“The optimal strategy is not one that maximizes return, but rather one that helps you stick to your long-term investing plan and achieve your goals.”

This is from one of the first slides I show whenever I speak about investing, whether to an AAII local chapter or a different group. I always include it because it emphasizes a key point about investing—the selection of an approach to follow is a very personal one. What makes sense for one person may not may make sense for someone else. Demographics, emotional tolerance for risk, the willingness (or lack thereof) to put up with complexity, time and even interest all influence what the correct strategy is for a particular individual.

Even biology and background play a role. As we learned in a Briefly Noted piece in the August 2015 AAII Journal (“Biology and Life Experiences Influence Investing Style”), a person’s disposition toward value or growth is largely set by early adulthood.

Fully acknowledging your personality, what you are truly willing to do and what you won’t do can go a long way toward helping you achieve your long-term goals. It will certainly help to establish parameters for what strategy might make sense for you and what won’t. For example, index funds can be a great investment choice for someone who is unlikely to adhere to the rules of an active strategy. It does not matter how well the active strategy performs, if you don’t follow the rules, your results will suffer.

In this issue, Ben Carlson, who writes the “A Wealth of Common Sense” blog, lists 10 questions to ask yourself. These questions are purposely intended to help you narrow your focus and define a personal investing philosophy. An investment philosophy, as Carlson explains, is a set of principles that will help guide your investing actions. It is similar to and can even complement the one-page financial plan Carl Richards advocated in the August 2015 AAII Journal (“Creating and Following a Real Financial Plan”).

When establishing your investment strategy, consider the amount of complexity you are truly willing to cope with. In doing so, realize that it’s always easier to get more complex than it is to turn complexity into simplicity. Plus, the simpler approaches can perform on par with the more complex ones, as Wesley Gray of Alpha Architect demonstrates here.

There are times when complexity is unavoidable, however. Such is the case with the Securities and Exchange Commission’s recently proposed rules for mutual fund and exchange-traded fund (ETF) portfolios. The SEC wants to ensure the portfolios of these funds are structured in a manner that make it easy to handle both inflows (deposits) and outflows (withdrawals) from shareholders without impacting the ownership interests of other shareholders in the fund. A summary of the proposed rules is on page 5 and a longer discussion can be found in the archives of my weekly Investor Update newsletter (www.aaii.com/files/investorupdate/20151008.html). If you invest in mutual funds or ETFs, you should be aware of what is in the proposal.

Finally, we recently had a staff photo day. Just like in school, everyone had their photo taken. The blue tie I’m wearing in the new picture was a gift from our editorial staff: Jean Henrich, Kate Peltz and Annie Prada. Though it’s not evident in the photo, the tie’s pattern is the various constellations that populate the nighttime sky. It’s a symbolic reminder that, as an individual investor, you have the entire universe of stocks to choose from, not just those in the S&P 500 or those that are being talked about by the financial media.

Charles Rotblut, CFA
Editor, AAII Journal
@CharlesRAAII