In many ways, we are conditioned to believe that anything boring is undesirable. However, in some cases, “boring” can be a good thing. I like to think that investing is one of those things that can be better when it’s boring, rather than exciting. I consider myself a rather boring investor, focusing mainly on index funds and dividend aristocrats. Here’s why when it comes to investing, why boring is good:
“Average” Returns are Adequate
Sometimes, it is tempting to attempt to “beat the market” through the excitement of stock picking or by choosing riskier investments with the promise of a higher return. However, it can be difficult to correctly time the market in such a way as to see dramatic returns. Keeping up with market returns can be quite adequate for most people. Indeed, over time the stock market tends to gain. An index fund can help you keep pace with those returns. Even after you account for your costs, you can usually see returns that beat inflation — and then some.
With dividend aristocrats, I can build up an income portfolio. Additionally, dividend stocks have a good track record of providing solid real returns. These stocks may be boring, but they can provide you with good value, and buying and holding dividend aristocrats can be one way to improve a portfolio.
Exciting Investing Has Its Costs
One of the main reasons I’m a boring investor has to do with cost. The excitement of some of the riskier investments can lead to losses related to those risks. Yes, there are opportunities for growth if you are willing to take the risks associated with investing in certain assets, or if you like stock picking. However, the risk is that it will cost you in losses.
There are other costs associated with exciting investing strategies. When you make frequent trades, your transaction fees start to add up. This can be costly — especially if you don’t end up making enough in gains to overcome the costs associated with frequent trades. You might end up spending more than you wish when you become too involved with the excitement of trading.
Another cost can be your peace of mind. Personally, I like a little more security when I invest. My money personality includes a security-seeking aspect, so I don’t have the emotional risk tolerance to deal with the uncertainty — and the ups and downs — that can come with more exciting investments. Anxiety over how your investments are doing can affect your peace of mind, and can even affect your relationships. If you have the emotional (as well as financial) risk tolerance to enjoy a more exciting style of investing, it might work for you. However, it’s not for me.
Being a boring investor means that I can find investments I am comfortable with, and that are likely to do reasonably well over the long haul. So far, my investments are providing me with adequate returns — I feel no need to chase higher returns. It also means that I don’t have to worry too much about what the market is doing today or tomorrow; instead I can rebalance my portfolio as needed once or twice a year. It’s a style that works for me.
I love this article -absolutely agree that boring is the way to go (mostly)
When I tell my friends that I invest in the stock market they ask me: “what companies?” and “do you have to watch the markets every day?”
Almost everyone is surprised and confused when I tell them I use index funds and buy the whole market – most of my friends have never even heard of funds, even though they are awesome for diversification and ‘boring’ market returns.
That said, I do have some more ‘exciting’ investments too but I appreciate on an intellectual level that they are more risky and might not work out.
Yeah, investing itself isn’t sexy.
The real fun is when you learn how money works. And then it’s all about taking that knowledge and making it work for yourself.
I use whole life insurance policies as my personal bank. Is it exciting?…not really. But I get excited when I think about everything I can do with them in an up or down economy.
It’s almost as if it’s even better when the strategy is bland…because then you can separate emotion from your decisions. We all know how much trouble emotions can get us in…especially when it involves money…
Totally Agree, Miranda!
Dividend stocks are one way to go for boring investing. A diversified value investing buy-and-hold approach is also often boring, and may expand opportunities. I would keep dividends in mind, but also broaden my screener beyond dividend. There have been a bunch of studies that show a boring buy-and-hold long-term approach greatly outperforms an exciting actively traded style.