Is your investing plan boring enough?

Fiscal Therapy: Is Your Investing Plan Boring Enough?

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WHAT I’M THINKING ABOUT: Investing should be boring


Ten years ago, Warren Buffett bet $1 million that a passive index fund would outperform a basket of actively-managed hedge funds selected by his counterpart in the wager.  Buffett was right.  Net of fees, Buffett’s pick (a low-cost S&P 500 index fund) returned 7.1% per year, compared to 2.2% for the hedge funds.  (Over the ten years, the index fund gained 126%, while the hedge funds averaged a 36% gain.)

The immediate lesson here is that high fees paid for actively managed investments eat away at returns, thus low-cost passive index funds will generally be the better choice.  Indeed, over the last fifteen years, over 80% of actively-managed funds performed worse than their respective market indices.  As Buffett put it, “Performance comes, performance goes. Fees never falter.”  

But there’s a larger lesson: for most of us, investing should be boring.  Stick your money in low-cost funds and don’t touch them.  Don’t mind the stock market dips, or the latest cryptocurrency investing craze.  Investing, like a good burger, is one of those things we just shouldn’t complicate. Some of you may benefit from a good investment advisor who can help you create and implement a smart, low-cost investment plan. Just be wary of paying high fees to an advisor who is attempting to beat the market.

Boring doesn’t mean mindless.  Be thoughtful about where you hold your accounts, what you invest in, who you receive advice from, and how much risk you’re willing to take. Create a plan, execute, and let the plan do its thing, which likely means putting your savings on autopilot and not worrying about investment performance in the short-term.

What I'm reading

Here are two interesting articles I read this month: 


Volatility Is Scary—but It's Normal
By Gillian B. White, The Atlantic

Good for you if you haven’t noticed headlines of the stock market being all over the place in the last few weeks. You were focused on more important things. For those of you a tad stressed about current volatility, breathe easy. This is normal.


Should You Buy Bitcoin? Ask a Different Question First
By Carl Richards, The New York Times

Are cryptocurrencies right for you? The short answer is probably no. However, as this piece points out, you need to back up and start with a different question: Why are you investing?  Only once you identify your financial goals can you decide whether buying Bitcoin fits into your investment plan.