Index funds are boring

Oct 31, 2020

I was asked the other day what I invest in. My heart sunk. I knew my answer would probably be a conversation killer. I wanted to say, "acreage in Brazil" or "timber in Germany" or " a closed venture capital fund that you can never get into". The temptation to sound intelligent and interesting is powerful. Complex answers to simple questions are a lever to be pulled toward that end. Predictably, the answer I gave to my questioner, "index funds", did kill the conversation. No follow up questions to that answer! Most people don't want to talk about paint drying, grass growing, or index funds.

Many investment 'professionals' are swept away by the temptation to sound intelligent. They add a great deal of complexity to their investments and bring countless others along for the ride. After many years of schooling, a professional designation or two, surely there is something more than low cost market cap index funds. Most investment professionals will never be able to come to the conclusion that index funds are best. It is just too simple.

Medical professionals have it worse than investment professionals. Twelve plus years of schooling, hundreds of thousands in school debt, for the ability to say "diet and exercise" to patients who will ignore them. Their patients want a special pill to get healthy, some shortcut. In the investment world, these pills are called hedge funds, private equity funds, fund of hedge funds, actively managed mutual funds, etc... These solutions usually defy the humble rules of arithmetic by promising much more than they can deliver. Remember, there will always be a market for get rich quick schemes and pills to make us miraculously healthy, your job is to make sure you are not the customer.

It took me years of schooling and lots of books to prescribe the following to my clients:

1.) Spend less than you make

2.) Invest in index funds

3.) Repeat

The job of an investment adviser is to educate their clients on why this works, how it can be done, and provide a dose of accountability along the way. Or as I predict Mary Poppins would say, " a spoon full of education, helps the index fund go down."

About the author: Robert is a fee-only financial advisor who can be contacted through his website

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