Well, I like to think I’m not really boring (although I do like to talk about personal finance and read a lot, so maybe???), but my investments sure are. Today I’m going to talk about how a boring, straightforward investing strategy works best for me. After years of financial experimentation, I’ve decided that advanced, active, stock picking type strategies are my enemy, and passive indexing is my friend. Let me tell you why.
Early Investing – A Bit Ignorant
Back in my very first IRA, opened as a teenager, I knew nothing about investing beyond what I had read in The Wealthy Barber. And although that book is a great overview of foundational wise saving and investing decisions, it doesn’t talk at all about what kinds of investments to select. So I relied on my father, who helped me select a Janus 20 fund.
Remember, this is back in 1996-1997, when the market returned 23% and 33% respectively. Everything was going up, and as they say, a rising tide lifts all boats. It certainly lifted the Janus 20 boat high, with it eventually reaching a peak it would never reach again – even now, almost twenty years later.
But in the late 90’s it flew high, doubling my initial investment in just a year or two. And so went my introduction to stock market bubbles. Of course, you know what happened, but my teenage self didn’t know what was coming. In April of 2000 it reached a high of $84 per share, and from there fell precipitously to under $30 a share by the time 2003 rolled around.
At the same time, I had also gotten a “real job” (full time job I used to put myself through college) and started investing in my 401k. I was putting in about 15% of my small salary at the time, and had something invested during the first significant crash I would see in my lifetime. My investments were all in active funds that I picked using who-knows-what methodology. I was still in the mindset that investing was a good thing, especially over long periods of time, but pretty ignorant of the best way to do it.
This was not exactly pre-Internet times (I’m not quite that old), but the internet was not the font of wisdom it would one day become. There was some financial information out there, but not much. Most of what I learned still came from reading books and magazines. And eventually, in the early 2000’s, I found my way to passive investing-and to Vanguard.
Indexing For The Win – I Saw The Light
I can remember reading the Morningstar DieHard forum (what would later spin off to the Bogleheads website) as well as several books by John Bogle at that time. Apparently the Morningstar forum is still there, just re-labeled “Vanguard Funds” and doesn’t look nearly as interesting as Bogleheads. This, coupled with reading in magazines and other books about finance and investing, convinced me that passive indexing was the way to go. So in the early 2000’s I invested all new money in Vanguard funds, and eventually changed my 401k investments to get as close to passive indexing as I could.
Why? Why was boring, “being the market” instead of beating the market, the best strategy for me?
There were several things that convinced me of the merits of the strategy:
- Few funds beat the market – I can’t remember the exact statistics I originally read that convinced me of this – it was nearly 20 years ago. But I did some research now, and it looks like over 90% of large-cap funds lag the S&P 500. This convinced me that I don’t have any magic powers that would allow me to pick the less than 10% of funds that would beat the market, so it was better to be the market and gain the market returns
- The best returns come to those who set it and forget it – As in, literally forget it. Fidelity did a study some time ago and found that the best performing investors forgot they had a Fidelity account. Why? Because they didn’t buy and sell on their whims. You – the average investor – lag pretty much every investment class return because of your own behavior biases. Want to know more? Check out Dalbar’s annual quantitative analysis of investor behavior. The average investor significantly underperforms in various asset classes.
- Time – As in, I didn’t have much of it. Yes, I enjoyed reading and learning about personal finance and investing, but I didn’t have the time to research individual companies to feel that I could do justice to buying individual stocks. At 23 I was a new mother, and pretty broke. I was also getting started in a career and a few years later, starting an MBA. Passive investing gave me back my time by making it so I didn’t need to worry about beating the market.
This is in the days before Vanguard was cool in the FIRE (financially independent, retired early) community, and even before J. L. Collins published his great site outlining why you should keep it simple. I choose Vanguard because they were the lowest cost, index fund leader at the time. There were no ETF’s and other companies weren’t yet competing on expense ratio. And even now, when Vanguard is no longer the low-cost leader sometimes, they still offer the best, widest selection of various low-cost index funds that I’ve seen. I keep it boring – and keep it simple – by sticking to a few funds in the basic asset classes, and then forgetting about it.
Keeping It Boring – And Staying The Course
Whenever I talk with other people my age, they almost never have similar investing experiences to mine – unless, of course, they’re a fellow personal finance blogger. As a 37 year old, most of my peers did not have much (if anything) invested in the crashes of 2000 and 2008. I, on the other hand, got to have the experience of losing $40k in the Great Recession. Today I consider it a gift. In the wake of almost ten years of positive market returns, many people my age and younger don’t remember the lessons of time gone by when the market went in half. They think that they’ll just buy the dip, not knowing what it actually feels like to watch years and years of savings evaporate in a matter of days. Or the feeling of investing for a decade and not seeing those investments pay off until almost fifteen years down the line.
It’s similar to how I would feel hearing about Black Monday in 1987. I was seven years old at the time and have no memory of the event. Sure, it sounded bad, but I didn’t really understand how bad it felt until 2008. Looking back in the rear-view mirror of the investing car from the year 2017, you know how those events ended. But in the middle of them, you don’t know how it’s going to end. You don’t know if the crash will end with a “lost decade” of no returns for ten years, like the 2000’s, or if it will be the start of a bull run like the crash of 2008.
By keeping it boring, and my investing simple, I have no issue with staying the course. In 2008 I was scared, especially watching the market dropping by almost 1,000 points a day, but my husband repeated back to me what I had told him many times before about staying the course. So I did, and I pulled an ostrich and just stopped watching my accounts for a while. My net worth tracking stopped during the worst of it, and picked up again when the market started to turn back. I had no way of knowing that would be one of the best financial decisions of my life. When coupled with the fact that I started and continued investing during the entire first decade of the 21st century (when most of my peers didn’t even know what a 401k was and certainly weren’t putting money in them) it set a powerful foundation for the recent bull market to act on.
I don’t count on it though. In fact I assume it will crash at some point, and when it does, I will… do nothing. I may rebalance if it gets too bad, but that’s it. The value of having a personal investment policy statement is that you can create it when things are going well, and look at it to remind you of what you were planning to do once things go bad. It helps prevent emotional decision making in the heat of a market crash.
So be boring. Stay the course. Forget you have your financial accounts. Figure out an investment strategy, set it, and forget about it and go live your life. You’ll lose more money in endlessly trying to tweak and find the “optimal” investment strategy than you will in choosing and sticking with something simple.
Are you also boring? Let me know in the comments. We can be boring together! 😀
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Yes! Definitely trying to be a boring investor as well!
It still feels like I only just got a job that allows me to invest more than nickles and dimes, so I am probably watching my account more than I need to. The urge to check daily has luckily subsided somewhat, so getting there!
It takes a while! I know that when I started investing I would look every day-sometimes multiple times a day. It took a while to get to the point where I don’t check it except to do my quarterly updates
We are boring too, except we’re debating becoming more exciting by investing in more international real estate (but that’s just because of our Chilean connection). But in terms of investment, it’s pretty much straight-up index funds. 🙂
International real estate certainly is exciting! And much warmer than up here. Brrr. Glad I’m not the only “boring” one around here!
Definitely on the boring side here. Slow and steady wins the race in investing.
Stay the course!
I’ll join the boring investing crew any day 🙂
When I first started my job post-college, I signed up for a 401k because I heard it was a “good thing to do”. Then someone told me I should invest and I started researching how to do that… I had no idea that my 401k was an investment! My ignorance paid off though. My research on investing led me to my first personal finance blogs… and down the rabbit hole I went…
Here’s to boring investing by not-so-boring people!
Cheers, fellow boring investor!
I didn’t even have the brief excitement at the beginning of my investing career. (Granted, my investing career is pretty short.) I started with SPY in an E*Trade account and then moved to VTSAX in a Vanguard account. I think the latter is smarter, but they’re both pretty boring.
Better that you had no “excitement”-underperforming the market isn’t actually as fun as it looks. Lol
Great job Liz 🙂 I can only add my favorite anecdote of the Fidelity study (or some article that I read about it) The only people that performed better than those that forgot about their accounts were – dead people. Literally people who had passed away!!
This also tells you something about re-balancing. Is it worth it? I’m aware of the math for it, I just wonder if it doesn’t add to our behavioral problems.
Good question. I like to rebalance once per year but only in line with my personal investing policy. So no big changes to allocations. You might be better off just pretending you’re dead, through! (For investing purposes only, of course)
Most certainly boring. I am thinking about adding bonds to my investment portfolio to be even more boring. Nothing wrong with keeping things in a simple and forgettable strategy. So here is to being boring in 2018.
I have bonds! That must make me extra boring. 🙂
I spent December boringifying our investments! My Vanguard holdings were simplified down to 3 index funds and I’m considering that they might actually even be combined to only 2.
I DO struggle with wanting a balanced portfolio of assets overall, though. I don’t feel comfortable keeping everything in any single category between cash, stocks, bonds, or real estate, specifically because I remember the recession and losing my job. I remember how the bottom fell out of my already paltry investments which I would not have wanted to sell at such a loss to keep us afloat.
From that experience, I don’t want all our eggs in a single basket if and when that happens again in the next bust so in that sense, we’re not THAT simple: we have several investments (401K, IRAs, 529), one real estate property with maybe more to come if it makes sense, and I may invest in bonds at some point for a little conservative balance. What are your thoughts on that point? Large emergency cash fund?
I have a tiered emergency fund for a very similar reason. My husband lost his job in the Great Recession, and later almost died, both of which just killed our cash flow. So I not only keep a larger than usual emergency fund, but I also have tiers that I know I would tap in a bad situation. Cash -> savings bonds -> After-tax investments -> ROTH -> pretax investments. I also do have a more conservative allocation than some folks my age, simply because of my past experience.
I tried responding earlier but I don’t think it went through-hope this isn’t a duplicate! I’m with you that I’ve been through job loss (husbands) and a huge medical issue (also husbands) so I tend to be more conservative than people my age. I keep a large emergency fund and am aggressively pursuing debt freedom partly because of this. I also keep a tiered emergency plan, in addition to a fund-maybe that would be good for you too? It’s cash-> savings bonds -> after tax investments-> ROTH->pretax investments. I also have a plan to slash expenses to a bare minimum if needed.
I actually graduated college in May of 2009, so I missed the worst of the crash (though I had a heck of a time finding a real job at first because no one was hiring). I’m steeling my resolve now not to touch anything when the market turns down again, because we still have a ways (10-15 years) to go until FI.
It’s harder than it sounds! I always thought I wouldn’t sell, but when the Great Recession happened I was tempted. It was so scary. In the end I’m glad I just pulled an ostrich and stopped looking at my balances for about a year.
I think ostrich is the only way to get through that. But great job, and it’s well paid off since then! The only way to guarantee those losses is to pull out of the market.
YES – INDEX, INDEX, INDEX!!!
I am so happy I studied the market at a decently young age and discovered the long-term advantage of investing through Index Funds. I actually had a funny moment today at work.
One of my co-workers kept telling me how I need to stop being “boring” and get out of Index Funds. So I asked him what his favorite fund was that he was invested in. His was the Fidelity Contrafund (which is actually 1 of the best active mutual funds). So I compared the Fidelity Contrafund against my fiancee’s “boring” Vanguard Growth Index Fund. I showed him how to look at your ACTUAL REAL RETURNS after taxes on distributions and sale of fund shares. What we discovered is that the “boring” Vanguard Growth Index Fund actually outperformed the Fidelity Contrafund by almost HALF of a percentage point (0.48% to be exact) after taxes on distributins and sale of fund shares were accounted for over a 10 year period.
I thought Index Funds were “boring” though??? Ohh well I will take my passive investing and proceed!
Thanks for the share!
Love it! It’s amazing just how many people think they can “be above average” or “shouldn’t settle for market returns.” I’d rather get market returns than an 80-90% chance of underperforming. Nice of you to take the time to educate your coworker!
I’m like 90% of the time boring. I bucket the small percentage as play money. If it goes well, great! If not, oh well… I still have 90% of it in the boring stuff. 😊 so I’m there w/ ya…
And I haven’t experienced a bear market yet since I started investing in 2011 but I’ve set my expectations downwards… 😰
Happy new year to you, Liz!
Happy new year! I’ve had what I call “fun money” before but I got rid of it. I didn’t really have time to keep up on it so it wasn’t very fun anymore. Lol
I am so boring that if paint was drying on my wall it would be yawning at me. Correction, I’m 90+ percent-ish boring, in index funds, underperforming due to a 35/65 equities/bond portfolio. Yes underperforming.
We’re being overly conservative the first few years of retirement because if we lose too much, there may not be time to recuperate. However, due to that small percentage of net worth we use as our lottery ticket (invested in a lithium stock) we’re actually getting close to market returns. That’s the only excitement in our strategy.
Lol, I love the paint analogy. I also have bonds, although not as much as you, because having invested for so long I know the pain of a correction. Pretty cool that you’re getting closer to market returns with your lithium stock though!
I am so freaking boring 🙂 We had just started building some good savings when 2000 hit. Kinda recovered by 2008 and then poof! Gen X kinda got screwed there. But yeah, annual rebalance of funds and that’s about it. Though I do have a “play” account with a small amount of money that, actually, I’ve ignored for about 5 years and should do something about that 😉
Ha that’s exactly why I eventually got rid of my play fund. I never did anything with it and was too busy to do it right. So eventually I sold it and got more index funds. Ha ha
I’d probably be further ahead if I were a little more boring. One of these days I’ll get rid of my itch to try to beat the market.
I’m so new to all of this that I feel it’s pretty ok for me to experiment as part of the learning process. (Don’t worry. It’s not a lot of money.) I came very late to the investing game and am training myself how to invest consistently and not freak out. I only “experiment” with purchases though because I’m so interested in “what will happen” over the long term that I’m not interested in selling (even when things get a bit “uncomfortable.”) The large majority of my investments are sector ETFs or index funds. And, yes, I still check my accounts multiple times a day. I’m learning slowly and do see the value in “boring.” But, gotta say, it’s really a fun feeling to pick a “winner” than exceeds your expectations (like 6% gain in 7 days!)
Of course it’s fun! And there’s nothing wrong with experimenting-I’ve done it before too. You have to remember that I’ve been investing for 20 years. Boring is best for me at this stage of my investing arc. 🙂 Maybe one day you will join us boring folks.
I’m a let it ride gal. My rollover IRA is with Vanguard and there’s a flagship or an Admiral. I’m not going to use the money for years, I just make sure the fees are low, and let it chug along.
My recent excitement was funding my 2018 Roth Jan 2nd! Now we let it ride.
Next step is to see what the new tax bill does to my paycheck, and start putting $ in my taxable account. My big goal is a tiny house some day.
Happy New Year! May your money stuff be boring in the best way possible!
Happy new year to you too!
I am totally boring, but this doesn’t stop me from getting distracted by shiny things. Ooh, dividend shares! There’s lots of people buying those. Ooh, an investment property! The dream of all Australians. Ooh, Bitcoin (nah, that one is too close to gambling for me). Luckily I’m not impulsive, so I recognise exactly what you said – I don’t have the time (or inclination) to do the research, and I absolutely refuse to invest in something I don’t understand. Thanks to Vanguard, I am able to invest in an easily understood product that someone else does all the hard work on.
Sometimes I also think I should experiment more, but then I decide “nah”. I just don’t have the time or energy to do the due diligence requires to make a wise decision. Maybe I will sometime in the future, who knows?