Fiology: The Study of Financial Independence (FI)

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Fiology Lesson 13: Presenting the case in support of broad market index fund investing.

LESSON 13 : IT PAYS TO BE PASSIVE

The majority of people do not have the time and motivation to conduct the in-depth research to confidently pick individual stocks in companies that will make them Financially Independent. We would need to know if a stock is undervalued or overvalued, how it compares to competitors in the sector, the condition of that sector in the current economic cycle, and several other telltale signs that must be in alignment to indicate a screaming buy. Even if a person had the resources available to attempt this endeavor, chances are they would be less successful than if they simply invested assertively in a low-cost broad market index fund. This lesson focuses on why it is important to consider using passively managed investment vehicles to do the bulk of the heavy lifting in the stocks portion of your Financial Independence portfolio.  

Read:  Stocks — Part V: Keeping it simple, considerations and tools  by JL Collins of jlcollinsnh.com

Read:  WHY MOST PEOPLE LOSE MONEY IN THE STOCK MARKET  by Wanderer of millennial-revolution.com

Watch:  Rule #6: Use Index Funds and Passive Investing (video)  by Rick Van Ness of financinglife.org

Listen:  The Stupidest Thing You Can Do With Your Money  by Stephen J. Dubner of freakonomics.com

Read:  How a 1% Fee Could Cost Millennials $590,000 in Retirement Savings  by Dayana Yochim and Jonathan Todd of nerdwallet.com

Take Action: Considering the information discovered in this lesson, review your investment holdings and understand the true cost of their fees over time as compared to that of a low-cost broad market index fund. Determine if you feel you would be better served with the majority (if not all) of your holdings in passively managed index investments. Do only what you feel comfortable based on your level of understanding and willingness to make the change.

Additional Resources:

In the Financial Independence Community, most consider JL Collins’ approach to investing in stocks the benchmark route. If you want an approach that may be slightly less simple, look into the 2 Funds for Life strategy by Paul Merriman. He, too, believes investing should be easy to implement and he proposes his 2 Funds for Life strategy can perform slightly better. Remember, regardless of what approach you take, continue to justify your approach based on your own research and life circumstance.

Read:  My Thoughts on Small-Cap and Value Stocks  by Karsten Jeske of earlyretirementnow.com

Read:  How Buffett Won His $1 Million Bet  by John Wasik of forbes.com

Read:  Average Stock Market Return: Where Does 7% Come From?  by Trent Hamm of thesimpledollar.com

View:  PERCENTAGE OF LARGE-CAP FUNDS THAT UNDERPERFORMED THE S&P 500®  at us.spindices.com

Read:  SPIVA® U.S. Scorecard  at us.spindices.com. This is a downloadable .pdf

Quote: “Don’t look for the needle in the haystack. Just buy the haystack!” – John C. Bogle

Fiology.com is an educational resource designed to teach Financial Independence (FI). We scoured the internet to find content from the best and brightest of the FI community and created lessons covering the critical concepts.

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