Updated Feb, 2020

Summary, next steps, and further reading

summary

Summary

By now, you should have a good grasp of fundamental passive investing concepts and how to apply them to your own situation.

  1. You need to take some risk.
  2. Adjust your portfolio’s amount of risk, using low-risk assets (bonds) as your portfolio’s volatility adjuster.
  3. Use broad market index funds to avoid manager risk and idiosyncratic risk.
  4. Use mostly global equities to avoid concentration risk.
  5. Use global equities (unhedged) to mitigate downside currency risk.
  6. Use Australian equities, AUD-hedged global equities, or a combination to mitigate upside currency risk.
  7. Personalise your AUD to non-AUD proportion based on your liabilities and total assets.
  8. Decide on your Australian equities to global AUD-hedged equities proportion based on franking credits vs concentration risk.
  9. Rebalance to bring your risk back to your desired target.
  10. Consider if one of the Vanguard diversified funds meets your needs to simplify your investing.
  11. Don’t focus on dividends — focus on diversification.
  12. If you particularly want to use the older LICs, be sure to use them within your Australian equities allocation and not as your entire portfolio.
  13. Stop trying to find some elusive little-known investment that has higher returns without correspondingly higher risk. There is always an associated higher risk if there is a higher return, such as P2P lending or investing in fixed deposits in developing countries.
  14. Invest regularly and consistently, no matter what the market is doing.

Putting it altogether

This site is about passive investing.

Passive investing is just one part of an overall plan for financial independence.

  1. Investment order
    Before you begin investing, follow the Investment Order and pay off your high-interest debts and establish an emergency fund.
  2. Create an investment plan
    Creating an investment plan will give you direction and motivation and make you aware of what you need to do to meet those goals.
  3. Nothing will affect your wealth as much as how much you earn and save
    Savings (and earning) will have by far the most significant effect on wealth and will eclipse your investing returns.
    This article by The White Coat Investor points out the two sides of the wealth-building coin – increasing earning potential and saving money – and you should focus on both.
    An example using these is the Offense-Defense-Offense idea. You initially focus on increasing your earning capacity (offence) so that you have money to invest. Then you focus on saving and investing (defence). Later on, if you hit a wall in your earnings potential momentum, go back to finding ways to increase your earning capacity (offence).

Further reading on passive investing

I found these websites to be fantastic, and I cannot recommend them highly enough.
It will take you time to get through these and for the concepts to sink in, so it’s best not to rush through them.

  • Develop a workable plan
  • Invest early and often
  • Never bear too much or too little risk
  • Never try to time the market
  • Use index funds when possible
  • Keep costs low
  • Diversify
  • Minimize taxes
  • Keep it simple
  • Stay the course