Comments On The BTSX/BDOW Strategies - #1
"The real voyage of discovery consists of not in seeking new landscapes, but in having new eyes." - Marcel Proust
I was recently chatting with a few folks about the current market situation, and a prominent point of discussion was about how expensive the market currently is. This was also echoed by some commentators on business news networks. "There is nothing to buy!", they lamented.
During the same conversation, the importance of an Investment Policy Statement (IPS) in the face of such scenarios was brought up.
In our context, an IPS is simply a blueprint laid out by a DIY investor that defines an action plan for your investing in all market conditions: it forces one to focus on the investment process rather than the investment products.
The conversation above made me realize that BTSX/BDOW strategies that I'm employing to reach my financial independence goals are in fact IPSs. It forces one to make consistent buys and to re-balance, regardless of market conditions.
Consistent buying ensures that your average purchase price of a stock/etf/etc. remains far below the market price at most given points in time.
In the face of the usual market volatility, your stock(s)/ETF(s)/Portfolio/etc. may go in all sorts of directions, but your own portfolio purchase price remains remarkably stable.
In the face of a market bust, the market price of your stock(s)/ETF(s)/Portfolio/etc. may fall dramatically, but it won't have as large of an impact relative to your own purchase price as it would have if you had taken a large position somewhere along the the curve and sat on it.
The chart below explains this all visually. It plots the ETF XIU.TO: a fund that indexes the Canadian TSX60. I've simulated yearly buys worth $10,000 on the 1st day of every year XIU has existed, and tracked the market price and average purchase price in time.
The lesson here? If you want stability and consistency in your portfolio and returns over time, then crafting an IPS should be your biggest priority.