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Why I Love Being a Boring Investor

@criene / Twenty20.com

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.

Building Wealth

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.

Building Wealth

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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.

Building Wealth

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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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