Your Finances Should Be Boring

Everyone wants to learn tips and tricks for getting rich while exerting as little effort as possible. How can we save for a house, save for retirement, pay off debt, and live without sacrificing any of life's luxuries while working at a job we love?

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Plenty of places offer these solutions, too. Invest your money in this, take that job, buy some virtual coins that you can't spend anywhere. It's all so exciting!

But if you want to save and invest effectively to put yourself in the best position possible, you likely already know the best ways to do that. And for 99.99999 per cent of people, day trading cryptocurrency is not one of them.

Do you want to know the secret? It's pretty simple: There is no single, exciting trick out there that will suddenly make you a master with your money. The truth is your finances should be boring.

Why? Because the boring basics are what work for most people. Over and over again, in pretty much every aspect of personal finance.

Boring Strategies Works

First, here's what I'm not saying: To never look for new opportunities that are exciting to you if you have the means, or to trade stocks if that's what you enjoy, or that you should be pinching every single cent you have and never have any fun. If you are at the point in your life where you have enough money to look for new investing strategies, then this article isn't for you. What I am saying is that to build a solid foundation, you can count on basic, boring advice to get there.

To save effectively, you have to start small and make it consistent. You build up the habit, and it gets easier to save over time. How long will it take until it's second nature? Well, that will depend a lot on you and your individual circumstances, of course. Live below your means, automate your savings, don't cut corners. Look, I am bored just typing these words, but it works. Here are some other tips, from NerdWallet:

  1. Increase your savings rate by 1% every six months. Set a calendar reminder to help you remember. You'll hardly notice the difference, and it will really add up over time.
  2. Put 50% of all raises towards savings. You still get to increase your lifestyle, but you do it in a sustainable way.

Of course if you start when you're young, it's easier and more effective, and you can begin squirrelling away a much smaller amount of money than most personal finance sites advise. But you can start anytime you want and still do well for yourself.

I recognise it is a privilege to save at all, in many cases. But even if you are struggling, the boring tactics are the most likely to work: Chip away at a debt little by little, consistently. Set aside $5 per paycheck. It will give you some sort of control as you look for ways to increase your income.

The Best Advice For Saving As Much As You Can

There's one question I hear as a personal finance writer more than any other. It isn't how to game the stock market, or become a billionaire - it's simply how to make a budget work while still saving enough to retire comfortably.

Read more

Again, this isn't to say that these things are easy or intuitive for everyone. They aren't. You have to make an effort to do these things, and sacrifice for them to work. But they are simple and effective.

Likewise, to make the most of your retirement investments, follow a plain vanilla approach: Contribute consistently, and invest in low-cost index funds. Don't pay someone to actively manage your accounts - they aren't likely to beat the market. In fact, in the five-year period ending in 2017, 84.23 per cent of large-cap managers, 85.06 per cent of mid-cap managers, and 91.17 per cent of small-cap managers underperformed the indexes they were set up to beat, according to the S&P Indices Versus Active Fund report, or SPIVA.

When you extend that time period to 15 years, the results are even worse: 92.33 per cent of large-cap managers, 94.81 per cent of mid-cap managers, and 95.73 per cent of small-cap managers underperformed, comparatively. And not only do passive funds typically perform better, but they also cost less to invest in in the first place - added fees won't be eating up your increased returns.

A component of that, as Barron's details, is that actively managed funds "tend to get in and out of an asset class at the wrong time" (this article explains how and why). Individual investors just aren't good at timing the market. So if you have an investment fund, set it on auto-rebalance so you make as few decisions as possible, rather than trusting someone to do it for you, or taking on the burden of doing it yourself.

In fact, it's what billionaire investor Warren Buffett has advised his executor to do when he passes away:

My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors - whether pension funds, institutions or individuals - who employ high-fee managers.

He continues:

Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.

If it's good enough for him, it will probably be sufficient for us.

If you've taken time to read any money content at all, then this likely isn't new to you. We all know these things, but we still don't do them because we think we must be missing something. Wouldn't the grass be greener if we picked the right company to invest in? Surely not all of these products would exist if the simplest strategies worked the best? But the truth is many of those products exist because the financial industry wouldn't make any money if people just did what was best for them. So they add all of these tools and tricks and make things so complicated you need to hire them to sort it all out for you.

Don't be duped by an app that promises to leverage blockchain to make you a millionaire, or a brokerage offering their expertise at the low low cost of two per cent of your assets. Boring works.


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