I wrote about the Investors owners contract in my last post, but this is my version of a passive investor contract that is meant for passive investors that invest in index mutual funds and index exchange traded funds.
I’m asking you to do the same thing over and over again no matter what is happening. It doesn’t matter if you don’t have any money or if you have all the money in the world. I’m asking you to put $XX a month into a total stock market index fund. I’m asking you to do this when the account is heading towards zero and when you have huge gains in the account. I want you to do this automatically without thinking despite what everyone around you is doing or saying. I’m asking you to do this consistently and repeatedly no matter what the result or outcome is. I need you to believe that this will work out for your good and this account will recover and grow over the years no matter how much money it has lost. I need you to do the same thing over and over again even if the results are negative. I need you to do the same thing over and over again even if we are at the top of a bubble of the greatest bull market of all time or at the bottom of the greatest market crash of epic proportions. I need you to do the same thing over and over again even if you’re the only one doing it and everyone around you think you’re crazy or are doubting you. I need you to go against the crowd. This takes tremendous discipline and it’s not an easy feat. This is not for the faint at heart. I’m asking you to have faith. I’m asking you to believe what you can’t see. I’m asking you to believe something that may not come to fruition for decades to come and I’m asking you to take action during that time. Don’t just believe, but act as if you believe by taking action and continuing to contribute to this account regularly. I’m asking you to fake it till you make it. I’m asking you to pick up yourself from the ditches, dust yourself off and carry on if you fall and stop contributing or if you cash out or sell down the portfolio due to lack of faith. At the end of the day the power of consistency and grit is what it means to be a passive investor. I want you to commit to building wealth slowly. I’m asking you to be a passive investor.
The funny thing is, I could have titled this post “the best is yet to come”, the reason being is that we are in a bubble and I have no idea when or where the top is. But what I do know is that there will be a market crash of epic proportions in the horizon. Likely within the next 2-3 years or so. So what are we to do?
I was reading the White Coat investor’s blog the other day and he had written something that was very profound and it was a good gauge to test what level of investor you are. Here is the quote below
“I have often said that beginning investors have trouble following their plan at market lows, intermediate investors have trouble following their plan at market highs, and experienced investors follow their plan all the time. But that doesn’t mean that those experienced investors like the way it feels to be at market lows or at market highs.”
I recently meet someone who works 3 clerical jobs in order to get by and receives dialysis 3 days a week. She revealed to me that she was investing in cannabis stocks. I felt so bad that someone with such a severe chronic condition is investing in such a volatile sector of the stock market. She could lose it all and in a heartbeat and doesn’t have much to fall back on. I tried to talk her into at least investing in index fund In order to lower her investment risk through diversification and lower cost funds and also about starting an emergency fund, but then I realized that we should all be good stewards of our money and manage our money wisely.
Sometimes it’s hard to do what’s important and what matters as it pertains to investing. It’s not the return on your investments that ultimately matter, but its if you’re able to stay the course in order to get that long term compounding interest that will double and even quadruple your investments every 10 years or so. You see, when it pertains to investing, the proverbial chicken does actually come before the egg; and if you’re after that golden egg then staying the course is how to get your hands on that golden egg laying chicken.
I recently wrote about having a reasonable investing plan and how important it is to have one, but It’s even more important to have an investment plan during times of market volatility than in bull markets. If not you may be investing speculatively and be unaware of it. Benjamin Graham once said The greatest danger investors face is acquiring speculative habits without realizing they have done so. This can happen so easily to many of us. The reasoning is simple. Because you see every battle is won before it’s fought and if you fail to plan then you will essentially plan to fail.
College will likely cost between $60K and 100K a year in the next 20 years. This is based on the projected 3% yearly increase from the current average cost of $25K for public universities and $40K for private universities. The cost would increase to $240k and $400K respectively for a public and private college education. The thought of putting up to $400K in a 529 account when the future is unknown is just too risky for me. This is a huge sacrifice to make.
One of the great Jack Bogle’s most memorable quote is “Buy and hold, but don’t forget the hold”. What is the meaning behind this quote. Lets say you have a stock or ETF that you have bought thereby satisfying the buy part of the equation. You’re now contemplating buying more shares to add to your position of hopefully a total stock market index fund. What Mr. Bogle is saying is that holding is far greater than buying or selling. It doesn’t matter when you buy, but it makes the world of difference if you hold. It doesn’t matter if you buy at the top of the market or the bottom, if you continue to hold through the swings of the market you will come out on top.
Investing in stocks is like farming. There is a time to reap and then there’s a time to sow. It’s a great hobby to partake in if you have patience. That’s why the stock market is not the best place to keep your emergency funds. It’s the same reason why your personal home should not be viewed as an investment. The housing market has ups and downs just like the stock market. When the housing market is hot then that’s the time to sell high and when it’s low that’s the time to buy at a bargain price, but life is not going to wait until the housing market is hot for that promotion to occur that’s going to require you to move across the country or for some tragedy to befall your love ones that will require you to move closer to home help take care of your family.