Set it and (Mostly) Forget it Investing [1]

When a lot people think of investing, they imagine painstakingly picking individual stocks, tracking their daily performance and constantly buying and selling.You could pour in a lot of time, effort, money or you could hire a financial planner to do this for you, but the fact of the matter is that most of the time, it is difficult if not impossible to beat the market.

You can work hard or work smart. Most smart investors try to match the market, which, over a long period of time, tends to improve. Past performance isn’t an indicator of future performance, but following the index can still yield solid results!

Many refer to this as “buy and hold” or “set it and forget it” or even lazy investing — because it requires little effort and you don’t have to constantly track your portfolio. You may have to check in once a year or so, but it takes minimal work, and you can mostly leave it alone. This is perfect for 'normal folks' or people who aren't fans of calculations and the like.

In a 2014 letter to Berkshire Hathaway’s shareholders, Warren Buffett explained a simple investment strategy (see:

“She’s going to have more money than she needs,” Buffett said. He would deliver cash to a trust for his wife’s benefit upon his death, with instructions to put 10 percent in bonds and 90 percent in index funds, preferably from mutual-fund house Vanguard Group.

“Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power. The goal of the non-professional should not be to pick winners – neither he nor his ‘helpers’ can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”

Similar advice applies to nearly anyone. Investors great and small can see wealth eroded by commissions, fluctuations in specific stocks, or even corrupt advisers since most active mutual-fund managers fail to outperform the broader stock market over time, he added.

Human behavior won’t change. Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something “extra” in investment advice. Those advisors who cleverly play to this expectation will get very rich. This year the magic potion may be hedge funds, next year something else. The likely result from this parade of promises is predicted in an adage: “When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”

Of course, there is no best portfolio for any investor. The best lazy portfolio is the one you set up in line with your risk tolerance, preferences and goals. Set up your investment allocation, rebalance every year, then sit back and go about living your life or pursuing your goals and dreams. It’s likely your investments will do just fine over the long-term.

Disclosure: I do not have shares in any of the companies mentioned. This is not a solicitation or investment advice and is for informational purposes only.

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Set it and (Mostly) Forget it Investing [1] Set it and (Mostly) Forget it Investing [1] Reviewed by Vernon Joseph Go on Tuesday, July 18, 2017 Rating: 5

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