Reprise – Twenty Years of Hard Labor – What I’ve Learned About Investing

This is a post I put up a few months back.  It is timely in that I’ve had this discussion with several friends and acquaintances over the last couple of weeks.  Enjoy!

I did some interesting research a couple of years ago.  You see, I’ve been an active investor for most of the accumulation phase of my investing years.  I’ve researched stocks and bought or sold individual companies for all of my investing career.  I’ve used options and other derivatives in an attempt to hedge my investments and to maximize my return.  I know what I’m doing and I’ve been fairly successful through the years.  Or so I thought.

When I discovered the FI community starting with Mr. Money Mustache, I learned that the community overwhelmingly favored simple buy and hold index investing as the preferred method of accumulating wealth.  The simplicity of it and the consistent returns over the long run appealed instantly to me, but I was nearing the end of my accumulation phase and getting ready to start on the retirement portion of the program and did not feel like I should change horses mid-stream (I still kind of feel that way).  But I wondered what my returns would have looked like had I used buy and hold index investing all the way along.  So I did the research and was very surprised to find out that a buy and hold index fund strategy (I used SPY – the S&P 500 ETF as my benchmark) performed as well, if not a little better, than my own somewhat complicated and much more time-consuming system.  It was almost exactly the same.  Had I just put my money in the market and let it ride, I would have exactly the same amount of money, perhaps a bit more, than is in my portfolio right now, and would have had a hell of a lot more time to spend doing things other than researching stocks.  More books read, golf played, Frazier re-runs watched.  Sigh.

Mr. Market Returns 1995 to 2016*:     9.75%

Oldster’s Returns 1995 to 2016**:       9.67%

*Assuming tax deferred account                                                                                                                              **Both taxable and tax deferred

I was a little disappointed at first in my apparent lack of stock picking skills.  Then I realized that by approaching market returns I had outperformed 80%-90% of all professional mutual fund managers (my holdings look like a mutual fund with a few more than 50 holdings).  Cold comfort for all of the time wasted, but comfort none-the-less.

So what did I learn from this experience?  If I were starting out today, or even if I were a few years into the accumulation phase of my journey, I would be in a total stock market index fund and not spending significant time tracking investments or researching what I should be buying.  I’d be in a low-cost fund or funds like those Vanguard of Fidelity offer and I would just keep plowing money in until my goal had been reached.  Doing it the hard way I got where I was going, but it cost me hundreds, perhaps thousands of hours of research time and several thousand dollars in fees for tools and advisers that I just did not need, not to mention the fear associated with my portfolio’s performance being a function of my ability to choose correctly.  Sometimes you have to get to the end of the path and look back to realize there was a better road.  In my case there was an easier way, and I wish I’d known it then.

Until Next Time, FIRE On! – Oldster

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