Ommmm: The Search for Financial Peace of Mind
Why do we make things so complicated? Why don’t folks judge investments not just on risk and reward, but also on whether they are easy to understand and simple to monitor – resulting, perhaps, in that elusive financial peace of mind? NOTE: Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion
Time is Money
If you are like a lot of folks, you've probably used the expression, “That’s too hard to understand” when evaluating an investment opportunity. I certainly have…and often. Still, as investors we tend to assemble ever more complicated portfolios as we gain experience.
I know I did until I started craving the peace of mind that allowed me to sleep at night. In short, I finally started placing a bigger premium on that most finite of resources: My time. I searched for ways to achieve financial success through investing methods that didn't required hours of research and sleepless nights.
The solution proved to be simple enough: I started investing in things I better understood and quit investing in things that required constant monitoring.
Risk and Reward
Over time, in discussing investment philosophies with other folks it became more and more apparent that many investors hold portfolios that required staggering amounts of time to monitor. Also, “risk and reward” dominated not only discussions of their specific holdings but the worthiness of each future investment.
Shouldn’t a simple investment approach make our lives less stressful? Wouldn't it save us time, which is so important, and perhaps lead to that elusive peace of mind?"
The Quantifying Quandary
Yeah, I know, attributes like simplicity and peace of mind are subjective, whereas matters of risk and reward are more easily reduced to numbers. Complicated metrics exist to help us quantify the latter, while subjective attributes like peace of mind and ease of monitoring are virtually impossible to quantify.
And, in large part, it depends on the individual. Some might be okay with spending 10 hours a week researching investments. Others - like me - find 10 hours of research every six months exhausting.
Peace of Mind
Investment choices shouldn’t be just about risk and return. For example, peace of mind has a lot of value, but it's hard to measure and means different things to different people. The key is to match your definition of peace of mind with the construct of a portfolio that strikes the right balance for you.
You should create a portfolio that allows for changing investment objectives without damaging quality of life. For example, older folks might adhere to a heavier bond component than others. Whereas volatility in pursuit of higher yields in earlier stages of life might better fit others.
When Is Enough, Enough?
We talk too little about how to identify our versions of "enough" when thinking about financial planning. Some folks live modestly and are content to stay with a very conservative portfolio. Others live modestly but take a more aggressive approach to investing for retirement. And more than a few live high on the hog, which often induces an overly aggressive investment experience.
Simply put, all of us should approach our later years with a keen awareness of how our portfolios should be managed, how much we need to save, and how much investment risk we need to assume to ensure a good quality of life. In short, the term “enough" is a distinctly fundamental consideration because it relates directly to lifestyle choices.
Stumbling into Om
I have to admit that I kind of stumbled into my "Ommmmm" state of investing. After experiencing some discouraging individual stock trading experiences I went in search of a better way. That’s how I learned about John Bogle’s (Vanguard's founder) index fund approach to investing before it became widely known.
It didn't blow me away or lead to a rush of adrenaline, like some get-rich-quick stock opportunities might, but I thought it was worth investigating. As time went on and I saw steady, yet positive returns, I was a convert. I call it “daring to be average” because with index investing that’s what you settle for…a yield slightly below the market. It led me to adopt the PDQ investment philospohy I have touted (ad nauseum) for years now:
Nothing in the investment world is foolproof, but risk can be reduced through diversification. And studies show that if an investor consistently earns market yields, he or she should be in fine financial condition in the long-term.
Time spent earning that market rate of return holding quality index-related investments (e.g., the S&P 500 Index fund, a Total Stock Market Index fund, a simple Target-Date fund, etc.) should be minimal.
Once your funds are invested, all that’s left to do is exercise the patience needed to not follow the thundering herd during those occasional “count on it” corrections.
In Sum
As I grow (ever more gracefully) older, the more I realize how truly finite the time allotted to each of us is. I simply don’t wish to spend much of it managing an investment portfolio; thus, simplicity has become an increasingly important factor influencing my approach to investing. Try it, you might, OMMMMM, like it!