Note: The opening image for my last post told you to “Take Action”. Today, the image is telling you to do less! It’s not conflicting, it’s just about different parts of life!
One of my favorite comedies is Forgetting Sarah Marshall. I think Paul Rudd is great in a lot of movies, but none better than his small, supporting role as a surf instructor in that movie. There is one scene in particular that reminds me of my index fund investing strategy. Take a look:
“Don’t DO anything! The less you do, the more you do!”
This sounds like complete and utter nonsense. As a below-average amateur surfer myself, I’m pretty sure “Kunu” is referring to the idea that when you pop up, it should be effortless. It should be all in one fluid motion. He just has a terrible way of conveying that idea for surfing.
However, it translates perfectly to investing. There are too many people out there that watch CNN, Jim Kramer, and stock picking gurus. They try to time the market, capitalize on various trends, and in the end, cost themselves TONS of money.
Earlier this month, I attended FinCon, a conference for personal finance bloggers and media types. I had a TON of fun and I like to think that I learned a thing or two as well. One of my favorite speakers was Dr. Daniel Crosby who talked about this very dilemma. Historically, the S&P Index sees gains of around 10% annually. Adjust for inflation and you are at about 7-8%. However, the vast majority of investors in the past 30 years have only seen a small FRACTION of that return.
Event: Market just crashed
Response: Oh no, let’s get out before we hit bottom!
Result: You never know when the recovery is going to start and leave you and your cash in the dust, with the losses you sustained from the crash.
Event: Ooh, a hot tip on a stock
Response: Buy, buy, buy!
Result: By the time that hot tip gets to you, it’s old news and other suckers have already inflated the value of the stock by buying it too!
Event: CNN says buy this fund, no wait, now this fund…
Response: Hop around from fund to fund
Result: You pay a boatload in fees and you never give the fund enough time to capture significant gains
So what should you do? Take a lesson from Paul Rudd/Kunu – don’t do anything!
I can hear you being sassy over there, “ok, Mr. NYBudget, I just won’t get into the stock market at all”. As Paul Rudd says, “well, you gotta do more than that. Right now it just looks like you’re boogie boarding”. Get into the market. Buy index funds (I personally like Vanguard index funds as they are extremely low-cost). If you need more guidance, Jim Collins (who I also had the pleasure of meeting at FinCon) has a great stock series that gives you a detailed analysis of how you should VERY simply, invest in index funds.
After you invest. Don’t touch it. Don’t think about it. Consider it completely out of your hands until WAY later in life, when you need or want to tap into that savings to accomplish your goals in life. It is NOT there for when you have a new idea about how to invest in the stock market, or have a hot tip on a stock, or most importantly, when the next market downturn comes and you are scared of a financial apocalypse! And next time the S&P is up 29.6% like it was in 2013, you can capture all of that in your invested assets, unlike the VAST majority of people out there.
So let’s go investing now. Come on, everybody’s learning how. The weather outside is weather*.
*I had to leave you with one last reference to that scene. If you haven’t seen Forgetting Sarah Marshall, you should!
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