2824: Why You Should Be A Lazy Investor Instead Of A Stock Picker by Michael L. with Financial Panther

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[00:00:56] [SPEAKER_03]: This is Optimal Finance Daily.

[00:00:59] [SPEAKER_03]: Why you should be a lazy investor instead of a stock picker.

[00:01:03] [SPEAKER_03]: By Michael L. with FinancialPanther.com

[00:01:06] [SPEAKER_03]: And I'm your host and personal finance enthusiast, Diana Merriam.

[00:01:10] [SPEAKER_03]: Now let's get to today's post as we optimize your life.

[00:01:18] [SPEAKER_03]: Why you should be a lazy investor instead of a stock picker.

[00:01:22] [SPEAKER_03]: By Michael L. with FinancialPanther.com

[00:01:27] [SPEAKER_03]: Simplicity.

[00:01:28] [SPEAKER_03]: It's what we all want to achieve in every area of our lives.

[00:01:31] [SPEAKER_03]: That's why we have Netflix instead of cable.

[00:01:34] [SPEAKER_03]: Plus, it's cheaper.

[00:01:36] [SPEAKER_03]: Endless two-day Amazon Prime deliveries.

[00:01:39] [SPEAKER_03]: Or Postmates making your favorite restaurant deliverable.

[00:01:43] [SPEAKER_03]: This post will show you how simple it is to do even in your financial life.

[00:01:48] [SPEAKER_03]: Hopefully by now you understand how important it is to invest in the stock market to grow your money over time.

[00:01:55] [SPEAKER_03]: As the saying goes, no one ever got rich from a savings account.

[00:01:59] [SPEAKER_03]: Especially nowadays with less than 1% interest.

[00:02:02] [SPEAKER_03]: But the next question many people ask is where do I invest?

[00:02:07] [SPEAKER_03]: Should you buy stocks, bonds, mutual funds, gold, or tons of other options?

[00:02:14] [SPEAKER_03]: This question alone shows why a lot of people avoid the market entirely.

[00:02:19] [SPEAKER_03]: It's complicated.

[00:02:20] [SPEAKER_03]: Honestly, you don't have to be a genius, Wall Street guru, or financial analyst to be a smart investor at any age.

[00:02:29] [SPEAKER_03]: All you need to do is focus on investing in low-cost index funds in your 401k, Roth IRA, or brokerage accounts, instead of picking individual stocks.

[00:02:41] [SPEAKER_03]: Make it a habit over time and your money will be diversified.

[00:02:46] [SPEAKER_03]: Have low management fees and track the market, which historically over time has averaged roughly 8% returns over the past century.

[00:02:55] [SPEAKER_03]: Slightly better than your .1% savings account.

[00:03:00] [SPEAKER_03]: While everyone wants to be Gordon Gekko or Jordan Belford as a stock picking guru or day trader,

[00:03:06] [SPEAKER_03]: the chances of success are very small for the average investor.

[00:03:11] [SPEAKER_03]: Picking stocks is expensive, takes time to research the companies, and can be a lot riskier than index funds.

[00:03:19] [SPEAKER_03]: By picking stocks individually, you…

[00:03:23] [SPEAKER_03]: Number 1. Have a lot of your eggs in one basket.

[00:03:28] [SPEAKER_03]: Example, if the company has a bad earnings call or something affects the stock, your investment will be directly related.

[00:03:36] [SPEAKER_03]: Number 2. Live and die by one company.

[00:03:40] [SPEAKER_03]: This happens a lot when people invest their 401k or employee stock into their employer.

[00:03:46] [SPEAKER_03]: There may be benefits, but it can also cloud your judgment as you're already emotionally invested in the company.

[00:03:54] [SPEAKER_03]: And number 3. Have to stay actively engaged and research the stock.

[00:03:59] [SPEAKER_03]: Who wants to read earnings calls, understand a balance sheet, and learn their price-to-earnings ratio?

[00:04:06] [SPEAKER_03]: Just writing that made me bored.

[00:04:09] [SPEAKER_03]: Is index investing as sexy as buying Netflix years ago and making 300% gains?

[00:04:16] [SPEAKER_03]: Or Amazon or Apple a few years ago?

[00:04:19] [SPEAKER_03]: The simple answer is no.

[00:04:21] [SPEAKER_03]: But unless you have a few hours a week to study each stock in your portfolio,

[00:04:26] [SPEAKER_03]: don't bother with individual stocks until you have a decent amount of wealth built up.

[00:04:31] [SPEAKER_03]: Instead of stock picking, focus on index funds.

[00:04:35] [SPEAKER_03]: What's an index fund?

[00:04:37] [SPEAKER_03]: As the name implies, index funds follow a specific index, like the S&P 500 or Dow Jones.

[00:04:46] [SPEAKER_03]: Historically, these have returned about 8-9% annually.

[00:04:50] [SPEAKER_03]: While you may get more in some years from individual stock picking, you may also lose a lot more on down years.

[00:04:58] [SPEAKER_03]: Index funds try to keep performance consistent and reliable.

[00:05:03] [SPEAKER_03]: Investopedia defines it as, quote,

[00:05:06] [SPEAKER_03]: A type of mutual fund with a portfolio constructed to match or track the components of a market index,

[00:05:14] [SPEAKER_03]: such as the Standard & Poor's 500 Index, or S&P 500.

[00:05:19] [SPEAKER_03]: An index mutual fund is said to provide broad market exposure, low operating expenses, and low portfolio turnover.

[00:05:28] [SPEAKER_03]: End quote.

[00:05:29] [SPEAKER_03]: Basically, it means that index funds are a single fund that invests in hundreds of individual stocks or bonds.

[00:05:37] [SPEAKER_03]: Let's look at an example to simplify.

[00:05:40] [SPEAKER_03]: VTI, the stock ticker symbol, is known as the Vanguard Total US Stock Market Index.

[00:05:47] [SPEAKER_03]: The 10 biggest stocks in the fund are very big companies and would take thousands of dollars to invest in each company.

[00:05:55] [SPEAKER_03]: Instead, with an index fund, you get to be partially invested in all of these big 10 companies and thousands of others,

[00:06:03] [SPEAKER_03]: instead of buying each stock individually.

[00:06:06] [SPEAKER_03]: This is an example of an index stock fund, meaning no bonds are in these funds.

[00:06:12] [SPEAKER_03]: Now you've understood the hard part about the original question, where do I invest my money?

[00:06:17] [SPEAKER_03]: Next up is understanding how to be lazy with your portfolio to keep the theme of simplicity going.

[00:06:25] [SPEAKER_03]: In fact, you want to make your strategy as lazy as possible, which is known as a lazy portfolio.

[00:06:32] [SPEAKER_03]: This is the only time I'm asking you to be lazy in life, but it's a strategy I have implemented and don't have much stress when it comes to contributing to my portfolio.

[00:06:42] [SPEAKER_03]: Lazy portfolios are meant for you to be able to invest in a few funds and be fully diversified with just a few clicks.

[00:06:50] [SPEAKER_03]: Make sure you're comfortable with your asset allocation and figure out which percentage of stocks to bonds will match your risk tolerance.

[00:06:59] [SPEAKER_03]: Here's an example of a two fund portfolio, which is great if you're just starting out and think investing is hard.

[00:07:06] [SPEAKER_03]: Lazy portfolio example.

[00:07:08] [SPEAKER_03]: Pros.

[00:07:10] [SPEAKER_03]: VTI, Total US Stock Market.

[00:07:13] [SPEAKER_03]: And BND, Total Market Bond Fund.

[00:07:16] [SPEAKER_03]: Pros.

[00:07:18] [SPEAKER_03]: Low management fees, which means you keep more money.

[00:07:22] [SPEAKER_03]: Low minimum investment, one share of each.

[00:07:25] [SPEAKER_03]: It's passively managed and diversified.

[00:07:28] [SPEAKER_03]: At the time of this article, between the two funds, you have 3,682 stocks in VTI and 7,911 bonds in BND.

[00:07:41] [SPEAKER_03]: Cons.

[00:07:42] [SPEAKER_03]: It doesn't have any international exposure.

[00:07:45] [SPEAKER_03]: This portfolio is good for beginning investors who don't have a ton of capital and want to keep it as simple as possible.

[00:07:53] [SPEAKER_03]: It can also be a great place to start and build upon.

[00:07:56] [SPEAKER_03]: If you'd like international exposure as well, look at VXUS, which is a total international stock fund that's currently invested in 6,041 different international stocks.

[00:08:09] [SPEAKER_03]: By choosing two or three funds, you have an extremely low cost, diversified portfolio.

[00:08:16] [SPEAKER_03]: Does this seem much easier than studying and buying each stock, or even the top 10 in the funds?

[00:08:22] [SPEAKER_03]: It should.

[00:08:23] [SPEAKER_03]: Most people don't invest until it's too late, because it seems tedious.

[00:08:28] [SPEAKER_03]: They don't understand how or where to invest.

[00:08:32] [SPEAKER_03]: And because it requires constant upkeep.

[00:08:34] [SPEAKER_03]: Then who wants that?

[00:08:36] [SPEAKER_03]: Lazy portfolios are the exact opposite and make your life simple.

[00:08:41] [SPEAKER_03]: Next time you decide to procrastinate on making your first investment, listen to this post again to remember how simple this is.

[00:08:48] [SPEAKER_03]: Lazy portfolios will let you set it and forget it.

[00:08:52] [SPEAKER_03]: And that's the goal, to keep our lives simple and easy.

[00:09:00] [SPEAKER_03]: You just listened to the post titled,

[00:09:02] [SPEAKER_03]: Why You Should Be a Lazy Investor Instead of a Stock Picker by Michael L. with FinancialPanther.com.

[00:09:09] [SPEAKER_03]: And I'll be right back with my commentary.

[00:09:12] [SPEAKER_03]: Buy low, sell high.

[00:09:14] [SPEAKER_03]: It's easy to say, hard to do.

[00:09:17] [SPEAKER_03]: For example, high interest rates are crushing the real estate market right now.

[00:09:22] [SPEAKER_03]: Demand is dropping and prices are falling, even for many of the best assets.

[00:09:27] [SPEAKER_03]: It's no wonder the Fundrise flagship fund plans to go on a buying spree, expanding its billion dollar real estate portfolio over the next few months.

[00:09:38] [SPEAKER_03]: You can add the Fundrise flagship fund to your portfolio in just minutes and with as little as $10 by visiting Fundrise.com slash OFD.

[00:09:48] [SPEAKER_03]: That's F-U-N-D-R-I-S-E dot com slash OFD.

[00:09:55] [SPEAKER_03]: Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing.

[00:10:04] [SPEAKER_03]: This and other information can be found in the fund's prospectus at Fundrise dot com slash flagship.

[00:10:12] [SPEAKER_03]: This is a paid advertisement.

[00:10:15] [SPEAKER_03]: As much as we work to demystify things like investing on this show, the reality is that passively investing in index funds is relatively boring.

[00:10:26] [SPEAKER_03]: I can assure you that my investments aren't where I get my kicks.

[00:10:30] [SPEAKER_03]: While the financial services industry might make it look like you need to try and beat the market to succeed with investing, this simply isn't true.

[00:10:39] [SPEAKER_03]: You can reach your financial goals over the long run by just matching the market through long-term index fund investing.

[00:10:48] [SPEAKER_03]: The reality is that the investors who are getting the best results aren't messing with their investments constantly.

[00:10:55] [SPEAKER_03]: I'm reminded of a famous quote from Jack Bogle, who's the father of index funds, when he said, quote,

[00:11:02] [SPEAKER_03]: quote, don't do something, just stand there, end quote.

[00:11:06] [SPEAKER_03]: In fact, a number of years ago, Fidelity did a study where they looked at which of their accounts did best.

[00:11:12] [SPEAKER_03]: And it turned out that they were the accounts of people who forgot that they had an account at Fidelity.

[00:11:18] [SPEAKER_03]: It really is possible and beneficial to be a lazy investor when you focus on index funds.

[00:11:26] [SPEAKER_03]: And that'll do it for today.

[00:11:27] [SPEAKER_03]: Have a great day and start to your weekend.

[00:11:30] [SPEAKER_03]: Thank you for listening.

[00:11:31] [SPEAKER_03]: And I'll be back here reading to you tomorrow where your optimal life awaits.

[00:11:34] [SPEAKER_03]: Bye.