Friday, 4 March 2016

My Investing Strategy Plan

The markets have been extremely volatile in recent weeks. Less than a month back, the FTSE 100 had slumped to 5,537 and I suspect some investors will have questioned whether they should be cutting their losses and seeking the exit door. The returns on cash deposits are historically low but at least there is no risk to capital.

In the past three weeks the FTSE has rallied over 10% to 6,200 - where to next is anyone's guess!

As we probably all know, equities will probably provide a better return than cash over the longer periods but over one, two or even three years, its probably down to the toss of a coin. You need to be invested for a min. of 5 yrs and maybe 10 yrs to have a decent probability of a better return. Therefore it is important to have a good plan before setting out - a plan which will help to keep you in the game over the longer term and particularly when the going gets volatile.

My strategy is implicit from many of the posts over the past 3 years but I thought it was about time it was brought together in one consolidated point for future reference.

“Have a plan. Follow the plan, and you’ll be surprised how successful you can be. Most people don’t have a plan. That’s why it’s easy to beat most folks.” (Alabama football coach Bear Bryant).

I have a rough outline of the investing strategy in the back of an old exercise book - a few crossings out and amendments over the years. I have it constantly imprinted in my mind and it influences each and every investment decision I undertake.

It is not a lengthy document and I like to keep things simple.

My Investing Strategy

1. Philosophy - I recognise there is no such thing as a perfect strategy and that what follows is good enough and will be tweaked and amended from time to time as required to meet changing circumstances. I will try to keep costs to a minimum. I will try to simplify my investments over time.

2. Time Horizon - now in my early 60s I am thinking possibly the next 20 yrs - max 25 yrs.

3. Goals - I am now retired so one of the main  considerations will be to preserve the capital accumulated so far as I do not expect to be adding to it.

After this the main aim is to generate a significantly better average return than I can get from my building society and to keep ahead of inflation.

From this return, I will draw ~4.0% ‘income’ each year.

I would like to pass on a significant proportion of my capital to children and grandchildren - assuming it is not used for care home fees!

3. Asset Allocation - I believe diversification by asset class, geography and strategy is a one of the best forms of risk management. Since taking early retirement in 2008, my allocation has been 60% equities and 40% bonds and other fixed income. This seems to have worked for me so far and therefore I will keep to this for the next 3 years. I will then gradually start to reduce equities and increase bonds - a 2% reduction in equities each year until the mix becomes 40% equities.

4. Passive or Active - The core of my portfolio will increasingly comprise low cost, globally diversified index funds and ETFs. In addition I will keep the faith with my managed investment trusts which have found a way to collectively outperform the market consistently over many years.

5. Income - The purpose of setting a goal to generate a better return than cash deposits is to provide income. The income will be a mix of natural yield from my investments combined with an annual sale of units from my LifeStrategy index funds.

I will maintain a cash buffer of ~10% in respect of the LS funds to cover years where there are negative returns.

There is no perfect strategy. Different plans will suit different investors with different circumstances. I suspect the best plan is one which is more likely to ‘fit’ with the individuals psychological make-up and is therefore most likely to keep them in the game and get them to their destination.

…the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is blind to even a single weakness. (Warren Buffett)

If you have any thoughts on investing strategies, feel free to share them with other readers…leave a comment below.


  1. Seems like a solid strategy to me. And you haven't fallen into the trap that catches some people... not sticking to the plan.

    All the best with it.

  2. Cheers MRF, maybe in the past I have not always kept to the plan but back on track in recent times!

    Thanks for the good wishes and also for the regular mention on your blog - much appreciated.