Is it possible to grow your wealth without spending all your time managing it? Many people spend too much time monitoring their investments. Partly because some investments, such as single line stocks, require regular attention. Luckily the lazy investor can highlight investment solutions which do not require constant work and will enrich you!
Although lazy investing and lazy trading may at first impression denote a poor approach, they are meant to highlight a more efficient way of making money. Time is money. If you spend your time checking and worrying about your investments, you are not able to enjoy life. The lazy investor seeks to balance a life where they can trade profitably whilst being free to pursue other pursuits. Its not about trading your free time!
Before aiming to make money, ensure you are not paying out needlessly. The lazy investor’s first stop should be to pay as little tax as the law allows you. Use the various tax breaks the government gives you. First up should be a stocks and shares ISA if you are based in the UK. Other countries will often have similar tax wrappers available. Although initially the saving may seem small, as your account grows, the lazy investor will notice the difference!
In the UK, the government has been encouraging people to save. As a result, you can now shelter up to £20,000 tax free per year in an ISA. It is a ‘use it or lose right’. You cannot add last years unused allocation to this year’s one!
Although spending less than you earn may seem good financial practice, many have got use to expensive habits. Maxing credit cards, going on expensive foreign holidays and buying the latest smartphone are examples! Cutting back on your spending and saving at least 10-20% of your salary each month will see your assets rapidly increase! Compounding is one of the great wonders of the world. If you save each month, you will soon see the benefit of re-investing your earnings.
When Warren Buffet speaks, most listen. When he is proven right, many follow. In 2007 Buffet bet that a simple market tracker would outperform managed funds and was proven right. There will always be room for stock picking in specific investment strategies. Yet the ability of trackers to outperform the majority of humans is becoming increasingly hard to ignore. The lazy investor should buy trackers due to their low-cost and ability to outperform humans. They also require little ongoing work. Check them a couple of times a year – we are not suggesting becoming a complacent trader.
When buying trackers, the lazy investor should consider some diversification. Spreading your holdings over your home country’s main market index and other major ones is a good idea. For non US-based investors, it is useful to realise that the U.S. is approximately 50% of world markets. It should therefore form a part of your portfolio. This also means you will have diversified your currency exposure.
Emotional discipline is hard for any investor. But knowing how to detach yourself is important if you want to become the lazy investor. Otherwise before you know it, you will be checking your portfolio obsessively which regularly leads to trying to time the market. Timing the market is notoriously hard and you are better ‘’spending time in the market’’. The longer you are in the market, the greater benefit from re-investing dividends. This allows the power of compounding to take hold. There is method to this madness. If you constantly check your portfolio you will react to events such as selling when the market is crashing. The stock market’s best days are often the day after their worst ones. It’s therefore often best to do nothing.
Granny stocks such as Shell, BP, Unilever, Vodafone, are part of the FTSE 100 and pay large dividends, (often around 5%+) which can boost overall performance when reinvested. Their nickname comes from being mainstays of many grand-parents’ portfolios. As large companies, they were trusted as unlikely to cut their dividend when they have some poor results. As such many buy and hold them for years, benefiting from the regular (and large) income.
Being patient and controlling our emotions is something that does not come naturally to humans. The lazy investor should consider using a strategy which preaches discipline and is arguably one of the best long-term solutions: pound-cost averaging. Pound cost averaging is a strategy where you invest your funds at regular intervals (such as once a month) rather than in one lump sum. This smooths out the average price of the asset you are buying. For example, if you are buying a main market tracker you will be buying it on its highs… but also at its lows. Over time you will get a better blended price. Novice investors place far too much importance on their ability to ‘time the market’, best to take the randomness out.
Remember it is a marathon not a race! The disciplined trader will have trading success. The one who regularly makes trading mistakes won’t last the journey. If you read the small print of any investment recommendation it usually goes something like this: past performance is no guarantee of future return! The lazy investor should be prepared for volatility and periods of poor performance. The key for the lazy investor to increase their overall wealth is consistent trading. Do not let your emotions dictate your investing, buy regularly in a disciplined manner. In time you will see the fruits of your labour having been able to enjoy the rest of your life!