My brother has a knack for making and saving money. At just 28 years old, he’s managed to build up a sizable net worth – far higher than mine or many other young financial bloggers. If he was involved in the financial blogosphere community, he’d be one of the success stories out there. At his current rate, he could probably be financially independent by his mid-30s (although he isn’t familiar with the concept of financial independence).
What makes his net worth growth really astounding is that it pretty much happened by accident. While he’s always been good at making and saving money, my brother has never been so good at actually knowing what to do with that money. For a long time, he just parked his savings in a regular savings account. When he finally did start investing, he pretty much just walked into a random bank, gave his money to some banker, and asked him to invest it for him. Naturally, that money ended up in expensive, actively traded mutual funds. After all, the banker needed to justify his fees and how could he do that if all he was doing was just putting that money into boring, old, index funds?
I’ve been working on educating my brother about the fundamentals of investing in the last few years. Buy and hold, time in the market, low-cost index funds. These are all financial fundamentals that will get him to where he needs to be.
But every once in a while, my brother will ask me about some hot new stock or weird investment that he heard about from a friend. There’s a reason that these type of investments appeal to him. You see, my brother is surrounded by friends who’ve hit it big through what I call “fancy investing.” This is basically investing in stuff out of the mainstream or investing in ways that stray from what I call the fundamentals (things like market timing, going all in on a hot stock, etc). He’s got more than a handful of friends who are financially independent at 28 years old. Or at least they don’t appear to have jobs or work at all.
From what I know, one friend of his turned a couple hundred thousand dollars into over a million by putting it all into Facebook stock a few years back. Another friend is sitting pretty in a house worth well over a million dollars and living off some money he made from individual stocks. This same friend is regularly telling people how smart he is and how dumb everyone else is when it comes to investing. And admittedly, this dude is making us folks who stick to the fundamentals look like boring idiots. Our total market index fund is never going to do whatever it is that he did.
Every time my brother brings up some new hot stock or a weird new investment vehicle, I remind him that investing doesn’t have to be fancy. Just like we should avoid keeping up with the Joneses in other aspects of our life, we should also avoid keeping up with the Joneses in our investing life.
As I keep telling him – ignore the people around you and just stick to the fundamentals.
Ignore The Joneses When It Comes To Investing
It’s hard to avoid the appeal of fancy investing when you’re surrounded by the fancy investing success stories. A quick search of my Facebook feed and it’s easy to see why fancy investing appeals to people like my brother so much. He’s surrounded by fancy investing success stories! These are guys who’ve made hundreds of thousands, and in some cases, millions, by straying from the fundamentals. And with how the market has done over the past half-a-decade, it’s no surprise that some people have made it really big investing in something weird.
That’s not to say that betting it all on one thing is inherently wrong. Most people who make it really big have done so by betting big on one thing. Starting a business, getting an education, etc, are all big bets you’re making on yourself.
But I always have to remind my brother that a lot of the success stories he’s seeing involve people that are coming from a completely different position than he is. One friend, for example, parlayed a couple hundred thousand dollars into over a million by putting it all into Facebook stock. That’s pretty astounding, but then I have to remind my brother that this friend didn’t have to take on any risk himself. Turns out his incredibly wealthy parents gave him a few hundred thousand to do with as he pleased. Of course, you’ll hear about his success. Imagine if he’d failed – we’d never even know that he’d bet it all and lost.
When you see success like this, investing in passive index funds seems so…boring. But a lot of these successes that my brother has around him didn’t have to earn the money that they invested. We did. When it’s your money, you better make sure you invest it right.
Stick To The Fundamentals – It’ll Get You Where You Need To Go
My brother is already leagues ahead of most 28-year-olds. Keeping his investments boring will be enough for him to get to the promised land. He doesn’t need a Facebook or Google in order to make it!
That’s why I’ve been pushing him to invest in boring old index funds. Putting it all into a total stock market index fund should be enough to get him to where he wants to be.
Since my brother is super disinterested in investing, I’ve been recommending for at least a year that he just put his money into a roboadvisor like Betterment and let it handle his investing for him. That way, he can sit pretty knowing that his money is invested properly and not even have to worry about it. I can pretty much guarantee that the 0.25% that Betterment will charge him is far less than whatever his current financial guy is charging him.
The most important thing for someone like my brother to do though is to ignore that money! My brother’s friends like to post about stock market volatility or how the market is too high these days or about how they exited some position just in the nick of time. They’ve been posting this for years. Maybe they’re stock market wizards. But most likely, they have no idea what’s going on, just like you and I have no idea what’s going on.
Fancy investing definitely looks cool. You’ll see people who are making tons of money off something weird and you’ll feel stupid for not doing it too. Don’t let that knock you off your path. Just stick to the fundamentals. Keep costs low. Don’t mess with your investments too much. And let that money grow over time.
Let the fancy people do their fancy investing. You and I can stick to our boring old fundamentals.