Passive investing: How to get rich by being lazy
🔸 Plus: Superdry is suing Manchester City FC 🔸 Elon Musk thinks the Dutch aren’t having enough babies 🔸 People are buying less food because they’re taking more weight-loss drugs.
Hello! Here’s today’s 2-minute guide to demystifying money and making you richer
The secret to lazy investing: Why “passive” investors come out ahead.
Elon Musk thinks the Dutch aren’t having enough babies.
Superdry, the clothing brand, is suing Manchester City FC.
The chair of NatWest said, “I don't think it's that difficult at the moment” to buy a house. Oh, mate!
McDonald’s has seen a “meaningful” drop in sales because of the war in Gaza.
People are buying less food because they’re taking more weight-loss drugs.
Gold mining company Endeavour sacked its CEO for alleged “serious misconduct”.
It’s a good time to book tickets on Ryanair.
Yesterday’s markets
S&P 500: 4,697.24 ⬆️ 0.18%, ⬇️ 0.90% YTD
FTSE 100: 7,689.61 ⬇️ 0.43%, ⬇️ 0.56% YTD
Bitcoin: $43,727.90 ⬇️ 1.04%, ⬆️ 3.33% YTD
GBP to USD: $1.2725 ⬇️ 0.051% YTD
GBP to EUR: €1.1616 ⬆️ 0.70% YTD
How to get rich while being lazy
New year, new benchmark. It’s January and all the banks, investment funds and asset management platforms are resetting their historic results to show how well they did in 2023. It’s a good time to compare strategies.
Spoiler alert: Once again, the laziest investors probably did better than their more active counterparts, meaning that the experts did worse than the market as a whole.
This is one of the most misunderstood — and most common — aspects of investing. Passive investors tend to beat active investors in the long-run. And 2023 was a banner year for the infamous phenomenon.
Here’s how two of the most-watched market benchmarks performed in 2023:
The S&P 500 (an index of big, international companies registered in the US) went up 24.23%.
The Nasdaq Composite (an index of about 3,700 stocks dominated by tech companies) went up 43%.
So how did the professionals do?
let’s look at “the three firms [that] are among the oldest and best-resourced players in the fast-growing multi-manager sector,” as The Financial Times said recently:
Citadel’s flagship Wellington fund gained 15.3%.
Millennium, which has $60 billion in assets, gained 10%.
Point72 Asset Management, a famous hedge fund founded by finance guru Steve Cohen, gained 10.6%.
In other words, any idiot who dumped their money into an S&P 500 ETF or a broad stock fund like the Nasdaq would have had investment returns far, far higher than these experts.
The worst-kept secret in personal finance
2023 wasn’t a one-off. This happens every year. A study by S&P Dow Jones Indices (a company that tracks stocks and offers investments) showed that out of 2,132 actively managed mutual funds, not a single one of them — none, zero, nada — consistently beat the market over a five-year period.
If you passively invest in the market as a whole — via an ETF tracker fund — your returns will be better than those offered by equity fund managers. Most “active” investors — people who pick stocks, buy low, sell high, or otherwise micromanage their investment — fail to beat the market.
The winners are the “passive” investors: People who buy plain-vanilla market-tracking funds.
This is lazy investing, and it is good for you
Don’t try to pick winners. Just buy the market as a whole and enjoy gains that are superior to the professionals.
At Moneyin2, we recommend that if you are more than five years away from retirement you probably want 60% of your money in the S&P and 40% in the Nasdaq (or a tech stock fund that looks like it).
It is true that new investors are often advised to put 60% in stocks and 40% in bonds. But as regular Moneyin2 readers know, that might not be the best strategy for anyone aged under 50. If you’ve got time to wait out the volatility, you might be better off with 100% equities.
Don’t try to time the market and make a quick buck
That’s a good way to get lousy returns, as the professionals showed us in 2023. Again. As long as you are saving for the long run — years, not months — then do the lazy thing: Buy an S&P 500 or Nasdaq tracker, ignore the headlines, don’t sell during the inevitable dips, and wake up years later as a much richer person.
And for dessert …
Elon Musk thinks the Dutch aren’t having enough babies. “If the birth rate stays as low as it is, the Dutch nation will die out by its own hand,” he said on Twitter/X. Be smart: The Dutch will be fine.
Superdry, the clothing brand, is suing Manchester City FC because its team kit sponsor is Asahi Super Dry, the beer. “The differences between Super Dry and Superdry are so insignificant that they may go unnoticed by the average consumer,” the fashion retailer claims. Obvious question: If some people think Super Dry is really Superdry, then why not just enjoy the free publicity?
Howard Davies, the chair of NatWest, said, “I don't think it's that difficult at the moment” to save enough to buy a house. “You have to save, and that's the way it always used to be." Needless to say, given that house prices have risen at double the price of wages since 2000, he was pilloried online for being tone deaf.
McDonald’s has seen a “meaningful” drop in sales after people boycotted the chain because they wrongly believe it supports Israel in the war against Hamas in Gaza. The company made a statement saying it doesn’t take sides.
The popularity of weight loss drugs means people are buying less food. 7% of the US population is now taking Wegovy or Ozempic.
Juicy scandal alert: Gold mining company Endeavour Mining sacked its CEO for alleged “serious misconduct” and an “irregular payment” of $5.9m. The allegations also cover “personal” conduct with colleagues. No details yet but we’re obviously going to get them soon …
Tate & Lyle, the sugar maker, has been added and kicked out of the FTSE 100 six times since 1991 — making it the most added-and-deleted company in the index’s history.
It’s a good time to book tickets on Ryanair. The airline is offering revenge discounts after it was kicked off Booking.com, Kayak, and a couple of other platforms.
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Photos: Jennifer C, Flickr; Ron Reiring, Flickr; Daniel Oberhaus, Flickr.