• Why Passive Investing Feels Wrong but Is Actually Right for Your Portfolio

  • 2024/09/12
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Why Passive Investing Feels Wrong but Is Actually Right for Your Portfolio

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  • https://www.alainguillot.com/why-passive-investing-feels-wrong-but-is-actually-right-for-your-portfolio/ At one point in my life, I worked as a financial advisor. Supposedly my job was to help people manage their finances, offer advice on investments, and guide them toward financial security. However, it didn’t take long for me to realize that the financial industry was heavily tilted in favor of institutions and advisors—leaving the clients, the very people we were supposed to help, at a disadvantage. I saw how complex financial products were often pushed, not because they were in the client’s best interest, but because they generated the most fees for the advisor or the firm. It was disheartening, and it wasn’t the kind of impact I wanted to have. So, I made the decision to leave the industry and became a personal finance blogger, where I could share my ideas and insights without any conflict of interest. My Simple Approach to Investing: The S&P 500 Index I have been blogging now for fifteen years and since then, many friends and acquaintances have come to me with questions about investing. They’re eager to know where they should put their money, and they were often expecting some intricate advice or a secret strategy. My answer, however has always been simple and straightforward: “Just buy the S&P 500 index, don’t trade, don’t watch the news, don’t try to outsmart the market. Just let your money grow over time.” Why This Approach Works The S&P 500 index represents the 500 largest companies in the U.S. It’s diversified, has a strong track record of long-term performance, and, most importantly, it’s passive, which keeps expenses low and avoids triggering taxable events. You’re not trying to beat the market, time it, or chase the latest trends. Instead, you’re simply investing in the long-term growth of the economy. This strategy avoids unnecessary fees, emotional decision-making, and the high risks that come with attempting to outguess the market. History has shown that passive investing in an index like the S&P 500 consistently outperforms most active strategies over time. The Reality: Few People Follow This Advice Unfortunately, very few of the people who come to me for advice have followed through with this simple strategy. Some ignore it entirely, convinced they can pick the next winning stock or sector. Others believe they are smarter than the market and dive into stock trading. Many have been drawn into the excitement of cryptocurrencies, where some have won big, but many have also lost significant amounts of money. The idea of “doing nothing” when it comes to investing seems too counterintuitive. As humans, we’re often wired to act, to make changes, and to react to every piece of news we hear. It’s difficult for many to accept that, sometimes, the best course of action is no action at all. The Long-Term Results Over time, I am almost certain that those who have taken my advice—putting their money into a simple, passive fund like the S&P 500—have done much better than those who thought they could outsmart the market. Those who stuck to a straightforward strategy have avoided costly mistakes, high fees, and the stress of constantly managing their investments. Investing doesn’t need to be complicated. Sometimes, the simplest strategies are the most effective. If there’s one lesson I hope more people take from my experience, it’s this: In the long run, the market rewards patience and consistency far more than it rewards excitement and risk-taking.

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https://www.alainguillot.com/why-passive-investing-feels-wrong-but-is-actually-right-for-your-portfolio/ At one point in my life, I worked as a financial advisor. Supposedly my job was to help people manage their finances, offer advice on investments, and guide them toward financial security. However, it didn’t take long for me to realize that the financial industry was heavily tilted in favor of institutions and advisors—leaving the clients, the very people we were supposed to help, at a disadvantage. I saw how complex financial products were often pushed, not because they were in the client’s best interest, but because they generated the most fees for the advisor or the firm. It was disheartening, and it wasn’t the kind of impact I wanted to have. So, I made the decision to leave the industry and became a personal finance blogger, where I could share my ideas and insights without any conflict of interest. My Simple Approach to Investing: The S&P 500 Index I have been blogging now for fifteen years and since then, many friends and acquaintances have come to me with questions about investing. They’re eager to know where they should put their money, and they were often expecting some intricate advice or a secret strategy. My answer, however has always been simple and straightforward: “Just buy the S&P 500 index, don’t trade, don’t watch the news, don’t try to outsmart the market. Just let your money grow over time.” Why This Approach Works The S&P 500 index represents the 500 largest companies in the U.S. It’s diversified, has a strong track record of long-term performance, and, most importantly, it’s passive, which keeps expenses low and avoids triggering taxable events. You’re not trying to beat the market, time it, or chase the latest trends. Instead, you’re simply investing in the long-term growth of the economy. This strategy avoids unnecessary fees, emotional decision-making, and the high risks that come with attempting to outguess the market. History has shown that passive investing in an index like the S&P 500 consistently outperforms most active strategies over time. The Reality: Few People Follow This Advice Unfortunately, very few of the people who come to me for advice have followed through with this simple strategy. Some ignore it entirely, convinced they can pick the next winning stock or sector. Others believe they are smarter than the market and dive into stock trading. Many have been drawn into the excitement of cryptocurrencies, where some have won big, but many have also lost significant amounts of money. The idea of “doing nothing” when it comes to investing seems too counterintuitive. As humans, we’re often wired to act, to make changes, and to react to every piece of news we hear. It’s difficult for many to accept that, sometimes, the best course of action is no action at all. The Long-Term Results Over time, I am almost certain that those who have taken my advice—putting their money into a simple, passive fund like the S&P 500—have done much better than those who thought they could outsmart the market. Those who stuck to a straightforward strategy have avoided costly mistakes, high fees, and the stress of constantly managing their investments. Investing doesn’t need to be complicated. Sometimes, the simplest strategies are the most effective. If there’s one lesson I hope more people take from my experience, it’s this: In the long run, the market rewards patience and consistency far more than it rewards excitement and risk-taking.

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