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The Case for Boring Investing

The Case for Boring Investing

May 17, 2021
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Ever felt a case of FOMO when it comes to investing? FOMO (the fear of missing out) is a common occurrence in the investment world. It’s hard to avoid it.

Here are some examples of times when you might have felt like you blew a great investment opportunity.

Example #1: You sold your house 20 years ago. You happen to be scrolling through Zillow and find out the house sold 10 years later for double the price. Gut punch.

Example #2: Your friend invested in bitcoin in the early days, or another friend decided to put their life savings in a single company’s stock, and the company exploded in growth.

Example #3: You hear an advertisement on the radio, and it talks about how well gold is performing, and you feel like you should have been invested in it for years.

Hindsight is 20 / 20, and it is easy to look back and play the “if only” game. There’s always going to be an investment opportunity we missed out on.

The case for boring investing

The Callan Periodic table ranks annual returns for different asset classes over the last 20 years. Did you know that the best performing asset class over this timeframe has been U.S. mid-cap stocks? In a close second is U.S. large-cap followed by U.S. small-cap. The lowest performing asset class (perhaps unsurprisingly) is cash. What may surprise you is the asset class in second-to-last place in terms of the sum of all annualized rates of returns: real estate.

The entire chart can be found here:

https://www.etftrends.com/ranking-the-historical-returns-of-asset-classes/#:~:text=For%20example%2C%20in%202020%2C%20U.S.,U.S.%20stock%20market%20(21%25).

Investing in the stock market in a well-diversified portfolio, taking your risk profile into consideration is, let’s face it, kind of boring. It sounds boring just reading that previous sentence aloud. We are wired to be drawn to more exciting storylines.

Author Donald Miller talks a lot about the elements of story and how, as humans, we really aren’t interested in a storyline until some sort of conflict is introduced. But that isn’t just in movies, that’s true with anything in life. We are wired to be drawn to conflict, drawn to risk, drawn to controversy. If we don’t stand to lose something it is tough to really find it interesting.

Too many people use their investments in this way. They are drawn to the high reward opportunities even if that means taking on higher risk. And yet, when it comes to our financial future, the goal should first be to prioritize financial security. We need security. Historically, this can best be found through ‘boring’ investing. Once we have locked in financial security, at that point we can afford to be a little more speculative if desired.

So, how does this information apply to the average investor? Does this mean we should avoid real estate, gold, bonds, etc., and put all our savings in the stock market? Well, not exactly. Each asset class could have a place in our portfolio depending on our situation, goals, and risk tolerance.

There is an interesting calculator that might make the investing FOMO feeling in you worsen. Or perhaps it will give you that push to start investing now if you haven’t been. Regardless check it out: https://financial-calculators.com/historical-investment-calculator

This calculator shows the historical performance of your investments depending on what index you might have invested in. You can also compare it to cash. This is helpful from an investment standpoint for a couple of reasons. Sometimes clients wish to invest more in real estate than contributing to their stock portfolio. And that isn’t always the best idea. Sometimes clients ask us about gold or some other precious metal. We find this to be more of a conversation whenever gold has a good year. But if you look at the historical performance, it is clear which asset class has been historically dominant.

Check out the calculator for yourself and redirect that FOMO feeling from the missed opportunity of investing in the past to jumping in now with the help of professional guidance. It is never too late!