So boring…
In our recent interview with ABC World News Tonight we covered a lot of topics that didn’t make it to the final cut. We spent a lot of time talking about investing… how we invest, how much time it takes, my level of investing expertise compared to a layman, and recommendations for the average individual.
The reporter I spoke with was really interested in our lifestyle, and the whole conversation felt very natural and genuine. After I answered all of her questions about safe withdrawal rates, cap gain harvesting, cash flow management, portfolio rebalancing, asset allocation, and all of that other mumbo jumbo buzzwordy stuff, she asked a really powerful question that really struck me…
“What about me? How would I ever be able to do all of that?”
Everything about that question…. intonation, tone of voice…. made me feel as though I had completely failed as a messenger. Sure, I answered the questions she asked… but I didn’t address the heart of the matter. It’s probably the same on this blog. (I’m an engineer, not a politician.)
This is how I (tried to) remedy that.
Investing is Boring
As somebody who has never piloted a commercial airliner, looking at the cockpit is a bit intimidating. Look at all of those dials and buttons! Even after asking an experienced pilot any questions I could think of, I’m certain I would walk away convinced I could never fly a plane. It’s too complicated.
To most people this is what investing looks like.
So easy anybody can do it (image from Boeing.)
Dear Gawd…. please kill me now… (image from stockcharts.com)
Fortunately, you don’t need to know how to fly a plane to vacation on a tropical island. And you don’t need to know how to manage a hedge fund to invest and/or become financially independent.
Investing is seriously one of the most boring things I do, which is why I spend as little time on it as possible.
Investing 101
Investing is simple and easy.
Step 1 – Setup an automatic contribution from every paycheck (pay yourself first) into a Vanguard index fund in your 401k or IRA.
There are no other steps.
We can get more complicated that that, sure, but those complications are optional. JL Collins has a wonderful guide to Step 1 and beyond in his book The Simple Path to Wealth. (Note the word “simple”)
The primary goal of an average investor (like me) is to just track the performance of the index. In other words, to be average. The more boring, the better.
90% of the experts on television fail to achieve this goal in any given year, especially after taxes and fees. (They are below average)
Sometimes the experts will beat the index for a year or two, and then build an entire career on that lucky streak. I guess I should become a talking head on all of the news programs now since our portfolio beat the index over the last year (pure luck.)
Woohoo, we beat the market (for now)
Q&A
Here are the answers to the ABC interview questions:
1. How do we invest?
Here is our portfolio: 90% stock (75% US, 25% International), 10% bonds. All index funds.
2. How much time do I spend on managing investments?
I do some tax management in December every year, which takes about 7 minutes. I also track our spending closely, which takes around an hour every month.
3. What is my level of investing expertise?
I’ve read 100s of books on investing and economics, from basic investing 101 type books up to complicated topics like option valuation using the Black–Scholes–Merton model. I don’t use any of it beyond the Investing 101 concept explained above. Reading books doesn’t give me any special investing expertise though… I’ve read books on quantum physics and am just as confused as I was before.
4. What should the average person do?
Setup an automatic contribution from every paycheck (pay yourself first) into a Vanguard index fund in your 401k or IRA.
And here are some questions I’ve received from friends/family/readers:
1. Jeremy, I haven’t done anything with my portfolio in years. I need to do something!
No. No you don’t.
2. Should I Dollar Cost Average or Lump Sum invest this cash balance?
Whichever is most convenient.
3. Do I need to keep some cash on the side as “dry powder”?
No.
4. Why do you say it is good to be average? I want to be above average.
Ironically, if you are an average investor you are above average. (The Investors Paradox)
5. Should I rebalance our portfolio every year?
If you want. It probably doesn’t matter.
6. I have a friend who is really into dividend investing. What do you think?
Not boring enough.
7. Aren’t you worried about (interest worrisome topic here)?
No.
8. Isn’t the market high right now?
I don’t know. Nobody else does either. See Step 1 of the 1 Step Plan.
9. Why did you read so many investing books if they are so boring, smart guy?
Because I thought it was necessary to be an investing expert to retire early. I was wrong. (I’m not that smart.)
10. Why do I feel like you are bored with all of these questions?
Because investing is boring. As it should be.
11. Why aren’t the answers to these questions longer?
Because they don’t need to be.
Summary
If I haven’t completely failed as a messenger yet again, then the clear take away should be:
Investing is simple and boring. The simpler, the better. The boring(er), the better. Average is above average.
I’m not interested in flying the next airplane to our holiday destination, and I’m not interested in managing my own hedge fund. Dear portfolio: Just perform as the market does while I live my normal life, and don’t bother me.
99% of investors should just follow my (patent pending) 1 Step Plan:
Setup an automatic contribution from every paycheck (pay yourself first) into a Vanguard index fund in your 401k or IRA. The end.
Are you bored yet?
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That picture reminds me of the scene in the classic movie “Airplane” where he realizes he has to fly and land the plane and the cockpit goes on forever and ever, with a bajillion button and dials.
At it’s core, competent investing (the passive way) is indeed basic and easy. Perhaps we in the PF blogging community are making it appear too hard because we blog about so many nuanced things that are all really just tangential aspects of the basics.
Absolutely loved this blog post. Thanks.
Thank you! :)
I don’t think I’ve seen the original Airplane, probably because the only thing that bores me more than investing is Leslie Nielsen.
This is awesome. So many people don’t invest because it’s too complicated. Others try to beat the market and fail miserably. This guidance helps both.
The only information that I think is missing is if step one includes Roth or Traditional. A new investor will have to make that call. Also, what to do when you’ve already maxed out your 401k and or IRA. Many trying to FIRE will encounter that situation.
Taxable account
Very complicated – a tax advantaged ETF or mutual fund :)
Great post!
I think more people should realize that passive index investing is not complicated. Boring is good I think for this.
Good post, and the Q&A section was quite entertaining (not boring).
Jason – I think there is more needing to be asked than Step 1 but the idea is that once asked, that is your prescription.
Was interesting to see your stock:bond ratio. FWIW – I’m invested in 92% stocks only because my wife wants ‘her’ portfolio to have some bonds. Similar to the dry powder answer, I don’t care to invest in things that don’t match the stock market over time. I don’t get rattled by downturns so don’t sell in a panic (though I have transacted to take advantage of the opportunity of others’ panic). May change the bond thinking when I do retire but my goal is to have enough saved that the next downturn(s) won’t affect our QOL regardless, so perhaps not. Being retired for decades means needing growth. Bonds seem very counter to that.
I doesn’t have to be boring. Just create a trading account, put some money and go trading and learn about technical chart analysis. It’s very exciting but you have to like doing it otherwise just stick to what GCC does which is indeed very boring. !
Boringest is bestest!
In regards to technical analysis (TA), what is found more often than not is that TA traders trade more frequently and ultimately have lower returns. The arguments for TA seem intriguing but always keep a few things in mind:
1) TA in hindsight is more intriguing than TA in the moment.
2) For each successful chart pattern that worked for one stock, there is the same chart pattern some where else that didn’t work for another stock.
3) If it really did work, then beating the market would be easy, but it remains largely impossible. For example, in 2017 the S&P 500 returned 21.83% and all U.S. mutual funds returned an average of 18.26%. Not beating the market is the norm.
The other part of “if it really did work” is that there would be multiple trillionaires waltzing around the planet
Exactly. There is no “system” that works reliably and consistently to predict anything in the market. Thus, no multiple trillionaires walking around. The only thing anyone can rely on is that the market will go up over the long-term. If that is the only thing that is true, then “buying the market” (i.e. index fund) and holding for the long-term (i.e. forever) is the only thing that can work.
“the only thing that can work.” ‘Nothing succeeds like success.’ Come by or build a pile of money large enough relative to expenditure times longevity then the share market is not needed and becomes an entertainment.
“market always goes up” That might be true in the f… US…until now…can’t wait for China to take over @!
Mutual funds are huge beasts that cannot actively trade in totality. TA associated with a very rigid control of gain/loss ratio leads to very successful results indeed.
I don’t agree with GCC when he says that being an average is OK or above average as he says. I Want to be among the top 10% best. How do I get there? That’s my goal and I won’t give up !
“I Want to be among the top 10% best. How do I get there?”: Recognising that share market prices are random in the short term with a relatively modest positive yield in the long term. Avoiding ‘technical analysis’ apophenia.
Best of luck to you.
When you’re a bastard (in a good way) who has millions, of course it doesn’t matter and everything bores your and nothing worries you…that’s only for those who are born as (lucky) americans
I’m not sure what that means exactly, but I like this picture.
Wonderful response!
If the simpler the better… why not just throw all of the equity allocation into VTI/VTSAX?
Yes.
I really relate to the feeling of having ‘failed as a messenger’ with this sort of stuff. When you’re living it, I’ve found this all feels incredibly simple and easy, but it always seems that from the outside, no matter how I try to explain it, most people view these concepts as difficult/complex/foreign.
I hope that over time the mainstream press covering early retirees such as yourselves will gradually shift from “look how crazy and unique” to “look, you could do this too!”
I see what you (and this post) are saying about the message/messenger. We all might do a better job with delivering the message, but the issue might also be the recipient of the message.
Until someone is ready to hear the message–and, importantly, to act upon it–the message will seem more complex and unreachable than it really is. In our household, we now realize that we’d come across the same information about index investing for some years before we had our “aha” moment. And when we wanted to hear the message, the message became so simple that we wondered why/how we thought it was difficult for so long.
Loved this boring post.
Loved the images of how complicated investing looks to most people.
Loved the spot-on Q&A
Loved that you recommended my book (thank you!), although truth be told those who just follow this post won’t need it.
So, did you tell the nice lady on ABC World News Tonight about the Simple Path to Wealth? ;)
I was told that that we were Plan B because they couldn’t get in touch with some Collins guy. Go figure.
Great post! Successful investing is boring, but it’s so hard for us to believe that, we feel the urge to read 100s of books and study 100s of nuanced discussions of simple rules in order to convince ourselves that all you really need to do is get in the stock market and stay there.
I look at it this way. If you’re investing and getting bored by it, your investment must be growing. That means you’re happy, a disciplined investor and you do not let your personal emotions affect your investing decision. I’m sure experience and knowledge must have a lot to do with it.
I’ll go one step further and say you should be bored by it. Terribly bored. If you want some excitement, go skydiving or something.
I have had a bit of exposure therapy.
Our portfolio is overly complicated. I’ve been trying to simplify it for years and I’m making some progress. The retirement accounts are all invested in Vanguard funds now. We still have dividend stocks in our taxable account, rental properties, and a few other things. In 10 years, I hope to be where you are. I need something to write about. :)
It’s been a slow process here too. I ditched all of our individual stocks a few years ago when it was tax convenient. Little by little…
omg, ur lucky bastard reply was AWESOME..was looking to see how many messages you got to til you got a hater…so few ??s
Concerned about sequence of return events? What should a comfortable withdraw rate be? I’m seeing 3% now since we’re living longer.
How have you set up your bonds? Short med long…any international?
Did you ever go through with the house in Seattle? Things continue to go bonkers here. Due to taxes not being deductible in California, there’s a thought that even more californians are moving to Pac NW.
Thanks in advance
Lots of Cali people moving to Texas too. No income tax and cheap(er) real estate, and the sun actually shines in the winter.
People like to worry about things. It’s probably better use of our worry muscle to focus on avoiding cancer or other major life changing/threatening conditions than on portfolio stuff that we can’t really control. That’s not to say some planning isn’t warranted… don’t worry about the possible blizzard this winter, just keep a warm jacket and boots handy.
Some things you can do to minimize worry:
– work a little longer (same as saving more to get a lower withdrawal rate.)
– spend a little less in the early years (travel in Guatemala instead of France.)
– make a small amount of extra income from time to time
– visualize the worst thing that has ever happened (stoicism at work)
– find inner peace (Ommmmm…..)
Worry…I tell people my parents worried about The Bomb and my generation worried about The Draft. My children’s generation worries about bst and gmo corn. I think we just need something to worry about.
I like your suggestions.
I agree that investing isn’t that hard, but what I call “money math” is not that intuitive to some people. I had a very bright friend in college who took an introductory economics course with me. He struggled with everything about economics (though he was indeed quite smart).
I found econ strangely easy and eventually majored in economics. I think it is important to recognize that different people have different bents. This doesn’t mean even those who don’t have natural money smarts can’t learn, but for many of them the better move is to hire someone (not a buddy) on a fee-only basis to help them get into index funds, etc., and concentrate on their careers.
You worked at MSFT as I recall, I have a lot of friends there. One left the firm when he was making about $4 mill a year (after building up a pretty substantial portfolio). I’ve always admired that, despite his being super competent, he recognized that he had neither the talent nor the interest to truly manage his fortune. He hired a great manager who has taken him through the financial crisis and beyond in flying colors. I’m guessing the manager costs him about 10k per year and also does his taxes. Money well spent in my book at that level.
I know this goes against the spirit of this do it yourself blog (and I’m that way too), but maybe that journalist should just hire someone…..
I can understand the appeal of hiring someone. Paying 1% of AUM for a guy with 10s of millions is not so bad. It’s like the other pay for hire services that the uber wealthy enjoy – personal chefs, chauffeur, etc…
When you are on the edge of the 4% rule though, that is 25% of your entire potential cost of living. Plus odds are high that their load is even more than 1% AUM after taxes with active management, and over time unlikely to match the index.
At a mill or above, you should be able to get straight index investing done for you for a half percent or less. So it is definitely doable and you are still just tracking the indices. So it is an option. Of course, no matter what. Anyone hoping to live off their assets should develop a baseline level of expertize.
A $20 million dollar portfolio would have fees in excess of $200,000, so it’s likely the manager costs a lot more than 10k per year. Also I’d never let an advisor do my taxes, that’s putting too much trust in one person.
Plus he probably has a really big whole life insurance policy because you just get tired of listening to the constant sales pitch ;)
Hah. Good one.
See my response to Jeremy above. The higher the AUM, the lower the fees. Plus, you can just do what my uncle does. He pays a guy once a year on an hourly basis just for a reality check on his allocations, etc. That probably costs him about $1,000–but it is money well spent once you get into the seven figures. More broadly, at 20 mill or above, I agree that one will likely pay more than 10K–but that is for trust-related and other services that are way beyond the scope of GCC’s post here.
No body “wins” an argument in a comment, so I won’t even try! Fortunately, everyone is entitled to their opinion.
Index investing is great, no doubt about it. Low stress, low maintenance. Since some of the stocks in the index fund pays dividends, the dividends go into the funds. So owning index funds does not result in “fewer dividends, please.”
IMHO, dividend investing is as boring as it gets, even more boring than index investing.
When an investor tries to avoid dividends, then they are relying on the price to increase. Hopefully it will be higher than what they paid for it when it comes time to sell. But no one knows what will happen in the future, maybe the market will be down when it is my time to sell. The market doesnot always go up, no matter what the experience of the last decade. Life changes might dictate when I need to sell, not the state of the market. And so on.
No need to argue.
The yield on an index fund is generally lower than on a dividend targeted portfolio => fewer dividends.
The funds will distribute any dividends the underlying companies pay out. Dear companies of the S&P500, please pay fewer dividends.
I suspect that the fact that it is boring to the vast majority of people is why it ends up seeming complicated to them.
It’s so boring they don’t really want to take the time to look in to the basics and think them through and just give up and decide it’s too complicated for them. They just don’t differentiate between something being boring because it is too complicated for them and something that is just boring because it’s boring.
You can learn this simple boring way of investing with a few hours of reading up front and then no more than an hour of work maintaining it every year so it is even easier than doing your own taxes using something like TurboTax, but unlike your taxes no one is forcing you to do your investing.
Love this post. I live by the saying that if you can’t explain something simply you don’t understand it enough. I was on a walk the other day thinking about how boring my investment strategy is. It is funny that this article popped up.
Honestly this post is the 90% solution. All the other stuff out there is designed to either over complicate investing so you pay some one else to do it for you or to squeeze out that last 10% of optimization i.e. 529, capital gain harvesting, tax reduction strategies. One of the hardest parts is to know which of the advice to listen to. A simple trick for that can be to ask what does this person intend to gain if I implement their advice. Or you can ignore it all and just follow step one of GCC and be confident that you have the 90% solution.
I’ve never understood why people think investing is boring. It’s anything BUT boring!
Capitalism at work is like getting paid to watch wild animals hunt each other in a delicious whirlwind of commerce.
I’ll be hanging out over here in a coffee shop reading a book. Let me know which wild animal wins ;)
I have a friend that’s a professional gambler. He’s been successful as a gambler but doesn’t have a clue how to handle money. I know that’s a paradox, but trust me, it’s true.
I’ve turned him on to The Bogleheads, MMM, et al., but he still thinks he can beat the market and loses his ass. He keeps coming back to me, talking about investing, but I want no part anymore. Fact is, like you say, investing is boring. And that’s good ;)
It’s almost like a game of discrete probabilities (poker) and a fluid market place that expresses the emotions and expectations of 8 billion people are two totally different things.
Yes! Investing *should* be boring! Life is interesting – let your investments run their boring old selves, and use the product to live an awesome, amazing, interesting life :)
What if you already max out your 401k and IRA? Then buy Vanguard mutual funds with the extra cash you have sitting around?
Put it into an HSA if you have one. If not, then probably your best bet is into a Vanguard brokerage account into a index fund such as VFIAX or VTSAX.
Put it into a tax-advantaged Vanguard ETF or mutual fund. They kick off minimal cap gains and dividends so you won’t have a lot to declare on your taxes, yet you will still see good market growth.
This post on boring investing made me laugh. I haven’t done much with #5 (rebalancing). I’ve wondered about the differences over the long term with annual rebalancing vs not (both with index investing…)
Vanguard has a study somewhere that shows minimal risk/reward for rebalancing.
Here are a couple quotes from Jack Bogle.
The exciting part is watching the money compound over the years! The management is definitely boring as it should be.
Reading this post made me think of Fidelity’s review of investors who did the best: they were either dead or forget they had accounts at Fidelity. Sometimes it’s best to just leave it alone and not tinker with it. It sounds counterintuitive but it’s good to be lazy (don’t tinker) and cheap (low fees) when it comes to investing!
This is why I just try to be bored to death.
While in theory the one step plan is sufficient, in reality you need to know more than you need to know. Investment learning/training/research isn’t about developing the skill to beat the market. It’s about developing the intestinal fortitude to stay the course. I’m glad you referenced JL Colins. People need to learn a little about how the market behaves before they commit too much.
I have a different take. Your first “market behavior” experience is a lot like baking a soufflé. No matter what you’ve heard or what you think you know, you really don’t know jack until you’ve seen your pride and joy collapse into a pile of mush in your face. We all start investing from zero which gives plenty of time to get a little experience and exposure therapy.
Love it! But, of course, I need to ask how you chose the INTUIT stock chart, as it happens to be my favorite stock?
I googled “stupidly over complicated stock chat” and that was the first one that came up :)
I use TurboTax, but would appreciate it if they stopped lobbying Congress so we could just get a simple free IRS created online form instead.
Love that what you googled!
Occam’s razor, the simple explanation is the best.
Occam’s razor: the explanation requiring the least assumptions is the simplest.
Flying is boring until the wings fall off. Investing is boring until prices plummet.
Nailed it. There’s a quote from Bethany McLean that I like. She said, “Building a portfolio around index funds isn’t really settling for the average. It’s just refusing to believe in magic.” That about sums it up.
Thanks for the KISS method of investing GCC :) … if fellows/gals have a further itch for wheeling and dealing in investments I think you provide ample evidence that playing the stock market is not the way to do it, but rather perhaps if you are stationary … some folks seem to do well with real estate rentals … if you like/enjoy the hands on aspect of getting your hands dirty with the odd leak or stuck toilet or carpentry etc …alternatively small side gigs like overseas ESL teaching or some simple biz like your website … or online consulting etc etc … I find more fun stuff … is similar stuff to your posts on family, schooling for junior, travel stuff and hacking, life overseas , the philosophical aspects of the FIRE lifestyle, daily life and biking around Taiwan, and health tips, frugal life tips … cooking tips, … was looking at health and longevity by country …. that makes for a good travel list of places to see? …. Michael CPO, From the Far Side of the Planet
https://edition.cnn.com/2018/04/30/health/life-expectancy-habits-study/index.html?no-st=1525136591
Everyone wants a get quick rich scheme. The only skills needed are consistency and tenacity. Thanks for reminding us of the basics!
I’m a big fan of your blog. I really enjoy your topics and your writing.
Thank you Frank!
You sent me to sleep…
I guess your work here is done.
:P
zzzzzzz…..
I laughed myself all the way through this post. Love it.
I love how you’ve broken it down. Is it the same strategy type for all countries? I’m in the UK.
more or less the same everywhere – invest in index funds in a tax advantaged way.
Your secret genius is that you have an insanely good understanding of the tax code, and the patience to have attained it. Brilliant!
It’s my super power. T-shirts should be made
Hi! Stupid question: do you live using the dividends? Like getting a check each quarter? Or do you make withdrawals?
Love the blog btw!!
It depends on total expenses, but some of both.
https://www.gocurrycracker.com/cash-flow-management-early-retirement/
Love this post! Sadly though, Index Funds here in the Philippines are costly (lowest Management / Trustee Fee is 0.75% p.a.!). I wish Vanguard will come rescue us.
As someone not from (or in) the U.S., you lost me at “your 401k or IRA”. 😢
I bet you love our tax returns :)
Replace that phrase with “a tax deductible / tax deferred account.”
Out of curiosity I’ve got a question to you, Jeremy…
You say that you use divvies/withdrawals for your living expenses, but just for a full disclosure your blog income supports your current expenses, right? Money is fungible. I think your readers (especially new ones) should be educated, that even though you claim to live of your investments it’s not really true because blog income is replenishing the investment bucket. The net effect is that you’re not living off your investments, but thanks to the blog income you are able to employ tax efficient ways of using the blog’s generated income.
Have you shared this kind of statistics of your blog. Some bloggers share freely, others are guarding it strongly, not sure what camp you fall into……
No, blog income doesn’t cover our expenses.
You can use the archive page or the search function (in the menu) to explore this question. And read this.
VTI is almost all SP500, which is almost all large cap growth. Large cap growth has done very well the past 10 years. But the 10 years before that, 2000 – 2009, the S&P500 lost, on average, 0.9% per year. You might want to consider diversifying into other equity classes, such as value, and small cap.
VTI is perfectly weighted with large / mid / small cap. No need to overweight.