Lazy Investing For Big Profits

Up here in the mountains, we enjoy our laid back lifestyle and we don't want all that investing nonsense to get in the way of our fun. But getting rich does have its attraction. So here's our way to put investing on autopilot, called "The Mountain Method". This investing plan takes advantage of the peaks and valleys in market prices, and you only to need to look at it once a year. The Mountain Method is extreme simplicity. Get the instructions below.
Want better returns with a little more effort? Go Advanced, or, for those who like to watch the market, get ready to go "Active", coming soon!

• Control What You Can:
  Don't waste time trying to outguess the professionals. They may or may not be better than you, but they get their money on trading, not investing. The things the Lazy Investor can truly control are Taxes, Investment Costs, and Risk. Control Taxes by making more trades in your non-taxable accounts, like your 401k, and fewer trades in your taxable accounts. Control Costs by investing in funds with the lowest cost or expense ratio, like Index Funds. Control Risk by staying diversified. Never put too many eggs in one basket.
• Save What You Can:
  Nothing gets you ahead faster than saving. Some people are never able to save unless it comes out of their paycheck before they can spend it. Live on 90% of your income and save, save, save the other 10%...or more. Don't ever get ahead of this.
• Discipline:
  Once you have your Lazy plan written down, put it into action. Set it up once and then relax. But do it. Then, make your adjustments exactly as planned. Stay the course. Being out of the market for just one day can be a big setback.
• Look at the Big Picture:
  Don't look at just one account. Consider all of your investments, including your house. If both you and your spouse will enjoy the fruits of your savings and investments, consider all accounts as one. The Mountain Method won't work if the peaks of one account counteract the valleys of the other.
• Be Honest With Yourself:
  Admit your mistakes and don't rationalize your decisions. Take all emotion out of your investing. Go ahead and watch the market go up and down, but don't suddenly ignore the rules. If you're a worry-wart, go ahead wring your hands, but know that every peak and valley is to your advantage, just don't react to them. Instead, react when your Mountain Method says to react.
• You Need More Than One Investment
  The Mountain Method takes advantage of the fluctuations among different investments at different times. If you choose a "Life Cycle" or "Balanced" fund, you're defeating those advantages. Ideally, the best combinations of investments are those that move contrary to each other.
  

Very few of us have the time, resources or luck to choose just the right investment to succeed, but you can benefit from the market's variations.The Mountain Method does that by taking advantage of the market's "peaks" and "valleys". Each of our steps apply to whatever kind of "market" you want: stocks, bonds, real estate, or ancient Chinese water vessels. Over time they all fluctuate. This way you can "buy low-sell high", and not have to time the market to do it. And only need to attend to your account once a year.

• How Does It Work?
  The Mountain Method involves balancing out all your investments once a year. Yes, you could do it more often, but no more than once a quarter. Historically, a once a year adjustment is among the best strategies. On that "readjustment" date, you need to take a moment to chip off the tops of your gainers (the "mountains"), and add those funds to your losers (the "valleys"). Don't worry about timing, prices or market mania, and don't use this date to pull some money aside. If you miss just one day of big market gains, you could miss a whole year's worth of success. If your winners are up 5%, sell that much and add it all to your other, less successful investments. This is also called "asset allocation" or "rebalancing", but thinking about it as the "Mountain Method" helps you focus on how the peaks and valleys work to your benefit.
  
  
• Assemble a Simple Portfolio
  Let's consider our Balance Adjustment happens only once a year and work with some really general numbers. Consider a retirement account with $50,000 and two funds: a Stock Index Fund and a Bond Fund. The Lazy Ratio is almost always 60/40: 60% stocks and 40% cash, but check the FAQ for additional ratio guidance. We're too lazy to pick individual stocks, so let's choose a low-cost, no-load mutual fund (a "load" is a commission...don't pay one!). "Cash" in this example is in Bonds. They are less risky than stocks and can grow when your stocks don't. Your Lazy Portfolio should have $30,000 in the Stock Fund (3,000 shares at $10 a share), and $20,000 in a Mid-term Bond Fund (2,000 shares also at $10 a share).
  
  
  

  The Mountain Method Simple Portfolio-$50,000 Investment % of Portfolio Balance on Day 1 Balance After 1 Year Readjusted Balance Total Stock Fund 60% $30,000 $33,000 $32,400 Bond Fund 40% $20,000 $21,000 $21,600 Totals: 100% $50,000 $54,000 $54,000

  
  
• Doing the Math
  Take a detailed look at what happens over 3 years. The markets go up and down, and in this example your portfolio value goes up even if the stock market doesn't.
  
  • At the end of one year, let's say your Stock Fund has grown to $33,000 (3,000 shares at $11 a share), and your Bond fund has grown 5% to $21,000 (2,000 shares @ $10.50 a share), for a total portfolio of $54,000. You've had a pretty good year. To rebalance to 60/40, you need to withdraw $600 (54.5 shares) from your Stock Fund (sell) and deposit it (57.1 shares) in to your Bond Fund (buy). Then stay away from your account for another year.
    
    
  • Then, at the end of year 2, stocks have not done well. Your Stock Fund is down to $26,000 (2,945.9 shares @ $8.83 a share), and your Bond Fund is only up another 5% to $22,600 (2,054.5 shares @ $11 a share, for a total of $48,600. Without thinking about what the market might do next, your discipline says you must take out $3,160 (287.3 shares) from the Bond Fund and place it (357.9 shares) in the Stock Fund. What you have done is purchased stock at a cheaper price, and some of that money ($600) was made the year before in profits from your stocks.
    
    
  • At the end of year 3, Stocks are right back where they were at year one, at $10 a share. But now you have 3,357.9 shares. That's $33,579. The Bond Fund is growing at a boring rate of 5% a year, so your Bond Fund is now worth $11.55 a share, and with 1,769.8 shares, a total of $20,441. Your portfolio is now worth $54,020. If you hadn't Rebalanced, your stocks would only be worth $30,000 and your bonds $23,000, or a total of $53,000. The Mountain Method has put you ahead by $1,020, that's about 2% better, and that's without any changes in your stock prices! Now, with more shares in your Stock Fund, should stocks really take off, you'd make even bigger gains. These figures do not include dividends on the Stock Fund or any contributions you might make to the funds, such as a monthly payroll deduction.
    
    
  • Over a period of years, this difference can be substantial. And if you were to choose a few different investment sectors, they could have even more variations in their peaks and valleys, and the improvement can be really great. Yes, it's that easy...and Lazy!
    
    
• Now let's make even bigger returns by adding money and dividing up our investments into more sectors: The Advanced Mountain Method.