In 1995, I began what has become an annual Christmas tradition: offering, as a gift to our active members, a book that has been meaningful in my Christian life. I do this to express appreciation for your support. Without loyal readers, we could not have served the body of Christ these past 30-plus years.

Why Upgrade?

SMI subscribers with a Basic-level membership have access to two investing strategies. These strategies differ in philosophy and the amount of attention required.

Our preferred strategy is Fund Upgrading. It’s based on the idea that if you are willing to monitor your mutual-fund holdings regularly and replace laggards periodically, you can improve your returns. While Upgrading is relatively low-maintenance, it does require checking your holdings each month and replacing funds occasionally. (If you don’t wish to do this yourself, a professionally managed version of Upgrading is available.)

As an alternative to Upgrading, we offer Just-the-Basics (JtB), a strategy based on investing via index funds. JtB requires attention only once a year. The JtB strategy is helpful to SMI members whose workplace retirement plans lack a sufficient number of fund options to make successful Upgrading possible. Here are the funds and percentage allocations we recommend for our Just-the-Basics indexing strategy.

Past returns for both Upgrading and Just-the-Basics are shown on our main page at soundmindinvesting.com. Click the word "Performance" in the middle of the page.

With Star Wars back on the front burner of our entertainment culture via The Mandalorian, I am reminded of Yoda — not baby Yoda, but Yoda the Jedi master. Though small of stature, he loomed large in wisdom, and he had a way of getting to the heart of the matter. A philosopher, he was.

Let me get to the heart of the matter: The SMI staff and I are excited about the financial content and investing recommendations we bring you regularly. You get beginner-to-intermediate level articles that build your understanding of sound financial practices and principles, and four easy-to-implement investment strategies that range from very conservative to very aggressive for use in various seasons of life. All for under $170 a year (or just $99 for a Basic Membership!). C’mon, you’ve got to admit that’s a pretty great deal.

And yet over the past 10 years, for every 100 new subscribers who “try” SMI, roughly 50 of them leave our ranks after the first year. Admittedly, some of those folks may have good reasons for departing (such as switching to SMI Private Client). But based on reader feedback, we know that many just don’t seem to be willing to change from their present way of doing things to a new way of planning, giving, saving, investing, and spending.

For most of us, change is hard. We may know we should change, want to change, and even begin the process of change, but seeing the effort through until new attitudes and habit patterns are established and change is actually accomplished takes time as well as commitment. And who among us has a lot of extra time on their hands?

In each July issue, we focus our attention on giving and generosity. As we’ve often said, we want you to have more so you can give more!

Perhaps you feel your financial circumstances are such that you can’t give at this time. Obviously, I don’t know your circumstances. It helps to have walked in others’ shoes in understanding the challenges they face. Fortunately, God does this better than anyone. He knows the pressures you’re under, the desires you have, and the temptations you face. And knowing all of that, He still wants you to be generous in your giving.

We are commanded in 1 Timothy 6 to “do good, to be rich in good deeds, and to be generous and willing to share.” Our giving tests the sincerity of our love (2 Corinthians 8:8) and our willingness to trust in God’s faithfulness (2 Corinthians 9:8).

Under His Spirit’s direction, you can increasingly become the kind of cheerful and grateful giver that delights His father’s heart. He’s always been faithful to you. By your generosity, you can be increasingly true to Him.

We should give with a sense of urgency. This should incline us to give what we can now rather than saving up to give more later. Later may be too late.

Most of the Sound Mind Investing strategies (Upgrading, Dynamic Asset Allocation, and Sector Rotation) are “actively managed,” which means investments are bought and sold in an attempt to earn better long-term returns than the overall market. In contrast, our lone “passive” Just-the-Basics strategy makes no effort to “beat” the market. The goal of JtB is to mimic the broad market, accepting whatever returns the market earns.

Beating the market is hard. The inconvenient truth of professional investing is that most actively managed investments — including most mutual funds, advisor portfolios, newsletter strategies, etc. — fail to outperform the overall market.

Traditional money management has been premised on the assumption that professional managers can consistently beat the market through research, intelligent risk-taking, and exploiting the mistakes of others. While some do for a season, this assumption has largely been proven false. For many investors, therefore, the secret to winning the money game may be in not trying to win.

SMI emphasizes the importance of having a long-term view when it comes to executing your investment strategy. We typically define that as having, at a minimum, a 10-year time frame in mind. Why 10 years? Because that’s long enough for the annual ups and downs in the market to settle out and allow the upward bias of the market (due to the strength of the U.S. economy) to assert itself.

(A five-year period is the minimum we would recommend for investing in the stock market at all. A 10-year period — or longer — is required, in our view, to consider oneself a long-term investor.)

To illustrate this for you, we’ve researched the results of a monthly dollar-cost-averaging (DCA) program over each of the 10-year periods starting with 1950-1959 and moving through the decades up through the end of last year. We’ll share those in a moment, but first a DCA primer for new readers.

Fund-research firm Morningstar has finalized the year-end performance numbers, so we've updated SMI's Personal Portfolio Tracker and monthly Fund Performance Rankings with performance data through Dec. 31, 2020.

• The Personal Portfolio Tracker: SMI's fund-performance database tracks the monthly returns of more than 25,000 traditional mutual funds and ETFs. The Tracker can filter that large amount of data and produce a concise report covering only the funds available in your plan(s), thus making it easier to apply our Fund Upgrading strategy to your 401(k), 403(b), or another retirement plan.

As you may be aware, SMI's Upgrading formula for domestic funds is now guiding Upgraders toward either growth or value funds as appropriate, rather than maintaining both growth and value allocations at all times. Accordingly, the SMI newsletter is using only two domestic categories: Large Company and Small Company. 

However, Tracker portfolios will continue to classify holdings according to four domestic stock-fund categories: Large/Growth and Large/Value along with Small/Growth and Small/Value.

This will help members who use alternatives to our "official" recommendations more easily see (based on the Tracker's percentile-ranking column) how their particular funds are performing relative to similar funds. Upgrading calls for selling a fund when it drops below the top quartile of its peers, so having a clear view of a fund's relative performance is important for maintaining that selling discipline.

Another difference between the Tracker and the newsletter is that Tracker portfolios will continue to show a separate Foreign category, even though Foreign is now a subset of the "Situational" category in the newsletter.

Any fund that doesn't fit within the five categories mentioned above (including, for example, the commodities fund currently recommended in the newsletter's "Situational" category) will be displayed in a Tracker portfolio in the category "Other Funds."

• Fund Performance Rankings (FPR): The FPR report is a 38-page downloadable PDF file containing performance data and SMI's momentum rankings for more than 1,600 no-load traditional funds and ETFs.

The funds included in the FPR are selected based on asset size, brand familiarity, and brokerage availability.

As with the Tracker, the FPR will continue to show the four risk categories mentioned above for domestic funds (Large/Growth, Large/Value, Small/Growth, Small/Value — both for traditional funds and ETFs), as well as the Foreign category. The FPR lists funds by many other categories as well, including Bond funds, Target-Date funds, and Sector funds. 

Check page 2 to learn how to use the FPR report. Page 3 includes an overview of the 70+ risk categories that will help you compare "apples to apples." Page 4 has explanations of the various data-column headings.

2020’s breathtaking market decline, fueled by coronavirus concerns, is long-since in the rearview mirror. From its bear-market low on March 23, the S&P 500 had gained more than 65% as of mid-December. Surely no one expected that during the dark days of February and March. Yes, the real economy still has a long way to go to recover from the devastation caused by events of the year gone by, but things are looking up — especially now that COVID-19 vaccines are available.

Unfortunately, once a storm is past, most people quickly forget how important it is to prepare for the next one. But not Warren and Pam Adams.

In 2005, Warren and Pam lost their beach house on the Gulf Coast in Gilchrist, Texas, due to Hurricane Rita. They decided to rebuild — but they resolved to make their new house able to withstand the strongest type of hurricane — a Category 5. Mindful of the painful lessons learned during Rita, they started with a more storm-resistant foundation. The columns that supported the new structure were built stronger and higher. The new house’s bottom floor was 22 feet above sea level.

Three years later, Hurricane Ike roared through the little beach community. By the time Ike was gone, so were the fire station, the post office, and most of the 200 or so homes in Gilchrist. But Warren and Pam’s house was still standing (see photo). How could that one house survive when none of the others on the Gulf Coast side of town did? It was engineered to withstand hurricane-force winds and storm surges.