The following article was published on HumbleDollar.com, which is an excellent website run by a giant in the personal finance journalism space, Jonathan Clements. I have a few upcoming pieces that will appear on HumbleDollar (and will republish them here after receiving Jonathan’s permission). The first two articles both deal with index funds and are my take on why they make sense for the vast majority of Americans.
MANY PARENTS assume that what counts are the big events, such as graduations or elaborately planned vacations. But I’ve always found that the best moments in life weren’t necessarily the ones circled on the calendar.
The stock market is a lot like family life. Forget trying to figure out the ideal moment to get in or out of the market. Instead, what really matters is the time spent sitting around in stocks.
Jerry Seinfeld affectionately calls his mundane interactions with his kids “garbage time.” He prefers that label to what most parents aim for—the impossible-to-meet “quality time” standard.
Seinfeld elaborates: “I’m a believer in the ordinary and the mundane. These guys that talk about ‘quality time’—I always find that a little sad when they say, ‘We have quality time.’ I don’t want quality time. I want the garbage time. That’s what I like. You just see them in their room reading a comic book and you get to kind of watch that for a minute, or [having] a bowl of Cheerios at 11 o’clock at night when they’re not even supposed to be up. The garbage, that’s what I love.”
In my experience, Seinfeld is absolutely right. I have found that taking my kids on an expensive vacation was not time—or money—better spent than the cumulative hours walking our dogs in our local park as a family or driving them to and from soccer practice.
Ryan Holiday, one of my favorite writers on the topic of inner reflection, points out that an elaborately planned vacation won’t deliver the expected happiness if you’re so consumed with everything going right and with taking the perfect pictures throughout the trip. He echoes Seinfeld’s premise, saying that some of his best memories with his family were not the actual vacation, but when the plane was delayed and everyone was hanging out in the airport. That’s true quality time, where you really get to enjoy one another.
There’s a parallel between the importance of “garbage time” in one’s personal life and the ordinariness of index-fund investing. In fact, there’s a well-worn saying among index-fund disciples that, “It is time in the market—not the timing of the market—that makes you money.” One example: If you missed the stock market’s best 10 days since 1980, your returns would have been more than halved.
We mistakenly think we can jump in and out of the market based on the stock market’s expensive price-to-earnings ratio or geopolitical events, but the data show otherwise. This current bull market has done nothing but climb the proverbial “wall of worry” to become the longest in history. Even events like war are unpredictable when it comes to market returns. Ben Carlson recently pointed out that, during the two world wars, the stock market rose a combined 115%, though both had significant selloffs at the outset.
Our search for easy answers can be seen in magazine and internet articles that promise “13 Money Hacks to Turbocharge Your Investments” or “5 Ways to Spend Time with Your Kids When You Have No Time.” These headlines work because many people are rushing to get to the end, rather than enjoying the journey. While I don’t want to cast aspersions on those grinding it out to make ends meet—on the contrary, I have deep admiration for the American middle-class work ethic—I find these short-term strategies often end up setting us back.
In the market, as in life, hacking one’s way to anything can mean missing the most important opportunities. One of the best things about index-fund investing: It also allows us to spend more “garbage time” with those we love, rather than obsessing over market research and returns. This has an important compounding effect. Whether it’s money or family, “garbage time” is when we get the best return on our investment.