Why I Invest Like I Do

My post titled Help a Reader: What to Do with a Windfall had an interesting discussion in the comments that reinforced some reasons why I prefer to invest with index funds and not pick individual investments (stocks, binds, etc.) myself. It all started when a reader asked this question of FMF commenter Old Limey:

Just like the original poster, I’m looking to manage my money more; rather than having it managed for me by Fidelity. Is there a good book/website/set of classes that can help me get that experience so I can wean myself off having to rely on Fidelity and trust that they’re making the correct choices for me (either way, they’re getting paid, so they don’t care).

I’ve been following FMF and it seems as though you have the right tools and set of principles that allow you to maximize your returns. For the average Joe, where is a good place to begin learning this process?

Here’s Old Limey’s response:

I have been a subscriber to Investor’s FastTrack’s database since the early 90′s. Its database starts on 9/1/88 and includes about 10,000 mutual funds, ETFs, and market indexes. They also have a database of stocks which I have never subscribed to because I prefer diversified investments over single companies.

The FastTrack database also comes with a very comprehensive charting and analysis program, called FT4WIN that is somewhat daunting to learn how to use but they also have two instructional videos for separate purchase.

The database is updated every market day about 3 1/2 hours after the market closes. Their database is also adjusted for all dividends, distribution and share splits which is particularly essential for income funds.

This package provides you with all of the tools and data that you need to become a good investor. However you can go to Sears and buy a complete set of excellent carpenter’s tools but that doesn’t even begin to make you a good carpenter. There is no substitute for experience, and it takes years of investing and trading to become a very successful investor, and even then some people just don’t invest the time, and don’t possess the abilities or have the interest and dedication that it takes. There is no quick and easy path to becoming a successful investor. This is why the majority of people these days seem to buy index funds and rely on the market to do the rest. That’s OK if you are content with market returns but if you want returns that are way above market returns and that incur drawdowns and volatility far less than the market then you have to manage your portfolio actively, read lots of financial articles, and stay abreast of the many factors that affect stock prices and interest rates worldwide.

That last paragraph is the one I want to highlight. Here’s an experienced investor telling us all that if we want to be good investors it requires a significant amount of time, effort, and dedication. Most people do not have and/or want to put in the time he’s talking about to manage their own investments. I’m one of those