Two Brain ETF Portfolio: Rational Investing With Some Fun Mixed In
Dr. Martin Seligman, a psychologist, and his colleagues focus on studying and ultimately helping build healthy minds. Sounds like a fun job, doesn’t it? Their research has shown that happy people live longer, are healthier, have more satisfying family lives, enjoy their work more, and are content with what they have.
The bad news comes from the new behavioral-finance folks who warn that when it comes to investing, it is possible to be too happy. Their research also reveals that investors aren’t very rational. No surprise there.
These experts report that excessive optimism is the number 1 problem for most investors. Investors become their own worst enemy by misjudging their skills, misreading market moves, and trusting bad data all due to overconfidence. All this leads to losing money unnecessarily.
The solution then to being a successful investor is to have a rational, unemotional investment strategy and to steer clear of the positive-thinking, throw caution to the wind mentality. Of course, this is easier said than done. And that’s where the two portfolios for two brains strategy comes in. This strategy addresses the needs of the happy investor brain and the irrational investor brain.
Happy Investor Brain Portfolio: (90% of holdings)
Imagine this one safely locked in a bank vault, compounding for retirement. You can’t touch it without three signatures: Yours, a tough-minded investment adviser and your grandmother in Omaha. That way the 90 percent is protected from aggressive risk-taking and invested in securities for the long haul.
This 90% should be divided up equally among SPY or IVV (large-cap ETFs), IJR (small-cap ETF), AGG (bond ETF), and IEV (Europe ETF).
Irrational Investor Brain Portfolio: (10% of holdings)
This one’s for whatever turns you on; day-trading, high-tech IPOs, emerging markets, commodity shorts. Even lottery tickets and Vegas slots. This allocation is for fun investing, to satisfy the free spirit in you. It’s also money you can afford to lose if your bets go sour. When it’s gone, it is gone.