Proud of Nothing
I'M NOT SOMEONE who pats himself on the back when he does something right. I���m also not someone who takes compliments well. But this time, I want to toot my own horn.
After four years, I can finally say I���ve accomplished a goal that I���ve worked toward for many years, but was unable to achieve. It wasn���t easy. It took a lot of discipline and composure.
To accomplish this feat, I tuned out cable business news. I avoided financial articles on topics like why you should sell bonds or overweight foreign stocks. More important, I ignored the financial markets��� daily performance.
What have I done the past four years that I���m so proud of? Absolutely nothing. It���s quite an accomplishment, don���t you agree? It���s not easy to sit on your hands, sticking with your long-term investment plan through good times and bad.
Okay, I did do something. I rebalanced my investment portfolio twice. But that���s all. I give some credit to my financial advisor, who helped me stay the course.
You might say, what���s the big deal? Here���s what: I can, at long last, say I���m behaving like a passive investor. Yes, I owned index funds before. But that doesn���t make you a passive investor if you���re still chasing performance. This year, for instance, how many index-fund investors have upended their long-term asset allocation plan by reducing their bond holdings?
To be a passive investor, you have to hold your investments over the long term. I know four years isn���t a long time. But for me, it���s quite an accomplishment. What is passive investing?
Passive investing doesn���t try to outsmart the market, but rather endeavors to match the performance of the major market indices.
It���s a type of investing that seeks to minimize costs, including costs for trading and investment selection.
It usually delivers better after-tax results.
It slowly builds wealth over the long haul by using a buy-and-hold strategy. By contrast, traders and market-timers focus on short-run results.
I don���t know anyone who can forecast how stocks and bonds will perform over the short-term. But I do know that it���s highly likely the financial markets will produce positive returns over long periods. That���s why it���s important to focus on long-term rather than short-term results. It���s what a true passive investor does.
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