Please allow me to introduce myself
I'm a man of wealth and taste
I've been around for a long, long years
Stole million man's soul and faith

Sympathy for the Devil, song by the Rolling Stones

Financial health is a universal goal. We all wish to reach a state of independence where we no longer have to worry about our finances. Even though we share this common goal, the road to achieving it is personally unique to every individual. No one has the exact same personal circumstances, financial goals, or path toward reaching those goals.

  • Personal circumstances: Everyone has a unique financial starting point, including current income, savings, and debt. More subtly, each starting point also consists of the time we have available until we can reach our goals.
  • Financial goals: For successful investing, it is crucial to distinguish financial goals by their priority. Basic needs include food, housing, transportation, and health expenses. Our wants add a certain level of optional comfort to our life. And finally, if everything works out well, our blue-sky wishes provide some extravaganza.
  • Investment path: To achieve our financial goals, we must bridge the gap between where we currently are and where we would like to be. To do so, we have two knobs to turn: the cash flow into (or out of) our savings account and how we invest those savings. The best path is highly dependent on the nature of our goals, the distance we must go, and our stance on investing in general and taking risks in particular.

These differences make it clear that investing will never be a one-size-fits-all approach. For any investments to make sense, we must consider likely outcomes in the context of our circumstances and goals. Unlike other books, I want to take a different and more holistic approach to investing. Specifically, I have the following objectives:

  • Holistic view: Instead of looking at investing in isolation, I want to establish the relationship between one’s financial goals and the optimal investments to get there.
  • Deeper understanding: Investing rarely goes as smoothly as we might want. Staying the course when hitting a rough spot is much easier with a deep understanding of the rationale behind the investment, its inner workings, and the expected outcome.
  • Ready for implementation: My hope is that upon reading this book, you will want to put the ideas presented here into action. I have tried to include all the details needed to make this transition seamless. I also point to further resources in case you need additional help.

With these goals in mind, I hope this is not just another book about investing. I have structured my writing into five major sections. These sections mostly stand on their own, so that readers may consume the book in a nonlinear fashion. The notable exception to this is the first section, which lays the groundwork for the following content.

1. The Basics

This first section aims to provide readers with the necessary background and knowledge to understand my approach to investing, and the many charts and metrics presented throughout the book.

I start with a chapter about financial planning. This step aims to model the financial future in detail, starting today and reaching into retirement and beyond. Creating this plan is a significant effort, but it will tremendously help make sound financial decisions. Therefore, I strongly encourage everyone to create a financial plan instead of jumping straight into investing.

I will compare and contrast three major investment scenarios in the next chapter. And while, of course, a considerable simplification, investors should recognize how the results from their financial planning relate to one or more of these scenarios. Based on these scenarios, I discuss the criteria to consider when choosing an investment and what to expect. In particular, I distinguish the following scenarios:

  • Investing toward a goal: This scenario assumes you are saving and investing to reach a critical financial goal. The objective is to maximize the likelihood of reaching that goal.
  • Investing for income: This scenario assumes you are withdrawing from your investments to create an income. The objective is to not outlive your savings.
  • Investing excess funds: This scenario assumes you have extra funds that you will either spend on some blue-sky wishes or pass on as generational wealth. The objective is to maximize your profits.

When looking at investments, there is typically no shortage of qualitative statements. While that’s useful, we need to quantify these through charts and metrics to remove emotions and ambiguity. The first section closes with a chapter describing and explaining the most frequently used measures, along with some unique and novel ex-ante measures. Then, I tie them back to the investment scenarios.

2. Asset Classes

The book’s next section describes the major asset classes we might want to invest in. There is one chapter dedicated to each of the following:

For each asset class, I review the general nature and typical products to invest in the respective asset. Further, I present the major factors that move the prices and debunk some commonly held myths. Finally, each chapter ends with a discussion of this asset’s purpose in the context of an investment portfolio. At the end of the section, investors should know their way around stocks, bonds, and commodities and understand which assets they want to hold and which to avoid.

3. Investment Styles

In this section, I want to present the major investment styles. The first chapter focuses on strategic investments. I start with investment theory and discuss asset correlation and the notion of diversification before introducing modern portfolio theory. Then, I progress to balanced portfolios, review their benefits, and provide a few selected examples of such portfolios. The chapter concludes by analyzing the underlying assumptions of strategic investments and how realistic these are.

This discussion is the segway into a chapter about tactical investing. I begin this chapter by introducing the efficient market hypothesis. Next, I present the various types of trading strategies and the market inefficiencies these rely upon. Finally, I conclude the section with a summary of criticisms of tactical strategies and the methods used to develop them.

4. Tactical Strategies

In section four, I present a well-balanced tactical investment strategy. I explain the rules and their rationale and discuss the portfolio’s performance in the context of the three investment scenarios. Right now, I don’t have this strategy developed yet. Therefore, the exact structure of this section is still in flux.

5. Implementation

I conclude the book with a discussion of investment implementation. For DIY investors, I look at the value of investment newsletters and how to identify suitable products. Further, I outline the mechanics of trading and point out some pitfalls of tactical portfolios.

For those investors seeking professional help and managed accounts, I explain the various types of financial professionals and what to expect from them. Also, I make suggestions on how to find a financial professional to trade on your behalf.

Now that I have outlined the book’s content, it should become clear why it is an online-first publication. While one can certainly read the book front to back, I don’t necessarily expect investors to do so. Instead, a non-linear approach where readers skip some sections and circle back to others is equally appropriate – but much easier to achieve with a hyperlinked medium. Also, this allows me to update the charts regularly, avoiding the content becoming stale.

Next Chapter: Financial Planning