Long-Term Investing Advice

If you’re reading this, it’s because you’ve probably asked me about investing in the stock market. I’ve been investing for a long time and made my fair share of mistakes, and I decided to sum up the very simple advice I wish I had heard and listened to when I first started.

What follows is good advice. I am not advising you as a professional financial advisor, but I am telling what I am doing myself, concepts that are widely acknowledged as “tried and true” even by Warren Buffet. It is so simple, anyone, and I mean anyone, can do it. It’s not a scam, or a get rich quick scheme. It’s not exciting, it is boring. However, if you would prefer to watch a TV show or literally do anything else in your free time instead of reading financial annual reports, then this article is for you.

Doing well investing doesn’t require high intelligence, a big time commitment, academic credentials, or tremendous knowledge. You just have to remember three things:

1.) There is only one sure fire way to make money doing nothing, and it’s by owning low cost index funds or a mutual funds, and never ever selling, only adding.

2.) Never try to time the market and never get out of the market. Over my lifetime, I have noticed that friends and family only ask me about investing when stocks are way up and when they are way down. There are many reasons for this, almost all of them related to the news cycle and how information travels. A non-professional investor is almost always timing the market wrong. The solution is to invest incrementally over time (not all at once) and never sell. If you sell, you have to buy back in and most people don’t. Trust me, they don’t. I have made this very mistake and it cost me dearly in 2008-2009. You will miss the sudden rally and have to buy back in HIGHER, which is hard to do and because people avoid hard things, you won’t do it. So do the easy thing, invest incrementally over time and never sell.

3. Pick a low cost index fund. Vanguard is the gold standard. I recommend VOO (the entire SP500, which means your betting on America) and VXUS which is an international index fund which owns thousands of stocks. Why? While you’re making money while you sleep, you should be sleeping like a baby. The world would literally have to collapse for you to lose all your money, and even if it did, your cash in the bank would also be worth nothing. Investing like this means you’re a sane person who believes that the world will continue forward and people will keep eating and having kids and living life and solving problems like they’ve always done throughout history. Both of these pay you a dividend. It’s deposited right into your account and you don’t even lift a finger. You can start now:

Create a Vanguard account

How to setup automated investing with Vanguard

I recommend opening a regular non-retirement account to get started, and then when you’ve become familiar and gained confidence, start a retirement account as well, either a ROTH or Traditional IRA. I prefer to max out my ROTH IRA, because it means that the money I put in has already been taxed and will be available to me tax free at retirement. It is my opinion that taxes will only be going up either directly, or indirectly because inflation pushes us all into higher tax brackets.

Anticipating Emotions

There will be two times when you see the stock market dominating the news. One is when dumb people are making lot of money and the other is when smart people are losing a lot of money. You can see this illustrated in the image below. Before 2008, “dumb” people were making a lot of money. After 2008, the “smart” people that lent to them, educated bankers who should have known better were going bankrupt.

When you see the stock market sell off like this, take note. You can keep your automated investments the same, or you can temporarily increase your automated investments as you watch the sell-off deepen and people panic. This is exactly what I am doing for my wife’s Vanguard retirement accounts. As we are entering a bear market, I am putting her cash balance to work, because I am getting better prices. When things stabilize, I will go back to the normal automated amount.

In general, the stock market goes up and down but more up than down, so if it is down, you should add to your investments. Turn off your emotions. Don’t think about it, don’t try to time the bottom, just increase the automated investments for a time until things recover and then go back to your normal scheduled amount. Now, you won’t always get massive “sales” on stocks, but even down 10% is still 10% less than you would have paid.

Doing this, particularly with the SP500, should earn you at a minimum 9-10% annual return and if you have the stomach to increase your automated investments during a sell off, you’ll be richly rewarded over time (10-30 years). You’ll be shocked at how much money you have and the amount of quarterly dividends being deposited into your account, whilst you sleep. The goal is to retire well without sacrificing the quality of your good years in terms of time and stress.

That’s it.

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