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.