Tuesday, 1 December 2020

The Lazy Way to Grow Wealth

One of the trading accounts I follow on Twitter is Joseph Burns, and he recently posed the question:

One reply suggested index funds, because:

it is not an 'advice'. For a finance person, it is nothing but a lazy way to protect their skin and escape accountability.

I have a few issues with that response. First, the idea that this is not advice. 

Advice is defined as "guidance or recommendations offered with regard to prudent future action" so what else suggesting index funds could be isn't clear. 

There could be a language issue here, so I'll move on to the more important piece of the response, and the idea that passive investing in index funds is "lazy" and a way to "escape accountability".

Passive investing takes up far less time than active investing, but that's a key part of why passive investing is best for most people. Does that mean it is "lazy"? I wouldn't say so. It's certainly "easier" and "cheaper" but there's an opportunity cost for the time spent trying to beat the indexes, and very few people can do this in the long run anyway. And it's not only the time that costs money, it's the higher fees, transactions costs and expenses that also reduce the viability of active investing.

Is betting-and-forgetting a lazy way of making money on the betting exchanges? It's certainly a better use of your time than wasting hours watching a sport for a value opportunity that a) may rarely present itself, and even if it does, then b) you would need to react fastest to benefit from it anyway. 

As for escaping accountability, I'm not sure this applies to most of us since we are accountable to no one but ourselves.

As readers will know, as much as I recommend index funds, I'm also not averse to playing with some individual stocks such as Tesla, which I may have mentioned here once or twice, plus other mentions earlier this year such as Lloyds BankBoeing and Pfeizer, all of which since they were bought, are currently up by more than my index funds at +21.6%, +47.6% and +18% respectively. At 9.65%, my active stock trading account is just under 10% of my net worth, which seems about right, but for most of us, investing in index funds is good advice.

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