RULE #3

Tune Out Noise

Rule #3 will be short, because the chapters in Part II will explain in detail why it’s so important to follow this rule. For now, we’ll simply identify some of the noisy opinions and recommendations you’ll hear if you follow the two-asset portfolio route, and to all of it we say, “Tune it out.”

You’ll hear that you can and must beat the market, yet you aren’t trying to beat the market. Tune it out.

You’ll hear that you must diversify among many asset classes and many mutual funds or ETFs, yet you’re only investing in one or two. Tune it out.

You’ll hear that you must rebalance regularly to maintain constant allocations to asset classes, yet you aren’t rebalancing regularly. Tune it out.

You’ll hear that you must use a mathematical optimization model to perform an asset allocation, yet you haven’t run an asset allocation model. Tune it out.

You’ll hear that gold is a hedge against inflation, yet you aren’t investing in gold. Tune it out.

You’ll hear that scientifically designed funds perform better than total market index funds, yet you’re investing only in the global market index. Tune it out.

You’ll hear that you must reduce your risk as you age by using target-date funds with a “glide path,” yet you aren’t choosing a glide path. Tune it out.

You’ll hear that rich people invest in complex, sophisticated investments and you can also get those returns, yet you aren’t investing in complex, sophisticated investments. Tune it out.

You’ll hear that someone’s financial advisor or broker gets excellent returns for his or her clients, yet you aren’t using that financial advisor or broker. Tune it out.

You’ll hear that academic studies using a 3- or 4- or 18-factor model show it’s better to tilt your portfolio toward certain asset classes, yet you aren’t tilting toward those asset classes. Tune it out.

You’ll hear that you must monitor your funds’ performance, yet you aren’t even monitoring your funds’ past performance. Tune it out.