I’m afraid of investing. I’m afraid I’ll make the wrong decisions, that I’ll buy high, and then low will roll around and never go away. I’m afraid of paying someone else to manage my investments. Will it cost me more than it earns me? I’m afraid I’m supporting a system I don’t believe in. Should I be investigating socially or environmentally responsible companies in which to invest? Who has time for that? And around I come to the beginning and the cycle starts again.
Here’s what I know: fear paralyzes. Fear will always lead to failure. Fear is a great way to maintain a victim mentality. And I’m not interested in being a victim.
However, I’m also frequently a victim of the truism that perfection is the enemy of good enough. I’m so concerned about perfection that I’m not even sure what good enough looks like!
I recently decided to take a step back and take control of my investing fears.
The number of options out there, the sheer scale of the knowledge involved in intelligent investing, is mind boggling. But over and over again, I’ve heard the advice to invest in index funds.
And it turns out that “lazy” investing can sometimes be the best investing.
Index funds have lower risk because they’re diversified across the entire stock market if you’re in a total fund or at least over 500 companies if it’s an S&P500 fund. For long-term investors, index funds have consistently done well, returning something like 10%-12% per year (before inflation).
And here’s another great thing: I can buy index funds commission-free through my online broker (TD Ameritrade). I’m betting there are similar programs through other brokers. My understanding (which could be wrong – remember, I’m an idiot investor) is that because the fund simply matches the distribution of the stock market, it can be maintained by a computer rather than relying on the esoteric knowledge (and expense) of a real-life human fund manager picking buys and sells one at a time.
Win-Win!
I have a (very small) Roth IRA. That money has been sitting in a Money Market fund for years while I’ve avoided thinking about investing. I was paralyzed by fear and uncertainty. That fear already cost me the doubling (yes, doubling) of my small investment.
Jack Bogle, the founder of Vanguard and inventor of the index fund, prompted me to act: “Do not allow the tyranny of compounding costs to overwhelm the magic of compounding returns.”
I could generalize that, and it would still ring true: Do not allow the tyranny of your past to overwhelm the magic of your future.
I have to stop regretting past action or inaction and focus on the Now. Because that’s where I am, and there’s no going back.
As of now, I own some shares of Vanguard Total Index fund. As of now I can sit back, forget about, and let it grow on its own.
If the apocalypse comes, and the stock market completely fails, and life as we know it ceases to exist, and I lose every penny of that investment, I’ll have bigger worries than imaginary US currency.
But that’s a different blog post.