said JohnGalt.

Another goal mentioned by some respondents was to leave an inheritance for the next generation.

Fritz2's plan is to "Maintain stock/bond ratio at 52/48 for growth throughout retirement while working investments to provide income over our remaining lives--with the goal of passing along unused investments to our heirs."

"I am 81 years old and have already established sufficient trusts for my two children and grandchildren," said Harry34.

Island agrees, adding that the goal is to "manage expenses to leave a substantial inheritance for my two sons."

Your Basic Parameters and Favored Investments The responses for the second part of the question varied greatly by individual respondent, as one might expect. Among the many variables were favored asset classes, asset allocation, diversification preferences, and time horizon. But among the varying investment-selection criteria, one oft-repeated theme was a preference for low-cost funds, whether active or passive. In addition to those quoted below, the advocates of low-cost investments include GregLee, island, Rathgar, Ticotico, bgstuhan, retiredgary, and driftless.

"Fees matter; buy only low-cost funds," said Aquinas.

"I consider myself a Boglehead with Four Twists," said retired at 48. "The Boglehead part means investing only in no-load, low-cost mutual funds/ETFs (no stocks); index funds permitted; longer-term holdings; and an asset-allocation approach."

"[I] seek out talented management who often have a contrarian approach with low turnover while charging lower-than-average fees," said howaya.

Texasboy agrees: "I only utilize low-fee, no-load funds available through Fidelity and Vanguard. I only invest in what I understand. If I can't understand the prospectus, I don't invest."

"We keep the total number of funds we own to a minimum. We select funds that combine high quality with low cost. We own some Silver-rated funds, but we prefer Gold," said Thomas0594.

"We strongly believe in low-cost Vanguard Funds; they have done very well for us in the past," said bbddll1212.

Many respondents, including TerryB, Rathgar, Ticotico, Hobocon, and driftless, also mentioned that part of their plan involved maximizing their allowed contribution to 401(k)s, 403(b)s, IRAs, or other tax-advantaged plans.

As offthegrid2 very succinctly put it: "We maximize tax-advantaged retirement savings, thereby reducing take-home pay dramatically. We live on the reduced take-home pay. We will get a raise in retirement."

"[I] max out 401(k) and other tax-deferred when possible," said Jimoak.

Juris2, who is already in retirement, notes, "While employed, I contributed to 403(b) at rate of 15% of gross salary every year for 40 years."

An Outline for Ongoing Portfolio Maintenance When addressing the third prong of the investment strategy, many readers explained their process for checking in and rebalancing their portfolio. Some readers rebalance often, such as TennBill. BoomerGuy, meanwhile, does not rebalance but rather keeps an eye out for attractive opportunities, while remaining vigilant about portfolio overlap.

Most respondents said they do rebalance their portfolios, though they don't do it all that frequently, with many saying they only make changes when their allocations move away from their targets by a considerable margin. (In this vein, Ticotico shared Jack Bogle's quote, "Time is your friend; impulse is your enemy.")

"I check my fund balances every week, I rebalance my investments once a year, and I read Morningstar's analyses and pertinent articles regularly, but I don't change my investments often or make snap decisions. I try not to be too greedy," said BostonBuddha.

"Although I read investment information daily and review public investment data weekly, it's only for educational purposes. Actual portfolio performance is reviewed monthly, but I tend to make adjustments infrequently and then usually because of cash flow," said texasboy.

"[I] check allocation quarterly. Rebalance if out of range," said Tomas47. "Range for every target is the smaller of +/- 5% absolute, or +/- 25% of the target."

Aquinas had this to add: "Take the long view: buy and hold. Don't even open quarterly statements in years like 2008."