Thursday, December 02, 2004

Motley Fool Millionaire Article

A recent article by Tom Gardner and Rich Smith of The Motley Fool sparked a system idea or two. Read the article titled, "Be the Millionaire Next Door", here.

Tom and Rich propose a system of consistently pumping money into the market each and every month for up to 25 years in order to become a millionaire. Basically, using the dollar-cost averaging techniques of investing your money in good times and bad. But, what if you could supercharge the system? Like Tim Allen in Home Improvement used to say, "I think it needs MORE POWER. Arrh! Arrh! Arrh!"

Instead of investing your money each month into the market...invest your money each month into a money market account/fund. Then only move money from that account into the market based on system triggers.

These system triggers could be as simple as using moving averages, donchian channels, seasonalities, etc. to determine entry points. You could even change the idea of using stocks to choosing mutual funds. Pick a few sound mutual funds with long-term records. The more non-correlated these funds are the better. And then a system could be built to trigger off these funds or their corresponding benchmark index.

Maybe an even better alternative would be to just use ETF's instead of funds.

Again, the basic premise is to contribute every month...but wait to invest in the market when the system deems it appropriate. The extra little tweak you could make is to play with money management techniques. You could allocate the money from your holding area into the market based on simple formulas such as using a percentage based method of allocation. Or drive down further into more complex techniques such as pyramiding, equity curves, etc.

You're probably asking, what's the difference between this system and regular systems used to enter the market? With regular systems you're looking to stay out of the market as much as possible. Only have your money in at opportune times and remove your money during the risky times. With this system you actually want your money in the market as much as possible. In fact, you never pull your money out with this system. Once you get an entry trigger and move your money into the market...that money is gone to the system. See the difference?

Like I said before, I'm just trying to add more power to Tom and Rich's system. Maybe reduce the time to become a millionaire from 25 years to 15.

I plan on working on this idea over the coming weeks. I'll keep you posted on the progress.

1 comment:

muckdog said...

Yah, good luck to them with that 15% return goal...