IBA SUCCESS MAGAZINE Issue 3 Vol 3 | Page 47

Figure 4 thick dark “Switching to VUSTX when below” curve. Over the last 30 years, the stock fund, reinvesting all dividends, returned approximately 9.41% annualized return, making a hypothetical $10,000 invested in May of 1986 be worth now $155,210.15, whereas just by checking once a month and switching to bonds when markets got dangerous according to the 20 SMA, might have returned 10.6% annualized, or be worth now $216,778.94. Over the last 30 ½ years this system would have been in bonds approximately 20% of the time and in stocks 80% of the time; it’s diversified over time, just not at the same time. Lesson 1 from Figure 4: small differences in the annualized return can mean huge differences over a long time. Only 1.2% difference per year meant 40% more total return after 30 years. This bites both ways; a financial advisor or a mutual fund who charges 1.2%/year will significantly cut into your total returns down the road. Lesson 2 from Figure 4: Implementing the 20 SMA system takes discipline – it only takes minutes each month to watch the markets once a month, making that calculation, and then making the appropriate adjustment, if indicated. But if you watch it more often than once a month, you could get whipsawed: sell low one month and buy higher before the next month. Every whipsaw eats into your gains. If you skip a month or two, the markets could really start tanking before you know it. Lesson 3 from Figure 4: You’re probably getting the sense that most months, you’ll check the numbers and find that no action need be done. Sure, news raising worries about the markets will arise and try to scare you away from the discipline of following your system. Do not let these emotional distractions bother you. Effective investing strategies tend to be boring. You do not need Vegas in your retirement fund. As a successful entrepreneur, you’ve worked hard to build and invest in your business. A critical part of long range planning is to invest outside of your business. I’ve just shown you that your future depends not on what you make, but on what you do with what you make, the importance of starting early, how investing plans need not be complicated, but must be executed with discipline. Making money and investing successfully is a skill set. In the next couple of articles in this series, I will show you how protecting your wealth and having a spending plan are separate and equally important components to your financial well being. David Yeh is an investment adviser representative with the Wealthy Doctor Institute LLC, a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.