The investment markets may be the only place where you can be rewarded for being lazy and not doing your homework. You may be surprised to learn that lazy investors have an investment edge. It is well known that active investors underperform passive investors over the long term.
So by investing your money and doing nothing – that is, eschewing active trading – odds are you can beat the highly paid Wall Street money manager.
Even more startling is that the sophisticated investor is more likely to put his money in underperforming, actively managed funds. We are not suggesting that you play dumb. An investment education will teach you that it is more important to be an early, and even lazy, passive investor than an attentive, active investor.
Here are some of the best places to park your money and slack off.
Retirement Savings: Index Funds
Index funds mirror a market index by buying and holding all the stocks in an index such as the S&P 500. Active managers work up a lot of sweat and trading fees buying and selling stocks and bonds in an attempt to beat the market.
Passive index investors, in contrast, experience little toil or stress in exchange for performance on par with the market. This low maintenance strategy explains why index funds have grown to equal about one-fifth of equity mutual funds. Other advantages include low costs, low risk through diversification and tax efficiency. Index funds trade less than an actively managed portfolio and thus generate less taxable income.
Retirement Savings: Exchange-traded Funds (ETFs)
ETFs are investment funds that trade like stocks on an exchange. A fund may invest in stocks, bonds, commodities, currencies, and other investment assets. The majority of ETFs are passive investment vehicles that track indexes. ETFs are for the lazy woman who wants stock-like features but does not want to trade. In addition to the cost and tax advantages of index funds, ETFs provide the transparency, liquidity and negotiability of a stock.
Retirement Savings: Blue Chips
Blue chips are stocks with market capitalizations of around $10 billion. Value investing is another form of passive investing that favours blue chips. Value investors like large companies with solid track records, earnings, sales and dividend payments. These investors look for good companies which are trading at a discount to their book value.
If you choose blue chips with these features, you have a good chance of outperforming the market long term. Warren Buffet, the most successful value investor, has stakes in stalwart blue chips such as Coca-Cola, Wal-mart, and Visa. Worth noting: ETFs tracking large-cap stocks are doing well in this year’s equity market turmoil.
Retirement Savings: Target-dated Funds
Target-dated funds automatically adjust your asset allocation between equities and bonds to match your risk profile as you age. As you approach retirement, the weighting in equities lowers while that of bonds increases.
Retirement Savings: Robo-Advisors
Every lazy investor needs a robot to do his/her investing. Robo-advisors provide automated online investment advisory services. Investors can save on the 1 percent or higher fee charged by human investment advisors for similar services. After determining your risk tolerance and financial goals through an online questionnaire, robo-advisors produce a suggested passive investment portfolio for you. Robo-advisor portfolios produce diverse investment portfolio performance returns. You will want to review the performance of different robo-advisors before deciding on which robot you want to make your investments for you.
Retirement Savings: Activist Investing
Lazy investors could do more to up their stock returns, says billionaire investor Charlie Munger. More specifically, Munger says passive investors are less apt to be active shareholders. Shareholder activists put pressure on companies to use their assets efficiently. These activists improve target-company performance and stock returns. On the other hand, the top Apple shareholders are passive investment funds, and this has not seemed to have hurt the iPhone maker’s stock performance.
Generally, though, companies with strong corporate governance are better performers. Passive investing is a smart lazy. Investing in companies and not reading their corporate reports or caring about what they are doing is a dumb lazy.
Recommend0 recommendationsPublished in