Find Property:

Aim For Average Investing.

Today’s post is going to take some warming up to, but I promise if you can train yourself to subscribe to this very simple mantra, you’re going to grow and build wealth in your sleep.  We’re going to talk all about why it’s so important to aim for average investing.

Average investing?  But then I’m only getting average returns!  I want extraordinary returns!

Well, what about extraordinary losses, Pippin?

I’ve written before on the blog about the simple long-term strategy of investing in index funds, and we’re going to revisit that idea today.  

I realize that the concept of “aiming to be average” is very counterintuitive to what we’re taught in life.  For artists, the mantra is quite literally “Practice makes perfect” not “Practice makes mediocre”.  We have spent our whole lives trying to be the best at whatever we set our intentions to.  Here’s a little money secret that’s going to change the rest of your life…

Being the best at investing, can mean being completely, and overwhelming average.

Wanting To Be Average, Needing To Be Average, That’s What It Is!

You’re probably thinking, “What are you talking about Broadway Joe?  Who wants to be average? Aim for average investing?  That’s crazy!”

I know.  It makes no sense whatsoever.  Until it makes perfect sense.  Let’s rewind.

About a year ago I wrote about Index Funds & ETFs (exchange traded funds) in a post called Simple Little Things (go check it out, or revisit).

The simple overview of index funds and ETFs are they allow you to invest and gain exposure into a whole basket of stocks all at once.  

So for example, if you invest in one share of Disney – DIS today (at the time of this post), that would cost you $174.21.  You are now a very small owner of Disney.  Incredibly small.  It’s a small world after all.

Let’s say a year from now, we find out Mickey Mouse is crooked and corrupt, and because of his malicious behavior the whole company of Disney is going to go bankrupt.  That share you had purchased at $174.21, is going to go down, down, down.  Until eventually the company is no more, and then your ownership is no more.  Your stock is no more.  You lost your money.

“See, I knew that stock market was nothing but trouble!  I’m going to keep my money under my mattress like Grand-pa-paw said to!”.

No offense to your Grand-pa-paw, but please don’t do that.

Because you see, this is where Index Funds and ETFs are incredibly reliable and safe mechanisms through which to invest and build wealth.

Let’s choose a random fund, SPY- which is a fund that mirrors the S&P 500, a collection of the 500 biggest companies in the United States.  Perhaps instead of buying a share of Disney, you buy one share of SPY which at the time of this post is worth $444.60.

aim for average investing
Take a chance on ME.

Here’s a fun thought- the 500 biggest companies in the US includes Disney!  When you buy that share of SPY, you are still a Disney owner.  But guess what?  You’re also now an Apple owner, a Google owner, a Microsoft owner, and so on and so on.  So if Mickey ever does engage in corporate shenanigans that threaten the whole business- you are still diversified across the other 499 largest companies in the US.  Get it?

So at a base level, there is a huge risk assurance that comes from investing in index funds.  You aren’t putting all your eggs into just one basket, you are participating in lots and lots of different baskets.

It’s A Pretty Good Bad Idea, Being Average

Now maybe you’re thinking- ok, ok, I see the value in investing in index funds, but what’s that got to do with being average?  Why aim for average investing?

Because you see dear reader, when it comes to the stock market, it’s near impossible to predict what is going to happen next.  There are so many finance professionals out there that try and “time the market” for a living, betting which stock will go up one day, and which will go down another.

And guess what?  Most of them don’t succeed in beating the market!  That’s right!

There are multiple studies that show that nearly all professional fund managers and finance professionals cannot beat the benchmark of the market- or the average return the market will offer on an annual basis.

As mentioned it’s nearly impossible to predict what will happen next in the stock market.  But in a long term way, it’s pretty darn easy to say at the most basic level what is going to happen.

The stock market is going to go up.

It’s going to go down too, but in the long term, if 80+ years of historical data has shown us anything, the market will continue its upward slog.

In 2008 we suffered a financial crisis that sent markets reeling downwards.  On September 1st 2007 the S&P 500 was trading at $1,481, and a year later on September 1st 2008 it was trading at $896.

It took us a long time to get back out of that hole, but now the S&P 500 is trading $4,536 as of September 2021.  You see?  Things are looking up in Duloc.

That’s why to aim for average investing isn’t just a bad idea.  It’s a pretty good bad idea.

Finale Thoughts

I know it’s incredibly counter-intuitive to everything you’ve been taught in life- to desire to be average.  But it’s a solid and simple strategy that is going to take you far in investing.

And most of all, it’s easy to follow.

My best advice is do your research and pick a few index funds that mirror the market.

It’s impossible to say how companies will grow and fall over the next 30 years.  So take the guessing work out of it.  Bet on the whole stock market.

–  

And as shown with 2008 (then 2018, and 2020), the market is going to go down.  That’s normal.

Don’t panic and stay the course.

Because you’re in it for the long haul.  And you’ll look back on those little dips and turns one day from the top of the mountain and be really glad you took a wholly average approach to building your wealth.

The last thought I’ll leave you with is if you use this strategy, there is no bad time to start.  Start today, start now (Start a Roth IRA!).

$25 invested today in an “average” fund that gives you an average return of 10% per year is going to become $450 in 30 years, by absolutely no additional effort on your part.  Time is your greatest asset, and you need to make sure you use it to the fullest advantage.

So what are you waiting for?  Aim for average investing. Get started on being average!

Comments

Post a Comment