Mastering the Art of True Passive Investing | A Guide for Worry Free Investing

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The first few lines of a recent blog post at Sound Mind Investing said:

After falling roughly 18% in two weeks (and scaring many investors half to death), the stock market bottomed August 8th at just under 1120. Since then, it has bounced back and forth between 1120 (white line) and 1220 (red line)…

For between 3 – 4 years, I’ve been a subscriber of the Sound Mind Investing Newsletter.  It is my ‘go to’ source for all things investing.

Actually, it is one of my few current sources for investing related information.  I do enjoy reading blog posts from the Oblivious Investor as well.

See, I have a confession to make.  I’m a driven, focused, and tenacious person.  While that can be a very good thing, it can also be a very bad thing.  Sometimes my one track mind tendencies make it hard for me to focus on multiple things at a time.

A few years ago, I was at an emotionally unhealthy (which ultimately becomes a spiritually unhealthy) place with my investments. As the children’s song says, I got all wrapped up, tied up, and tangled up – in my investments.

However, I decided that I needed something more productive to do with my time, and it was time to practice truly passive investing.  When I talk about passive investing, I’m not talking about investing in index funds vs mutual funds. I’m talking about a kind of investing that allows you to continue in bliss when the world is apparently falling apart.  I’m talking about the kind of investing that allows you to focus your time and energy on other more important things in life.*

*By the way, I’m thankful for Sound Mind Investing and the folks who do dedicate their time to studying these types of things.  However, I think they do all that work so the rest of us can glean from their advice and experience without investing untold hours following the market.

However, this week (not trying to brag), I realized I’ve made the necessary changes because when the SMI blog post pointed out that the market has fallen roughly 18% in two weeks, I had no idea.  The corollary blessing is that I missed out on getting scared half to death.

The Key to True Passive and Worry Free Investing

Tip #1: Turn off the news when they start talking about the stock market.

Alright.  I undoubtedly have a strong advantage because I have no TV.  But seriously, why do you need to know what the stock market does every day?  I honestly couldn’t tell you what the S&P 500 is doing.  That might make you think I’m a bad investor, but following the market doesn’t improve or reduce returns.

I liken following the investing news to a day at the lake.  If you sit in a boat and drop rocks into the lak,e you’ll see, recognize, and notice every change.  However, if you were to stand at the shore, you’d miss out on inconsequential ripples.  You can’t even see the impact of little things.  However, anything big that happens will be visible on the shore.

I want my investing to be like that.  I don’t want to see little ripples in the market.  If something major happens, I can see that and decide if I should make appropriate adjustments.

You must find a way to filter out useless, daily, and overwhelming information about the market.  Instead, develop a system where you can identify trends and movements, and then only exert any emotional energy when necessary.

Tip #2: Stop tracking your investment gains and losses.

Most people like to see what is happening with their investments, so they buy personal finance software that allows them to track the gains and losses.  I switched to Moneydance a couple of years ago, and I didn’t even link the software to my investment accounts.  When it’s time to do the budget, I do just that – without getting distracted by what might be happening with the stock market.

If I think it is important to see what’s happening with my investments, I just sign into my accounts online and see the gains and losses there.

Tip #3: Consistently do what you’ve decided to do.

It may be possible to make more money in the market when you closely follow the ebbs and flows.  It may be possible to pull funds out at the right time and to buy at the right time.

However, a much healthier approach is to simply do what is right for you when it’s right.  Yes, you’ll need to decide how much money to put into certain fund types, but once you’ve made your decision, stick with it.  Constant second guessing and trying to avoid the impact of the market is a ludicrous and time consuming effort.

Do the right thing – even when the market is telling you it’s wrong.

Tip #4: Make sure you’re putting something into retirement.

I don’t think avoidance is the solution.

The biggest contributing factor when it comes to saving for retirement is consistency.  In fact, I think the thing that most dramatically impacts your investment returns is how much you put into the market. 

In our family, it’s around the first of the month.  Money is taken out of our bank account.  Some purchases are made automatically, and with others, I initiate the trade.  Either way, we put in more money without trying to analyze what the market is doing.

When the market is high or low, money is still invested.

Tip #5: Remember that security is not found in money.

I understand fear.  I understand fret.  I understand worry.

But, why put your money in investments that bring all those things?

If you aren’t comfortable with the stock market, don’t use it as an investment vehicle.  Life is too short for money worries to dictate your security.  I currently invest in the stock market and have for nearly 15 years.  However, I’m not going to allow a down day, year, or decade to create anxiety in my life.  If I’ve done what is responsible (put money in the market) in a responsible way (with some research), then my best option is to trust.

I don’t trust that God will make my stock go up.  That’s nothing God has promised me.  I don’t trust that God will give me supernatural investing wisdom.

I simply trust that God will be there regardless of how things turn out.  I trust that life can be good with God even if things fall apart.

I gotta tell you. I’m enjoying my passive investing strategy.  I’m glad to know that while most investors are sweating bullets, I’m ignorantly doing ministry and spending time with my family.  I’m glad to know that the market can drop 18% in two weeks, and I have no clue about it.

I wouldn’t trade it for the world.

What do you do to keep your investing as a truly passive activity?  How do you involve yourself in the investing process without getting overly involved?

Comments

  1. says

    Well said Craig. Too often we stress about things we have no control of (like the ups and downs of the market). Turn off the noise and stick to your game plan. Your blood pressure and bank account will thank you.

  2. Wes Smith says

    I could not agree more Craig. While it is good to invest your money, pick a path and invest in it. Then review your strategy periodically (monthly, quarterly, semi-annually). Much less worry is involved. Jesus told us not to worry (Matthew 6), that applies to everything. We need to pay attention to the world around us but don’t worry :) Thank you for another excellent post.

    • says

      Wes,
      I think the key is periodically. That time period will be different for each person, but there’s no need to watch every movement of every moment. It will ultimately lead to a lot less worry.

  3. says

    I do agree with some points that you have, my only concern is the Modern Portfolio Theory or the ‘Passive” Investment Strategy has not really worked in the past 10 years. While I do believe God wants us to do better things in life like glorify him then worry about money. I believe we have to be extremely proactive in managing our investments if we are doing it ourselves. This is not to say we should over react to market conditions. History has shown us the past 10 years that based on a inflationary benchmark, our retirement or 401K plans have done little good if we buy and hold.

    • says

      John,

      Thanks so much for your comment.

      There may be a little confusion because of my re-defining common terminology. Passive Investing in this post does not equal the Modern Portfolio Theory. Someone can buy and hold and have tremendous amounts of anxiety ever day.

      The focus is not about a portfolio type by a heart condition. Usually, a healthy balance involves a level of disassociation.

      You said, “we should be extremely proactive in managing our investments”.

      I would not personally put ‘extremely proactive’ together. Be proactive yes, but be reasonable about it.

      Managing requires time, effort, and energy. Spending an appropriate amount of time monitoring our investments is good, but too much is unhealthy.

      If being proactive means checking a statement once a month and making some adjustments then I’m game. If it’s more than that then I’d look for another method of investing. Again, this has nothing to do with numbers and everything to do with the heart. I don’t believe that whoever has the best numbers at the end of the day wins with money. Whoever lives a life that glorifies God wins.

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