The 3% Signal

See the book’s tools, the plan’s performance, and the media kit

The 3% Signal, by Jason Kelly

Buy at Amazon, B&N, BAM, IndieBound

Paperback, 336 pages
Plume, February 2015
ISBN-10: 0142180955, ISBN-13: 978-0142180952


The 3% Signal is an investing plan that beats the general stock market by moving money into or out of a stock fund once per quarter based on the price of the fund only. When the fund grows 3% in a quarter, the investor does nothing. When it grows more than 3%, the investor sells the surplus profit and moves it into a safe bond fund. When it grows less than 3% or falls in value, the investor uses money from the safe bond fund to buy the stock fund up to the 3% growth line.

This simple action, using the clarity of prices alone, guides the investor to buy more of the stock fund when its price is cheap, and sell some of it when its price is expensive. The bigger the shortfall, the more the investor buys. The bigger the surplus, the more the investor sells.

This unemotional method — powered by prices, not opinion — beats the market. In so doing, it beats most professional advisors because the majority of them loses to the market.

The plan reduces investing stress by eliminating the need to monitor financial news and opinion, which issue conflicting advice based on “gut instinct” and other unreliable intuition. A key form of investing stress, the type caused by indecision, is eliminated by following the quarterly signal, which specifies how many shares to buy or sell.

The 3% Signal can be run in any account, including retirement accounts such as 401(k)s, IRAs, and Roth IRAs.

Introduction: Financial Floundering

One day long ago, I found my mother sitting befuddled behind a stack of stock market ideas. She pushed one of the reports my way and said, “I can’t make heads or tails of this. What do you think?” Heads or tails. That was an appropriate way to put it, I later discovered, because stock market advice is wrong half the time. My mother couldn’t make heads or tails of the ideas in front of her—and neither could the people who’d written about them. They were all just guessing.

So I embarked on a two-decade quest in search of a better way for ordinary people to tap the profit potential of the stock market. I wanted to free them from the unreliable advice of market pundits, steer them away from investment mistakes that cause stress in their personal lives, and show them how to avoid overpaying for underperformance. I spoke with widely praised professional money managers, read every book on the subject, subscribed to newsletters, wrote my own books and newsletter, and appeared in media.

My research revealed that parts of the investment industry are connected in a clever system designed to tease money from investor accounts and into the accounts of firms and advisers. It goes like this: Entice people onto the treacherous trail of stock picking and market timing, knowing they’ll fail; present alternatives that look more sophisticated than going it alone; then overcharge for those alternatives that actually perform worse than the unmanaged market itself.

What the experts don’t want you to know—but what you’ll never forget after reading this book—is that prices are all that matter. Ideas count for nothing; opinions are distractions. The only thing that matters is the price of an investment and whether it’s below a level indicating a good time to buy or above a level indicating a good time to sell. We can know that level and monitor prices on our own, no experts required, and react appropriately to what prices and the level tell us. Even better, we can automate the reaction because it’s purely mathematical.

This is the essence of the 3 percent signal. We set it as a constant performance line to return to each quarter, and then we either buy our way up to it or sell our way down to it. Used with common market indexes, this simple plan beats the stock market. Because most supposed pros lose to the market, the plan greatly outperforms them as well. This may seem too good to be true, and the pros want you to think so, but it’s not, and this book will prove it to you. The performance advantage of the 3 percent signal can be yours after just four fifteen-minute calculations per year, without a single moment of your life wasted on meritless market chatter.

Unlike most automated plans, this one acknowledges your emotional side, which sees news and wants to take action. To appease this impulse, the plan will show you the right action to take at a pace that’s perfect. You won’t jump in too often and create disorder; nor will you stay away too long and feel you’ve abandoned your investments. You’ll show up just frequently enough to keep your finances on track and yourself assured that everything is fine. This plan is all about getting the most out of the market for you in a way that satisfies your emotional needs as well as your portfolio needs.

We’ll begin with a look at how our instincts lead us astray in the stock market, and how so-called experts prey on these vulnerabilities. You’ll learn that the stock market is a zero-validity environment, and begin referring to pundits offering opinions on its future direction as “z-vals.”

Next, we’ll outline this book’s superior approach, the 3 percent signal. It requires only a stock fund, a bond fund, and a signal line. You’ll discover how to check in quarterly to see whether the stock fund’s growth is below target, on target, or above target, and then move money in the appropriate direction between the stock fund and the bond fund. This action, using the unperturbed clarity of prices alone, automates the investment masterstroke of buying low and selling high—with no z-val interference of any kind.

From there, we’ll explore the parts of the plan in more detail so you know what type of funds are ideal, why a quarterly schedule works best, how to manage cash contributions to the plan and occasional imbalances between its two funds, and when to implement a special “stick around” rule that keeps the plan fully invested for recovery after a market crash. You’ll see that the plan works in any account, even a 401(k). Finally, you’ll watch it alongside other investment approaches in a real-life scenario that brings together everything you’ve learned.

Are you ready? Come with me on a journey to a better way to invest.

The 3% Signal, by Jason Kelly

Buy the book at Amazon, B&N, BAM, IndieBound

Compare 3Sig with other strategies on the Investing Strategies page

Use tools to run your own 3Sig plan on the 3Sig Tools page

Read a Q&A with Jason in the book’s media kit


  1. Amir Karami
    Posted January 18, 2019 at 4:49 am | Permalink

    How to decide about buying ETFs? In The Neatest Little Guide to Stock Market Investing, you provided some variables to decide about buying single stocks, but not for ETF. How to compare ETFs such as VOO, SPY, and VGT? Which variables do we need to consider? How to split the money in ETFs?

  2. Mike
    Posted March 28, 2018 at 3:06 am | Permalink

    Hi Jason. I just finished The 3% Signal. It makes perfect sense! Thanks so much for writing it, especially for including the nitty gritty details of what to do and why. A couple questions for you:
    1) What day of a given quarter (“action day”) is best to execute the quarterly procedure? I couldn’t find this in the book.
    2) If starting with a large cash balance, what’s best to determine the first buy signal? I’d like to avoid starting into a bear market. If the quarterly action day is the last business day of the quarter (that the market is open), does the following make sense?
    Consider the closing price on the upcoming action day as the base price, then determine the buy and sell prices for the following quarter from the base price. If, on the next quarter’s action day, there’s a buy signal, then buy; if there’s a sell signal, then reset the base price to the closing price that day.
    Thanks again!

    • Posted April 18, 2018 at 11:41 am | Permalink

      You’re welcome, Mike, and thank you for the kind words!


      1. No day is preferable for the quarterly rebalance. The plan is very forgiving in this regard. In my letter, I run the calculations using the most-recent closing price ahead of the weekend, then fill the orders at market on the next trading day. These are usually Fridays and Mondays, respectively, but not always due to holidays. However, you can miss the quarterly schedule by days, even weeks, with little impact to the plan.

      2. Yes, your way of easing into the plan is fine as a way of generating a signal before you actually invest. Know that in almost all time frames, just going in whole-hog produces the best performance, but psychologically I know it’s easier to get going with a buy signal and ease in over a few quarters. No problem.

      Happy Sigging!


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