Investing as Simple as Possible
Investing made as simple as possible:
- Buy stocks when you have the money
- Sell when you need the money
Simple and easy. But let’s get into the details to flush out what you actually should do.
Let’s start with buying stocks when you have the money.
Buy Stocks When You Have the Money
Buy stocks when you have the money. It is as simple as that.
Buy through the good times and primarily through the bad. It is just what you do when you earn an income during your life when you have the money to do so, buy stocks.
You buy stocks when you have the money because you have confidence in the future. Yes, the end is coming and will happen. Eventually, the sun will explode. Meanwhile, buy stocks when you have the money.
I invest in the economy of the US and, indeed, the entire world. Of course, eventually, all societies collapse. But not on my watch. And even if it happens, are you worse off from investing?
But even more importantly, we know recessions and depressions are just a matter of time. They are a normal part of market cycles.
Buying stocks when you have the money is necessary for investing because, at some point, you have to have faith that there is a future worth living.
If you sell before you need the money, you will lose.
Buy because the market will come back. After all, in the US, at least, it always has.
What Stocks Should You Buy?
Don’t believe in your stock picker, hot tipper, or anyone who will predict the future. That is the wrong kind of investing.
If you own your portfolio because someone told you to, it might be time to reach out for a new thesis.
After all, no one can give you complete trust and confidence. So you have to believe it yourself at some point.
Buying vs. History
Look at the history of the US stock market and note it goes up and to the right on a log graph of returns.
You can understand the market history and know that the US has always been a safe place to stay invested despite all the horrific events of the past centuries. Moreover, history teaches that, at least over the decades, broad-based low-cost total market ETFs will grow your money safely and effectively above inflation.
Why will the US economy remain strong? Creative destruction.
Railroads ruled the past. After that, many other industries. Telecom. Oil. GE. Oh my, the list of companies and entire sectors creatively destroyed. This will continue, as will the growth of our economy.
After all, think about “peak oil,” “global food shortages,” “global warming crisis,” and other problems that weren’t. As with commodities (and the “cure for high prices is high prices”), the cure for these intractable problems is unleashing the free-market economy on them. We will find efficiencies.
History teaches us that the safe place for long-term investments is the global economy and free markets. What is the alternative?
So, What to Invest In?
Investors never have to decide when is the right time to sell an individual stock. Never buy one in the first place!
When do you buy an individual stock? You should buy a stock when you know more about it than anyone else. If you have knowledge or insight about a company that no one else has, even the people with teams of people researching it, then you should buy it. After all, how could you lose?
Or, you could look at the evidence that less than 3% of people can beat a Total Market ETF over 20 years. But, of course, you are that 3%, right?
Instead, buy the total market ETF.
You buy the Total Stock Market ETF when you have money.
That it. Simple. If the purpose of the money is to spend more than five years, buy the Total Market ETF.
When you have money, buy. Then, if you get more money… buy more.
How Long Do You Hold?
Warren Buffet’s favorite holding period is forever.
He made his money picking individual companies. He instructs the trust he is left to his heirs for his estate to… you guessed it… invest in the Total Market ETF. (Actually, the S&P 500, but there is no difference in long-term returns between the two indexes).
How long do you hold that Total Stock ETF? Hold Forever.
What about individual stocks? Well, evidence demonstrates that people sell their winners and hold their losers.
Here is the only thing you can be certain of: you will never know when it is right to sell an individual stock.
So, buy when you have the money. When should you sell? When you need the money.
What about if the market is down when you need the money? Sell the bonds you have set aside just for that reason.
Which Is Easier To Leave to Your Kids for the Step Up In Basis?
If you have large capital gains in a stock or the Total Stock ETF and want to leave it to your kids when you die to get the step up in basis, which is easier?
Would you rather hold all the stocks of the entire economy (which, if it goes to zero, you have much larger issues to worry about than taxes or legacy) or an individual stock? Is that stock going to be around in 30 years? I encourage you to look at the stocks that made up the Dow Jones 30 years ago and see which of those winners is still around.
If you don’t buy individual stocks, you will never need to decide if the company will go out of business before you do.
Investing: As Simple As That
What I like about the Total Market ETF is that I never need to decide when to buy or sell it. I buy it when I have money. Next, I hold it forever; I never sell it until I need money. I never have to make a decision!
With individual stocks, they do not infrequently go to zero. So if you have large capital gains, you have to decide if you want to recognize them or if you want to take a chance that the underlying company is still there when you die and leave it to your heirs.
With the Total Market ETF, there is no decision to make. Leave it until you die. It will still be there.
And if the market is down, when do I need the money? I sell bonds. After all, that’s why I have bonds, so I never have to commit the sin of investing, which is selling low.
Buy when you have money; sell when you need money.
How about that for a plan? I don’t care what the market does because it doesn’t matter!
When you buy a stock, you have to be right three times. When you buy it, when you hold it, and when you sell it. And you have to decide every day if it is the right thing to do.
When you buy the Total Market ETF, you buy it when you have money and sell it when you need money. So there is no decision-making to screw up your success.