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I MADE A SMART financial decision last year that netted me thousands of dollars. What’s so fantastic about this decision is that I didn’t have to do anything. I just sat back and let my investment portfolio do all the work.
If you did what I did and ignored the talking heads, and just bought and held a diversified mix of stocks and bonds, your investment portfolio performed well in 2020. Those who warned about investing in overvalued domestic stocks and low-yielding bonds might be right one day, but it wasn’t last year. For instance, in 2020, Vanguard Group’s Total Stock Market Index Fund had a total return of 21% and its Total Bond Market Index Fund notched a respectable 7.7%.
Last year was yet another example of why you should invest in broad-based index funds and then do nothing, except rebalance. Let those other investors waste time and effort trying to figure out which investments to load up on. Of course, every so often, they might get it right. But over the long haul, they’ll fall further and further behind the market averages.
I shouldn’t be boasting about my financial prowess. It took me years to figure this strategy out. It wasn’t easy for a guy like me. You might say I have a type “A” personality. I can be impatient, anxious, proactive and a workaholic. Those are not good qualities when it comes to managing money.
When you’re a long-term investor, patience is a virtue. When managing your investments, being less active is better than being more active. When assessing your ability to read the market’s direction, humility is a more valuable trait than overconfidence. These are some of the qualities that I strive for as an investor—qualities that support long-term investing rather than a knee-jerk reaction to the latest events roiling the market.
What’s so terrific about this strategy is that anyone can do it. All you have to do is accept that you aren’t smarter than the market. Just stay the course with a diversified portfolio of low-cost index funds whose asset allocation reflects your time horizon, tolerance for risk and financial goals.
When I think about why I became a more stable and patient investor, I believe it’s because I feel satisfied and secure with my financial life. I hardly ever look at my portfolio because there’s no need. I’m comfortable with where I am financially. There’s no burning desire to have more than I currently have. My portfolio is structured so that I’m not taking too much risk and yet there’s enough growth to keep up with inflation. I truly believe my wife and I are in a good place financially.
When I was younger, I looked at my investment performance on a daily basis, because I was amassing money and I wanted more. I even took stock market risks by, for instance, overweighting certain sectors. That’s not how I feel or behave today, and you shouldn’t, either.
As a retiree, I realize there are other things that are more important than accumulating more money than I’ll ever need. This pandemic has reminded me about my own mortality, including the importance of looking after my health and of making the most of the time I have left.
I’m not going to spend my remaining days preoccupied with the performance of my investment portfolio when it isn’t necessary. I’m going to focus my days more on living and less on investing. I’m going to enjoy my money instead of fretting about it. That’s my 2021 New Year’s resolution.
Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include Too Thrifty, Mother Knows Best and Live It Up. Follow Dennis on Twitter @DMFrie.
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Sir – Anyone who would suggest having only 2 funds, neither of which have any purely international stocks, isn’t doing anyone any favors. So sure it’s a nice blended return but shouldn’t be a portfolio.
I am not sure the article proposed what you suggest, portfolio construction was not the topic and it’s fair for the discussion to be US centric and still include an international component…
but even if it did, a US centric portfolio is not unreasonable.
My own portfolio has a large international component, so my opinion (and most interpretations of Modern Portfolio Theory) is clearly in your camp when it comes to portfolio construction – but there is legitimate diversity of opinion over the inclusion of international stocks for US investors. Most sources recommend some inclusion, but at less than market weight.