The Best Way to Invest Your Money

I’m not one who gives myself a pat on the back when I do something right. I’m also not one who takes compliments well. But this time, I want to toot my own horn and tell you about what I’ve done as an investor.

After four years. I can finally say I’ve accomplished a goal that I strived for many years, but was unable to achieve. It wasn’t easy. It sometimes took a lot of discipline and composure to do this.

In order to accomplish this feat, I tuned out the cable financial networks. I avoided financial articles on topics like why you should avoid bonds or overweight your holdings in foreign stocks. More importantly, I ignored the daily market results.

What have I done the last four years as an investor that I’m so proud of? I’ve done absolutely nothing. It’s quite an accomplishment? Don’t you agree? It’s not easy to stick to your long-term investment plan through good and bad times.

Okay, I did do something. I rebalanced my investment portfolio twice. But that’s all I did. I also should give some credit to my advisor who helped me stay-the-course.

You might say: What’s the big deal? I tell you what’s the big deal about doing nothing. I can now say I’m behaving as a passive investor.

Yes, I owned index funds before. But that doesn’t make you a passive investor if you’re still chasing performance. How many of you have scrapped your long-term asset allocation plan by reducing your bond holdings this year?

In order to be a passive investor, you have to hold your investments over a long-term horizon. I know four years is not a long time. But for me, it’s quite an accomplishment.

What is passive investing?

• Passive investing doesn’t try to out-smart the market. Instead, it tries to match the major market indices.
• It’s a type of investing that usually uses index funds to help replicate market performance and lower operating costs.
• It slowly builds wealth over a long horizon by using a buy and hold strategy. Whereas, traders and market-timers focus on short-term results.
• Passive investing usually has lower investment costs by avoiding fees associated with frequent trading.
• It also usually gets better after-tax results over the long-term.

I don’t know anyone who knows how an investment is going to perform over the short-term. But I do know that it’s highly likely the market will produce positive returns over time. That’s why it’s important to focus on the long-term rather than short-term results. It’s what a true passive investor does.

You can read my other articles about money and retirement at HumbleDollar https://humbledollar.com/author/dennis-friedman/