Read the rest of my blog posts in this series here to learn more about how to use the AAII PRISM Wealth-Building Process!
PRISM is a five-step method for aligning my investment decisions with my goals, created by AAII Journal editor Charles Rotblut. The fourth step of PRISM focuses on how to find specific investments that fit my investing strategy.
Charles emphasizes the need for creating buy and sell rules for my investments. There are lessons containing helpful guidelines for buying and selling stocks, bonds, mutual funds and exchange-traded funds (ETFs). Thankfully, I have already been going about this process outside of PRISM, so I have a portfolio and some loose rules in place for the ETFs I own.
Using the list of Buy and Sell Rules for Mutual Funds and ETFs provided in the fourth step of PRISM, I solidified my portfolio rules.
The first question that caught my eye is related to the ETF’s investment approach. Since my investing strategy is to find sustainable ETFs that aren’t destroying the earth, this is an important consideration for my portfolio.
When I first invested in March 2022, I made notes of the ETFs’ current As You Sow grades in AAII’s My Portfolio tool so I knew why they were attractive investments at the time. As You Sow’s screener grades funds based on their investments in stocks of companies that are profiting from the fossil fuel industry, deforestation, gender inequality, sales of guns and military weapons, the prison industrial complex and tobacco.
During my first portfolio review at the start of 2023, I came up with some rules for my ETFs’ As You Sow grades: In order to add an ETF to my portfolio, it must have mostly grades of A and B—with the exception of gender equality, which can have a grade of C. I made this distinction after much in-depth research about sustainable investing and determined that gender equality is the most common holdout on these kinds of investments. The corresponding sell rule to this is if any of the ETF’s As You Sow grades worsens to C and/or the gender equality grade falls to D then the ETF’s sustainable objective is no longer valid for my portfolio strategy and it should be kicked to the curb.
The next guideline is regarding expense ratios. An expense ratio is the cost investors pay for a fund’s portfolio management. Since I am mostly investing in index ETFs, the expense ratios on my investments should be relatively low.
In my first portfolio review, I determined that I did not want to invest in an ETF with an expense ratio of 0.60% or higher. I also noted that I was looking for expense ratio grades of C or better, but I am now rethinking this rule. If my buy rule is for an ETF with an expense ratio below 0.60% and corresponding grade of A or B, the equivalent sell rule is if that expense ratio increases above 0.60% or its grade falls to C.
Below are my very official buy and sell rules:
As I continue my investing discoveries, I will add to this list and share it with you all. Follow along with me as I venture through the PRISM Wealth-Building Process and solidify my financial plan for the future!