Pasadena Financial Planner -- Pasadena, California | Efficiency of Personal Investing Strategies

Efficiency of Personal Investing Strategies

Step 9 of 10 Personal Financial Planning Steps in the Right Direction

This is one of the “10 Steps in the Right Direction” that make up the Pasadena Financial Planner‘s personal financial planning and personal investment management process. For a summary of these ten steps, see “Your Family Financial Planning.” To find an in-depth article for each step, just click the Sitemap link at the top of this page. Also, you can reach us by using the contact form below, and you can subscribe to our Family Financial Planning Blogs. Please enjoy reading this article. Thank you!

Step 9 – Use time-efficient financial management practices

Time in life is the most precious and perishable asset that any person has. Your time should be spent enjoyably and efficiently. Scientific investment strategies that rely on relatively efficient financial markets allow people to minimize personal time spent financial planning and investment management. Fully diversified, completely passive, extremely low cost, buy-and-hold, set-and-largely-forget investment management strategies deliver superior risk and return with less time and hassle. Such strategies are far more time-efficient and cost-efficient than the financial hamster wheels that the industry has set up for retail investors.

This ten-step optimal financial planning and investment management efficiency process envisions time-efficiency throughout all its phases.

When pursuing optimal financial planning and investing strategies and controlling your costs and capital gains taxes, you also need to establish a time-efficient system to monitor, adjust, and adhere to your financial plan. You need to control and limit the time that you spend on your financial planning, and you need to focus your planning efforts on the most effective activities.

Perhaps the most overlooked aspect of personal investment management is the incredible waste of time. Do-it-yourself individual investors buying individual securities rather than investment funds demonstrably under-perform passive index fund benchmarks — especially as the time period increases. Many people waste a large part of their lives implementing investment strategies that have absolutely no reasonable expectation of doing them any good. Alternatively, they pay active professional fund managers excessive fees to do the same dance with poor results, as well.

Scientifically valid financial management and investing strategies often are more time efficient, largely because they are consistently passive rather than active in nature.

With investing less is more. On average over time, people are exposed to less risk and get better net investment results after investing costs and taxes are considered, when they invest in a globally diversified, passive index fund portfolio that they (or their advisers) do not keep changing. Less is more when you buy and hold and hold and hold a portfolio with an asset allocation that is appropriate for your investment risk tolerance. The financial research literature repeatedly demonstrates this.

The only reasons why the active management “debate” never seems to be settled is that those who make money off of other people’s money keep telling people to do something rather than to do nothing. Doing something always costs more, but there is so much volatility in securities prices that there will always appear to be short-term winners.

While short-term winners will appear to be better and exhibit investment skill, in fact these apparently superior results are far more likely to be just short-term dumb luck. Time sorts apparent skill from real skill. Unfortunately, for the proponents of skill versus luck, the data does not favor skill over luck. The longer the time period studied, the fewer supposedly superior managers there are. Many investors reach the correct conclusion that the emperor has no clothes.

The foregoing does not explicitly measure the time-efficiency of individual investor investing activities. With professional investors, you can evaluate investment performance over time relative to incremental costs and taxes. When this is done in careful investment research studies, investment professionals tend not to look so professional or so valuable after all. However, individual investors tend to be more atrocious investment managers, when they try to do it themselves.

A side benefit of choosing index mutual fund and ETF fund-based investments is to be more time efficient. Index mutual funds and exchange-traded funds require far less personal attention.

Scientifically valid financial management and investing strategies often are more time efficient, largely because they are consistently passive rather than active in nature. It is questionable whether the vast majority of individual investors should own directly any common stocks or individual bonds rather than investment funds.

Most individuals are very poor portfolio managers. Instead, they could achieve better returns with lower risk by owning only index mutual funds and/or exchange-traded funds (ETFs). The superiority of broadly diversified index mutual fund and ETF based investing for individual investors is broadly established in the financial research literature.

Do-it-yourself individual investors make all sorts of investment errors. The result is usually either no benefit or negative results for the effort expended. No sane person would work for an employer who paid them a zero dollar or negative hourly wage, but millions of amateur investors do this to themselves. They keep fooling themselves, because few of them will ever bother to compare their results carefully against a low-cost, fully passive, and totally hands off index fund investment strategy. People waste huge amounts of time and get negative results that they never realize.

When you finally figure out that active investment management strategies just enrich the financial services industry at your expense, you will quickly abandon them.

If you buy and sell individual stocks and bonds, do yourself a favor and fire yourself as an investment manager of your own portfolio. Adopt a low-cost, globally diversified, direct purchase, index investment fund strategy and then leave it alone. Instead, spend your time doing something else that you really do enjoy doing. By not wasting your time inevitably under performing a passive index fund portfolio, you will instead actually be paying yourself to pursue another activity that you really do enjoy.

A side benefit of choosing passive, low cost index mutual fund and ETF fund-based investments is to be more time efficient. Index mutual funds and exchange-traded funds require far less personal attention. Managing a well-diversified, passive index-based portfolio of individual securities is a task that professional portfolio money managers can manage much more economically. The most cost effective multi-billion dollar index investment funds can be managed very efficiently by a small number of skilled professional traders.

Despite the great importance of financial planning and investment programs, people have lives to live, work to attend to, and family and friends to love and play with.

If you choose optimal investment strategies and properly automate your financial tracking and periodic investing to the degree possible, then spending more time on personal finance becomes a matter of choice and not a necessity. Unless financial planning and investing is an enjoyable hobby, which it is to some, there is a significant personal cost to spending time on personal finances. It is important to calculate one’s “effective hourly wage” for the time spent on investment management and to ensure that this hourly wage remains high. Otherwise, fire yourself and hire some low cost index funds instead.

See these financial planning and investment management personal efficiency articles about the value of your time, which are also published on our sister website, The Skilled Investor:


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Financial Planner in Pasadena California


Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101


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(Regarding compensation, I charge solely on a fixed fee or hourly fee for services basis, under a contract that we agree upon. You will not have to pay any asset fees. In addition, in the interest of avoiding any conflict-of-interest, I never accept commissions or compensation of any kind from the financial services industry.)

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