Here’s a cool and wise way of thinking about passive index ETF investing.
A man sows seeds, whether he sleeps or not; those seeds grow until harvest, says the wise teacher. Typical, right? It almost feels like magic, way too easy. But that’s passive investing. There’s no need to complicate it; it’s just that simple: plant the seed and wait; actually, don’t wait, just carry on with your everyday life while these passive seeds grow.
Why passive investing is boring (but works best)
It’s the boring nature of investing that most people can’t cope with. Humans are active by nature; we crave doing something. We can’t appreciate results unless we’ve been busy creating them. That’s why people find more thrill in day trading than in long-term passive investing.
But here’s the truth: you and I are not experts, and we’ll never be investment geniuses like Charlie Munger or Warren Buffett. Don’t even attempt to be part of that genius trio; it makes no sense to pretend we’re on the same level. Most people just want to be healthy; no need to lift weights like you’re entering a bodybuilding competition. Protein whey is expensive; eggs and chicken fillets are just fine if you are not a professional.
Simple long-term investment strategy for busy people
So, what’s the long-term investing strategy for average folks who have other things to do? You see, our schedule is busy; we need to make lunch boxes for our kids, prepare them for school, cook dinner, and perhaps go to the gym if we still have time and strength.
You guessed right, it’s the tried-and-mostly-never-fail boring set-it-and-almost-forget-it approach. Ever planted flowers in the summer and never watered them, then one day got a shock seeing all the bright, beautiful flowers? That’s what passive index investing is like.
Let’s face the truth: most people don’t have the time and capacity to study company financial statements to see which ones are likely to become the next Nvidia. That’s why I suggest we buy the entire stock market, not individual stocks.
In fact, most of the so-called experts get it wrong most of the time anyway, even with all their time and resources. What’s the point of speculating, or should I say, guessing, the winners? You might as well gamble on the slots 😄 or maybe bet on Manchester United winning the English Premier League.
You can do that if you want, but the risk is massive, my friend. If it were the Springboks, it might be a bit more tempting considering how often they win!
Why broad-based index funds actually work
If you buy a broad-based, low-fee index or ETF, you minimise the risk of relying on just one company. In passive investing, the broader the market, the lower the risk, and the longer one holds, the greater the eventual gain and success.
That’s why someone once said the best investors who outperform the markets are mostly the dead. These guys don’t fiddle around; they’re fully passive.
Please don’t die now; I’m not suggesting that! But leave the slow cooker to do the work. Unfortunately, most of us are used to air fryers, and have you ever tried making springbok potjie in an air fryer? It doesn’t cook at all; it’s game meat, tough as the Springbok team scrum. You need a slow cooker if you want to keep your teeth together. Otherwise, you might end up with a massive dentist bill.
Slow-cooker investing: Using compound interest effectively
Slow-cook those investments and add water only occasionally. There’s no need to sit there and stare at the pot; it’ll feel like nothing’s happening. Go catch up with your friends and family. Fishing is an enjoyable hobby while waiting for your ETF potjie.
A hike could do you good, too, since with a slow cooker, nothing will burn. Oh, and perhaps use firewood instead, your potjie might be ruined by Eskom load-shedding. Get your three-legged pot on the fire, it’s the Mzansi way! All I am saying is no need to pause your life, keep on with interesting things in life while buying these low-fee passive funds every single month. This is the advanced potjie cooking recipe and instructions.
This slow, boring process reminds me of TV shows before streaming services. Once you finished one episode, you had to wait until the next week, no binging six episodes at once. Strange how life has changed over the years.
No wonder people struggle with patience. These days, even waiting for a slice of toast seems like an eternity. Compound interest can never be fast-forwarded; it’s time and patience that allow the magic to work.
Time and patience: The key to long-term investment success
Actually, it’s time and leave it alone. Without these two, compound interest isn’t a wonder at all. That’s it: leave it alone. Learn from the passive dead.
Dead people are the epitome of passive; they don’t move, smile, or frown. They’re not affected by financial market volatility.
It’s like planting Proteas. No need to fertilise them; in fact, if you fertilise them, they’ll likely die. You get my point: you can choose to plant roses (stock-picking and active investing) or plant proteas and Aloes (index ETF investing).
And the irony? Proteas and Aloes both flower in the winter.
Sit back and let time do the work
There’s no need to push a vehicle that already has a working starter; it’s wasted energy. Sit back and enjoy the ride. Since there are ups and downs, you will become passive because of the seat belt if you’re tempted to do something silly.
In the world of investing, passive equals better results.
You could say passive investing is really just restrained active investing; it pays to do less. Invest steadily in low-cost index funds and let time do the active work for you.
Passive index investing vs active investing (the real debate)
This is an interesting, yes, divisive debate in the personal finance and investing space. Simple but not that simple.
Should you:
- Put your money in low-fee Exchange Traded Funds (ETFs)?
- Employ the so-called genius who claims to pick winning company stocks for you?
- Or perhaps pick your own stocks because you think you’re smart enough?
For most retail investors, like myself, my friends, and your cousin, the answer is simple: go the passive route. This is my conclusion, or should I say, the available research conclusion.
Moral of this article: do less with your money, and you’re likely to beat your neighbour who has an uncle in the hedge fund industry. No need to be a genius either, you are the right calibre.
Who needs chef training to make scrambled eggs? Yes, investing in passive low-fee ETFs is just that simple. Just watch the stove heat, that’s the fees, and your breakfast will be ready after decades since it’s passive. This is the slowest breakfast ever, but trust me, it will be well worth it, better than pancakes.
In life, most worthwhile things are simple and slow; no need to complicate them.
Trading Time or Buying Freedom 
Leave a comment