[For many years I've been very undisciplined in regard to financial matters, but I now have an appreciation for the importance of putting money to work. This is the portfolio plan that I will use for myself, and which I also intend to use as a beginning investment plan for my children. Whether they continue this plan or some variation of it into their adulthood will be up to them, but I will strongly encourage it. I am not a professional financial advisor, I do not have any certifications in that field, nor has this plan been approved by any certified financial advisors. This is just one man's opinion.]
Portfolio Summary
Goals:
1. Protect purchasing power
2. Create income streams
3. Increase capital
Portfolio Divisions:
1. Cash Account – balance varies with income flows; ideally less than $100 after investments
2. Savings Account – 3 times monthly expenses
3. Real Estate – minimum 30% of portfolio; preferred holdings mix: 80% residential, 20% commercial
4. Bonds – minimum 20% of portfolio
5. Stocks – minimum 20% of portfolio
6. Precious metals – 12 times monthly expenses
Money Flow:
1. Income from all sources, as well as cash from matured bonds, flows into the cash account.
2. Minimums are first met in savings, real estate, bonds, stocks, and precious metals, in that order.
3. For the remainder of the portfolio, real estate, bonds and stocks are compared, and the choice with the greatest yield is selected.
Rebalancing:
1. Rebalancing is achieved through the selection of new investments, not through the selling of current ones.
Notes:
1. Minimums for asset classes assure diversification.
2. Not having maximums for most asset classes allows dynamic composition of portfolio.
3. Items which are at highs in value are not purchased except to comply with minimums. New investments are made with prejudice toward maximizing income streams.
4. As the economic situation changes the portfolio naturally flows to the most affordable investments and away from the highest priced ones.
5. Division of real estate into 80% residential, 20% commercial affords protection during economic downturns wherein commercial real estate profitability often declines, and there is usually an increasing percentage of households that rent. It also allows, along with stocks, for participation in business prosperity during economic upturns.
6. Consistent with the goal of creating income streams, stock selection is limited to members of the S&P 500 Dividend Aristocrats.
7. Bond selection favors, but is not limited to, municipal bonds and short term notes.
8. Consistent with a conservative investment philosophy, speculative practices such as short selling, futures trading, and purchasing on margin are avoided.
9. The benchmark for the full portfolio is the CPI-U. There are no asset class benchmarks.
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