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The Laziest Way To Start Investing Successfully

If you have no knowledge of the stock markets or about how to invest in general, there’s good news! You can still be a successful investor without much effort. This can be accomplished through owning a stock market index fund. Simply put, and index fund owns all the stocks in the market, without trying to pick the “best” or “worst” stocks.

The Why and The How

The advantages to owning a simple index fund are that it beats most professionally managed funds in the long run, and their expenses are a lot lower than those of professionally managed funds. The key to the success of this investment method is using an approach called dollar-cost averaging. Every week, month, or quarter, you simply buy more, whether the market has gone up or down. There’s no need to guess where the market is going or which industries are popular. Just keep in mind that you need to invest for the long term – around 25 to 30 years.

Making a Case for Index Funds

In fact, here’s an endorsement in favor of index funds from Warren Buffett, who is currently the second wealthiest person in the world:

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”  (Berkshire Hathaway’s 1996 Annual Report, emphasis added)

Here’s another quote from the man who trained Warren Buffet in his investment philosophy, Benjamin Graham:

“I have little confidence even in the ability of analysts, let alone untrained investors, to select common stocks that will give better than average results. Consequently, I feel that the standard portfolio should be to duplicate, more or less, the DJIA.”
-Benjamin Graham in “The Memoirs of the Dean of Wall Street”

The DJIA, or Dow Jones Industrial Average, is a stock market index, and duplicating the index is precisely the purpose of an index fund.

What I Do

Personally, I have money invested in Vanguard’s Target Retirement 2050 Fund, which is a portfolio composed of various index funds. It’s currently set to invest more aggressively, since people my age have some time to afford the risks and recover any losses. But as time passes and it gets closer to the target retirement year, the fund automatically adjusts its portfolio to invest more conservatively.

Recap

So here’s a recap in 3 easy steps.

  1. Purchase a low-cost stock market index fund.
  2. Invest regularly using the dollar-cost averaging method.
  3. Be patient and wait.

It’s that simple. No hassle, no fuss. Done!

So do you invest in index funds? If so, which ones?

P.s. Since this posting was drafted in 2010, a number of good financial technology (FinTech) wealth management firms have started up.  One of these that I like a lot is an outfit called Motif Investing. Modest Money has a solid review of Motif Investing, its worth reading if you get a chance. Other good ones are, Betterment, Wealth Front and Personal Capital.

Good luck and don’t forget to keep those investment expenses low.

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2 Responses to The Laziest Way To Start Investing Successfully

  1. Daddy Paul says:

    Good read.
    I am a fan of index funds only in the US large cap markets and 401K’s where investment choices are slim. In most other arenas I like a well managed no load fund.
    Dollar cost averaging has tremendous power. In times as we have had in the last 10 years dollar cost averaging can increase your portfolios yield significantly.
    In my article The Power of Dollar Cost Averaging I go through an example where an investor lump summing would gain 4% but through dollar cost averaging gained 23.5%.

  2. Darren says:

    Thanks Daddy Paul.

    Like you, I also invest in index funds within my 401k since my choices are pretty slim too. I’m curious though… why are you interested in only U.S. large cap index funds? Why not small cap funds as well, or a fund that tracks the total stock market?

    Also, what do you like specifically about managed funds? Do you think their higher expense ratios relative to index funds are worthwhile?

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