I read an article last week saying that the stock market “has lost its buzz” and that it’s “boring”. Let me tell you something – smart investing is boring. Investing that’s “exciting” is when you’re more likely to make irrational decisions and lose money.
The US equity bull market being “boring” has proven this. The S&P 500 has gained nearly 300% since March 2009 (when the market bottomed) and over 9% year-to-date. Who wouldn’t want something boring that could produce those results? You didn’t have to do anything to receive these outcomes besides buy a S&P 500 mutual fund or ETF. Easy, effective, boring.
If this isn’t enough evidence for you that smart investing is boring, then there are a few more facts to help drive the point home that boring is good. The S&P Dow Jones Indices 2017 Year-End SPIVA US Scorecard states that less than 8% of large-cap mutual fund managers, a little over 5% of mid-cap mutual fund managers, and a little over 4% of small-cap mutual fund managers beat their benchmarks over the preceding 15-year period.
Let’s state that another way for perspective; most large-cap managers (over 92%), mid-cap managers (nearly 95%), and small-cap managers (nearly 96%) failed to beat their benchmarks over the 15-year period ending December 31, 2017.
These are the smartest, most well-educated professionals in the industry with the best technology and research available to them. If they can’t do it, then why would anyone else think they could? For some reason, despite the glaringly apparent evidence, people (even those without the MBA, PhD, and advanced trading technology and research) still think that they can do better than indexing.
The Advantage of Boring
If you didn’t allow your investments to ride and be “boring”, then you may have sold at any one of the “major” market events (according to the media) of the past 8+ years: the Flash Crash in 2010, the BP oil spill in 2010, the US debt downgrade in 2011, the Eurozone double-dip recession in 2012, the Taper Tantrum in 2013, the Ebola epidemic in 2014, the Chinese stock market turbulence in 2015 and 2016, the Royal Bank of Scotland making an announcement to sell everything in 2016.
All of the events mentioned above were made out to be huge news items at the time that were expected to have significant negative impacts on the US equity markets. That’s a lot of negative news to get scared about. However, the market has continued to chug along through all of these blips and selling at any of these times would have meant missing out on significant market gains.
One of the biggest robbers of potential portfolio returns from investors is allowing market noise to make them sell and then them being afraid to get back in.
A Disciplined Approach
Just remember, historically, the market goes up most of the time. (Of course, historical performance is not indicative of future performance – gotta keep the compliance people happy). A disciplined investment approach of maintaining a diversified portfolio based on your personal goals and comprehensive financial plan may be “boring” but provides superior results to trying to time the market in the long-run.
If boring works, then why waste your money trying to beat it?
Here’s what you can do create a boring, but effective, portfolio:
- “Pay yourself first” by setting up automatic contributions to your retirement accounts before you ever spend any of the money.
- Setup the account(s) mentioned above so that it automatically invests your contributions in a diversified portfolio of mutual funds and ETFs based on your goals and risk tolerance.
- Monitor your investments and rebalance your portfolio using steadfast rules while not letting market noise from the media affect your decisions
- Increase your savings rate each time you receive a raise or bonus.
- Find something else to do with your time rather than listen to/watch the media try to scare you into oblivion.
