Why stocks?

I’ll explain an investing method so simple… even an 11 year old kid can outperform more than 95 percent of hedge funds. 2 funds.. VTSAX and VBTLX. 75 percent VTSAX allocation and 25 percent VBTLX allocation. Once you are able to live off of 4 percent of the portfolios value, you don’t have to do a single thing ever again. While you sleep, big U.S companies and their owners are hard at work to bring the company profits, value, and increasing its stock price. Luckily for us.. since we are invested in the market, we get to benefit from these companies growth. Our allocation in stocks will let us benefit from the ride up, while bonds will provide a smoothening of the ride when stocks are down 5, 10, or even 20 percent.. Risk tolerance depends on each investor. But if you have grown your portfolio to 25 times your annual spending, then you are ready to preserve (and grow) your wealth.

There are 2 phases to this very easy investing methodology that will dictate whether to buy stocks or bonds, and how much. It’s always better to start sooner.

Phase 1: Accumulation phase. In this phase you are actively investing every week if possible into stocks, as stocks have higher returns. If you are employed, or actively managing a business to create revenue and have not “retired” then you have an income every month to keep purchasing more shares of VTSAX, a vanguard total stock market index fund. You would continue to invest as frequently and often to grow your portfolio to a size that would equate to 25 times your annual spending. At this point, once reached you can choose to continue working or to live off your portfolio. Just having the option to be able to choose to work or not I believe will make working more enjoyable, and anyone who has reached this point feels the same way (I assume).

Phase 2: Wealth preservation phase. Once reached, you are now relying on your portfolio to pay the bills. You have reached a portfolio balance worth more than 25 times your annual spending. Once the wealth preservation phase is reached, an allocation of 25 percent vanguard total bond market index fund (VBTLX) will be put to use. If stocks fall down a large percentage, you are able to sell your bonds to then buy stocks at a discounted price, making sure to keep portfolio 75/25, VTSAX/VBTLX. When stocks go back up a large sum and you realize that your stocks are now worth more than 75 percent of your portfolio, we would sell the stocks and buy bonds again to keep the 75/25 allocation in tact. (This 75/25 allocation has the highest success rate for a 4 percent annual withdrawal, lasting 30 years or more, and even growing whilst withdrawing every year to cover personal living costs).

It is that simple and there is no need to overcomplicate things when it comes to investing. 1. Buy a low cost total stock market index fund, 2. Live off your index fund when it has grown to 25 times your annual spending, withdraw 4 percent a year and rebalance your portfolio once a year. No need to look at stock prices on charts all day or follow news, tv, newspapers or any “noise”. Simply invest as often as possible, live below your means, and be patient. That’s all there is to it and I will be explaining everything more in depth through the “In depth” section. I’ll post studies done over the last 100 years to show why this portfolio allocation works very well. Thanks for reading and always remember to be mindful of any risk you take with any form of investing. I hope you all find this information useful and that it one day.. with the power of compounding can get you yearly returns worth more than your living costs. Thanks and good luck.