Investing with SMI FAQ
I'M A BIT OVERWHELMED BY ALL THIS INFORMATION. WHERE DO I START?
If you're a new visitor to SMI, we recommend you begin in our Visitors Center, which will give you a broad overview of who we are, what we do, and how you can benefit. If you're interested in learning more about the specific strategies SMI offers our subscribers, you can follow these links to our SMI Investing Strategies page and our Performance History page. You might also be interested to see what ministry and financial experts have to say about SMI. And of course, you're welcome to browse recent issues of the Sound Mind Investing newsletter, where you'll find a number of unlocked articles.
If you're a new web member, we suggest going through our 5 Easy Steps to Start Investing the SMI Way. These steps will help you identify where you fit within SMI's investing framework, and get you on track with your own personalized investment plan in no time.
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WHAT ARE THE FOUR LEVELS I KEEP SEEING REFERENCES TO?
SMI believes in doing "first things first." The Four Levels are the heart of that philosophy. Their primary benefit is that they offer a framework for setting priorities on how to spend your monthly surplus.
This will show you where to focus your efforts initially. Most people have a long-term goal of financial security at retirement; however, you may need to establish short-term goals (like getting debt-free and building a contingency fund) to provide you with the necessary foundation. Look at the 4 Levels below, and determine where you fit based on your present circumstances.
| Overview of Levels 1 and 2 | |
| Level 1: Getting Debt-Free |
Level 2: Saving For Future Needs |
| We begin our journey toward financial peace of mind by making it a priority to pay off those credit cards, car loans, student loans, and other short-term debts. Accelerating the payments on your mortgage, if any, should also be your goal—albeit a longer-term one. While you're working on this, don't neglect reading the Level Three and Four columns which will help prepare you for the investment decisions that lie ahead. | Even if you've not fully paid off all your consumer debt, it's still a good idea to set aside some portion of your monthly surplus for emergencies or large purchases. That means establishing a contingency fund is your next priority. I suggest $10,000 as suitable for most family situations. I know that sounds like a lot, and it's your call. But it's prudent to have at least three to six months living expenses in reserve. |
| "The rich rules over the poor, and the borrower becomes the lender's slave." Proverbs 22:7 |
"There is precious treasure and oil in the dwelling of the wise, but a foolish man swallows it up." Proverbs 21:20 |
| Overview of Levels 3 and 4 | |
| Level 3: Investing Your Surplus |
Level 4: Diversifying For Safety |
| When you venture into the stock and bond markets, you take the risk of losing part of your money. That's why you use your monthly surplus at Level Three only after you've paid all your consumer debts and only with money that's been set aside over and above your Level Two contingency fund. Of course, you may already have money set aside in an IRA or other retirement plan, and that's included here as well. | Once your Level 3 account reaches $25,000 and beyond, it's time to move up to Level Four for further diversification. By adding holdings that "march to different drummers," we create a more efficient, less volatile portfolio. We also use the investing personalities and seasons-of-life guidelines to more closely align your allocation between stocks and bonds in accordance with your personal situation. |
| "Well done, good and faithful servant. You were faithful with a few things, I will put you in charge of many things." Matthew 25:21 |
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2 |
The SMI website contains a tremendous amount of content targeted to readers at each of these 4 levels, so regardless of where you fit in, there's plenty here to benefit you.
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HOW DO I PUT TOGETHER A PORTFOLIO OF FUNDS?
There are actually a couple of steps we recommend before picking funds to invest in. These steps are clearly explained in 5 Easy Steps to Start Investing the SMI Way. In a nutshell though, when you have met your Level 1 and 2 goals, you are ready to put together a portfolio. Your first action is based on how much you have to invest. If you have less than $25,000 to invest, you should follow this link to start with one of SMI's Getting Started Portfolios 
. If you have $25,000 or more to invest, you're ready to evaluate SMI's main investment strategies, described further in the following question.
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HOW DO I CHOOSE BETWEEN THE SMI INVESTING STRATEGIES?
The best way to choose is to ask yourself the simple question, "How often do I want to have to monitor my investments?" SMI's least labor intensive strategy is called Just-the-Basics, requiring just an hour of your time once per year. On the other end of the spectrum, SMI's Upgrading strategy requires you to monitor your mutual fund holdings once per month. A hybrid approach called Enhanced Just-the-Basics is also available, requiring attention just once per quarter (four times per year total). The tradeoff is in expected return, where Upgrading seeks to beat the market, while Just-the-Basics merely attempts to replicate the market's return.
Just-the-Basics uses just four index funds to track the returns of the entire market. Because you are settling for whatever the market returns each year, not much maintenance is required.
Upgrading uses actively-managed mutual funds in each of nine risk categories to construct a diversified portfolio. Recommended funds in each risk category are re-evaluated every month, and each monthly issue of SMI tells you when a particular fund is to be sold and replaced with a new selection. While we don't trade funds very quickly, you do need to keep up with this strategy every month, as each issue may require you to sell one (or more) of your current holdings. The benefit of this extra work is that we seek to beat the market's rate of return, and over time have been successful in doing so (see our Performance History page for details).
- Getting Started Portfolios FAQ (for accounts smaller than $25,000)
- Investing Strategies Overview
- Does Upgrading Pay Off in a Taxable Account?
WHERE SHOULD I OPEN MY ACCOUNT?
That depends on which strategy you intend to use. For our Just-the-Basics strategy, go to the best company for indexing: Vanguard. For Upgrading, you may prefer a mutual fund supermarket with more options than Vanguard offers. We typically suggest TD Ameritrade, Firstrade, or Fidelity. See the following articles for more information:
Investors with tax-sensitive accounts may be best served at Fidelity, typically considered the best online broker for tax purposes.
CAN I USE SMI'S STRATEGIES IN MY 401(k), 403(b), OR OTHER EMPLOYER RETIREMENT ACCOUNT?
Yes, although the ease of doing so will depend in part on what fund options are available through your retirement plan. Those plans with self-directed brokerage options available are the best - they should allow access to a wide range of mutual funds, meaning you could probably use any of SMI's investment strategies within the account. For those without a brokerage "window" or option in their plan, it's become quite common for plans to include index funds among their fund options, making Just-the-Basics an option. And depending on which actively-managed funds are available, you may be able to construct most (or all) of a diversified Upgrading portfolio by researching the available funds in SMI's Fund Performance Rankings (explained further in the next question).
A common example would be a retirement plan with good fund options in the large-company growth, large-company value and international fund categories, but little to offer in the small company fund categories. In this case, another account (like an IRA) might be used alongside the company retirement plan to purchase the needed small company growth and value funds. In this way, an Upgrading portfolio can be constructed by working with the company retirement plan's strengths, and filling in its weaknesses by utilizing a second account with a broader range of fund options.
WHAT ARE THE FUND PERFORMANCE RANKINGS?
One of the most popular features of the SMI newsletter is the Fund Performance Rankings. In it, SMI ranks over 1,000 funds using some common market statistics, as well as some proprietary rankings. While print subscribers only receive this quarterly, it is updated and available on the SMI website every month for web members.
The Fund Performance Rankings have several uses. You can use them to evaluate any funds that you already own to see how they compare with others in their category, including SMI's recommended funds. The performance rankings are particularly valuable for evaluating the options in a 401(k) or other retirement plan where fund choices are limited.
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SOME OF YOUR RECOMMENDED FUNDS HAVE MINIMUM INVESTMENT AMOUNTS THAT ARE WAY TOO HIGH FOR ME. WHAT DO I DO?
Many funds have very high minimum investment requirements when you open an account directly with the fund. However, when buying through Schwab or Fidelity, the minimum purchase is usually set at $2,500 (Scottrade and TD Ameritrade often offer even lower minimums). Before recommending a fund, SMI contacts our recommended brokerages to verify that the fund is open to new investors and that the minimum is acceptable. However, because fund minimums can change after we go to press, we recommend that you telephone your brokerage company and have a sales representative check them for you.
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HOW DO I SUBSCRIBE TO THE
SOUND MIND INVESTING NEWSLETTER?
You can either subscribe online or call us toll-free at 877-736-3764. Print subscriptions cost $79 for one year, or $139 for two years. Web memberships cost $8.95 per month for those without an active print subscription, or can be added to a current print subscription for just $4.50 per month.
