The term “Oblivious Investing” is my way of acknowledging the fact that success in investing doesn’t require that you have some brilliant investment strategy that nobody else has ever thought of. It simply requires that you come up with an intelligent strategy and stick with it, even when things get tough.
In short, Oblivious Investing is about:
- Coming up with an intelligent (if unoriginal) investment plan, and
- Ignoring anything that might distract you from that plan (i.e., “the noise”).
Creating the investment plan is easy. Ignoring the noise is what’s difficult.
Coming up with your investment plan:
There’s really only a handful of things you need to worry about while developing an investment strategy:
Asset allocation: the single most important component of your plan. It will have an enormous impact upon both your rate of return as well as the year-to-year volatility of your portfolio.
Minimizing costs: For a young investor, the difference between investing in a fund with an expense ratio of 1.5% and a fund with an expense ratio of 0.2% could be measured in hundreds of thousands of dollars.
Diversification within asset classes: Greater diversification leads to more predictable results. I think most investors would agree that this is a good thing.
For most investors, an Oblivious Investing strategy looks something like this:
- Dollar-cost-average into low-cost mutual funds (index or otherwise), and
- Never sell them until you’re retired and need the proceeds to pay your bills.
Ignoring the noise:
While the plan itself is very simple, the list of things that could throw you off track is nearly endless. A few examples:
Short-term market volatility: It’s understandable that people worry when they see their account values decline. But if you aren’t planning on selling any time soon, you can ignore these price swings and focus instead on accumulating shares.
The financial media: Daily news about stock market performance is just noise. Better to ignore it.
Unscrupulous marketers: There will always be somebody trying to convince you how easy it is to pick stocks or time the market (both of which are far more difficult than they appear). These people are just trying to make a buck off investors’ gullibility. I’d suggest ignoring them.
Notice the pattern?
Over the years, many things will happen that could cause you to doubt your plan. Ignore them, stick with your plan, and you will succeed.
Thank you for this great post that really breaks down the essentials of increasing your chances when investing. I think ignoring the noise is hard to do, but if you can manage to shut out the antics of pundits and “experts”, you are more likely to do better over the long haul. Listening to the noise can so easily result in giving in to panic.