The Best Strategy for the Lazy Investor

You may not be lazy at all, just stretched for time.  To be an active investor takes effort.  It means hearing about a “great” stock tip and doing your own research before buying.  In the 1990’s when everyone seemed to be a day trader, it was easy to feel left out.  Those who jumped into the market on their own and unprepared however, lost money.

If you have the interest and available time to research stocks and other investments, it can be an enjoyable and challenging activity.  Get far enough in and it can be a part-time job.  If you like the idea of buying individual stocks and managing your own portfolio, by all means take a small portion of money that you are able to risk losing and try acting as your own money manager.  Do remember that trading is not investing.

Why not join the ranks of the average investor and find ways to invest that do not depend on your knowledge and expertise of the market in general, or specific companies and stocks?

Truth be told the “lazy” investor who allocates his or her investments into various mutual funds – especially index funds – can do just as well and have time to coach the kids’ soccer team.  If your investment strategy is sound and you stick to it, you will tap into the expertise of professional fund managers and your portfolio will benefit.

Being lazy does not mean you can set your financial affairs on autopilot.  You still need to make some decisions and analyze your portfolio from time to time.  Even the laziest investor can manage the process and build wealth.  Here are the key rules for the lazy investor:

Start early.  The younger you are the longer the time horizon you have.  If you feel you have already lost time, get moving.

Set some goals and put a time frame around them.  Be specific.  This is where even the lazy investor has some work to do.  It is not enough to say you want enough money for college tuition for your kids or money to retire.  Get a number attached to the goal and the time you need to get there: $100,000 in 20 years for X.  If you can envision it you can get there.  Plenty of calculators can be found on the Internet to see how much you will need for retirement. 

Determine an allocation formula for your portfolio.  Your portfolio may include several accounts; your 401(k), a spouse’s retirement plan, a fund you started at a broker and a few IRAs.  While not all in the same place, they should all be invested to follow your formula.  This is the reason that many people seek the advice of a financial advisor – they want someone else to do this.

Use index funds to help allocate your portfolio.  Index funds are an ideal way to get returns that match the market over time.  They are ideal for the lazy investor who wants to be in the market, be invested in particular market sectors but does not want make the stock selection his or herself.  Learn more about index funds and exchange-traded funds.

Dollar cost average.  A monthly plan to put money into index funds on a regular basis is an ideal method to build wealth.  In doing this you are using dollar cost averaging as your investing strategy.  Putting a fixed amount at a fixed time into an investment will let you pay an average price that is lower than the average price of the security at the time.  Why?  Because when the share price is lower, you buy more and when the price is high you buy less.

Tags: investing, investments, stocks

This entry was posted on Thursday, May 7th, 2009 at 3:11 pm and is filed under Money Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.