FREE NEWSLETTER
MY FATHER RAISED ME to think that, if I set my mind to it, I could do just about anything. He said that concentrated focus and drive would allow me to reach my dreams, and that there was rarely a time when I should settle for average.
Maybe it’s no great surprise, then, that I hate being average. I’m above average in smarts, the kind that gets you a side order of noogies as a second grader. Luckily, I’m also above average athletically—or fancied I was until I hit middle age. This helped avert a number of swirlies in junior high. If you’re not familiar with swirlies, count your blessings.
The pendulum, of course, swings in both directions. I’ve always been below average in certain ways. Such as height. It’s not so bad. I make up for it in width and depth. I didn’t hit five feet until my freshman year of college. Good for me that I kept growing, at least for a little while longer.
Still, my father taught me to be average in one special way, an exception to his other teachings. He recommended that I have average expectations for financial market returns, and that I use that “average” mentality as the basis for my long-term investment strategy.
He also had three specific pieces of advice. First, live below your means. Second, automate savings so those savings are sure to happen, rather than waiting to see what’s left over after paying that month’s bills. And, most important, invest your long-term holdings in a solid fund that mimics the entire stock market.
In my 30s, I spent time chasing returns. I would discuss some of my stock picks with my father. He always listened patiently and asked why I chose this or that company. He wanted me to describe my rationale for buying and selling. He never criticized my investment choices, but he did highlight the need for due diligence.
Overall, my stock picks didn’t prove to be winners. I was just buying on hunches. I didn’t have a solid plan, instead making purchases based on hype and news without knowing the full context.
Eventually, it dawned on me that—by the time information reached me—it was already past the point where it offered any advantage. More often than not, I caught a stock just before its peak and ended up selling in time to capture significant losses. Economist Eugene F. Fama has described the market as “informationally efficient,” meaning all available information regarding the current and future state of a company is fully reflected in its share price.
It’s incredibly easy to underperform by chasing dreams. It’s incredibly hard to pick the next Apple or Amazon. It’s nearly impossible to outperform trained professionals.
Another of my father’s little secrets: “Simplicity is the master key to financial success,” he’d say. For most of the past three decades, I’ve stuck to this philosophy.
I came across my father’s little secret while reading a classic by John C. Bogle, The Little Book of Common Sense Investing. Most know Bogle as Vanguard Group’s founder. He’s also remembered as the creator of the first index mutual fund. Rather than owning a piece of the market, he advocated investing in the entire market through a low-cost index fund.
Long-term investors can achieve success by matching, not beating, the market. It’s insanely simple to match the market’s return, minus some small sliver for expenses. The patient investor can capture the hopes and dreams of a noisy market just by standing still. All you have to do is be humble, and tell your ego that it’s okay to accept the market’s average return.
Although I’ll never know for sure, my guess is that Dad read Jack Bogle’s writing and took his ideas to heart. I also have a sneaking suspicion that my father was a Boglehead, the community of investors inspired by Bogle’s philosophy. Even if he never said it, Dad followed their investment practices.
I’m now entering retirement, leaving a career where my goal was to be anything but average. I’m confident that my retirement will be financially stress-free because I adhered to a few simple edicts that my father taught me early on—including knowing it’s okay to be average when investing.
Jeffrey K. Actor, PhD, was a professor at a major medical school in Houston for more than 25 years, serving as an academic researcher with interests in how immune responses function to fight pathogenic diseases. Jeff’s retirement goals are to write short science fiction stories, volunteer in the community and spend time in his garden. His previous article was Wisdom of My Father.
Want to receive our weekly newsletter? Sign up now. How about our daily alert about the site's latest posts? Join the list.
It is great that you learn a lot from your dad. I wish I can do the same. However, I am grateful that my dad worked hard to put food on the table, even though he never finished middle school.
Fortunately for me, I began reading Jonathan’s Getting Going column in the Wall Street Journal many years ago. One of the earliest lessons I gleaned from his writing was that you didn’t need to beat the market to reach your financial goals. Once I absorbed this fundamental truth, the switch to index funds was easy.
Do any HD readers or JC himself know how to access these old columns, if it’s even possible. I pay for a WSJ subscription and have access to a B1G Ten library if that opens possibilities.
Here is the link for Jonathan’s Get Going articles: https://www.wsj.com/news/types/getting-going?page=7
You can scroll to older or newer pages at the bottom to see older or newer articles.
In the late 90s I left a job and had to roll over my small retirement account into an IRA. My brother who at the time was investing through the internet at the time (which was not common) provided me a web address where you could input criteria such as historic return, and expenses etc.. One fund company kept popping up by far the most frequently with the lowest fees. This is when I discovered Vanguard and Jack Bogle. He became my investing idol as he is the main reason I was able to retire early.
Two of my favorite quotes of his are:
1) When it comes to picking stocks, “Don’t try to find the needle in the haystack (the few winning ones), buy the whole haystack (a US, international, or world index fund).
2) Fees matter, “you get what you get what you DON’T pay for”.
For decades he was laughed at for starting index funds, then the financial crisis hit in 2008 and investors saw the light.
Jack Bogle single handedly is responsible for the mutual fund industry’s current low fees, and has saved investors billions of dollars as a result!
Unlike Jeffrey Actor, I was not lucky to grow up in an educated family. Yet I learned much by trial and error. I also learned much from John Bogle about index funds.
Lack of financial education is a serious flaw of the US educational system with the result that many end up learning by trial and error. And many never learn. Learning by trial and error is obviously better than never learning. Unfortunately many people end up with unscrupulous or incompetent asset managers. The problem with these asset managers is that they charge high fees. If you assume 6% return per year on a $1000 investment the cumulative value after 50 years will be about $18,420 before cost. If you pay 1% fee per year your net return is 5%. The cumulative value after 50 years at 5% on a $1000 investment will be $11,467. That means your loss will be $6953. On a $100,000 investment the loss in 50 years will be $695,300. The corresponding losses on a $1000 investment after 70 years will be $28,649 and on a $100,000 investment will be $2.865 million. These astronomical numbers are the result of compounding at exponential rates. Many people may not have the mathematical skill to calculate these numbers. Calculating the losses per year may yield only small numbers and do not represent the real losses.
I had the mathematical skill to calculate from early college days, but never calculated thinking that it would be a small number. Even now many of my friends who have high degrees in mathematics never bother to calculate.
AVERAGE beats almost all investors!
INDEXING cannot be refuted. BTW what is a professional when it comes to investing? No such animal. We owe a lot to Mr Bogle as he has saved we retail investors billions of dollars. Thank you Sir.
Great article! In investing, being average is awesome.
One aspect of my investing life where I swing for the fences is my savings rate – there I want to be a superstar!!
Thank you. I will definately second your thought about savings rate! My father also taught me to shoot for the fences in that regard, with a minimum goal to put aside 15% of earnings.
I enjoyed reading your article. Above average I would say!