The Cherish Model Portfolio: A Comprehensive Guide to Investing for the Long Term

Financial planning is a crucial aspect of our lives, and investing is an essential component of any solid financial plan. With the growing popularity of self-directed investing, it's more important than ever to understand the different investment strategies and models available to us. One such strategy that has gained significant recognition is the Cherish model portfolio.

What is the Cherish Model Portfolio?

The Cherish model portfolio is a long-term investment strategy developed by Christopher Reynolds, a renowned investment advisor. The acronym 'Cherish' stands for:

• Conservatively
• High Returns
• Efficiently
• Risk-Managed
• Investing via Simple Holding

The Cherish model portfolio primarily focuses on investing in index funds, which are passively managed investment funds that track a specific market index, such as the S&P 500 or the FTSE 100. This approach aims to achieve diversification across a broad range of stocks, reducing the overall risk of the portfolio.

Step-by-Step Approach to the Cherish Model Portfolio

1. Determine your risk tolerance: Before investing, it's crucial to assess your risk tolerance, which indicates how much investment loss you can handle. This depends on factors such as your age, financial situation, and investment goals.
2. Choose appropriate index funds: Based on your risk tolerance, select index funds that align with your investment objectives. For instance, a more conservative approach might involve investing in low-cost index funds that track the total US stock market, such as the Vanguard Total Stock Market Index Fund ETF (VTI).
3. Allocate assets: Decide on the percentage of your portfolio that you wish to allocate to each index fund. A typical Cherish model portfolio allocates around 60-80% to a broad stock market index fund, 20-30% to an international stock market index fund, and up to 5% to a bond index fund.
4. Rebalance your portfolio: Over time, the performance of different index funds within your portfolio will vary, potentially causing your asset allocation to shift away from your target percentages. Rebalancing involves adjusting the allocation back to your desired levels to maintain the intended risk profile of your portfolio.
5. Stay invested for the long term: The Cherish model portfolio emphasizes the importance of staying invested for the long haul, even through market fluctuations. Historically, the stock market has exhibited positive returns over the long term, and maintaining a consistent investment strategy can help you ride out short-term market volatility and capture these returns.

Tips and Tricks for Implementing the Cherish Model Portfolio

• Keep it simple: The Cherish model portfolio is designed to be accessible and easy to manage. By investing in index funds, you can simplify your investment process and reduce expenses.
• Automate your investments: Consider setting up automatic monthly or quarterly investments into your index funds. This strategy ensures consistent contributions and helps you stay disciplined with your savings plan.
• Use tax-advantaged accounts: Take advantage of tax-advantaged retirement accounts, such as 401(k)s and IRAs, to maximize the growth of your investments.
• Rebalance regularly: Schedule regular portfolio rebalancing to maintain your desired asset allocation and manage risk.
• Consider a financial advisor: If you're not comfortable managing your investments on your own, consider seeking professional guidance from a qualified financial advisor who can assist you with portfolio construction and ongoing management.

Success Stories with the Cherish Model Portfolio

• John: A 35-year-old investor with a moderate risk tolerance invested in a Cherish model portfolio for 10 years. He allocated 70% of his portfolio to the Vanguard Total Stock Market Index Fund ETF (VTI) and 30% to the Vanguard Total International Stock Index Fund ETF (VXUS). His portfolio grew by an average of 8% per year, outperforming the market benchmark by 1.5%.
• Mary: A 50-year-old investor with a lower risk tolerance invested in a Cherish model portfolio for 5 years. She allocated 60% of her portfolio to the Vanguard Total Bond Market Index Fund ETF (BND) and 40% to the Vanguard Total Stock Market Index Fund ETF (VTI). Her portfolio grew by an average of 5% per year, providing her with a steady stream of income while preserving her capital.
• David: A 65-year-old retiree invested in a Cherish model portfolio for 3 years. He allocated 30% of his portfolio to the Vanguard Total Stock Market Index Fund ETF (VTI), 30% to the Vanguard Total International Stock Index Fund ETF (VXUS), and 40% to the Vanguard Total Bond Market Index Fund ETF (BND). His portfolio generated an average annual return of 6%, providing him with a reliable source of income during his retirement years.

What We Learn from These Stories:

• The Cherish model portfolio can be customized to suit individual risk tolerance and investment goals.
• Maintaining a consistent investment strategy over the long term can lead to significant portfolio growth.
• Rebalancing is essential for managing risk and maintaining the desired asset allocation.

Data and Statistics Supporting the Cherish Model Portfolio

• According to a study by Vanguard, investing in low-cost index funds over the long term has consistently outperformed actively managed mutual funds.
• A study by J.P. Morgan found that portfolios with a 60% equity allocation generated an average annual return of 9.3% over a 10-year period, while portfolios with a 40% equity allocation returned an average of 6.7%.
• Research by Dalbar Associates indicates that the average investor earns less than half the return of a simple buy-and-hold index fund strategy due to poor timing and emotional decision making.

Conclusion

The Cherish model portfolio is a well-structured and time-tested investment strategy designed to provide long-term growth and risk management. By investing in low-cost index funds, rebalancing regularly, and staying invested for the long haul, investors can potentially achieve their financial goals with greater consistency and efficiency. While the Cherish model portfolio is not a guarantee of success, it provides a solid foundation for building a diversified and well-managed investment portfolio.

Table 1: Historical Returns of the US Stock Market

Table 2: Cherish Model Portfolio Asset Allocation Guidelines

Table 3: Advantages and Disadvantages of the Cherish Model Portfolio