“Don’t look for the needle in the haystack. Just buy the haystack!” — John Bogle
“The individual investor should act consistently as an investor and not as a speculator.” — Ben Graham
“I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.” — Warren Buffett
You know what nobody ever calls or texts me about? Nobody ever calls me or texts about which index fund they should invest in, or which Vanguard fund is the one that they should invest in. I do get asked “Should I buy into GameStop or Blackberry?”, or if people should buy oil when it cost less than nothing.
It is not that I think it is a bad question, or that people shouldn’t have questions about these specific topics, or even that they shouldn’t necessarily invest in those specific investments. But I never get questions about the boring stuff that makes many good financial plans successful.
Let us take a look at why boring is beautiful in this week’s blog!
I constantly get asked about what is on CNBC, Yahoo Finance, or the other financial pornography networks, because that is all people can talk about. They discuss the shiny new thing on the market but this distracts people from what is most important.
I will not say that it is not fun to think about hitting it rich with the stocks that were previously discussed. Just like I would never tell a client that they cannot go to Vegas on the weekend with dreams of breaking the bank. If it makes them happy, and they can afford to risk the money, go for it. It may not be what I would do, but not everybody has to do what I would do.
A couple of weeks ago, I had a client open a trading account for themselves that is outside of my management. The reason for this is because they wanted to have the experience of trading the names that they see on the news and own stock in some of their favorite companies. As they put it, “I don’t need another pair of boots, so why not put my money in the market and have some fun?”
The great thing about this situation is that the portion of the money that they are doing this with does not make a major difference in their overall financial plan. We have those bases covered already.
If you have taken care of all the basics, which means; having no credit card debt, no high-interest loans, you are putting money away in savings and for your retirement, your business is running decently profitable, and you’re living well within your means, then there is no reason why you should not feel comfortable having some small portion of your investment portfolio, usually 3-5%, for scratching the itch of owning the “big names” without putting your financial future in jeopardy.
The biggest problem that you can get into with speculative stocks is that they can become the focus of what you are investing in. If the basis for your retirement plan is those YOLO meme stocks, then you are gambling too much with your future.
The most important step though is taking care of the basics. We cannot run before we walk. Once you accomplish this, then it will make sense to invest in these stocks that you see in the media, or stocks that you enjoy.
As your parents told you, you do not get to play Nintendo until you take care of your homework. We must do what is necessary before we get to do what we want to do.
It may not sound fun or glamorous but sound financial planning rarely is. It is built by lots of mundane but effective actions. It is all this day-to-day effort that will help get you to your goals.
The three quotes I opened with are 3 of the greatest financial minds ever. Their lessons are that if we broadly diversify in reasonable investments and avoid unnecessary risk we can invest successfully. It may be boring, but it is effective.