Why I Love Being a Boring Investor
I’m super vanilla when it comes to my money, but especially so when it comes to investing. Just talking about investments is supposed to be exciting, but the way I do it — investing in index funds — is, well, not.
No, I’ll probably never score a big win with a “smart” stock pick. And it’s very unlikely that I’ll beat the market. But that doesn’t mean I’m ineffective. In fact, I’m more likely to reach my long-term goals for building wealth, and that’s why I love being a boring investor.
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Index funds allow you to take advantage of the performance of a wide swath of the market. Rather than living or dying by the seat of my pants, wondering if I picked the “right” stock, I just go with the overall market flow.
The market, as a whole, might have bad days, years and even decades, but over a 25-year period of time, the market as a whole hasn’t lost out. So, if you have a long time frame (say, for retirement), indexing can help you build wealth — without the worry that a bad stock pick could end all your hopes and dreams.
Because I’m boring, I take a conservative approach to my long-term indexing. I used an online investment calculator to estimate how much I’d need to contribute each month for 40 years, assuming a 7 percent annualized return, and that’s how much I put into my retirement account each month.
So far, I’m on track to reach my goals. And, even when a market event (like the crash following the financial crisis of 2008) comes along, I stick to the plan, eventually seeing a recovery and watching my balance grow.
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Investing for Short-Term Goals
I also use my boring investment approach in an effort to meet short-term goals like travel. I still use index funds to make that work. However, instead of the 90/10 stock/bond fund split I use for my long-term retirement account, I lean a little more heavily on inflation-protected bonds, with a 77/23 stock/bond split.
To make this work, I put aside a set amount each month for travel. But it goes into a taxable investment account with a mix of stock and bond index ETFs. Over time, the balance grows — and at a much faster rate than I’d see with a savings account. When I’m ready to travel, I pay for it with a credit card and then liquidate some of my shares to pay off the credit card.
Having a higher percentage of bond funds helps me sleep at night, and if I do have to sell some of my shares at a loss, they become tax-deductible, offsetting a portion of my income.
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Figure Out What You Want — and Make Investing Part of the Plan
In the end, I love being a boring investor because I know what I want and I know that indexing can help me get it. What I want is my money to work on my behalf and provide me with enough to meet my goals.
I don’t feel the need to beat the market or celebrate an amazing stock pick that beats all expectations. Instead, I plod along, using broad-based funds to help me get what I want.
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