There are some who try to time the market, and there are others who just sit back and let market forces do all the work. There are those that argue out performing index funds is impossible, and there are a handful that says the opposite.
I am an active investor, so you know which camp I belong. However, I’m seriously considering moving all my investments into an series of diversified ETFs and index funds.
The Life of an Active Trader
Unlike most arguments against active investing, I absolutely believe that outperforming the market is possible. I managed to do it and I’m still outperforming index funds. My returns are much higher than the stock market benchmarks.
Unfortunately, it’s also stressful.
Unless you have experienced it, it’s hard to imagine how stressful it is to risk your own money in a volatile market. When you can make or lose 10% of everything you ever accumulated in one day and any wrong move can wipe out your entire net worth, how can you not have pressure?
Active investing, to me:
- Is Stressful and Tiring – You thought the possibility of losing your job is stressful. How about your life savings?
- Causes Sleepless Nights – The Chinese is going to announce the results of its stimulus plan honey. Why don’t you go to sleep first?
- Prevents You from Focusing on Other Aspects of Life – Family? Wait, let me get an update of my stock prices first.
- Can Consume Your Life – Any wrong move can wipe out a huge chunk of money you need to retire on. Shouldn’t you be thinking about it all the time?
The Case for Worry Free Investing
While winning trades always feel good, I’m constantly paranoid. I check my stock positions on the phone constantly and the first thing I do when I wake up is turn on CNBC. When I golf, I don’t think about my putts. Instead, I think about whether Wells Fargo (WFC)’s earning announcement will disappoint.
How great will it be if I can just sit back and not worry about the stock market? Coca Cola (KO) reporting? Don’t care. McDonald’s on fire? Good for them but don’t tell me. With passive investing, you can do that.
You will never outperform the market, but you won’t be poor if your diversified portfolio of investments are well planned. You might potentially leave money on the table, but working and stressing to get it is basically a second (or for some, third) job.