Mutual funds are profoundly boring, although their ETF cousins have been known to be a little saucy. As an investor, you probably have a vague feeling that by buying mutual funds, you’re performing the financial equivalent of buying a pink tract home and driving the same car to the same factory job as everyone else in the neighbourhood.
In fact, as a planner and former investment advisor salesperson – even one whose pretty self-assured, if I do say so myself – I sometimes wake up in the middle of the night and worry that no one will ever hire me again because I recommend mutual funds and everyone wants to invest in gold and Bitcoin ETFs and the Facebook IPO and….*
…and you can see where this is going. (It’s going here, in fact.)
I’m going to say something unfashionable, but by no means original: if you’re looking for excitement in your investment strategy, you’re looking in the wrong place. Go get a hobby.
It matters how you invest your money, but it matters more that you invest it at all, full stop. It’s easy to get so lost in the array of investment choices laid in front of you that you develop a burning case of analysis paralysis and refuse to settle for anything but The Best Investing Strategy Ever, holding onto (or worse: spending) your investment dollars until you’ve found a surefire way to make the absolute most amount of money on every dollar you save.
That strategy, The Best Investing Strategy Ever? It doesn’t exist. The only way to know absolutely that an investment strategy is “the best” is if you have a door in your closet that leads to alternate universes, where every possible combinations of market events has a chance to happen and then be compared, and one particular strategy makes the most money every.single.time.
Therefore: ignore the niggling doubt in the back of your mind that simple, low-cost index investing is too simple for you. It’s not. It’s the cheapest, most reliable way for average investors to buy a few well-diversified pieces of the market month by month. Many people much smarter than me have already made the case for index investing, and I’m not going to pretend that I can make it better than they can (today, anyway.)
Of course you’re not going go running to the bank to buy mutual funds; all they can sell you is their line of branded mutual funds, and just because RBC’s Canadian Index Fund tracks the S&P/TSX Composite best, it doesn’t mean the RBC International Index Fund track the MSCI EAFE best. Or for the lowest management fee, which means that unless you’ve got yourself a Bankosaurus Rex, or until embedded commissions are banned, the bank will be leaning on him heavily to talk you out of buying index funds.
The reason so many mutual fund investors are buying through the bank is because it seems so much less intimidating for an expert to make the trades for you, doesn’t it? Less chance of a mistake that will wipe out your savings because you accidentally typed in the wrong fund symbol, or something, right?**
Permit me to cheerlead: you can do it. It’s not hard, there are multiple confirmation screens, and the phone is right beside you. There’s got to be someone you can call (coughmecough) to walk you through it, or a book you can read (I whole-heartedly recommend (UPDATED) The Value of Simple that can push your confidence just over the line just far enough to pull the trigger.
*Actually, I only wake up in the middle of the night if one of my three monsters kids wakes me up. Other than that, I sleep the sleep of the righteous and boring.
**What? You think bankers and mutual fund reps don’t make mistakes? It is to laugh. Ha.