If you’re not a professional investor you might find it difficult keep up with breaking news that would effect the stocks in your portfolio. Reading and interpreting financial statements, conference calls, economic indicators, is a lot of work. Successful investing is complicated and time consuming, but does it have to be?
Do you have what it takes
Even if you’re a pro, it can become a life consuming obsession to outperform the market. Peter Lynch, (one of the most notable portfolio managers ever), was known to work 24 hours a day seven days a week. He talked to company executives, investment managers, industry experts, and analysts around the clock. He would even work while with his family at the dinner table.
In his book, Beating the Street, he describes how he would purposely use the less traveled backroom stairs to avoid running into anyone he knew, so he wouldn’t waste time talking with co-workers. He even mentions that during a ski vacation, he would make calls to his office to put in buy and sell orders after every trip down the mountain.
Because of this his obsession Peter Lynch earned an average annual return of 29% over 13 years. So do you think you have what it takes to achieve these types of results? If you’re like most, you probably don’t have the drive and determination to invest well.
So what is a would be investor to do? Brave the wild world of the markets and build your skills against the fury of aggressive traders, mammoth market movers, lightning fast computer-algorithmic trading systems, and the more informed institutional investors? Or maybe you can align your cash with an accomplished mutual fund manager. Unfortunately with their turnover and fee’s, most underperform the market.
May I suggest a simpler solution? As another famed investor John “Jack” Bogle, (the founder of Vanguard), has been preaching for years, look towards an index. An index automatically supplies market diversification to protect you from unsystematic risk. They also have extremely low fees, usually no more than a tenth of a percentage point. Interested?
You don’t have to constantly buy and sell, so you avoid capital gains taxes and other fees. Also it’s an easy way to own some of your favorite companies that make up that index. This is a passive strategy, you simply buy and enjoy your free time, while your money compounds away.
Average isn’t so bad
The most common index, the SPDR S&P 500 ETF Trust (NYSEMKT:SPY), has over the past 20 years, returned 275% for investors, that’s an average of around 14% per year. If you invested $10,000, 20 years ago, you’d have $132,459 today. That’s a pretty astounding return when you consider the effort involved.
By buying the S&P 500 you will own a portfolio flush with some of the markets best treasures. Its top holdings include great companies like Exxon Mobil Corporation (NYSE:XOM), Apple Inc. (NASDAQ:AAP), Microsoft Corporation (NASDAQ:MSFT), Johnson & Johnson (NYSE:JNJ), and Berkshire Hathaway Inc. (NYSE:BRK.A).