Muscular Investing

How to Evaluate an Investment Strategy


Investors have mental lists of desirable traits when looking for investing strategies they can live with. We can profit by firming up those qualities. • Some people say they simply want whatever strategy will make the most profits. But the majority of investors actually want a combination of features, including such factors as account growth, capital safety, and ease of portfolio management.

Figure 1. Given today’s wide availability of index funds that deliver better results than the vast majority of day traders, there’s no reason why you can’t select a reliable financial strategy that meets all the requirements individual investors demand. Photo by Andrey Popov/Shutterstock.

• NOTICE: This column will begin a temporary hiatus in August 2019. To continue receiving my articles, subscribe now to the free Muscular Portfolios Newsletter.

There are traders who believe they should merely adopt whatever buying and selling strategy might produce the greatest profits in the near future. Unfortunately, it’s hard to predict what formula that might be. By contrast, most long-term investors are looking for a combination of good capital growth, reasonable protection against crashes, and easy portfolio management that can be handled in one’s spare time, without the need to stare at computer screens all day.

To be sure, there are day traders who definitely seek out buy and sell patterns that require the maximum amount of minute-by-minute activity. Regrettably, studies show that more than 85% of day traders lose money each year, and only 2% of traders show consistent profits, as described in Point #2 of my one-page summary of muscular investing principles.

If you’re not in the 2% of traders who are true market geniuses, you’re probably looking for long-term investment strategies that make money without frequent trading. As a matter of fact, almost all 401(k) plans and similar tax-deferred investment accounts prohibit the buying and selling of individual stocks — only index funds are available in the plans — and allow no more than one or two position changes per month.

For the more than 100 million investors worldwide who hold tax-deferred accounts, there are specific and well-defined investing strategies that meet the need for growth, safety, and simplicity. In my roles as a financial columnist, speaker, and former president of a regional chapter of the AAII (American Association of Individual Investors), I’ve spoken with thousands of savers. As it turns out, they have more than just two or three requirements before they feel comfortable adopting a strategy. They have a good dozen or so. You can profit from their experience by making sure any strategy you adopt has all of the following traits:

1. Market-like returns. With today’s extensive set of exchange-traded funds (ETFs) that cover virtually every major asset class in the world, there’s no reason to pay high fees for expensive wealth managers. Index funds have proved that they deliver 99% of the return of any asset class you choose to hold. However, it’s too risky to sink all your money into a single asset, such as an S&P 500 index fund. The benchmark loses 30% or more every 10 years, on average. That’s more than many individuals can tolerate without liquidating during bear markets (at great harm to their performances). The answer to crashes is in our second requirement.

2. No month-end losses over 25%. Given a wide selection of ETFs, combined with the findings of hundreds of the latest financial and academic studies in the 21st century, there’s no longer any reason why individual investors need to stick with a losing set of assets all the way down to the bottom of a crash. With a few simple rules, a portfolio can easily “tilt” into those asset classes that are doing well and away from those that are doing poorly. A sailor who doesn’t know how to “tack” a sailboat won’t get to the intended destination. Investors who are unaware of how to tilt a portfolio won’t achieve their desired financial goals, either.

3. Absolutely no math. Did you know that 11 out of every 10 people hate math? Most investors are busy people and not quantitative analysts. Outside of financial professionals, the majority of individuals will never build their own spreadsheets or calculate their own statistics. Fortunately, there are many websites that will compute the numbers for you and give you a specific set of assets that have the best odds of success in the months to come.

4. Less than 15 minutes per month. Since so many 401(k) plans restrict trading to no more than once or twice per month, there’s no need for account holders to fret over position changes every day. A good, long-term investing strategy should require no more than a few minutes each month to check on a website and make any course corrections that might be needed in a portfolio.

5. No more than monthly changes. Since very few changes should be required in a well-thought-out strategy, any tilts toward stronger assets should be needed no more than once a month. In fact, numerous studies show that the more often people trade, the less money they make, as demonstrated in Point #5 of my summary.

6. Fully disclosed. In this day and age — with instant Internet communications — numerous successful investing strategies are available whose specific rules are clearly spelled out in public documents. There’s no reason to entrust your life savings to “black boxes” or proprietary trading strategies that are promoted by people who won’t reveal the formula they’ll use to allocate your money. Secret formulas often fail to deliver the gains you’ve been led to expect. Fully disclosed strategies are open to everyone to see. These methods continue working over the decades, because their timeless principles take advantage of risk factors and human behavioral biases that are unlikely to change.

The second six requirements appear in the next part of this two-part series.

• Part 2 appears on July 31, 2019.

With great knowledge comes great responsibility.

—Brian Livingston


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Brian Livingston
About the author: is a successful dot-com entrepreneur, an award-winning business and financial journalist, and the author of Muscular Portfolios: The Investing Revolution for Superior Returns with Lower Risk. He has more than two decades of experience and is now turning his attention directly on the investment industry. Based in Seattle, Livingston is now the CEO of, the first website to reveal Wall Street's secret buy-and-sell signals, absolutely free. He first learned computer programming on an IBM 360 in 1968 at age 15. Learn More
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