Editor’s note: I’ll be out of the office for part of this month for a brief vacation. And that time away will force me to change my daily routine. As part of that shift, I may have more quiet time. Less “doing,” more thinking. The possibility reminds me of one of the more intriguing ideas I’ve read in recent years. It’s an idea that seems to fit perfectly with the slow, languid month of August.
As of 2024, passive index funds make up more than 50% of all stock market funds.
That’s welcome news in many ways. When you invest in an S&P 500 index fund, for instance, you gain access to a variety of stocks. You usually reduce your costs. And you can mitigate your risks, relative to owning individual stocks.
Yet, your index fund investment may underperform the very index that your fund follows.
Morningstar reports that, over a 10-year period through 2022, the average fund returned 7.7%. But the average person invested in those funds earned only 6%.
Where do we go wrong?
We spend much of our lives distracted, rushed, stressed.
At times, our circumstances bring out these unpleasant feelings. But in other situations, we make choices.
We may opt for activity over stillness. Or noise over quiet. Stimulation over boredom.
These choices impact how we manage our money. Consistently good financial decisions demand time and space to think.
Stillness, quiet, boredom.
Morgan Housel, in his article “Lazy Work, Good Work,” points out that these pauses can look lazy. They may even feel lazy at first. But listen to how some of history’s most original thinkers viewed this approach:
Albert Einstein said:
“I take time to go for long walks on the beach so that I can listen to what is going on inside my head. If my work isn’t going well, I lie down in the middle of a workday and gaze at the ceiling while I listen and visualize what goes on in my imagination.”
Wolfgang Amadeus Mozart noted:
“When I am traveling in a carriage or walking after a good meal or during the night when I cannot sleep – it is on such occasions that my ideas flow best and most abundantly.”
And Bill Gates regularly traveled alone to a waterfront cottage for “Think Week.” He viewed his time away as “a seven-day stretch of seclusion.” Housel explained that:
Gates would “ponder the future of technology and then propagate those thoughts across the Microsoft empire.”
The difference between your investment return and your index fund’s return comes down to timing.
You may sell your investments too early. Or you buy your investments too late. Either way, things don’t go as well as you hoped. You might even conclude that you’re not cut out for investing.
But what if your investment mistakes merely reflect where else your mind was that day?
Most of the year, our pace rarely looks or feels like August.
Even so, we can use this time to listen to what’s going on inside our head. We can ponder what we need our money to do for us in the months to come.
If you don’t put a strategy in place in advance, you may act at a time of stress or anxiety. But we can prevent that situation when we allow ourselves a few quiet moments.
With less doing and more thinking, we can set ourselves up for good financial decisions in the future.
Suggested Reading
If you found this article insightful, you may also benefit from reading:
About the author: Kevin Mahoney, CFP®
Hi, I’m Kevin. I’m a financial advisor in Washington, DC. I’m also the founder of Illumint, an independent financial planning company in the District that specializes in financial planning for Millennials like you. I empower our generation with the confidence to invest an inheritance, financial gift, or extra savings. If you’re new to Financially Well, welcome – you now have access to the leading finance podcast for Millennials. I encourage you to read, watch, or listen to the ideas I’ve shared about making your money work for you. And then when you’re ready, please send me your thoughts & questions!
