It should be simple, resistant, diversified and let you sleep well at night.

If you have read my previous article <Why You Are Afraid of Investing and Can Never Be Rich> you should now understand, maybe better than before, what is investing, which is not the same as trading. If you have not, I suggest you go to read that article first. If you are convinced that you want to start investing, then continue reading this one.

Many people thought they need a financial advisor or a fund manager or someone who has the expertise to invest for them. This is only partially true. A typical fund manager charges a few percentages from your total portfolio value as a fee, and before you even make a profit, you are guaranteed a loss from the fees before making any profits. But you save the time and energy on managing your money.

However, if you are willing to DIY and learn it yourself, you will find out that building a long term investment portfolio is not rocket science. It takes you some time to read, learn, analyze, and then you would be able to construct a long term investment portfolio that you should stick to for LONG TERM (yes, I mentioned ‘long term’ so many times). And you should be able to sleep well at night and feel good about it, even during the market downturn. It takes a one-time effort, but you will have full clarity and confidence in your own portfolio, instead of putting the trust on someone else who manages your money.

Step 1 Gather Information

Please do not rush into buying something you have not studied just because you hear from someone or read somewhere that XXX will go up in price. The market always goes up and down every second, you are not missing out on anything. (FOMO effect: fear of missing out). Read books about money management, investment, personal finance, and understand the basics first. As I suggested in all other articles, here are the books I recommend for starters: For example, reading books like <Rich Dad Poor Dad>, this book is so easy to understand, and each primary school student can start reading it. Or read <The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk>. These two are the minimal what you should read. Then you can gather more information from blogs, discussions, such as:

• Bogleheadsforum: https://www.bogleheads.org/forum/index.php

• JL Collins: https://jlcollinsnh.com/

I found that blogs on FIRE Movements or people who did FIRE tend to share very simple and practical tips where the average person can use. You can find out if there are some FIRE forums in your own countries.

Youtube is where I learn most besides googling and reading books. Here are a few channels I believe some of you have heard of but still, I list out here:

• The Dave Ramsey Show: https://www.youtube.com/user/DaveRamseyShow

• BiggerPockets: https://www.youtube.com/channel/UCVWDbXqQ8cupuVpotWNt2eg

• Graham Stephan: https://www.youtube.com/channel/UCV6KDgJskWaEckne5aPA0aQ

So after learning about personal finance and understanding what is investing, I believe you would arrive at the point that you feel comfortable with it and want to start. The reason why you need to learn and understand yourself is that when the market goes down, you will not do panic-selling or question your decisions. If you have the knowledge and are confident with your investment strategy, you will be in Zen Mode no matter what the prices are.

Step 2 Set Financial Goals

Be clear about why you want to invest, to have more money? to buy a house? to afford more vacations? or to retire early? There is no point to have as much money as possible without knowing what is it for and work 100 hours per week in order to make more money. If you have listed out what you would like to achieve, then you would be able to estimate how much money you would need to make, save, and invest. Use saving.org the investment planning section to play around with the numbers, and see how much you need to invest each month plus how many years and with what kind of return you need, to achieve your financial goal. Investment return is hard to estimate as it depends on what you invest in. A good number to use is the Vanguard total world ETF (VT) past 10-year return or even a 20-year return if you want. It is an ETF with thousands of company shares from emerging and developed markets. If you still feel it is too high, adjust to 4%. It is the 4% rule based on which people used for retirement planning (refer to my article on <Do This to Retire Early>).

After doing a self-assessment, you would know how much you want to or you can invest each month for the long term no matter what happened.

Step 3 Choose The Investment Product

If you want less volatility, rather stable and well-diversified investment with low cost, then I assume you would naturally arrive at the point of choosing ETFs (exchange-traded funds). Or you might have decided on a sector that you want to invest because you have great knowledge about it and are confident that it will bring you good returns. Investment is more like an art than science in this sense, and it is very personal. Depends on your own situation, you should feel confident and comfortable with your decision. But there are few factors your need to take into consideration:

• Diversification: does this financial product include a wide range of companies? If not, then you might expose to higher risk. Maybe you can compensate by adding another product to balance it or choose another more diversified product.

• Cost: what is the total expense ratio (TER)? It is the cost that will eat up your return, so if there is a lower TER alternative with the same or almost similar product, better to choose the lower TER one. Especially for index funds where the mirrored ETFs are all the same provided by iShares, Vanguard, or other companies, but the TERs are different.

• Liquidity: what is the trading volume? There are products are so few people buy, and when you have them and want to sell, probably you couldn’t sell it as fast as you want or at the price you want because there are no buyers (I am exaggerating but you know what I mean). On the other hand, the same for buying. A high trading volume product means there is a lot of liquidity in the markets and it makes it easier to transact. Liquidity depends on the product you buy as well as on which stock exchange it is traded. For example, according to Interactive Brokers Vanguard VOO ETF average daily trading volume is $4.45million on ARCA (New York), but iShares MSCI World CHF Hedged UCITS ETF average daily trading volume is CHF 28.8k on EBS (Switzerland SIX).

• Currency: Currency risk should not be ignored. Because over 10 years or 20 years, the exchange rate could vary a lot. If your home currency is different than the investment product currency, you could find the same product hedged with your home currency. But some people I talk to are ok with the fact that the investment currency is not the same as home currency and they think it will not change a lot. This depends on the individual situations and what currencies you are looking at. But this is a risk that should not be ignored.

• Overlap: Some products have similar underlying assets and if you buy both, you could have duplicated investment or overweight on certain risks. For example, S&P500 ETF consists of the top 500 listed US companies, Vanguard total market VTI covers US markets. But these two are kind of overlapping. Because the top500 companies int the US consists of a majority part of the VTI.

Have I missed other factors? Please leave in the comments below. Those are the main points I think you should think about. If you did step 1, I am sure you would have an idea of what to invest. A portfolio consists of only a few very diversified products should be enough. If you have too many, it might not only duplicate itself but also adds complexity when it comes to portfolio rebalancing.

I will write an article on a few simple portfolio examples in the future. Please follow my account for further updates.