Most people who embrace index investing are attracted to the low fees and the proven performance compared with a majority of active strategies. But another advantage sometimes gets overlooked, and that’s the peace of mind that comes from a long-term plan that allows you to ignore the distractions of daily market movements.
I recently received an email from a long-time reader named Steve, who described his investing journey. “I’m curious if my experience of ‘inner investing peace’ is unique or typical,” he says, so with his permission I’ll share some of the details.
“I’m in my mid-40s and I was already familiar with the theory behind passive investing when your blog was becoming popular back in 2010,” Steve writes. “I’d already had run-ins with expensive mutual funds, and I had already done a fair amount of (unsuccessful) investing in individual stocks as well. I had a friend who traded options, and I even dabbled in that. I then moved on to dividend growth investing for a while. My problem was I was never patient enough: I wanted results immediately.”
Shortly after the crash of 2008–09, Steve began reading about indexing and the evidence won him over, but he still couldn’t bring himself to turn theory into practice. “I remember having arguments with people about how Couch Potato investing was the only option that had a chance of long-term success, and then I would go home and buy options on gold shares in my own portfolio!”
Steve was also getting bogged down in details. “I would create spreadsheets, check stock prices, check account balances. I’d obsess about whether I should add real estate, and if so, which ETF was best. I’d wonder what percentage I should devote to bonds, and if I should stick to short-term bond ETFs because interest rates are obviously going up. I was probably spending seven to 10 hours a week on these activities.”
“A plan I can stick to”
Sometime in 2011, after several years of failed experiments, it finally dawned on Steve that he’d had enough. “I’ve tried to think of the trigger, but I’m not sure I can tell you. A couple of things played a part. First, I got busier: I started to coach my kids in sports and my business took off—I simply didn’t have time to follow the markets. Second, I finally started to honestly accept my weaknesses as an investor. What was I doing playing the gold markets? How on earth could I possibly hope to win at that game?”
So Steve rebuilt his wife’s RRSP using a simple five-ETF portfolio, and in his own account he replaced everything with a single balanced fund. “I’m now into year three of this investing plan and I haven’t deviated once. The best part is I spend maybe an hour or two a month reading the odd article or blog, and maybe an hour a year managing my accounts. I just buy the balanced fund when I add new money to my account, and each January I rebalance my wife’s RRSP by making five trades. It really couldn’t be easier.”
Others may arrive at a similar state of peace using different strategies—indexing is not the only one investors will stick with over the long term. But I would argue there’s no other strategy that is quite as liberating. As Steve discovered, it’s not about the specific nuts and bolts in the portfolio. It’s about freeing yourself from the idea that to succeed as an investor you need to be glued to BNN. “Before, I would say I didn’t care about the movement of the markets, but my behaviour proved that was a lie. Now I know I really don’t care. I’ve gained a lot over the past few years: peace of mind, extra time to spend on more productive pursuits, and importantly, an investing plan I believe in and can stick to.”