How to Invest When You Don’t Trust Wall Street

Hoboken, NJ (October 2008)—If Wall Street’s recent implosion has you looking for a tin can and the perfect burying spot in your backyard for your money, who can blame you? Recent weeks have held enough economic bad news for several decades. A historic investment bank declared bankruptcy. The U.S. government stepped in to bail out the world’s largest insurance company. And now Uncle Sam is scrambling to figure out what exactly a $700 billion bailout of the financial sector should look like. In the aftermath, many people are left wondering Just how safe is my money, anyway?

The answer? Not very, says Alex Green.

“Our economy is tanking largely because of the poor decisions of Wall Street’s big financial institutions and investors,” says Green, investment director for The Oxford Club and author of the new book The Gone Fishin’ Portfolio: Get Wise, Get Wealthy…and Get on with Your Life (Wiley, September 2008, ISBN: 978-0-470-11267-0, $27.95). “Knowing this, you might be wondering who you should trust to make critical financial decisions for you. Well, look in the mirror for your answer.”

In his new book, Green debunks the idea that financial experts should manage your money because they are somehow better equipped to predict what’s going to happen in the market. This is a myth, he insists. And that’s why his Gone Fishin’ Portfolio flips tradition on its head and helps you go DIY with your investing.

“No one has more skin in the game than you, so why wouldn’t you be at the helm?” asks Green. “You don’t need to predict the future to make money through investing. In fact, it’s better if you just work with the uncertainties of the market. The Gone Fishin’ Portfolio gives you the tools you need to make the most of your money and leaves you plenty of time for the more important things in life.”

Here are just a few reasons why The Gone Fishin’ Portfolio is right for you:

It requires no economic forecasting or market timing. Financial advisors pretend—and sometimes convince themselves—that they can predict what the market and economy will do because it’s believed that this is the special talent that separates them from the unlearned masses. People want to feel that someone smarter and more insightful than them is managing their money, and that’s why many of them are willing to pay considerable amounts for investment solutions. The reality is that no one can tell you with any certainty what the economy or the stock market will do next.

“Anyone can make a good market call,” says Green. “But no one—and no system—can accurately and consistently forecast the future. Investment success begins with a strong dose of humility—not just about your own knowledge but, just as importantly, about the knowledge of the so-called experts. Rather than pretend to have answers you don’t have, acknowledge your uncertainty. Deal with it. Capitalize on it. The Gone Fishin’ Portfolio does just that. It allows you to profit regardless of market conditions.”

It allows you to manage your own money. Once you know that neither you nor your financial advisor can predict the future you’re ready to manage your own investments. No one cares more about your money more than you do, so why not manage it yourself? Sure, there are investment advisors out there who are competent and ethical, says Green. It’s just that most investors don’t need to pay for the services of a good one.

“In this industry there is a lot of jargon and investment complexities that are off-putting to the average investor,” he explains. “But you no more need to master all this arcane knowledge to manage your money effectively than you need to understand how a combustion engine works to drive you from here to the post office. Successful investing does not have to be terribly complicated. Simplicity and effectiveness lie at the heart of the Gone Fishin’ Portfolio. You won’t need an investment advisor to put it together—or run it.”

It eliminates individual security risk. “The Gone Fishin’ strategy skips buying and selling individual stocks,” says Green. “That means if a company goes under—think Enron and Worldcom, or, for that matter, Lehman Brothers—your retirement savings won’t go down with it. The portfolio’s focus is meeting long-term investment goals, not pursuing short-term gains through trading. It’s also about spending as little time as possible on your investments, and being in the business of buying and selling individual stocks requires a lot of time, attention, and legwork on your part.”

It has delivered consistent market-beating returns in good times and bad. Green created the Gone Fishin’ Portfolio back in 2003. In the five years since it has compounded at 17.3 percent, considerably better than the S&P 500 over the same period. And it allows you to take on less risk than you would being fully invested in stocks. But what anyone interested in the Gone Fishin’ Portfolio will want to know—especially in today’s economy—is how it performs in a down market. The answer: it works. If you had owned it in the bear market of 2000 to 2002, for example, you would have seen it make temporary declines. It was down 6.1 percent in 2000, 2.7 percent in 2001, and 5.4 percent in 2002. But compare those numbers to the S&P 500, which fell harder: down 10.1 percent in 2000, down 13 percent in 2001, and down 23.4 percent in 2002, and you see that it is the better investment strategy.

“The Gone Fishin’ Portfolio is conservative in its investment approach yet as you can see it has beaten the market every year since its inception,” says Green. “And when we back-tested through the biggest bear market since The Great Depression, it still beat the market. Not just over time, but every year. It’s an investment strategy that you can be fully confident will always perform for you.”

It is based on a Nobel Prize-winning investment system. Harry Markowitz won the Nobel Prize for showing how a portfolio constructed of uncorrelated assets can allow you to master uncertainty and generate excellent investments—a strategy adopted by the Gone Fishin’ Portfolio. His ground-breaking paper, “Portfolio Selection” published in The Journal of Finance, laid the groundwork for much of today’s asset allocation strategies, including the Gone Fishin’ Portfolio.

“It’s these principles that make the goals of the Gone Fishin’ Portfolio—higher returns with less risk—possible,” says Green. “Conventional wisdom says it isn’t possible. The Nobel Prize committee and decades of experience say it is. The work done by Markowitz and other economic pioneers provide the underpinnings of the Gone Fishin’ strategy.”

It keeps more money with you. When you put the Gone Fishin’ Portfolio to work, you will be light years ahead of the typical investor who is either wondering what the heck to do, learning the hard way, or turning things over to an expensive investment professional. The Gone Fishin’ Portfolio is designed to let you keep your money where it belongs—with you. By managing your own portfolio, you can avoid paying an investment professional costly brokerage commissions and other fees. Also, the unique make up of the portfolio will help you keep your money in other ways. It consists entirely of low-cost Vanguard mutual funds that charge no sales loads or 12b-1 fees—costs that often come up when investing in other mutual funds. The Vanguard Group is among the nation’s largest mutual fund groups with more than $1.1 trillion in assets under management. Its large asset base allows the company to enjoy economies of scale that allow it to maintain its position as the lowest-cost fund family in the industry. So you avoid paying a lot in fees.

“In the book, I talk about the role saving will play in building the best financial future for you,” says Green. “By avoiding having to pay out these extra fees to brokers and/or mutual funds you are able to save and invest that much more of your income each year.”

It prevents shortfall risk. The whole point of financial planning is to make sure your investment portfolio doesn’t kick the bucket before you do. If you’re in good health, you may live a lot longer than you’re counting on financially. For example, consider that many baby boomers retiring at 65 will spend up to three decades in retirement. The reality is that Social Security and private pension plans just won’t be able to sustain you comfortably, if at all, for that amount of time. Add the increasing cost of living to the puzzle and the retirement situation for many Americans can become even more tenuous.

“The simple fact is that you are going to need funds other than those provided by Social Security or a private pension plan to ensure your money lasts as long as you do,” says Green. “The Gone Fishin’ Portfolio covers your shortfall risk. In other words, it is a growth portfolio designed to keep you from outliving your money. It should give satisfactory returns for 25-year-olds just beginning to invest, as well as 65-year-olds whose retirement may realistically last three decades, before they go to that big retirement home in the sky.”

It spells out a profitable asset allocation for you. Investors are often surprised to learn that their most important investment decision is selecting the mix of assets to be held in the portfolio, not selecting the individual investments themselves. The Oxford Club asset allocation model Green created recommends that you have 30 percent of your portfolio invested in U.S. stocks, 30 percent invested in foreign stocks, 5 percent in REITs, and 5 percent in gold shares. The remaining 30 percent is divided between high-grade bonds, high-yield bonds, and inflation-adjusted Treasuries. The Portfolio achieves this allocation through investments in Vanguard mutual funds.

“You’ll find that stocks give the greatest return over the long haul,” says Green. “The trade-off is high volatility. Blending different types of stocks with other assets can generate excellent returns with less risk than being fully invested in stocks.”

It only takes 20 minutes a year but use that time wisely. Once you’ve set up your Gone Fishin’ Portfolio you are free to spend the majority of your time doing something other than worrying about your retirement savings. But remember the 20 minutes you do spend managing your portfolio are crucial. You’ll spend that time rebalancing your asset allocation. Over time your asset allocation percentages will change significantly, depending on the performance of the financial markets. Rebalancing brings your asset allocation back to your original target percentages, so it’s those 20 minutes each year that will help you control risk and will likely deliver a significant performance boost over the years.

“A few pieces of advice: first, let an interval of at least a year and a day pass between each time you rebalance,” says Green. “This will help you avoid paying short-term capital gains taxes and the 1 percent redemption fee on investments held less than a year. Second, unless your investments are held entirely in a qualified retirement plan, where a fund redemption is not a taxable event, it’s preferable to rebalance by adding money to those funds that have fallen below your original target percentages. That may sound simple, but I can tell you from working with hundreds of investors that most have a strong compulsion to add to those assets that are performing best, not those that are performing worst. But for long-term results you need to forget what the hot asset class is doing. You want to buy what’s cheapest for the long-term advantage it confers.”

“The great thing about this investment strategy is that it takes the stress out of building your savings,” notes Green. “You no longer have to worry about any looming market catastrophes, and you don’t have to try to predict when these catastrophes will happen or rely on someone else’s ability to do so. Once you’ve set up the Gone Fishin’ Portfolio it will start making money for you and leave you time to do those things that you really want to do in life. It’s simple and effective—exactly what you would want an investment strategy to be.”

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For more information, please visit www.investmentu.com.

About the Book:

The Gone Fishin’ Portfolio: Get Wise, Get Wealthy…and Get on with Your Life (Wiley, September 2008, ISBN: 978-0-470-11267-0, $27.95) is available at bookstores nationwide, major online booksellers, or direct from the publisher by calling 800-225-5945. In Canada, call 800-567-4797.