YOU CAN TELL the story of my generation in myriad ways—including through our evolution as investors. I entered the world of stock investing with the purchase of shares in Twentieth Century (now American Century) Select Fund. It was the summer of 1987 and I was 26 years old. By autumn, the stock market had crashed and the value of my shares along with it. It was the first of three major market declines that my generation would face. If there were ever a scenario for wanting to bail out of stocks, and avoid the turbulence of investing, this was it. But I stayed with it.
Back then, there was already a dizzying array of mutual funds. For a novice investor, it was overwhelming. Without the internet, fund research involved reading through personal finance magazines and checking the newspaper’s mutual fund results. You had to determine which had the best long-term record, what the investment style was and what was the minimum dollar investment required.
I don’t recall ever considering index funds. There were a few around, but they didn’t get the exposure that they do today and, besides, how boring is it to invest in an index fund when you have actively managed funds touting their superior returns? Over time, my savings went into other actively managed funds, ones that had high ratings. I would use dollar-cost averaging, putting in a set amount each month. All of it went into stocks. After all, I was young, with decades before retirement. After a few years, I started to diversify into actively managed international stock funds, large and small cap funds, growth and value funds.
It wasn’t long before I had my own dizzying array of funds that I invested in and had to monitor. There had to be an easier way. It was in the mid-1990s that I started to hear about index funds. Here was salvation: One could invest in funds that covered the broad spectrum of U.S. and international markets. The results would match the appropriate indexes. Nothing flashy. And the expenses were significantly lower than those of actively managed funds.
I joined millions of other investors in making the migration to passive investing. I switched my monthly investments over to index funds and started to rid my portfolio of those actively managed funds that performed poorly, moving the proceeds into index funds. I still own a couple of actively managed funds, which have proven to be winners, but today the great majority of my portfolio consists of index funds.
Bonds entered my portfolio as I entered my 40s and after going through the market crash of 2000-02. I wanted to be more conservative with my investing as I neared early retirement. And the market turbulence was giving me more than a few unsettled sleeps. My bond investments are all in bond index funds. With returns not as lofty as stocks, it’s especially important to be in index funds, with their low management fees.
My bond exposure increased to as much as 45% of my portfolio as I approached my late 40s, putting me in a relatively good position as we plunged into the 2008-09 Great Recession. Yes, the Great Recession was a gut-wrenching time, but I held my own, even investing in stocks as they tumbled in what seemed like an unstoppable downward spiral.
Now that the stock market has recovered and I am retired, I monitor my asset allocation to ensure that I am within range of my targets. The last thing I want is another sharp drop in the market. But having lived through the market turmoil of the past three decades, I’m confident I’ll stay the course, just as I did when I invested my first hard-earned dollars in 1987.
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