So I have been investing since Spring of 2015. Now, when I say “investing,” I do not mean anything all that unusual, such as investing in diamond mines or advanced space aeronautics or the next generation of Teletubbies. I’m not even talking about putting all your money in Facebook or Google.
I’m talking about simple index fund investing.
Index fund investing is often regarded as THE way for the average investor to minimize risk and maximize a reasonable return over the long term (to be fair, many people also tout the benefits of owning real estate, but as I have no experience in that department, we’ll stick to index funds). Notice I said “average investor.” I’m not talking about the Warren Buffets or Peter Lynchs of the world, the so-called unicorns who are able to turn amazing returns for decades. The average investor, as a mere mortal and not a genie with a crystal ball who can predict stock market returns, nor a technical analyst who can intelligently evaluate a company’s likelihood of long-term success, can avoid the pitfalls of individual stock through an index fund. Ownership of the fund represents a fraction of ownership of many different companies in whatever part of the world or sector the fund tracks (for example, US Total Stock Market Index, Health Care Index, or Real Estate Investment Trusts). The general idea is that, the long-term direction of the market being upward, it is therefore in the buyer’s long-term interest to buy and hold an index fund for the long haul (as in, 10-40+ years, until retirement).
When I first really got interested in investing (I wrote about the book that really inspired me here), I was clear that I belonged firmly in the camp of “the average investor.” I wanted something simple, something that could work in the long-run, and something that I couldn’t easily mess up. They say that the best offense is a good defense, and I wanted something idiot-proof.
Also, I was inspired by the power of compound interest to embark on the long-term game of investing small amounts and having them grow over time (I also wrote about this). I figured that, like Andy Dufresne in “The Shawshank Redemption,” I could inch my way to (financial) freedom. Something about this patient approach has always appealed to me, has seemed relatively painless, and, strangely enough, even exciting.
For the first couple of years of my investing journey, I invested with Betterment. Last year I switched over to Vanguard (Note: I still think Betterment is a great service, and have family members who use it). My strategy has been simple: invest money every month automatically, invest as much leftover money as I can spare. This strategy has already produced a sizeable portfolio (for me, anyway… the most I’ve ever accumulated).
At the same time, while I have been investing, I have also been learning more about investing, and have read dozens of books on the subject. This process has mostly been quite satisfying. You might say it has been a passion of mine over these past few years. I’m inspired by the many benefits that can accumulate from simple actions repeated over and over. It squares with my philosophy of creating good habits.
Index funds seem to be a great place for someone like me 🙂