Earlier this week, the inadvertent farmer described her dabbling in real estate as a vehicle of financial independence. In a similar way of thinking, I thought I would describe how we deal with investing. Like she said, this may seem a little off topic but I suggest that the “norm” in stock market investing has little to do with what I will be discussing. Let’s consider the “not-norm” in investing. Believe it or not, there are ways to not lose your shirt and not panic every day as the stock market closes. To be sure, it is not for everyone and you can definitely lose money at the stock market game, but it’s also possible to be ok too. I am no stock market guru or advisor so take what I say with a grain of salt…this is just what we do…
A lot of times, when one thinks of investing in the stock market, we think of some poor person staring at a computer screen, either waiting to push a buy/sell button, hoping to time it just right or of someone ready to jump off the edge of a cliff because that hot stock tip overheard in the restroom didn’t pay off and his lifesavings is lost. One can absolutely trade like that and while you can win big, more likely than not, unless you are a brilliant business person, you will lose big.
Most people look at the stock market all wrong. We don’t usually go buy a new car because someone mentioned something about the latest model in the restroom. We don’t buy our house on a whim or because it has the biggest for sale sign in the front yard. In most every investment/purchase you make, you do research. You aren’t thrown about by the whims of people around you. You take your time and do it cautiously. Why on Earth would you treat your retirement or lifesavings any differently?
But gee whiz, I don’t really want to research the bazillion stocks and mutual funds and all that stuff. How do I do research then? I prefer to let other experts sort of take care of that for me. Enter Lazy Portfolios. Rather than trying to buy a bunch of individual stocks that can easily rise and fall based on totally unforeseen or uncontrollable events, lazy portfolios direct the investor to regularly and faithfully invest in mutual funds or exchange traded funds (ETFs) that sample large portions of various markets. For example, you might make an investment that is comprised of all the stocks in the S&P 500 by buying one mutual fund. You’ll own a representation of a ton of stocks with one purchase of these vehicles. It spreads your money across sectors/ regions/etc so all of your eggs are not in a single basket. While very few investments of any sort have done much in the last 2 or so years, several example lazy portfolios have done pretty ok, all things considered.
Of the lazy portfolios in the previous link, I like the Second Grader’s Starter…that’s exactly how we invest. It has a representation of the entire US stock market, a total representation of the international market, and a representation of bonds.
We buy portions of all three every other week…not a huge investment, but a regular investment. Sometimes we buy high, sometimes we buy low. In the end, we are betting on dollar cost averaging (check this idea out!) to level the ups and downs. I don’t try to time the market. I don’t try to tell the future. I just buy and hold. Over time, my investment compounds. I don’t panic when the market slides (though I do celebrate when it rises…shhh…don’t tell!) because I know I am going to be buying low and holding.
Warren Buffett, the Oracle of Omaha (read more about him…fascinating even if you’re not an investor) equated this idea something similar to buying hamburgers. He said that his household like hamburgers. They don’t celebrate and go buy lots of meat when the price of beef goes up. Quite the opposite, they are happier when they can buy it at low cost. If you buy quality stocks/bonds/mutual funds/ETFs that way, you can expect that buying low today will be a good thing as their prices will eventually rise (buying junk is always a bad idea of course).
Like I said, stock market investing is not for everyone, but if you look at it with a perspective other than “normal”, you may want to give it a try. There are lots of places where you can set up automatic investing strategies with low cost transactions and low/no minimum starting values (I like sharebuilder.com).
Do any of you folks dabble in the stock market? What are your investment strategies?
Warren can also be found at My Home Among the Hills writing about the adventures of life in WV.