It’s The First Day Of The Rest Of Your Investing Life

Posted on June 23, 2014 at 11:35 AM PDT by

You know the old grade-school joke, I’m sure.

“What day is it?” Answer: “The first day of the rest of your life.”

Corny, I know, but thought-provoking as well. The past really is the past. Whatever happens next in your life is about what you do or don’t do today and tomorrow and the next day. It’s a very zen joke in its simplicity and profundity.


The importance of this idea to retirement investors couldn’t be simpler either: Don’t beat yourself up over that stock that didn’t work out, the fund you held too long, or the market timing move that worked against you.

What matters is now. What matters is what you do next.

Furthermore, in a very real way, what matters is not at all what investments you choose. Think of it this way: What’s the difference between a fund that returns 10% and a single stock that returns 10%?

Zero. They both returned 10%. The problem with single stock holdings, however, is that we fall in love with the “story” behind them. Brokers even refer to them as “story stocks,” meaning they’re easier to sell because clients gravitate toward a good yarn about the company’s products or its CEO or some tangible aspect of its place in the market.

Yet the biggest stock gurus of all time, among them Warren Buffett, often tell investors to buy the most boring stocks they can. Railroads and newspapers have been Buffett’s recent big buys. It’s all very 19th century, right? Where the “disruption” in owning these things?

Buffett knows people are suckers for a good story, and he knows that a story can drive a stock’s valuation out of proportion to its long-term prospects. Likewise, a solid, income-churning industrial stock in a ho-hum sector of the economy can have an amazing underlying advantage but be priced far too low, largely because the “story” is too boring.

Something similar happens with mutual funds. Most mutual fund managers toil away in anonymity. Then they have a good streak, beating the market for a few years in a row.

Suddenly, they’re on the covers of business magazines and making the rounds of financial TV talk shows. New investors pour in and, in time, the fund grows so large that the manager can no longer find ways to beat the indexes. Performance begins to suffer.

Boring investing wins

If you wanted to own the most boring investments possible and hire the most under-the-radar investment manager possible, the answer is simple: Own index funds.

Index funds own the entire market. You will own sexy “story” stocks but not in such a great percentage of your portfolio to matter to you personally. You also will get a great, index-matching return at a very low cost, which in the end is a more consistent way to get the best of the market without the risks involved with active management.

The first day of the rest of your investment life? It could be the best day if you manage to avoid the pitfalls of chasing story stocks and “hot hands” managers until they ultimately disappoint.