Advanced Plan

1. Take the needed time to understand asset allocation in depth. Rick Ferri, William Bernstein, and Larry Swedroe are fine teachers on the issue. Diversify not only between stocks vs. bonds and cash, but diversify over countries in stocks and bonds and possibly real estate. Understand negative correlations and how they are always moving and definitely take some time to review the research conducted by Fama and French as you consider overweighting your portfolio toward small and value stocks. Once that is done, identify the portions of your portfolio you want in stocks, bonds, and real estate, buy them inexpensively, and rebalance them over time as markets change and personal circumstances change.


2. Use modern portfolio theory to bring together multiple asset classes and categories as you accept the reality of the efficient market hypothesis. The more we learn on the subject of money, the simpler it can become. No-load index mutual funds are a perfect example. Avoid complicated products and stick with the simple ones. The informed investor does not try to outsmart others. Being advanced on this subject means you have put your ego, greed and fear aside. The advanced person focuses on understanding the world of money and investing so they can avoid the mistakes while sticking to what has proven to be successful, which happen to be those inexpensive and diversified no-load index mutual funds.


3. Use your marginal tax rate to help you decide on whether to invest in your pre-tax traditional retirement accounts or your post tax retirement accounts or some combination of the two. Design a tax plan or work with an accountant who will assist you in doing one that will reduce your effective tax rate based on your current family situation and income level. Look into starting a business either on the side or as your primary source of income. Opportunities await those who are ready to take calculated risks that will improve their future lives. Keep expanding on what you know and you will see just how much you still have to learn on many of these subjects.


4. Creating wealth requires education, dedication, motivation, self-awareness, action and patience (there is more, but that list will get you far). Steer clear of a materialistic life as you identify what real wealth is and what fake wealth looks like (conspicuous consumption by people like the Joneses). Advance your thoughts on these matters by reading three books from Thomas Stanley: The Millionaire Next Door, The Millionaire Mind, and Stop Acting Rich. If you want to build wealth follow in the footsteps of the truly wealthy while avoiding the trappings of the ones who are simply acting the part. It is critical that you are able to tell the difference.


5. Sustaining wealth creating habits can be harder than creating them in the first place. Once you have learned how to minimize debt (especially on depreciating assets), reject materialism, invest wisely and efficiently, and rebalance as necessary to get back to your desired asset allocation, you will be required to STAY THE COURSE over time. Easy to say, not so easy to do. Staying rational in a very irrational world is not easy. Here are five books that every advanced investor should read: The Four Pillars of Investing by William Bernstein, Common Sense on Mutual Funds by John Bogle, Unconventional Success by David Swensen, and The Only Guide to Alternative Investments You’ll Ever Need and Chasing Alpha by Larry Swedroe.

Check out the other plans!