KISS for Investing

KISS is the age old engineering slogan "keep it simple, stupid". It reminds  engineers to seek solutions that simply work as opposed loading up with features.  As an household example, a knife works but the complex magic-super-cutter from infomercials looks cool on TV but sucks in the kitchen.

KISS4investing web-site is an outgrowth of a personal quest to find an investing method that is (in the following order):

1. Predictable. KISS can be used to predict how much money is need to save in order to reach a goal (most likely a comfortable retirement income).

2. Simple. KISS can be applied in few hours per month. 

3. High yield. Well, this is all relative. Unlike on some other sites, here you will not find claims on >20% yield here. Since predictable performance is the highest priority, we are willing to live with single digit yield that is comparable to index funds. For most people, obtaining predictable performance is more valuable than slightly better yield with a  risk of catastrophic losses. This is definately true if one is saving for a retirement as this is a 30+ year project with no do-overs. KISS is about making it comfortably instead of taking a gamble on ending either very rich or very poor.

The steps in KISS investing are:

1. Set an investment goal. Investing without a long term goal is unlikely to be successful. Without a goal, it is too easy to spend money elsewhere or play around (=speculate) with stock market. A common goal is to replace salary income with investment income (=become independently wealthy/retire). As a rule of thumb, one should save 300 monthly expenses or 25 times the yearly expenses to achieve this.

2. Calibrate your expectations by studying stock market history. “Index investing” has historically resulted in 8-9% total annual returns. With the current high stock prices, the future returns are likely to be lower. Based on DDM, the future long term results are around 7% annually. Assuming average inflation of 3%, the future inflation adjusted returns will be around 4% annually.

3. Make a monthly savings plan based on your goal and expected returns. For example, if your goal is to retire in 40 years, you need to save about 15% of your after tax income. With a monthly income of $5,000, this translates to monthly savings of 0.15*$3000 = $750.

4. Invest in large market cap stocks with high dividend yield. The investment return is the sum of dividend yield and yield growth. For SP500 index, the current yield is 2% and the historical yield growth is 5%. If you invest in companies that have higher yield and yield growth, your long term returns will beat SP500. If in doubt, choose larger current yield over the dividend growth.

5. Take pleasure watching your dividend income grow. Just $10 dividend per month (=$3000 invested in a stock with 4% yield) is equivalent to someone working for you 1 hour a month at minimum wage. Do not focus on size of your portfolio as this will fluctuate widely and can distract you. Focus on the generated income.

It is that easy - I hope you enjoy the site!