One approach to investing is timing the market.
You sell your investments when the market is at a peak and then wait for the next correction or recession to buy them back cheaper.
In practice, this might mean selling 10 shares of company stock at $50 per share and then, when the market crashes and the share price falls to $25 or so, buying back 20 shares with the proceeds. When the price recovers to $50 you’ve juiced your returns by 100%.
Smart, right?
But to...
I was born in 1979. If my parents had invested $1,000 in a no-fee S&P 500 index fund, and had reinvested all dividends, the stake would have grown to be worth $80,601 on my 40th birthday.
That’s a gain of 81 for 1.
Meanwhile, a $1 million investment by the endowment at a college would have grown to over $80 million.
But here’s the math that’s hardest to believe: If the college had paid a seemingly small 2% investment fee, then its gain would have...
Like everyone, I sometimes struggle with waiting for the perfect time.
You wait for the perfect time to have kids, learn a new skill, quit a bad habit. And then after you just do the thing, you always wonder why you waited so long. Life is better now.
It’s no different with investing. If you’ve never invested before it’s hard getting started. It’s even harder if the market’s been steadily rising. Almost impossible when everyone is predicting a recession.
So what most people do is...
A small part of my investment portfolio is an index fund tracking “the market”, and apparently I’m not alone.
Over the past few years trillions of dollars have flowed into index funds as people realize highly paid professional money managers seldom beat the market.
Bill Mann, after spending eight years running active funds, explained why that’s a difficult task:
“Fund managers are under pressure to be predictable by showing low tracking error, which essentially means funds have to try to beat their...
A friend called me up scared. They’ve spent the past 20 years working to pay off student loans, buy a house, raise a family, and so saving for retirement wasn’t a priority. “Where do I start?”
It was a good reminder: it’s easy to forget how confusing and daunting investing is when you’re getting started. Which reminds me of a story about a guy who had $100,000 to invest.
The first thing he did was buy 20 stocks, putting $5,000 into each. But then...
