By ink drop @ Adobe Stock
When you invest in a passive index, is it passive? The idea behind “passive” is that the stock market is “efficient,” and that there are no real values to be had because of the wisdom of crowds. Tell that to Warren Buffett, who’s made a decent living for decades on investing against the ignorance and fear of the crowd.
When you look at the money that gets piled up in the S&P 500 by target-date funds and automatic investment plans, the only analysis going on is the fact that the money needs to be invested. It’s that simple. There’s no thinking, just buy, buy, buy. But what happens when there’s a prolonged decline?
Some may say stocks will be picked up at lower values. Yes. But what if those values continue to go lower during your most important non-accumulation years—Your Retirement Life—when you’re living off your savings? It’s like double-spending. Living off your savings and watching your savings fall in value from market declines.
Won’t happen to you, you think. But look how long stocks can stay down, like they did during that 70s show.
Here’s the deal. I wish you could be like Warren Buffett, someone who can take an unemotional view of his money mainly because he has so much of it. That’s a good thought process for you to have, but many of you can’t take an unemotional approach to your money, no matter how hard you try. There’s just too much riding on it.
Your Survival Guy is not emotional about your money. Don’t take that the wrong way. It doesn’t mean I don’t care. It’s the exact opposite. Through my conversations with you, I know how emotions skew sound money decisions, especially when the stakes have never been higher.
When I first started working at Fidelity Investments, my boss told us in our first meeting that we were ignorant. That’s nice. She continued explaining that we weren’t stupid; we just didn’t know all the answers yet. “My job,” she said, “Is to educate you so you have the answers.”
Action Line: When you don’t have time to do it on your own—in your retirement life—find someone who does. That’s my job.
Originally posted on Your Survival Guy.
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