Why do I think simplicity is king in investing?

“Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway.”

If you are my regular blog reader, you should have known by now I invest regularly in ETFs via Interactive brokers. My investing strategy is simple, I hold only three ETFs in my USD portfolio- VWRD, VUSD, and IGLO.

Is index fund investing only suitable for those who are lazy and average? The simple answer is NO. It is rubbish to think that index fund investing is for those who go for an average return. It is a simple strategy and the strategy works if you are aiming for long term return.

Index fund /ETFs Investing in a nutshell

John Bogle of Vanguard in 1976 launched the first world first index fund that tracked the S&P500 index, allowing investors to own a small piece of the largest 500 and so companies in the US. By buying an index fund/ ETF that tracks S&P500, you are basically own a small percentage of every company in the S&P500 index by paying a very small fee.

Therefore, when I buy VUSD, I own a small percentage of the largest 500 companies in the US. Buying VWRD makes me the owner of the best 3700 companies in the world.

I sleep well at night

Yes, by owning ETFs/ index funds in my portfolio, I sleep well at night because I know the value of my ETFs will never go down to zero. If one or two companies in the S&P 500 ETFs go bust, it is still OK for my whole portfolio. What will happen to you if you are an individual stock investor?

Can you imagine how you feel if you are the First REIT or Eagle Hospitality REIT investor at this moment? No matter how good you think a company is at this moment, you will never know what happens 10-15 years down the road.

The chances for you to succeed by owning 500 companies are certainly higher than owning just 2-3 companies. No one can foresee the future. Never bet your money in just 2-3 companies, bet in more than 500 companies instead!

I don’t have to pay anyone

Over the period of 15-20 years, the index will outperform more than 80% of actively managed funds. No matter how good a financial guru and expert tell you he/she can beat the market, don’t pay him/her money to manage your money. You will be better off by just managing your own money. Just follow the simple rules of Bogleheads way of investing! Learn how to allocate your asset and construct two- or three-portfolio index funds.

My headache is gone

Your sanity will only be tested during the bear market. It is easy to convince yourself you won’t sell any of your individual stock during market sell-off until the real day comes! Trust me, you will be panic and do not know the next course of action. You will be having insomnia thinking some of the individual stocks you own might go bust!

Since I know my ETFs will never go bust, actually I will buy more during market sell-off. If I bought my VUSD at USD71 2 weeks ago, I would be very happy to buy it at USD 50 today, wouldn’t I? Yes, my headache is gone for good because I would never have the problems of thinking which stocks to sell and buy during the bull or bear market. My strategy is simple, I keep on buying until I reach my retirement numbers.

Conclusion

I love index fund investing not because it is easy and simple although it is. I love indexing because it works in long term and it saves me a lot of times and headaches.

Trust me, simplicity is king in investing and yes in daily life too!